GUEST BLOG: Geoff Fischer – Electricity duplicity: Why your electricity charges are sky-rocketing.
Step back three years to a press release by Minister Megan Woods (Labour) and we see the true duplicity of the privatized electricity industry in which the state continues to play a pivotal role. The Minister’s statement is in italics. My comment is interspersed in regular text.
17 September 2021
Power bill changes bring fairness to charges
A key recommendation of an independent panel to make electricity charges fairer across all households will be put in place, the Energy and Resources Minister Megan Woods has announced.
How independent was this panel? The privatized retail electricity retailers were heavily represented in a body supposedly intended to direct their conduct of the electricity market. It is a classic story of state-capital relations in the privatized New Zealand economy where monopolistic suppliers are invited to tell the government how they should be regulated, if at all.
“Phasing out the regulations on ‘low-use’ electricity plans will create a fairer playing field for all New Zealanders and encourage a switch to electric technologies,” Megan Woods said.
The regulations will be phased-out over five years, starting from 1 April, 2022, with support for households who might be affected by the changes.
Currently, the cost of delivering electricity through lines charges to those on low-use plans is supplemented by other households on standard-use plans.
“Supplemented” is not the correct word to use here. “Subsidized’ might be, except that it would not be true in this instance and so “supplemented” was used instead. The “low use” charges provided the option of consumers paying a lower fixed cost (daily charge) and a higher unit rate for electricity actually used. People on the “standard” plan (actually a minority of consumers) paid a lower rate per unit of electricity used and a higher fixed daily charge. There is nothing inherently unfair about granting such choices to consumers. But why do we have daily charges in the retail electricity industry at all, when we do not have them in grocery or hardware stores? The standard capitalist business model is that the capital and operating costs of a business are covered by or included in the unit cost of the product. When we buy a loaf of bread from PaknSave the cost of building and running the store and its distribution system – trucks, buildings and so on – is included in the price of that loaf of bread. There are some exceptions to this rule. For instance Costco supermarket requires customers to make an initial capital contribution in the form of a membership fee. However this is a one-off charge, not a daily charge, and anyone who lacks the ability to pay it can go to a PaknSave or Countdown supermarket instead. Thus there is some degree of freedom of choice in how we shop for groceries, at least in the larger cities. That is no longer the case in the electricity market. All taxpayers combined to make an initial capital contribution to the New Zealand electricity network in the years before 1984, and all new homeowners make a capital contribution when their home is connected to the electricity grid. The problem we have now is that a monopolistic electricity industry is imposing a large fixed daily charge on top of those capital contributions and is determined to allow no alternatives. In brief, the combination of daily charges and variable charges is not normal market practice and neither is it logically justifiable. Modest daily charges were tolerated by the public, but the massive 600% increase being “phased in” goes against the market choice of at least 59% of electricity users. The very fact that it needs to be “phased in” over a period of years is acknowledgement of just how unpalatable this change is to the majority of electricity consumers.
During the phase-out, about 60 per cent of households are likely to benefit from lower power bills.
Actually households have not benefited at all. Over the past three years electricity prices have risen remorselessly for all domestic consumers regardless of which plan they are on as the state and private investors seek to maximize their profits. There was never any genuine expectation that the “phase out” would lower power costs. The intention was always to increase revenues to the electricity companies and therefore costs to the consumer.
The 2019 Electricity Price Review panel found the low fixed charge regulations are poorly targeted and are not equitable – or fair to everybody – and recommended the change.
“While the low fixed charge regulations were intended to help some struggling households, they can put more of a financial burden on those who don’t qualify for low fixed charges, particularly larger families and those living in poorly insulated homes who have higher electricity needs and have to pay the much higher standard fixed charge,” Megan Woods said.
This is Megan Woods at her most disingenuous. If you want to help large families living in poorly insulated homes, you build them properly insulated homes. You do not make it prohibitively expensive for them to buy electric power by dramatically increasing daily charges for electricity. If low income families could not afford electricity at 2021 prices, how will they afford it when daily charges are raised by a factor of six?
About 59 per cent of households are now on low fixed charge plans, so that means those on standard-use plans are charged more to make up for the under-recovery of fixed charges from those on the lower rates. This change will mean the sector can implement new, fairer pricing plans for distributing electricity.
“Ultimately, this will help the industry to more efficiently manage the load on the network during peak times, avoiding costly network upgrades and helping to keep prices lower for consumers,” Megan Woods said.
