Scrapping low use power plans will see many paying more for electricity
Low power users to be hit hardest by changes.
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.
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.
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.
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.
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.
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.”
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.
Am I right in understanding this article to say that the previous maximum daily charge was 30c/day and the new maximum low fix charge will be 60c/day because Mercury have doubled mine from 33 cents to 66 cents - is this even legal?
My family and I are affected by this price hike, both our electricity and gas has been put up. We are with Nova. I cannot understand this Government. The cost of living is so expensive in NZ and they decide to do this. My bill for the month of April would have been $200 under the low user scheme, but is $250 under the new pricing. My family is able to absorb this increase in price, but I feel for those who are on smaller incomes. Come on NZ Government, look after your vulnerable! Also, I'm not sure I agree with the comment in the article about households using less power than 20 years ago. Would like to know a bit more data about how this conclusion was reached.
I can barely afford power now. By the end of the increases every cent will be spent on line charges with little left for power. This is a vote changer for me.
A much fairer charging regime, which also rewards low use and penalises high use would be to :-
• Scrap the fixed charge and charge only for the KWh electricity used.
• Increase the charges for KWh to recover the total of what was being charged for via the fixed charges.
• Introduce a minimum monthly invoice, set to a rate that will not increase the total monthly invoices for an average low user, I guess something like $90 to $120 per month.
The monthly minimum will mean holiday homes etc will pay for having access year round while may infrequently use much electricity.
Of course, the rate per KWh will increase to recover the fixed rate fees, but this will be a better incentive to reduce electricity use, and the large users will pay more while the most in need low users will not be penalised. An average user should be about the same as now. It should also make the cost of Solar panels for viable.
Like most people I am not happy with the power increases at all. I am a low user and of the senior variety. Last winter I did not use my heater at all because of the cost, it was hot water bottles and bed earlier than usual. My point is really, so we get an increase in our super payments, we get winter payment allowance and that all seems to go on greatly increased prices for just general living, not fun for sure.
Oh and I check PowerSwitch regularly so will be logging in when updated to see if I can get less expensive power, currently with Mercury.
This is outrageous.
So, people who have bad habits and who waste energy are to be rewarded by having their usage subsidised by those of us who are more responsible.
Disgusting.
We all know who these people are, and once again the government will force us to subsisidse the dregs and loafers.
My biggest pet hate about power retailers is their blatant attempt to hide the real price of their plans by omitting GST, and Consumer, you've done this in the article. The daily charge that we pay isn't 30c, it's 34.5c ($126/yr), and the top rate by 2026 isn't $1.80, it's $2.07 ($756/yr), so an increase of $629. Over the next 4 years we will be paying an extra $2,119 on our power bill, just from the increase in line charges, and that doesn't take into account the increase in unit cost. That is going to push out offsetting our solar upfront cost by 2-3 years. It's also going to impact the savings we'd planned when buying an EV, and when RUC is introduced in 2024 and adds another $2000/yr to the running costs, going green doesn't appear to be so appealing any more.
GST is a retail tax. All domestic power charges should be gst inclusive - those who legitimately claim the gst content as an input can work out the exclusive price themselves; they are a minority.
We're a low user and I am concerned about the fixed rate increase as it will affect us at a time when inflation is rising particularly the price of fuel. We live rurally and have no public transport to provide an alternative.
My concern with the reliance on power is the possibility of power cuts as happened last year on the coldest night when demand was higher than supply.
I am one of the low usage group, & take active measures to keep costs low so fixed income can go on other things - I liked that fixed charges were low so I could do that. However, I do understand that reliable infrastructure needs to be paid for and that benefits low users. I still would have installed the ultra low emission log burner a couple of years ago, but the cost recovery calculation is now way longer for that. As it has a cooktop it still will help keep power use lower in winter while providing all heating - still better than the cheaper heatpump, and will operate during power outages, so "cost recovery" is not the only metric. Possibly the winter heating payment for beneficiaries might take this increase into account - fingers crossed!
The daily charge by Mercury is 33.33 cents per day .Advised me the charge is going up to 66.66cents per day .
Like to know where Consumer is getting the info that 30cents is the maximum charge .
Comment please consumer .
Thank you Kevin Fox
Hi Kevin. It's 30 cents plus GST.
retailers have the control of the rates charged the distribution companies set the cost of electricity distribution, daily supply rate, variable usage rate, your retailer can adjust their rates accordingly , I am on a low user plan and I logged into my retailers web site, applying GST my april electricity bill will increase by 5%, Changes should be made to the variable usage rate.The consumer report is a good break down of the Low User rate.
