Power to the Consumer
[ Last Updated 21 November 2005 ]
Recent changes to the electricity industry have not brought the expected benefits to domestic consumers. This led the Government to establish the Caygill Inquiry into the Electricity Industry.
The Government's overall objective for the electricity industry is: "to ensure that electricity is delivered in an efficient, fair, reliable and environmentally sustainable manner to all classes of consumer".
In short, to ensure that domestic consumers benefit. This document summarises how the Government's Power Package will benefit domestic consumers.
Price Control on Electricity Lines
Electricity lines companies and Transpower will be placed under price control if they breach thresholds or criteria to be developed by the Commerce Commission.
The Commerce Commission will re-calculate distribution and transmission asset valuations on a common basis. It will also review whether ODVs are the best valuation methodology and mandate changes as appropriate.
Putting a Ceiling on Fixed Charges
Consumers have suffered from continuing increases in the fixed charge elements of their power bill. This impacts more severely on smaller consumers, especially low income consumers.
In limiting fixed charges in some tariffs, the Power Package ensures that smaller consumers will have a tariff option giving them reasonable electricity bills that reflect their low usage.
The Power Package will require retailers who supply domestic customers to offer at least one tariff package with a fixed charge of no more than 10 per cent of the bill of the average domestic consumer (i.e. consuming 8000 kWh a year). Additional design features will ensure this is a genuinely useful tariff option for consumers. The ceiling on fixed charges will only apply to homes where the consumer usually resides (i.e. not holiday homes).
Limiting fixed charges also promotes efficiency in the use of energy and reduces consumers' bills.
Establishing a Consumer Complaints Resolution System
The Power Package requires the industry to establish an independent consumer complaints resolution system including an electricity Ombudsman or similar office. It also provides for imposing fines where there are breaches of rules relating to key consumer issues such as billing and disconnection. The Ministry of Consumer Affairs will work with industry in setting up the arrangements.
The system will deal with consumer complaints against retail and distribution companies and promote improved business practices.
If the industry fails to make progress towards a suitable system by early next year, the Government will regulate to do this.
Representation on the Governance Board
An Electricity Governance Board will oversee industry self-regulation. The Board will determine the rules and monitor compliance with them.
The Board will be made up of a mixture of industry representatives and independent members, with the majority and the chair being independent. The independent members will be appointed after consultation with the Minister of Energy. All members of the Board are to be aware of the interests of consumers. A key measure of the Board's success will be their actions in advancing the interests of domestic consumers.
The Government will intervene if it is not satisfied that the Board is achieving satisfactory outcomes.
Bringing Electricity under the Consumer Guarantees Act
Electricity is not currently covered by the Consumer Guarantees Act. The Government will introduce legislation to bring electricity under this Act, to ensure that consumers have the same guarantees and redress from suppliers of electricity as they do for other goods and services.
Among other things, the Act requires goods and services to be of acceptable quality and to match their advertised description. Consumers have legal rights to have problems fixed within a reasonable time, or to get discounts or refunds. Suppliers can also be liable for consequential damage caused by their failure to deliver goods or services of acceptable quality.
Pre-Payment Meters to Help People Budget
Pre-payment meters can assist low-income consumers by allowing them to pay for their electricity before they consume it, thus avoiding unexpectedly large bills, or possible disconnection if they can't pay.
Currently, these are available on a very limited basis. In some areas they are not available at all.
Retailers who serve more than 25 per cent of domestic consumers in a line network area will be required to offer pre-payment meters at a reasonable cost.
Contracts to Protect Consumers' Rights
The Electricity Governance Board will be required to draw up a model customer contract, in consultation with the Ministry of Consumer Affairs and consumer representatives. The model contract will provide a guide and benchmark for fair and balanced contracts between domestic customers and their electricity retailer.
Features to be included in the model contract include transparency of charge components, company-specific arrangements for dispute resolution, availability of pre-payment meters, arrangements to protect consumers in the event of insolvency of a retailer and arrangements for consumer protection relating to outages.
Making It Easier to Switch
When competition was introduced to the electricity industry, it was expected to bring benefits for consumers. However, competition is meaningless if consumers are unable to switch from one retailer to another.
The industry is working to improve the arrangements for the transfer of customers between retailers, including the introduction of strict deadlines for how long the process must take. The current allowable time to switch a customer is 23 working days, although some companies take longer. This timeframe is due to be reduced significantly as retailers' systems are upgraded to enable faster processing.
The Government will also require the industry to draw up rules for an orderly transition for consumers in the event of a retailer going out of business.
The Power Package sets out the Government's intention to intervene and regulate, if necessary, if the industry does not make sufficient progress.
Ensuring Rural Line Charges Are Fair
Rural consumers are entitled to receive a reliable and affordable supply of electricity. The Government expects distribution companies to keep changes to rural line charges in line with urban line charges. The Government will monitor rural charges closely.
Trust Accountability to Consumers
In many parts of New Zealand, electricity distribution companies are owned in part or in whole by electricity trusts on behalf of local consumers.
Although there is generally strong local support for trusts, there are some concerns about the accountability of these trusts to the local community.
The Power Package sets out the Government's intention to strengthen the accountability regime by requiring trusts to develop a Code of Practice relating to access by consumers to certain information about trust activities and trust meetings, requiring the publication of accounts and making the Audit Office the auditor of the trusts. The Code will include a process for dealing with complaints about refusal to supply information or provide for attendance at meetings.
Mirror Trusts to Give Consumers Choice
The Government will reinstate the mirror trust option in the Electricity Industry Reform Act 1998, to allow trusts which own lines companies to establish a mirror trust to generate and/or retail electricity. (It will also allow trusts owning generation/retail interests to set up a mirror trust and acquire lines businesses.)
This decision is designed to enable local communities unhappy with existing retailers to re-establish a trust to retail electricity.
Assisting Consumers to Choose an Electricity Supplier
The Government will explore possibilities for funding an 0800 line so that consumers can seek advice on which electricity retailer offers the best deal. At present, this service is available from the Consumers' Institute, but only through the internet. An 0800 number would make the service accessible to all New Zealanders.
The Government will also explore plans to publish power price information in community newspapers to allow consumers to make price comparisons.
Back to Top