The truth is that networks have maximum scope to manage demand at peak times through variable pricing when the entire cost of electricity is in the form of variable unit charges. There is nothing ‘fair” about daily charges so high that they constitute a barrier to the poor and thereby limit their access to electricity, while giving wealthy consumers unrestricted access to cheaper electricity. It gets worse than that. The industry gave free electricity to well-heeled owners of Tesla and other electric vehicles. No daily charges. No nothing. Meanwhile the poor are accused of not carrying their share of the burden while actually paying more than the standard rate for electricity.
Minister Woods says there are some perverse outcomes from low fixed charge regulations.
“Wealthier households with low fixed charges have more options to reduce their power use through energy-saving measures like double glazing, smart appliances and solar panels.
“But low-use households who are also low-income households can under-heat their homes to save on power bills because their variable rates on electricity use are high,” Megan Woods said.
The only perversion here comes courtesy of Megan Woods herself. “Low-use households who are also low-income households” are by definition comprised of people who are of necessity frugal and conscientious in their use of electricity. When daily charges are increased they will have even less ability to heat their homes, and that is exactly what we are finding now. Wealthy people always have more options. That is the nature of an unequal society. You can’t correct that situation of inequality in wealth by increasing the fixed charges upon less wealthy households and it is ridiculous of Megan Woods to assert that you can.
“High variable rates also discourage households from switching from higher carbon technologies like gas heating, to low carbon technologies like EVs and heat pumps.
Now we are getting to the nitty gritty. The new distribution of costs, if “fairly” applied would help those with electric vehicles and heat pumps in every room, not to mention air conditioning, heated spa pools and electric patio heaters. But note the contradiction between this passage of Woods’ text, and the passage that preceded it. In the preceding passage Woods is critical of “wealthier households” being enabled to conserve energy (“by double glazing and smart appliances”) and to produce it (through “solar panels”). Yet note also that Woods wrongly classifies the production of energy by households as “energy conservation”. Why is that? Because from the point of view of the electricity industry, which set her policy and probably even drafted her statement for her, household production has the same effect as household conservation of energy. It reduces demand for energy produced commercially by the electricity companies.
The passage that followed confirms this. While households are being discouraged from conserving or producing energy, they are being encouraged to consume more energy in “EVs and heat pumps”. This energy however will be additional generation purchased from the bulk electric power generators, distributors and retailers. It will not be produced in households or made available by household conservation. The government’s plan is to reduce household production and conservation of energy while increasing the demand for electricity among the 41% of more privileged consumers, and thus increasing the profits of the electricity companies, all at the expense of the poor.
“Cleaner, low emissions technologies are important for achieving our goals to have net zero carbon by 2050. We need regulations that make it easier for people to switch from fossil fuels to electric alternatives, not harder,” Megan Woods said.
If honestly applied the changes would make it easier for high income households to electrify, but would make it harder for low income households to do so. But there has never been any serious intention to apply the changes in an honest way. The whole process has been marked by mendacity, casuistry and dissembling. No domestic consumer has benefited. Woods is also being dishonest when she suggests that “net carbon zero” is a motivating factor. Any increase in electricity consumption in New Zealand comes from fossil fuel generation, while renewables provide the baseline supply. In this situation we can only move towards net carbon zero by reducing energy consumption, and low daily charges with higher unit charges are one way to minimize excess electricity consumption. The problem is that reduction of demand and consumption is the last thing that the electricity industry wants because that implies reduction of revenues, and that is why they are trying to increase fixed charges to protect their profits at the expense of the most vulnerable New Zealanders.
The electricity sector is developing a $5 million power credits scheme to help with the transition for some households on low fixed charges who may face higher power bills. Details on the scheme are being finalised.
Like the “phase out” strategy, the transitional “help” to some poorer consumers is an implicit acknowledgement that the changes hurt low income families. The plan is to ease their transition to a harder reality, rather than to spare them that reality. The “compassion” of the electricity industry is shown by only slowly tightening the screw on the poor.
Now that the changes are in progress, the electricity industry is trying to shift the blame onto government, while government, like Pontius Pilate, washes its hands of the whole business claiming that electricity retailers are free to abolish or lower daily charges if they see fit. Like two criminals charged with the same crime, they blame one another when the truth is that both are culpable. Government and private capital are colluding in this savage attack upon New Zealand’s cost of living and quality of life. Government gave a nod and a wink, and the electricity industry has gone for the consumer’s throat. Before Megan Woods approved the electricity industry plans in 2021, electricity prices in New Zealand had been rising only slowly. Immediately after she gave her approval, prices accelerated rapidly and have continued to do so in the three years since.
