Government announces massive changes – here is a breakdown of the Government Electricity reforms
Energy Minister Meagan Woods announced sweeping changes to the electricity market – the biggest shake-up for the industry in 20 years.
There are 20 changes to the electricity market and those who use a lot of electricity, who sometimes pay their bills late, or don’t shop around for power, can expect lower power prices as a result of the changes.
But, plans that reward low electricity usage will be phased out meaning that those who rely on gas for most of their power needs, or have home-solar systems could end up paying hundreds of dollars a year more.
No more ‘win back deals’
The reforms include new regulations designed to bolster competition. A key new rule will ban electricity companies from offering discounts to win back customers who have given them notice that they intend to switch suppliers.
Designed to address a key finding in the Electricity Price Review which has found a “two tier market” has developed whereby companies wait for customers to switch before offering them a competitive deal.
This means that Kiwis who have never shopping around are paying a $400 million “loyalty tax” because power companies can wait for customers to threaten to leave before offering them a competitive price.
No more loyalty discounts
Electricity companies have been encouraged under threat of regulation to stop offering special pricing to customers who pay their bills on time.
Energy Minister Megan Woods said that “prompt payment discounts” really amounted to “hidden late payment penalties” to those who didn’t get them. The removal of prompt payment discounts id expected to lower power bills by $45 million overall as bills average out at a lower rate.
No more low user plans
The government plans to phase out the requirement for electricity plans that offer a low fixed daily charge and a higher variable charge for power used.
Low user tariffs are for households that consumer less than about 8000 kilowatt-hours of electricity a year. The plan charges a low fixed daily charge and a higher variable charge for power used.
Around 60 percent of consumers are on low-fixed charge tariffs, but the government has ordered for the plans to be phased out. These homes can expect to lose out to varying degrees from this change, depending on how little power they consume.
The government’s Electricity Price Review said that these low-fixed charge tariffs "unintentionally shift costs to households with low incomes and high electricity consumption".
The effect of the changes depend on how you use power in your home. The phasing out of low user power plans, could mean homes that use less power won’t save as much. For example homes with single occupants, and homes that use gas or solar power.
However, a government study last year found that thousands of homes in New Zealand were on the wrong plan, and being on a low user plan incorrectly was costing homes a whopping $39 million a year. These people would benefit from the phasing out of low user plans.
Better deals for independent retailers
The government is also planning big changes to the way the electricity market operates. New rules are expected to “level the playing field” by forcing large power companies to sell electricity to independent retailers through the wholesale market "at affordable rates".
It is understood the Government is backing a recommendation that would force Genesis, Meridian and Mercury to buy and sell electricity in the wholesale market at an agreed spread.
"Right now, our electricity system is dominated by a small number of big 'gentailers' – companies that generate and sell electricity," Woods said.
"It can be too hard for small and independent retailers to compete and survive, meaning fewer choices for consumers and less innovation in the market."
What does this mean for power customers?
These changes could mean big changes in the power market, and it will be interesting to see how power companies respond to them. It looks likely that there will be some competitive deals and new plans headed out way.
This is a key time to take control of your power plan and make sure you know the options available to you. As we wait for the changes to filter through, this could be a good time to compare power plans and sign up for a no-fixed term contract so you have the option to switch in the future.