Time to scrap low fixed electricity rate
Regulation meant to reward low power use but it disadvantages Kiwi households that can least afford it
Right now, there’s a Government regulation making many low income households pay for the electricity of better-off families. It’s called the “low fixed charge regulation”, and it penalises large households with a higher fixed daily rate for power. Kiwis should hope to see it axed when the Government responds to its independent Electricity Price Review this month.
The regulation was set in 2004 with good intentions — the thinking went we should reward those who conserve power and disincentivise heavy users.
But the regulation actually disadvantages households which can least afford it.
For example, a big family in an old, lowquality house with poor insulation and inefficient heating use lots of power to stay warm — they don’t qualify for the low rate, so they pay a $2 daily rate.
By contrast, a well-off couple in a modern, well-insulated home don’t use nearly as much power — their daily charge is only 30c.
If that sounds perverse, it’s because it is. Wealthy consumers who can invest in insulation or an efficient heat pump get a break, and the burden shifts on to low income households living in the poorer quality housing so common in New Zealand.
The ones most in need of relief are
paying more. That’s not right.
Supporting people struggling to heat their home or pay their power bill has been a key focus of the Electricity Price Review and ditching the low fixed charge would help many families.
It’s a good move for the environment too. If we want electric vehicles on the road, it’s senseless to penalise Kiwis for using more electricity at home.
Energy hardship is a contributor to poverty, and the electricity sector is keen to do its bit to help. That’s why we’re supporting vulnerable families through programmes such as EnergyMate, a venture between power companies, lines companies, community groups, and the Government, providing in-home energy coaching and support for families struggling to pay their power bills or keep their homes warm.
Unsurprisingly, EnergyMate is finding housing quality is a key driver of winter power bills for low-income households. We want all families to live in warm, dry, healthy homes with affordable energy costs, and a key part of that is improving our housing stock using insulation, double-glazing, and heat pumps.
EnergyMate has also seen the effect inadequate incomes have on families — and revising the Winter Energy Payment would help low-income households at risk of energy hardship.
The Winter Energy Payment gives $20 a week to more than 1 million people in winter but, if it was better targeted, it could pay the entire annual power bill of 200,000 households. For families in hardship that would be genuinely lifechanging.
However, there are simple changes all of us can make to save on power costs.
The best tip is to see if you’re getting a good deal. Some households can save $200 a year by comparing plans, which is why it’s important to check websites such as Powerswitch (powerswitch.org.nz).
Changing all your lights to LEDs can save $100 a year — LEDs are now cheap enough to pay themselves off in a few months. Shortening your showers by five minutes can save a family of four $1 a day.
New Zealand has a well-performing electricity sector. Our natural resources and strong competition mean our electricity is very renewable and low-cost compared with other countries.
Collectively, we need to find ways to further improve what the sector does for businesses and households, particularly those struggling with energy hardship.
The Government will announce the results of its Electricity Price Review in the coming weeks — and we’re hoping it includes scrapping the low fixed charge, and better targeting of the Winter Energy Payment.