Bern Sommerfeld Energy Chair (off board) GREY POWER NZ Federation inc
This is a good move for NZ. About 1/3 of elctricity costs are for the lines and current pricing doesn't reflect that. Low users, especially those with solar power, use little energy (kWh) so don't pay for the cost of having lines that enable them to use power in winter. It's really important that the price signals are correct in a market. We don't give cheap butter to people of low income and we should give away cheap power. There need to be other mechanism to support those who can't afford it.
I’m a single person, out of work due to redundancy, living in Dunedin. I’m with Mercury who have advised my that my fixed charge will go from 33.33 cents to 66.66 cents in April, and the variable rate raises from 24.98 cents to 25.22 cents/KWh.
I have been with Mercury for many years. They are so much cheaper than the previous supplier, Contact Energy.
Living alone, I use less energy. Furthermore I have invested in insulation and Heatpump technology to make my use as efficient as possible. That said, the further south one is, the more heating costs. Why did nobody consider regional differences? Surely low usage is something to be encouraged as we add new ways to use energy in the future (such as e-transport).
This is so unfair for young people, old people, single people! I accept that aspects of the power infrastructure have suffered from under-investment….so OK…some increase in fixed charges is inevitable. However, increasing both fixed and variable charges will have an excessive impact on the very folk who can’t afford it.
Previously, I’ve found powerswitch to be less than useful. Because I use relatively few kWh, expected savings from jumping to other suppliers seem low, but it’s so difficult to compare because customers seem to get a range to loyalty discounts that aren’t taken into account. In my cases, I’ve assessed the ‘savings’ from moving away from Mercury, may not be as much as the discounts I currently get. Of course, once these changes come into effect, this may change.
I hope Consumer NZ make submissions to the relevant bodies regarding this issue.
Steve
switched to genesis from Nova locked in for a year genesis are not increasing daily rate at this stage
. With 11% discount works out cheaper than Nova
fixed for a year with Genesis.
They also have a much better web site where you can see elect usage on a hourly basis
I moved from Scotland to NZ 15 years ago and was surprised at the lack of solar panels on roofs. There would be way more panels on Scottish roofs than NZ with way less sunshine. Surely it is better to use roof space rather than agricultural land for solar panels? I know the Scottish government did subsidise installation, that has now changed to an interest free loan and surplus power is sold back to the grid. I don’t have solar panels because the installation in NZ is so expensive. If the cost of purchase and installation wasn’t so prohibitive, I’d have solar panels, and ideally storage batteries, tomorrow.
We have solar and are generating and feeding back to the grid almost three times what we are using from the grid yet we continue to get penalised by low buy back rates compared to supply rates and now are going to be further penalised for being on a low use plan. It is about time the Govt started to walk the walk and encourage small scale generation which will ultimately reduce the requirement for large scale power generation schemes. Nett metering (what you produce is offset against what you use) is widely offered overseas and is a strong inducement to install solar yet I am told by the power company that it is actually illegal in NZ. It shouldn't, but institutional Government stupidity never ceases to amaze me.
It actually costs your local lines company pretty much the same to supply your house whether you use almost no electricity or lots & lots. The fixed costs are hugely, vastly greater than the variable costs, so the 'Line Charge' on my electricity bill ought logically to be a fixed amount, and not recovered from the per-kWh usage charges.
The 'Low User' tariffs were a misguided attempt to encourage people to use less electricity by providing artificial incentives - through an inflated per-kWh price - for reducing usage.
It was bad economics when it was introduced and is still bad economics today
I think the Government should have lowered the Low User limit. If it dropped to something like 4000 units, it would still help the people it was originally intended to help. I'm optimistic that innovative power companies will create low user plans for the lowest users.
We’re on a standard user plan with Nova and have been informed that our daily fixed charge is going to increase on 1 April from 75.781c per day to $1.77 (both excluding GST). This is an increase of 162% and will cost us an additional $424.86 per year (including GST).
How is this possible? And how are power companies allowed to get away with showing prices to householders that exclude GST? It’s not as if we can claim it back.
We're also with Nova. Our exGST daily rate is going up from 154.711 to 168.75 cents. Not too bad, but our kWh rate is skyrocketing....
Currently exGST 14.229 cents, it's going to 20.518 cents! Call it a 44% increase!!
I suggest you change power supplier asap
We've just switched to solar, and we set a budget that would mean we would offset the up front cost in 13 years, but the government's changes mean that will be pushed out a lot further. It seems that it will also bit EV owners of which we are one, because we are on an EV plan with a cheap over night rate. The move by the government appears to be completely counter intuitive with the requirement to reduce our green house gases. With the increase of power prices, and the introduction of RUC in 2024 driving an EV could choose more than an economical petrol car
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