Better targeting of the government’s winter energy subsidy could meet all the electricity costs of the country’s most vulnerable 100,000 households, Mercury NZ says.
The power retailer says more must be done to assist the country’s lowest-income consumers and it says the government is already doing an excellent job with the targeted subsidies it is now providing for home insulation.
But it says the Winter Energy Payment – which is available to all beneficiaries and superannuitants as of right – is not targeted and will cost $347 million a year. That could instead be targeted at the 100,000 households the first stage of the government’s electricity pricing review considers to be vulnerable.
“This would completely fund the annual electricity bills for those consumers as well as fund some more efficient appliances – heat pumps, LED lighting, insulation,” Mercury said in a submission on the first issues paper released by the review’s panel.
“Instead, many people such as some superannuitants, receive the WEP and do not need it.”
The untargeted nature of the Winter Energy Payments has also been criticised in the submissions of Genesis Energy, the Major Electricity Users’ Group and the Electricity Networks Association. Vector last month suggested the money could be better spent putting solar panels on beneficiaries’ rooves.
When originally announced by the Labour Party in July 2017, superannuitants were going to have to apply for the grant, which is paid during the winter months and is worth $450 a year for a single person and $700 for a couple or a person with dependent children. That inexplicably changed after the election. The payment can be spent on anything.
The electricity price review was promised as part of the coalition agreement with New Zealand First. The eight-strong panel was appointed in April to assess whether electricity prices are reasonable and whether consumers in different regions and sectors are being treated fairly. It was also tasked with considering whether industry and regulatory structures are going to assist, or potentially slow, the take-up of new technologies like solar, batteries and electric vehicles.
The Labour-led government has made a lot of the panel’s initial finding that residential power prices had increased 79 percent – excluding inflation – since 1990. It has particularly contrasted that increase with the 18 percent increase industry experienced during that time, and the 24 percent decline for commercial users.
Mercury says basing the analysis from 1990 is misleading as industry reforms later that decade ended an industry structure that was “unsustainable”. Prior to those reforms, residential consumers paid “practically nothing” for local distribution and thus were the beneficiaries of a significant and unfair cross-subsidy.
It says the review’s discussion also tends to confuse price and affordability, when the real issue is affordability.
Prices here are the 12th lowest among OECD member countries for electricity that is largely renewable without any of the expensive subsidies available in some other countries. That ranking is even more remarkable given the country is small, connects islands, is served by “very sub-scale” distribution networks, and lacks the benefit of continental scale transmission.
But when it comes to affordability Mercury says New Zealand has the sixth-highest household electricity consumption, in part because more than half the country’s houses lack adequate insulation.
Heating poorly insulated homes also contributes to excessive seasonal variability in power bills, says Mercury. That is exacerbated by the per-kilowatt-hour charging basis used by most network companies, which “puts huge seasonal pressure on household budgets.”
Mercury noted that New Zealand wages are the 10th lowest in the OECD, and well below those in Australia and the UK where recent power price investigations were noted by the review panel. The company also observed that social welfare payments do not seem to have kept pace with the costs faced by low-income households.
Mercury says the price caps proposed in Australia and the UK would be disproportionate to the affordability issue here, which at any rate is driven by the number of people in a home, the level of insulation, and network charges.
Nor does it believe the prompt payment discounts most retailers offer should be banned, although they should be made cost-reflective.
Mercury, which provides the pre-pay Globug product, says the panel should also look “objectively” at the benefits such products provide.
Not only do they offer complete flexibility for customers wanting to pay small amounts as they are able to, but Globug also avoids any charges for disconnection or reconnection, charges no interest or fees for debts, and includes all prompt payment discounts.
It says avoiding those fees and prompt-payment discounts missed is generally worth about $400 a year – or an extra 1,400 kWh of electricity – to Globug customers.