SEANZ welcomes phase out of LFUC

SEANZ welcomes the Government’s decision to phase out the Low Fixed User Charge (LFUC) as it has created unfair pricing for electricity, where one group subsidises another.

The Minister of Energy, commissioned the Electricity Price Review in 2019, and they recommended that the LFUC regulations be removed to make fair electricity pricing, especially for larger families and households. 59% of households are on the LFUC.

Simply put, the SEANZ analysis shows impacts are;

• Average consumers, defined as those using between 5,000 and 8,000 kWh of electricity annually will see no or very little impact on their overall pricing
• Consumers using more than 8,000 kWh per year, which is typically larger families, should see a slight decrease in their electricity bills. This addresses low-income, households which don’t qualify for the low fixed charge, as these are subsidising the costs for other households. 

The phasing out process will occur over a 5-year transition.

The SEANZ solar PV/storage forecast, shows minimal impact on the uptake of solar and storage as a result of the phasing out, as it is offset by the technology price drop which continues along with an increase in panel output capacity and increased efficiency. In broad terms, there is little impact on the net effect for most consumers. 

The Media Release from Minister Woods is reprinted below. 

17 September 2021

Power bill changes bring fairness to charges

A key recommendation of an independent panel to make electricity charges fairer across all households will be put in place, the Energy and Resources Minister Megan Woods has announced.

 “Phasing out the regulations on ‘low-use’ electricity plans will create a fairer playing field for all New Zealanders and encourage a switch to electric technologies,” Megan Woods said.

The regulations will be phased-out over five years, starting from 1 April, 2022, with support for households who might be affected by the changes.

Currently, the cost of delivering electricity through lines charges to those on low-use plans is supplemented by other households on standard-use plans. The 2019 Electricity Price Review panel found the low fixed charge regulations are poorly targeted and are not equitable – or fair to everybody – and recommended the change.

During the phase-out, about 60 per cent of households are likely to benefit from lower power bills.

“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 charges, 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,” Megan Woods said.

About 59 per cent 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 fixed charges from those on the lower rates. This change will mean the sector can implement new, fairer pricing plans for distributing electricity.

“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,” Megan Woods said.

Minister Woods says there are some perverse outcomes from low fixed charge regulations.

 “Wealthier households with low fixed charges have more options to reduce their power use through energy-saving measures like double glazing, smart appliances and solar panels.

“But low-use households who are also low-income households can under-heat their homes to save on power bills because their variable rates on electricity use are high,” Megan Woods said.

“High variable rates also discourage households from switching from higher carbon technologies like gas heating, to low carbon technologies like EVs and heat pumps.

“Cleaner, low emissions technologies are important for achieving our goals to have net zero carbon by 2050. We need regulations that make it easier for people to switch from fossil fuels to electric alternatives, not harder,” Megan 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. Details on the scheme are being finalised.

Meanwhile 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.

Visit the Ministry of Business, Innovation and Employment webpage for more information.