MBIE Publish Mid-Point Review Of The Phase-Out Of The Low Fixed Charge (LFC)

The Ministry of Business Innovation & Employment have published the Mid-Point Review of the Phase-out of the Low Fixed Charge (LFC) Regulations.

The review has found that the phase-out is unwinding a cross-subsidy which made bills cheaper for low-users by increasing bills for standard users, resulting in more winners than losers.

The Review concluded more consumers have seen their bills reduced by the phase-out than increased.

Large households, including many low-income households, have seen their largest bill decrease as a result of the phase-out. Approximately 45 per cent of households experienced a reduction in bills by an average of $62, while the impact on a further 15 per cent of households was essentially neutral.

Some low-income, low-use households have seen a bill increase as a result of the phase-out. Most of these will have seen an increase that is less than the support available to them from the Power Credits Scheme.

Other findings from the review include that wider reasons, such as wholesale price increases or changes in network costs, are having a much more significant impact on electricity bills than the LFC phase-out.

The review also found that fixed charges have not increased to the maximum allowed under the phase-out.

Today the Energy Minister has welcomed an industry funded extension to the Power Credits Scheme, which supports people transitioning off LFCs.

The Mid-Point Review of the Phase-out of the Low Fixed Charge (LFC) Regulations can be read on the MBIE website: https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resources/energy-consultations-and-reviews/electricity-price/mid-point-review-of-the-phase-out-of-the-low-fixed-charge-lfc-regulations

Further findings from the review:

60 per cent of households are better off or had no significant impact as a result of the phase-out

• 880,000 households (45 per cent) using more than 7,000kWh had an average decrease of $62 since 2021.
• The impact to the 280,000 households (15 per cent) which use between 6,000 –7,000kWh is essentially neutral, at an increase of $3 since 2021.
• 790,000 households (40 per cent) have seen an increase in their electricity bills.
• These are households which use less than 6,000kWh per year. Of these:

o 570,000 households (72 per cent) have seen an increase of less than $104 since 2021, lower than the power credits available during the phase-out.

o Less than 2,000 households (0.2 per cent) are in the band with the largest impact from the phase-out with an average increase of $168 since 2021.

Low-income, single-person households and single-person, aged 65+ households have seen the biggest bill impact

• Location and occupancy level are better predictors of energy use than age or income.
• Single occupancy households, including those of superannuitants, are likely to have felt the biggest impact from the phase-out.
• The groups which have seen the biggest bill increase as a result of the phase-out are:

o Single occupancy households in the lowest income quintile, with an increase of 0.6 per cent of disposable income. There are 40,000 households in this group.

o Single occupancy, aged 65+ households in the lowest two income quintiles, with an increase of 0.3 per cent of disposable income. There are 75,000 households in this group.

Households with children are benefitting

• Households with more occupants, particularly children, are more likely to have higher electricity use.
• Couples with children are the most common type of household in New Zealand, with over 540,000 households.
• Couples with three or more children across all income quintiles have seen the biggest bill decrease as a result of the phase-out, with a decrease of 0.1 per cent of disposable income.

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