Genesis Energy is one among many that try to blame government, saying: “The government owns 51% of power companies like us, Meridian and Mercury, due to this we are phasing out of the Low User Plan” implying that the government (in the first instance a Labour government, now the National led coalition government) is using its shareholding to force Genesis, Meridian and Mercury to phase out the Low User Plan which made electric power more affordable for poor families who were prepared to limit their use.
Genesis is suggesting that the New Zealand government is using its 51% shareholding to deliver a sharp slap in the face to low income households, and is insisting that government is entirely responsible. That is simply untrue. To be blunt, it is a lie. Government has not given direction to Genesis Energy. The board and management of Genesis Energy made that decision themselves with the sole motive of increasing revenues and profits. Government allowed the high daily charge to be brought in because it has a financial interest in higher profits from the energy retailers, so it is culpable, but government did not make it happen and private capital cannot be so easily let off the hook. The deregulation of fixed charges was a Labour government initiative, and the National led coalition government is only following Labour’s lead – as it would. In fact there is a cosy relationship between the government as shareholder, the government as regulator, the private shareholders and the management of the electricity retailers all conspiring together against ordinary New Zealand households. Government is profiting from the new high daily charges, but it is the companies themselves which have imposed those increased charges.
Domestic electricity supply is a conspiracy between the state and private capital in which they divvy up the profits of super-exploitation on a fifty-fifty basis, and structure the charging systems so that the poor pay a higher unit price for electricity than the rich. The wealthier you are, and the more electricity you are able to consume, the less you pay on average per unit. This whole system sits within a murky legal environment saturated with official disinformation, obscurantism and electricity supplier strong-arming of their customers.
I bet ‘they’ are using electricity to build the sky rockets and every other destructive, confabulated materiel we are using or making in NZ/AO.
Ever since Max Bradford (& probably before that also) the less electricity you use the more you need to pay for it on a unit basis. The Labour Party is full of the PMC & have totally failed in what should be their duty to look after working people against the major owners of capital yet even after their rejection last election they are unwilling to accept that they have a problem. Now that National etc are in charge I expect this exploitation to continue so that the result described in James chapter 5 will be the only time that justice is delivered.
I have described before in this blog how I participated in a Grey Power lobbying initiative where we met Megan Woods and spoke against dropping the Low Fixed User Charge which was Grey Power policy. I pointed out then that this was an example of a Utilitarian argument and that the greatest accepted critique of Utilitarianism was that minorities suffer when the “greatest good” position is taken uncritically. The room was full of industry representatives. As we were leaving Woods shook my hand and said “We really do care.” All I could manage politely was to say nothing and stare her straight in the eye.
I have solar panels, a battery and a plug in hybrid car so I’m also aware of the problem of low payment for the extra power we don’t use that we send to the grid. NZ compares poorly with most other countries in this regard and the problem has been recognized in recent reviews of the current system. It is a serious disincentive to increasing distributed generation, something that is sorely needed here.
Now the position taken amongst electricity providers is that we must pay to upgrade the current grid and ensure future stability and sufficient production. This is instead of reducing profit taking and using that source for such investment. One could also go to the banks for loans as was once the custom, but one suspects that the same people who have shares in the electricity system also have shares in the banks, and don’t want to have to lend themselves money.
The 51% Kiwi share could be a tool for changing these discrepancies but it requires a government that is truly left wing and not neoliberal like Labour or, God help us, the current right wing bunch.
Yes, Michael, the electricity industry has virtually admitted that it does not want households to produce their own power through solar panels or any other form of generation. Household generation of electricity may be good for the environment but it is a threat to their business model. Therefore don’t expect them to buy your electricity unless it is offered at a very large discount.
It is a feature of the electricity industry (and of capitalism in New Zealand more generally) that it is reluctant to do the one thing that capitalists are meant to do, which is to stump up the capital necessary to establish and maintain their enterprises. Instead they let government, central and local, make the initial capital investment. Our fine capitalists then step in and take over the assets created. Over time, they distribute profits generously among shareholders, while allowing the assets to run down. Then they turn around and demand that someone else – the government, their consumers or their suppliers (like yourself, Michael) – provide a fresh tranche of capital. If no one is willing, they turn the whole enterprise over to some hedge fund running out of New York. This is the story of New Zealand Railways, Air New Zealand and virtually all privatized state assets, and it is symptomatic of the rapacious nature of colonial capitalism and the colonialist state.
