Dialogue: Poor, thrifty penalised by fixed power costs

By JEANETTE FITZSIMONS*

Electricity supplier TransAlta has hit a nerve. It's that nerve that sends out urgent signals when you think that someone much bigger and more powerful than you is ripping you off.

When people realised TransAlta had just doubled the fixed charges on their electricity bill simply to keep their electricity connected, they stampeded towards other suppliers like lemmings.

That'll show them, we all thought. They can't muck around with us just because we're small consumers - the poor, the thrifty, the environmentally conscious.

The big power users - the ones with heated swimming pools, floodlights, electric central heating and all the appliances - are much better off under the new system, as the price per unit has gone down, so they just turned up the central heating and stayed put.

Yes, we showed them all right, the little people socking it to the big guys for once. But hang on a second - what if the big guys are smarter than we figured? What if they wanted us to switch to their competitors? What if they decided to change their pricing structure because they wanted to lose the small fry, and poach the bigger customers of their competitors - the ones they make more money from?

And that is the paradox at the heart of a competitive electricity industry. It's in the suppliers' interests to sell more electricity, and they will set their tariffs to make sure they do. But the best outcome for our country is not, of course, that we all use more electricity. The best outcome is that we use energy as efficiently as we can, and that everyone can afford enough energy to meet their basic needs.

Most of us depend on electricity for heating, cooking, washing, lighting - in a word, for survival.

I've heard stories of pensioners going to bed at 6 pm because they cannot afford to pay for heating. With TransAlta's new daily charge ($1.24 before they turn on the first light in some areas), they are now paying nearly three times as much per unit of electricity as a heavy user.

Higher fixed costs also work against those who use energy as efficiently as possible. Insulating the water cylinder or a draughty ceiling, or installing a solar water heater or compact fluorescent lights, will take longer to pay for itself. Cutting consumption back by 20 per cent will save much less than 20 per cent of the bill.

In short, the incentives are in all the wrong places.

More electricity use means higher greenhouse gas levels. The Government has made international commitments to reduce our greenhouse gas emissions to 1990 levels, but already we are one-third above that level. According to the forecasts by the Ministry of Energy, things are going to get rapidly worse in the next decade.

The biggest threat to our Kyoto commitment is the projected reliance on coal-fired electricity by 2020. Unless we cut our electricity use significantly, we haven't got a hope of meeting our emission targets.

And unless all countries round the world meet their emission targets, climate change will continue exponentially - with dire consequences for the planet.

While we can't expect a commercial firm to take these big-picture factors into consideration when they set their prices, the situation we're in now is entirely due to Max Bradford's 1998 electricity reforms, which tried to squish the household energy market into a competitive commercial framework.

The Caygill report into the electricity sector, released in June, offered no solutions to this dilemma. In fact, the report proposed allowing fixed costs to rise further, up to 25 per cent of the average user's bill.

What it failed to mention was that this would be well over 50 per cent of the bill for the poor and the thrifty user.

I've been arguing for some 20 years that we should get rid of fixed costs for households that are the main residence (baches should still pay something for maintaining the lines during the months they don't use them).

Zero fixed costs might sound a bit radical at face value, but turn this around for a second and think about how we pay for petrol. Imagine turning off the highway into the petrol station and stopping at the barrier, fumbling for the $10 entry fee. Pulling up at the pump, you fill up of course - with petrol only 50c a litre, you would be crazy not to. You notice the V8 Falcon that pulls into the next pump has twice as big a tank, but still pays the same $10 entry charge. Might dispense with the little Mazda soon and buy a bigger car - since the more petrol you use, the cheaper it is.

We don't, of course, sell petrol this way, and if the service stations tried, there would be an outcry. Yet this is the way we have always had to buy our electricity.

To change the pricing structure Government must regulate. No country in the world expects a totally unregulated electricity market to work. We are fooling ourselves if we continue to believe that competition will magically achieve the best possible outcome for consumers if you are the sort of consumer no one wants.

The new Energy Efficiency and Conservation Authority is using taxpayer money to help consumers use energy more efficiently, and to promote renewable energy. The intention is to make the economy more efficient, homes warmer, people healthier and greenhouse gases less.

It is being undermined by a competitive market that is pricing electricity to do just the opposite.

The Government's policy response to the Caygill review is the big opportunity to strike a blow for fairness, the economy and the environment by outlawing fixed charges for permanent homes and to require power companies to supply all connected households who wish to buy from them.

* Jeanette Fitzsimons is co-leader of the Green Party.