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Electricity industry, govt need to do more on energy hardship - panel

Tuesday 11th September 2018

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Electricity providers, regulators and the government need to do more to help families struggling to meet their energy costs, an expert advisory panel says.

More than 100,000 households are spending more than 10 percent of their income on domestic energy costs, the group says.

Many are not benefitting from the increased retail competition in the sector, with some also being harmed by prompt-payment discounts which budgeting groups say have become de facto late-payment penalties. The government’s low fixed charge regulations are also “poorly targeted” and are pushing some families into hardship, the panel says in its first issues paper.

Changes coming in the sector, such as greater use of solar and electric vehicles, also risk placing more costs on lower-income consumers if industry pricing models don’t change. And even when they do, the expected move to more seasonal pricing and peak and off-peak daily pricing will also hurt some consumers.

“Targeted social welfare measures can help reduce energy hardship. But it is clearly a problem the industry, regulators and government must tackle together,” the panel said in an overview of its report.

“A more ‘joined-up’ approach is especially needed between regulators and government agencies to address energy hardship – a task in which the industry also has a role to play. Extending the benefits of competition to all consumers would be a good starting point.”

The eight-strong panel, comprising industry experts and consumer representatives, was appointed in April as part of the coalition and support agreements between the Labour, NZ First and Green parties.

Its terms of reference require it to consider whether the electricity market is delivering efficient prices that are fair for end consumers, and whether the existing structures will aid the take-up of new technologies such as solar, batteries and electric vehicles.

Specific issues the panel was asked to consider include reviewing the impact of the low-fixed charge regime, whether suppliers have been able to extract excessive profits over time and whether customers in particular regions or industry segments are being fairly treated.

It will receive submissions on today’s paper from the public and industry before reporting back with recommendations to the government by April.

The panel found no evidence of excessive profits in the sector, but thinks the market for wholesale electricity contracts needs to be improved to reduce the market power of major generators when supplies are tight.

It wants the decade-long debate over transmission pricing resolved in a way that delivers efficient, fair and durable outcomes.

It also highlighted concerns about inefficiencies within some distribution networks, including access to meter data, the small size of some networks and the quality of governance.

Regulation of access to networks is “clearly an area in need of attention” and there may be merit in considering a single energy regulator for the country depending on how New Zealand’s energy mix changes, it said.

The Labour-led government has already introduced a blanket winter energy payment for all superannuitants and beneficiaries. The funds, almost $32 a week for couples and people with dependent children, can be spent on anything and eligibility is not means-tested.

But the government has done nothing to remove the low fixed charge regulations put in place by the then Labour government in 2004. Introduced to encourage conservation, they instead tend to work against large households and heighten complexity in the industry by doubling the number of retail power plans in the market.

Falling domestic power use over time, and greater uptake of solar in recent years, means that about half the country now qualifies for the low fixed charge plans, including many of the country’s most wealthy.

The panel cited data showing residential power prices – excluding inflation – have risen 79 percent since 1990. During the same period industrial prices rose 18 percent, while commercial prices fell 24 percent.

It attributes the divergence to distribution charges shifting from businesses to households earlier in that period; increased generation and retailing charges for households; and GST, which only residential consumers ultimately pay, rising from 10 percent to 15 per cent in 2010.

Fairness may dictate readjusting some distributors’ shared network costs from households to other consumers, the panel said.

But overall it says the industry delivers a consistent, high-quality power supply and ranks highly by world standards. Generation is also 80 percent renewable, but converting the remaining 20 percent will involve “challenges.”


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