Progressive pricing

Some submitters said that they would prefer progressive pricing to low fixed charge tariffs. This would mean that an electricity retailer would be required to charge the domestic consumer at a rate lower than the standard price for a specified portion of the consumer's annual electricity consumption.

However, we disagree with this view for the following reasons. First, designing a progressive pricing scheme is complex, and raises issues such as how to prevent retailers from raising other prices to recover the loss of revenue resulting from the restriction. Secondly, a progressive pricing scheme might encourage retailers to actively seek to shed smaller consumers to minimise loss. Thirdly, progressive pricing tends to distort marginal cost price signals, resulting in less efficient consumption and investment decisions. We consider that progressive pricing is unlikely to provide a substantial improvement on current policies.

Target of low fixed charge tariff

We noted the submitters' concern that the low fixed charge tariff does not benefit large low-income households but does benefit small well-off low-use households. However, we recommend retaining the low fixed charge tariff, as we consider that large low-income households are targeted through the Government's energy efficiency programmes.

Boundaries of areas with different thresholds for qualifying as “low-use consumer”

The proposed new section 172B(3)(ab) of the Electricity Act (clause 4) provides that the definition of “low-use consumer” may vary according to the particular area of New Zealand in which the consumer's domestic premises are situated.

We heard an argument that the network boundaries of lines companies should be used to demarcate geographic areas for the purposes of prescribing qualifying thresholds for “low-use consumers”. Although we agree that network boundaries may be appropriate, the lack of precise geographic definition of network boundaries may mean that local body boundaries would be used instead. We note that the Ministry of Economic Development is consulting on this issue. This definition will be provided in the regulations, and is not part of the bill.

Scope of regulation-making powers for disconnection

In response to concerns about the disconnection practices of electricity retailers, the Electricity Commission has developed new guidelines for disconnections because of non-payment. Clause 5 of the bill is designed to ensure that the Government can regulate the content of the guidelines.

We are aware of concern about the scope of the regulation-making power under proposed section 172D(1)(22A) of the Electricity Act (clause 5(1)). This clause would allow regulations to be made setting the terms and conditions on which electricity retailers must provide domestic consumers with billing and payment options. It was suggested that this regulation-making power would be too wide and should apply to vulnerable consumers only, not all domestic consumers.

However, we recommend no change to this regulation-making power. In our view, it should be reasonably broad to ensure it would prove sufficient if used. We note that regulations made under clause 5(1) may be narrower in scope, and are subject to the conditions and process set out in sections 172E and 172F of the Electricity Act.