Inflation Nation: Why some power bills are set to increase

Power users should brace for another spike in their electricity bills as new pricing kicks in for some.

Last September the Government announced the phasing out of "low-use" electricity plans following a two-year review of electricity bills.

The move is intended to help low-income families that were previously subsidising the bills of more efficient households.

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 phase-out will happen over five years, starting April 1.

Households currently on low-use electricity plans pay the discounted low fixed charge of 30 cents a day, but this will double to 60 cents a day from April 1.

According to the Ministry of Business, Innovation and Employment (MBIE), the maximum low fixed charge will increase another 30c every April until 2026 when it is $1.80 a day - the same as the standard fixed charge.

From April 1, 2027, regulations will be removed and power companies will no longer be required to offer customers a low fixed charge, the MBIE website says.

However, some of these costs are expected to be offset by a lower variable rate - or charge for power used.

It will be up to each retailer when and how they pass these costs on to their customers.

While the Government expects all households to benefit long-term from the changes, there is uncertainty over the short-term impact during the phase out, including how retailers will structure their pricing plans over the next five years.

Because of this, the Government will conduct a mid-point review of the phase out sometime in late 2023.

Analysis of the impact on households suggests about 60 per cent of all households - about 970,000 households - are expected to have lower power bills during the phase-out.

But around 40 per cent - about 690,000 households - are expected to face higher power bills.

Mercury Energy and Meridian are first cabs off the rank in increasing their daily fixed charge.

But some customers have been caught off guard when their power companies emailed saying their daily fixed charge would be increasing in April.

At an extra 30 cents a day, those could expect to be paying $9/month ($108 a year) more for their power - before any offsets in part by a lower variable rate.

Craig Neustroski, Mercury general manager customer, said after a reduction in the variable rate, Mercury customers could see an increase of around $6.24/month.

"We're very conscious of the impact of price reviews on our customers, and have tried to limit changes as much as possible. Our Auckland customers, for example, who make up the bulk of our customers, will see an overall electricity price increase of around 4 per cent which is roughly in line with inflation," Neustroski said.

Neustroski said the daily fixed charge makes up about 13–15 per cent of a customer's bill, however, lowering the per unit/variable rate partially offsets this.

"By bringing up the fixed charge and reducing the variable charge customers will have more certainty in their bill with less fluctuation between usage in summer and winter which is especially good for budget-sensitive customers," he said.

Of increasing their low fixed charge, Neustroski said: "This is because on 1 April we face increased fixed charges which flow from the phasing out of the Low Use charges. If we were not to increase our fixed price rate from 1 April for our customers on low fixed-charge plans, we would have had to instead increase the per-unit variable rate in order to recover our own fixed costs, such as metering charges.

"This would have in effect continued to increase inequity between households identified as part of the Electricity Price Review which Mercury, most others in the industry, and the Government have wanted to address through the phasing out of low fixed-charge tariff regulations."

The phasing out of "low use" electricity plans follows a two-year review of electricity bills. Photo / 123RF

A spokesperson for Meridian Energy said: "If a customer is on a low-user rate they will see their daily fixed charge increase, and variable charge decrease, on 1 April every year for five years.

"Whether the customer's total annual bill is more or less as a result of this change will depend on their level of consumption. The closer they are to using 8000 kWh per year (or 9000 kWh per year if south of Arthur's Pass), the less they will be impacted by this change."

But not all the major power companies will be passing on the costs to their customers immediately.

In a statement to the Herald, Genesis Energy said: "At this time Genesis does not have any plans to change our residential electricity rates this calendar year."

Contact Energy would also not be implementing the new fixed charges immediately.

"It's something we want to do right, so we're taking our time," communications adviser Leah Chamberlin-Gunn said.

"We are currently in careful consideration on how and when we will make any changes on bills and no firm decisions have been made at this stage.

"We will always give 30 days' notice of a price change so there will be plenty of advance notice of any changes.

"We don't have to change just yet, we can opt in over the next five years."

Having reared its head after more than 30 years, Inflation is set to hit Kiwis hard in the coming year.

Both food and fuel prices have risen to new highs over the past couple of weeks, and ASB estimates these could add an extra $50 to Kiwi households' weekly outgoings.

When the Government made the announcement last year to phase out "low-use" electricity plans, Electricity Retailers' Association chief executive Cameron Burrows said the move "will stop many low-income households subsidising the electricity of better-off families".

Energy Minister Megan Woods said at the time of the Government's announcement: "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."