Package of assistance needed for vulnerable power consumers - MEUG

Friday 12th October 2018

Measures to help vulnerable consumers meet their energy costs need to be targeted as part of broader government support mechanisms, the Major Electricity Users’ Group says.

The government-appointed panel reviewing electricity prices is right to focus on those households most needing assistance, but that is more an issue of general hardship than something the sector can fix, MEUG chair John Harbord said.

Bigger electricity retailers have worked hard to give struggling customers more options and there may be more that can be done to ensure all retailers are up to best-practice. But he said the government should avoid seeking “simplistic solutions” to what are complex issues of poverty.

“Any decisions made coming out of the electricity pricing review, I think, need to be looked at holistically as part of that wider package,” he told BusinessDesk.

“What is it that needs to be done to help vulnerable households get on a more secure, stable footing for years going forward?

“That’s not interventions that might change their electricity bill. That is insulating their homes; making sure, to the extent that the government can, that their incomes will actually ensure they can afford the necessities.

“You’ve got to get all that right and that’s not a single intervention in a single industry and that’s complicated. If it was easy governments would have done it a long time ago.”

The eight-strong panel was appointed to assess whether electricity prices are reasonable and whether consumers in different regions and in different sectors are being treated fairly. It was also tasked with considering whether industry and regulatory structures are going to assist, or potentially slow, the take-up of new technologies like solar, batteries and electric vehicles.

The panel’s first report found no evidence of profiteering but affordability was an issue. The panel also saw signs that a two-tier market was developing in which many consumers were not benefiting from the greater choices and better deals available.

MEUG represents many of the country’s biggest industrial processors, including Pacific Aluminium, New Zealand Steel, Fonterra and supermarket chain Progressive Enterprises.

Harbord said the organisation welcomed the report, which showed there are no major issues with the electricity market. It had also “shone a light” on the very real hardship some families face in meeting their energy costs.

MEUG wants to see struggling households get the support they need, he said. But any government intervention should be targeted at those who need it.

While some form of winter assistance makes sense, given that is when demand and prices are typically highest, he said the scheme the government introduced this year is too loose.

“There are people at the moment who are receiving the winter energy payment who fundamentally don’t need it.

“You could take the total budget of the winter energy payment and target it to those who need it and give them a significantly larger payment and that would actually help alleviate some of these issues,” he said.

The Labour Party announced their winter energy package in July last year. It was to pay up to $700 for beneficiary couples or singles with dependent children as of right. Superannuitants were to have to apply, but the scheme approved in December was made automatically available for both groups – increasing the annual bill by about $70 million to $443 million in the current year.

Last month, Vector chief executive Simon Mackenzie mooted using those funds - $700 over 10 years – to deliver lasting savings for beneficiaries by installing solar panels on their homes.

The government has made a lot of the finding that residential power prices had increased 79 percent – excluding inflation – since 1990. It has particularly contrasted that increase with the 18 percent increase industry experienced during that time, and the 24 percent decline commercial users benefited from.

The panel’s August discussion paper spells out the factors that drove those changes, including the removal of cross-subsidies of network charges that historically saw households pay little of their network costs. The past 20 years also included higher gas prices, and increased investment in generation, transmission and distribution.

Harbord said the different customer classes aren’t comparable. Industrial users aren’t connected to the local distribution network and have not experienced increases from that sector. Nor have they and commercial users been impacted by the two increases in GST during the period reported on.

They also have more control of their energy use and pay for power at spot prices so that they can respond to those signals and benefit from changing their usage. Over time more commercial users have gone onto time-of-use plans. Some have also invested in their own generation capacity or have changed their processes so they can be more selective when plant runs.

In contrast, residential users have traditionally paid a flat price and have consumed much of their energy during peak times. They also require more infrastructure to get power to their homes and distribution costs have been the single biggest driver in household price increases since 1990.

Harbord hopes the panel’s final report will unpick the drivers of that increase and those from other parts of the industry.

“I’m not pointing the finger at lines companies. I’m sure there are some very valid reasons for those increases, but you’ve got to understand it,” he said.

“If you are trying to unpick whether people are paying a fair and reasonable price, then you’ve got to ask whether the price increases are fair and reasonable.”

Harbord said consumers have benefited since the 2010 electricity reforms, which introduced an independent, proactive regulator for the sector, increased competition and improved dry-year management.

The residential supply model is also changing rapidly with households starting to benefit from the same options commercial users gained in the past decade.

Retailers like Flick offer households the chance to buy energy at wholesale rates and other retailers are offer stepped prices during the day.

New technology will also change the way households use and pay for power. Solar and batteries are getting cheaper and, when managed automatically, will let households buy power from the network when it is cheaper than from their own supplies, he said.

With technology changing so rapidly, he urged the government to be cautious, given the risk of unintended consequences from any significant interventions.

“Let the market and let technology do its thing,” he said.

“I think we are getting close to a tipping point almost – it will be in a few years.

“In that sense there is not a need for a significant intervention - because it’s about to happen anyway.”

(BusinessDesk)

Comments from our readers

No comments yet