The Government has announced it will axe what it describes as a "poorly targeted" electricity regulation, meaning three in five households could benefit from lower power bills.
Energy Minister Megan Woods said on Friday the Government will phase out the regulations on 'low-use' electricity plans over five years, starting from April 1 next year.
The cost of delivering electricity through lines charges to those on low-use plans is currently supplemented by other households on standard-use plans - a regulation in place since 2004.
The regulation was introduced with the aim of making those who use less than the average amount of power better off. It was introduced in response to concerns about the impact of rising power prices on low-income groups.
But the 2019 Electricity Price Review panel found the low fixed charge regulations were poorly targeted and were not equitable or fair. It recommended the change and the Government has decided to act.
During the phase-out, about 60 percent of households are likely to benefit from lower power bills, Woods said.
The electricity sector is developing a $5 million power credits scheme to help with the transition for some households on low fixed charges who may face higher power bills, Woods said. The scheme is still being finalised.
Cabinet has agreed to a review in late 2023 of the regulation phase-out, to assess any impacts on low-income households and whether additional support is necessary.
"While the low fixed charge regulations were intended to help some struggling households, they can put more of a financial burden on those who don't qualify for low fixed charge," Woods said.
"Particularly larger families and those living in poorly insulated homes who have higher electricity needs and have to pay the much higher standard fixed charge."
About 59 percent of households are now on low fixed charge plans, so that means those on standard-use plans are charged more to make up for the under-recovery of charges from those on the lower rates, she explained.
"Ultimately, this will help the industry to more efficiently manage the load on the network during peak times, avoiding costly network upgrades and helping to keep prices lower for consumers."
Electricity Retailers' Association chief executive Cameron Burrows agreed with the decision to remove the low fixed charge regulation.
"The low fixed charge was a government regulation set in 2004 with good intentions--thinking we should reward those who conserve power and disincentivise heavy use. But it actually disadvantaged households that can least afford it," he said.
"A well-off couple who can afford insulation and a heat pump currently have an artificially low daily electricity charge because it is subsidised by large families who live in low-quality houses who need a lot of power to heat their home and who pay more than they should.
"That's not right, and it's why this change is a good move."
Burrows said removing the regulation is good for the environment too.
"The existing rules provide a major disincentive to switching to an electric vehicle and using more clean electricity to help reduce New Zealand's carbon emissions."
He said most households, including most low-income earners, will be better off from this change.
"Some who are currently on the low fixed rate may see bills increase slightly - for the majority in this situation the annual change will only be a few dollars a month."
The Government came under pressure last month when tens of thousands of properties across the North Island were thrown into darkness after Transpower, the state-owned electricity transmission provider, warned there was insufficient generation to match record-high demand on one of the coldest nights of the year.
Woods apologised for the outage at the time and said she'd been given assurances that it wouldn't happen again.
