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Electricity retailers set their retail prices to cover a range of costs, including energy costs, delivery and network costs, metering and billing costs, taxes and levies. Local electricity distribution business (like EA Networks) provide the delivery service, connecting properties to the national grid, and in turn, paying Transpower to maintain the national grid. We update our pricing for this service in April each year and the amount we can charge (in terms of total revenue) is capped by regulation. This year, inflation pressures and an increase in the amount we are charged for our connection to the national grid underpin a 10% average increase in our charges. Retailers bundle our charges with their other costs and revise their retail pricing, which is what you pay for electricity in your monthly bill.
The structure of our pricing is also subject to regulation, where we must follow a set of pricing principles. A key aspect of these principles is how much we collect through fixed daily charges compared to how much we collect through volume pricing (based on how much electricity you use measured in kilowatt hours – kWh).
To see our published prices, click here. Note, these are the prices we charge your electricity retailer for your property.
For the average residential customer, the total cost of network services will increase from 1st April by around $7.50 per month.
To align with the regulated pricing principles, for all general supply categories (including all residential and small business connections), most of this increase will come from higher fixed daily charges. This allows us to keep our volume prices as low as possible, with the aim of encouraging customers to share their local renewable energy resources (like solar generation) and to adopt decarbonising technology, like electric vehicles. Charges for high use customers in energy poverty will also reduce.
Electricity networks are largely fixed cost businesses – network infrastructure is built to deliver electricity to end connections (via substations, poles, cables etc.). The bigger the customer connection (e.g. a Fonterra milk factory) the bigger the network needed to deliver the electricity and the greater the cost to build the network. Either way, big or small, networks are built, the money is spent, and regardless of whether a customer uses the power or not, to have a connection means there is a network that needs to be paid for. Fixed charges (e.g. the daily charge) are the best way to fund network assets. The bigger the connection (the more infrastructure needed) the more you pay toward those network assets. Customers can reduce their fixed cost by reducing the size of their connection.
Historically, volume pricing (based on the amount of electricity a customer used) was common among networks. We still have these today, but we need to move away from them. Volume pricing for network services incentivises people that can afford it to find ways to reduce their electricity consumption (e.g. installing solar panels). Generally, this is a good thing. However, these customers still need the same network connection (size) when the solar panels aren’t generating, meaning they are still needing all the services that the network provides. With these customers paying less, other customers, many of which do not have access to solar panels or energy-efficient appliances, pay more even though the network services (size of connection) are the same. We don’t think this is fair, and nor does the government.
Network companies are now rebalancing their prices to reduce volume prices and replace these with higher fixed prices that reflect our costs to provide network services. This does not mean they are making more money (revenues are still regulated) – it simply changes how they collect the same amount of money from retailers.
While there are long term benefits and this change will help us keep prices down, we acknowledge the impact that this has on very low electricity use customers. At the same time, we are mindful that high usage households (some of which are vulnerable customers and many may be in energy poverty) will benefit from the change. To mitigate the impact we will be phasing in our changes over a number of years and seeking customer feedback to help us get this balance right. In addition, we are contributing to an industry fund, administered by MBIE, that will target the right people and families with the necessary support they require.
A key message is that regulated network companies like EA Networks do not make more money from this – it is revenue neutral. How retailers choose to pass our costs on to you as a customer is beyond our control. We recommend that you talk with your retailer about your specific pricing. You should also check other retailers and consider using PowerSwitch, especially from 1st April when new prices are available. There are more than 15 electricity retailers available in Mid Canterbury, it pays to compare.
Feel free to call us if you want to talk about your situation. We are happy to help you understand electricity prices and the services that we provide.
Let’s chat – 0800 430 460