Submission on the Electricity ( Disconnections and Low Fixed Charges) Amendment Bill

Transcription

1 Submission on the Electricity ( Disconnections and Low Fixed Charges) Amendment Bill Submission : TrustPower supports the Amendments relating to Disconnections. TrustPower does not support the Amendments relating to Low Fixed Charges. The balance of this submission deals only with Low Fixed Charges. Background In 2002 the Government proposed that low use domestic electricity consumers be offered a low fixed charge tariff option, with the objective to : Ensure that electricity retailers offer a low fixed charge tariff option or options for the delivered electricity to domestic consumers at their principle place of residence that will assist low-use consumers and encourage energy conservation. Initially electricity retailers were asked by the Minister of Energy to voluntarily offer a low fixed charge option. Because of varying degrees of compliance and interpretation of the Minister s request, regulations were introduced in October 2004 requiring retailers and distributors to offer the low fixed charge option. The Electricity Commission was given responsibility to monitor compliance with the regulations. TrustPower understands that the low fixed charge Government directive resulted from a coalition agreement following the 1999 general election. It appeared that the fundamental political purpose was to appease electricity consumers who did not like a fixed charge on their power bill regardless of whether they used any power or not. At that time some distributors were pricing line services to cover a significant portion of their sunk costs through a fixed charge. The secondary purpose was to raise the variable charges to encourage consumers to conserve electricity and thirdly to assist low-use consumers, whatever that was supposed to mean. TrustPower s comments on the Explanatory Note to the Bill. Preferred Option ( pg 7 paragraph 5) states : Low-use consumers who are on low incomes in the lower South Island. Nowhere in the existing Electricity (Low Fixed Tariff Option for Domestic Consumers) Regulations 2004 or in this Amendment is there any mention or test for low income. The Regulations and Amendment are only concerned about low-use. Many low-use electricity consumers are not low income conversely many higher-use ( above average)electricity consumers are low income. In the same paragraph it states and therefore be rewarded for energy conservation. Below is an analysis of Low Fixed Charge consumers consumption pattern compared to those not on the Low Fixed Charge, over the last 3 years of the Regulations.

2 Clearly, no energy conservation has occurred as a result of consumers being on the Low Fixed Charge tariff. Consultation ( pg 7) Refers specifically to consultation with the Electricity Commission s Retail Market Advisory Group.( RMAG ) RMAG comprises 5 consumer representatives, 2 network company representatives and 2 generator / retailer representatives. RMAG is chaired by David Russell, immediate past CEO of the Consumer s Institute. RMAG considered the low fixed charge regulations in their entirety but was directed back to only considering the implementation of regional thresholds. Recorded in the RMAG meeting minutes of 8 November 2006 is an Action Point : Assistance Advisor to raise with MED again, the issue of low fixed charge tariff and the RMAG s recommendation that it be reviewed Furthermore: Recorded in the RMAG meeting minutes of 7 th February 2007 : There was considerable discussion on the low fixed charge, and it is to be noted that the RMAG strongly disagree with the low fixed charge policy and considered that an entire review of the policy is needed, not just regionalisation. Clearly, the Government is not concerned, nor willing to take advice from the Electricity Commission and its representative Advisory Group, but instead is persistently only wanting to make an inappropriate, unfair and ineffective Regulation, marginally fairer. TrustPower considers that these three Explanatory Note issues are misleading (low incomes) totally erroneous ( rewarded for energy conservation) and misrepresented ( RMAG consultation). TrustPower s Perspective From the time of the initial request by the Minister of Energy, TrustPower (acting in the spirit intended by the GPS) has made available the low fixed charge option where the distributor has provided a commensurate low-user line charge option. However, TrustPower has continued to argue that a bluntly targeted low fixed charge subsidy to one group of residential consumers at the expense of other residential consumers is not only an inappropriate instrument in a competitive market but the actual regulatory detail is seriously flawed.

