Scrapping low use power plans will see many paying more for electricity
Low power users to be hit hardest by changes.
At least 40 percent of Kiwi households are likely to see a jump in their power bills next month as the industry does away with low-use plans.
Those whose power use is very low will be hardest hit. As part of the phasing out, power companies have permission to double the daily fixed rate for low users from 30c a day to 60c a day, which works out to an increase of around $110 over the next year.
And the pain won’t end there. For those consumers currently on low fixed charge rates, prices will continue to rise each year for the next four years. A consumer currently paying 30c a day ($110 a year) for lines charges can expect to be paying $1.80 a day (around $660 a year) in 2026.
Households with gas connections, who therefore don’t use as much electricity, are being hit doubly hard – with their bills already expected to jump by an average of $55 a year over the next four years.
We’ve had dozens of people contact us after power companies started sending out notices telling customers of the hike last week.
What is a low-use plan?
Our power bills have two parts – fixed and variable charges. Fixed charges are an amount you pay every day no matter how much power you use. Fixed charges cover the cost of the infrastructure required – the power poles and wires – to get electricity from the power stations to your house. The variable charge is how much power you actually use.
If you don’t use much power, you’ve previously been able to go on to a low-use plan and pay a low fixed charge of no more than 30c a day. The regulation was brought in in 2004 to encourage energy conservation and help reduce power bills for low-income households.
Why are they doing away with low-use plans?
Household electricity consumption has steadily dropped over the last 20 years - so much so that 68 percent of households are now low users. Over time, fewer and fewer households have been left to pay the standard fixed rate.
The regulations were meant to help low-income households. However, they have had the unintended consequence of penalising many of them. This is because many low-income households have no choice but to use a lot of power – such as those with a lot of people living under the same roof or in houses with poor insulation. These households pay the higher fixed rate, as well as having a big bill for all the power they have to use.
An Electricity Price Review recommended the Government phase out low fixed charges over five years, which is what will start to happen from next month.
Doing away with low-use plans is meant to make it easier for power companies to change the way they charge for electricity in the future as we use more to power things like e-bikes and electric vehicles. It’s also meant to make these technologies more appealing.
When the regulations came in nearly 20 years ago, it was thought conserving electricity was good for the environment. But now we realise it’s not so simple. For example, we know it’s better for the environment to choose eco-friendly technologies such as heat pumps instead of gas heaters, or electric vehicles rather than those powered by fossil fuels. Making green choices can actually increase a household’s electricity consumption. But that’s okay as around 85 percent of New Zealand electricity generation is renewable.
Who will it hit the hardest?
Paul Fuge, the manager of Consumer NZ’s energy price comparison website Powerswitch, said elderly people are the ones who will obviously be hit by the higher rate as they don’t use much power. “It’s a worry because it’s not like they’re getting a pension increase of $100 each year,” Paul said.
People who use both electricity and gas could also be hit from four different directions – we've seen notices that state the fixed rate for both will be going up and some companies are also putting up the variable rate for both.
Others who are likely to be on low-use plans include those who use solar power and people who have been trying to reduce their energy use to save power either for financial or conservation reasons.
Are there any winners?
Power companies are expected to not increase their profit as a result of phasing out low fixed charges. So as the low fixed rate goes up, it could mean the variable rate comes down for low users or it could mean standard users pay a lower fixed charge. But it’s up to power companies how they will manage the redistribution.
The Ministry of Business, Innovation and Employment estimates 60 percent of households will be better off and 40 percent will have higher bills. It says those worse off are likely to be people who use less than 6500kWh a year. The current average household consumption is 7233kWh a year.
How will it play out?
Those who pay low fixed charges will see that charge go up every year in April until 2026. At the moment, the low fixed charge can’t be higher than 30c a day. Next month, that will go up to 60c. So if your company puts its low fixed charge up to the maximum it can, you’ll go from paying $110 over the last year to $220 over the next year.
On 1 April 2026, the maximum will be $1.80 a day, which is $657 a year – or an increase of $547 from what you’ve been used to.
Paul Fuge of Powerswitch said while there was the expectation the change wouldn’t lead to profit for power companies, there was no one checking how the redistribution would be done by each of them until a Government review late next year.
“But we’ll be looking at people’s bills. We’ve got people contacting us already after receiving the letters so we will get their bills and crunch those numbers.”
What can you do?
Currently, our team are hard at work updating our Powerswitch website with the new electricity prices that will take effect from 1 April.
From the notification letters that consumers have sent us so far, we can see the low fixed charges are generally going up by the same amount across the different retailers. But we are seeing a lot of difference in the changes to variable rates for both gas and electricity.
From 1 April, it will be even more important to shop around for electricity and gas plans. Powerswitch is a free and independent electricity and gas price comparison tool that makes the job easy.