With every additional wind turbine or solar array we install, the price of electricity will rise. This is because their output is both unpredictable and unstable. A few weeks ago, there was an announcement by Contact Energy of a 163-million-dollar grid battery project. The need for this expenditure is 100% due to the use of renewables. The government can mess with the structure of power bills all it likes but it cannot fight physics.
This is where you all get to suffer the consequences of your naive climate change virtue signaling, meanwhile my Mercury shares are doing very nicely, thank you.
With the price of batteries decreasing massively we are probably five to ten years away from wealthy consumers moving to off grid en-masse. When/if this happens there will be more significant equity issues as the fixed cost of the grid being increasingly loaded onto the poor. A challenging policy problem for sure.
I’m probably a moron, but I thought the point of the fixed charge is to pay for the maintenance of the lines that supply the electricity; that no matter how much or little a household uses, that house needs to be connected.
That’s my thought too, and is likely going to lines company to maintain lines, who are separate from your power company!.
However I do agree that power prices are too high.
That is certainly the argument for fixed charges. However fixed charges for any product are not the norm in the market, and if they were to become the norm they would make for lazy and inefficient industries. If you can take money to cover your overheads from people who don’t really want to buy your product, or want to buy it only in small amounts, then you will have no incentive to do anything particularly efficient or imaginative in your production, distribution and marketing.
For better or for worse government can impose fixed charges. We call them rates, taxes and levies. But quite properly few private producers enjoy that privilege, and whatever you may think about road user charges, congestion charging and so on, it is worth noting that even governments are considering moving away from the fixed charge model (although in this country it will be done by a combination of taxes (user fixed cost) and charges (user variable costs) that further disadvantage the poor and benefit the affluent, just as in the electricity market and the “health” system).
The separation of lines from electricity retailing was always based on a false logic which left the lines companies free to impose what they themselves call a “rental charge” on consumers (although strictly speaking it is not, it is just a privately administered tax) while the retailers just pay bills and send out bills. Basically clipping the ticket, and doing very well out of it, thank you.
The electricity industry has been brilliantly structured according to the number one principle of state and capital in New Zealand, which is that no one in a position of power should be accountable for their actions or lack of action. Look at the kind of people that stack the boards and management of these companies. Folk who do little and risk nothing while getting paid handsomely for their lack of effort.
I’m in the situation where I’ve just been presented with two options. Company A has high powe charge, low connection charge. Company B has the reverse.
I’d be quite (very) happy to pay for distribution separately, direct to the distributor, bypassing the gentailer/retailer altogether.
Just imagine how much this is affecting solar panel users. They are extremely low users having to pay increasing daily charges. This may slow the installation of household solar systems. Green party – take notice!!
Yes John, owners of domestic solar panels can be “extremely low users” which means they are not good customers for “big electric” and at the same time they are competitors to the big generators. Because the shareholding in the big generators overlaps with that of the retail electricity distributors and the transmission companies, domestic producers of electricity are not a welcome part of the system and they will be presented with all kinds of obstacles as they try to gain a foothold in the system. In addition, because they are small dispersed producers they have little leverage and will be exploited by the retailers regardless of the interests of the big generators. There is no quick or easy fix to this, and I would not hold my breath waiting for the Green Party to do something about it. One approach is to organise with other domestic producers to achieve a scale where you can have some leverage and even install the technology which will allow you supply power direct to close neighbours. I understand that activity of this kind is already underway in some parts.
One other thing. By its pricing policies, with regard to both consumers and suppliers, big electricity is saying “You are either for us or against us. You will be either entirely off-grid or solely on-grid. We will not allow a middle way”. That is a risky strategy for the industry to adopt. It may work, or it may degrade and eventually collapse the grid.
Global capital (to be precise Anglo-American capital) is taking the same course in geopolitics in a desperate effort to stave off an emerging multi-polar world order.
The colonial government is placing all its bets on the success of the “for us or against us” strategy across the board. I have a hunch that it will end in disaster, and possibly within the space of a few years rather than many decades.
Good piece.
Despite the world, supposedly being on the edge of destruction – capitalism keeps on rolling along. Makes you wonder what they know that the rest of us don’t, or perhaps what we know isn’t really what we think it is. The actions of the moneyed class tells the true tale of the tape.