3 The key flaws in the regulations are: 1. The low fixed charge tariff is calculated so that a consumer s electricity cost versus standard options is neutral at the average 8000 kwh consumption level. This means that consumers using less than 8000 kwh are being subsidised by those consumers using more than 8000 kwh. Therefore, the lower the consumption below the average, the greater is the subsidy. Many low-users who use a lot less than the 8000 kwh average are not contributing towards even the electricity cost overheads, including network charges, let alone providing a margin to the retailer or distributor. 2. The 8000 kwh per year benchmark is inappropriate as a universal average of electricity consumption, as climate has a significant impact on regional electricity use. This mean that the assistance provided to low-users is seriously biased towards domestic consumers in warmer climate regions. This Bill is bluntly attempting to correct this flaw. 3. The Regulations take no account of dual fuel (gas and electricity) domestic consumers. Those domestic consumers using gas for hot water heating and space heating will reduce their electricity consumption by about one half compared to an all electric domestic consumer. Those domestic consumers who by good futune have gas appliances installed in their home or can afford to have gas appliances installed will be able to receive the assistance simply because they are dual fuel users. This is also the case for consumers who use another alternative fuel such as solar heating or, as is common on the West Coast and Otago/Southland, coal. 4. The Regulations take no account of household incomes or the ability to pay for electricity. A domestic consumer with a $2 million beach front dual fueled home at Mount Maunganui who travels the world for most of the year can qualify for a low-user tariff, whereas a very low income large family, who use more than the average amount of electricity by necessity, pays more and subsidises the wealthy low user. 5. The Commerce Commission is seriously concerned about removing cross subsidies between consumer categories highlighted by the recent Notices to Take Control being issued to lines companies Vector and Unison. The Low Fixed Charge Regulations are inconsistent with and contradictory to the Commerce Commission s intent to balance network charges on a cost of supply basis, as the low user tariff in itself is a network charge subsidy. 6. The Government Policy Statement identifies the very large number of line and retail tariffs across the 30 + network regions and considers this to be a barrier to retail competition. The Electricity Commission has completed its design of model network Use of System Agreements and is in the process of designing standard line charge methodologies.

4 The separate Low Fixed Charge tariffs across each network and the separate administration of low-user options is inconsistent with the Electricity Commissions current work streams to remove barriers to new market entrants and improve retail competition. This inconsistency is one of the reasons why RMAG requested that the Regulations be reviewed. The Analysis A key objective of the Regulations was to encourage energy conservation Detailed analysis of the TrustPower users who have taken up the low-user option over the last three years shows that their annual electricity consumption has not changed any differently compared to the domestic consumers who have not taken up the low-user option. The analysis clearly shows, as does simple common sense, that electricity consumers on the low fixed charge have not changed their behaviour to conserve energy. In this respect the Low Fixed Charge Tariff Regulation has clearly failed to deliver on this primary objective. The Chart below shows that Low Users have not changed their consumption behaviour as a result of being on the Low Fixed Charge. The charts meanings are as follows : 1. Standard means users who are not on the Low Fixed Charge Option 2. Low Use means consumption while they were actually on the Low Fixed Charge Option 3. Low Use History means users who are now on the Low Fixed Charge Options but also looking back at their history including when they were not on the Low Fixed Charge Option. Although over the 3 years both Standard and Low User consumption have dropped marginally, the level of consumption as low users take up the Low Fixed Charge Option has slowly increased, as would be expected. Low Use Meter Register Consumption Standard Low Use Low Use History Meter Register Consumptio Linear (Standard) Linear (Low Use) Linear (Low Use History) Jun-03 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Oct-04 Dec-04 Feb-05 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06

5 In Conclusion The Electricity (Low Fixed Charge Tariff for Domestic Consumers) Regulation 2004 has failed to deliver on its stated objectives. Many domestic consumers have undoubtedly benefited by paying less for their electricity by being on the low-user option, however, all the remaining domestic electricity consumers have been paying more to subsidise them. As a Government Policy to assist low use consumers it has been reasonably successful in achieving a significant uptake, however, from the start it has failed to identify a reason why this select group of consumers should benefit at the expense of others. Household electricity consumption is a function of the availability of alternative fuels (gas, wood, coal, solar),the number of household occupants, the nature of their housing, their behaviour and particularly their life stage (teenagers use more electricity than toddlers or retirees.) The regulations have largely failed to consistently assist those consumers that are in the greatest need of assistance. In fact, many more low income consumers, and critical and vulnerable consumers, are being penalised by the Regulations. The Regulations are clearly a very blunt instrument that is unable to target assistance where it is actually needed. As stated earlier TrustPower supports the Disconnections policy and those Amendments to the Bill for the very reason that it is very targeted to actually assist critical and vulnerable consumers. As a Government Policy to encourage energy conservation the Regulations have failed. There has been no discernable conservation based behavioural change between those on a low user option and those who are not. Recommendation This Bill as regards Low Fixed Charges should be rejected by the Select Committee. The Government should ask the Electricity Commission to review the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004, as recommended by RMAG. TrustPower s solution would be to grandfather the existing Regulations so that those domestic consumers who are currently on the low user options will have their low user tariff phased out to become the same as other domestic users over a five year period. During the phase out period the Government may choose to assist selected domestic consumers by phasing in specifically targeted benefits via the taxation system or through Social Agencies, to ensure a smooth transition. TrustPower would like to present an oral submission to the Select Committee.