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Mid-term Review Of Low-fixed Charges Misses Key Point Of 2004 Regulations

A review half-way through a five-year phase out of electricity price caps must include the harmful impact on energy efficiency, an energy efficiency expert says.

“The terms of reference for the review, published recently, do not at any point mention energy efficiency, which is a major omission.”

“A primary reason for low-fixed charges in the first place was to encourage energy efficiency, so it’s incredible that the harmful impact of removing low-fixed charges on energy efficiency has been deliberately or intentionally excluded from the scope of the review,’’ said Chris Mardon, managing director of Ecobulb.

“MBIE’s terms of reference say that the low-fixed charge regulations were introduced in 2004 ‘in response to concerns about the impact of rising power prices on low-income groups’,” Dr Mardon said.

“While this is true, there were in fact two inspirations for the regulations. The second and equally valid motivation was to encourage consumers to reduce their power consumption.

“The regulations were enacted after a period of fast-rising fixed charges on power bills, as lines companies sought to guarantee and smooth their volatile revenues and reclaim the fixed costs of connecting low users. But the higher daily fixed charges removed incentives to instal more efficient appliances and insulation, which resulted in the government stepping in.

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“The subsequent 2004 regulations capped daily charges at 30 cents a day for roughly half of all households. This meant power companies had to recover 95 percent of their fixed and variable costs from the tariff on energy delivered, which resulted in high per-unit power prices. These artificially high energy charges incentivised consumers to lower their power consumption and therefore save money.

“In this regard the LFC regulations worked extremely well, with per household load gradually falling from 8,000 kWh to about 7,000 kWh – a sure sign that the regulations were encouraging energy efficiency.

“There may be good reasons for removing the low-fixed charge regulations, but any mid-point review must take account of all consumer impacts. One of the most significant consumer impacts has been the disincentive on consumers investing in energy efficiency.

“Electricity lines companies and retailers now do nothing to encourage energy efficiency. With the end of low-fixed charges, neither lines companies or retailers are obligated or incentivised to encourage their customers to save power. This is despite the fact that the Commerce Act specifically instructs the Commerce Commission to incentivise lines company to support energy efficiency.”

Meanwhile the Government has withdrawn the $1 billion Gidi fund, downsized the Energy Efficiency and Conservation Authority, and trimmed other incentives, so there is now no meaningful government or industry support for energy efficiency.

“This is very unfortunate, as energy efficiency lowers power bills, peak demand, energy volumes and spending on network infrastructure. At the very least, the impact of the phase-out of low-fixed charges on energy efficiency must be fully taken in to account in the mid-term review,” Dr Mardon said.

Ecobulb will be writing to the Minister of Energy Simeon Brown to point out that the review’s scope is deficient.

Ëcobulb will also be making a submission to the Commerce Commission on incentivising and obligating lines companies to encourage energy efficiency, when it publishes its default price-quality path draft decision in late May.

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