Low and Standard User plans have always caused confusion for Kiwi electricity consumers - despite best intentions, they add another level of complexity to an already-confusing industry. And last week’s announcement from the Government that it’ll be haere rā to Low User Plans now has even more Kiwis scratching their heads. So, what’s changing, and what will it mean for Kiwis and their power bills?
The current situation
We love a good breakdown of industry information, and you can find a general overview of User Plans in this blog here. But in short, under the current user plan structure, distribution companies charge different metering rates for Low Users and Standard Users at regulated thresholds based on kilowatt (kWh) usage per year. Households that use more than 8,000kWh each year should be on a Standard User plan, while households that use less than 8,000kWh over a year should be on a Low user plan. From Christchurch south, however, the threshold is 9,000kWh.
The Standard User Plan has a higher daily charge and a lower charge per kWh used, and it’s usually for households of more than two people who are home lots and use a lot of electricity for heating and hot water, or large flats. The Low User plan has a fixed rate of no more than 30 cents a day but a higher kWh rate. These are usually households of one or two people living in well insulated, energy efficient houses, often also using other forms of energy (like gas hot water or a wood burner fire).
Why were Low Users and Standard Users split up in the first place?
Back in 2004, Low and Standard users were separated as a way of more fairly spreading the maintenance costs of our electricity infrastructure and getting power to our homes. The idea was that Low User plans would ensure those using less power than the average household weren’t having to pay more than their fair share (particularly low-income and low-use customers), as well as encouraging people to use less power and invest more in making their homes energy efficient. And generally speaking, that’s been the case - the Low User plan has mainly benefitted those in smaller households and energy efficient, well-insulated, cheaper-to-heat homes.
So why are things changing?
Well, while the Low User plan has helped some households, the flip side is that it’s also unintentionally pushed others further into energy hardship. The Electricity Price Review (EPR) data shows a correlation between low-income families and higher electricity use, which means that the current User Plans structure is actually burdening lots of low-income, high-use households with increased power bills.
We already know that Aotearoa’s housing stock isn’t great when it comes to energy efficiency, and making a home energy efficient (for example, by upgrading insulation or installing double glazed windows) isn’t cheap, either. So these households are stuck between a rock and a hard place - they can’t afford to make their home more energy efficient to help them fall within the Low User plan threshold, nor can they afford the higher price of power on a Standard User plan. Unfortunately that means we’re now seeing more and more cases of energy hardship where power use is being limited, and that leads to cold, damp, unhealthy homes.
On top of this, we can vouch for the fact that User Plans have been all-round confusing for customers. When we’ve run our User Plan checks, we’ve come across many households who’re on the wrong plan and paying more for their power than they should. Not cool!
What’s changing, and what will it look like?
Essentially, the Government is phasing out the distinction between Low User and Standard User for each pricing plan, so that everyone’s in the same category. With the axing of the Low User plan, daily fixed charges will increase by 30 cents a year for five years (so that from 1 April 2026 the daily fixed charge will be $1.80). On 1 April 2027, the low fixed charge will be phased out completely and there won’t be a price cap on fixed charges any longer.
Won’t that mean prices can keep going higher?
We hope not, and that’s not the aim of the regulatory change, but exactly how it will play out at this stage is unclear. What is clear is that the glue holding this phase-out together is retailer competition - dropping the Low User plan relies on Kiwi consumers having lots of options to choose from for their power provider, as well as lots of innovative plans (like Off Peak pricing) to keep electricity prices fair.
So, from our point of view, it’ll be more important than ever that the Government ensures fair play across the market so that independent retailers can afford to stay in the game, keeping the pressure on and continuing to provide better prices and better service.
So who will benefit from the phase-out?
The reality of removing the Low User plan is that some will win, some will lose. MBIE’s research suggests 60% of households will be better off from the phase-out, with lower power bills - that’s those who’re currently on Standard User plans, and those on Low User plans using more than 6,500kWh a year. But that also means that approximately 40% of households may face higher power bills during the phase out, and this will most likely be those on Low User plans who use less than 6,500kWh a year.
Of particular concern for us here at Flick are the low-income, low-use households. But we’re hopeful that government initiatives will provide the support that’s needed, including the Winter Energy Payment, the Warmer Kiwi Homes programme, the Healthy Homes Initiative, and the changes recommended by the Electricity Price Review to target energy hardship.
Here at Flick, we’ve supported the phase-out of Low User plans so that power prices are more fair across the board. But, as we’ve said above, it’ll need to be underpinned by a market that allows competition to thrive and gives all Kiwi consumers everything a well-functioning electricity market should: affordable, sustainable and reliable power.
We’re asking the Government to level the playing field for market competition and help bring power prices down - make sure you’ve had your say and signed our petition, too!