Mid-point review of the phase-out of the Low Fixed Charge (LFC) Regulations

Context for the mid-point review 

The Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004 (the LFC regulations) were introduced with the aim of making those who use less than the average amount of power better off. The regulations were introduced in response to concerns about the impact of rising power prices on low-income groups. 

The LFC regulations lowered power bills for some consumers on low-user plans by increasing power bills for consumers on high-user plans. However, the 2018-19 Electricity Price Review recommended phasing out the LFC regulations as it found they are having a number of unintended consequences.

Electricity Price Review

Why the Low Fixed Charge Regulations are being phased-out

Low-use plans and standard-use plans

Households pay for their electricity through a combination of fixed and variable charges, which reflects the fixed and variable costs of delivering electricity to their place of residence. Households’ electricity costs are balanced between these charges and differ depending on how much electricity they use (i.e., if a household is a standard user or low user of electricity).

Low-use plans have benefited low use households. The low fixed charge tariff regulations were designed to ensure low-use households benefitted from lower fixed charges if they used less than 8,000kWh of electricity a year (or 9,000kWh for the lower South Island). Households on low-use plans pay higher charges relating to electricity used than other households on standard plans. High electricity using households benefit if more costs are put onto fixed charges, as the fixed charge was higher, but the rate they pay for actual electricity used was lower.

If households are on the wrong plan, they will pay more than they need too.

Problems with the Low Fixed Charge Tariff regulations

The Low Fixed Charge Tariff regulations were introduced in 2004 to provide electricity plans with a discounted fixed charge that aimed to reduce power bills for low-use, low-income households. However, as the regulations were poorly targeted, they only help some low-use households and have pushed others into greater energy hardship, including many low-income families with high electricity use, for example larger families. The Low Fixed Charge Tariff regulations also have had unintended effects on households’ electricity use, created barriers for industry to undertake distribution pricing reform and increased complexity and confusion for consumers.

Phasing-out the Low Fixed Charge Tariff regulations was a recommendation to government by the independent Electricity Price Review. The Review recommended the regulations be phased-out over 5 years to help moderate the impact of the increasing fixed charges on most low-use households.

The phase-out of the LFC regulations

In 2021, Cabinet agreed to phase-out the LFC regulations over a 5-year period. 

To minimise the impact to households who were previously paying a discounted fixed charge, the maximum amount for the daily fixed charge will increase by 30 cents over a 5-year phase-out.

However, it is important to be aware that other factors also impact household power bills such as: increasing wholesale electricity prices, changes in how transmission charges are calculated, general inflation, and the need for increased investment in electricity network infrastructure.

At the time it was acknowledged that there was some uncertainty over how the industry would choose to structure its pricing plans during the phase-out and the impact those plans would have on different consumer groups. Therefore, it was agreed that there should be a mid-point review of the phase-out to assess any adverse impacts for low-income households and whether additional support measures may be necessary. It was expected the phase-out would result in:

• Most households being better off.
• For households that would see a bill increase, most would see a modest increase of less than $40 - $60 per year.
• Enable innovation that would offer consumers more choice, better value and ultimately lower overall system costs reducing bills for all consumers.

Key findings from the mid-point review

The mid-point review of the phase-out of the LFC regulations has been completed and was published on 9 April 2025. Sense Partners also wrote a report.

Key findings from the review are:

• There have been winners and losers from the phase-out, but overall, the phase-out is reversing a cross-subsidy.
• Wider factors, such as wholesale price increases or changes in network costs, are having a more significant impact on electricity bills than the phase-out.
• Fixed charges have not increased to the maximum allowed under the phase-out.
• Pricing innovation is starting but will not fully take off until the phase-out is complete.

There are a number of problems with the LFC Regulations

• The Regulations introduced a cross-subsidy, as a result, low users with the highest incomes were having their electricity use subsidised, including by low-income households. The cross-subsidy made bills cheaper for low-users by increasing bills for standard users.
• The Regulations inhibited innovation. Due to the strict requirements imposed, industry felt unable to introduce more innovative pricing, which could benefit households.
• However, retailers have not increased fixed charges across the board. The average fixed charge for low users is 91 cents, which is lower than the 120-cent maximum allowed.

The impact on household bills is broadly as expected

As a result of the phase-out, 1.2 million households (60%) are better off or had no significant impact. Since 2021:

• 880,000 households (45%) using more than 7,000kWh per year had an average decrease of $62.
• 280,000 households (15%) that use between 6,000 – 7,000kWh per year is essentially neutral, at an increase of $3.
• 40% of households that use less than 6,000kWh per year have seen an increase in their electricity bills, of these:
• 72% have seen an increase of less than $104.
• Less than 2,000 households have seen the largest impact from the phase-out with an average increase of $168.

The groups who have seen the most significant bill increases are low-income, single person households and single-person, aged 65+ households. Whereas households with more occupants, particularly children are benefiting from the phase-out, as they are likely to have higher electricity use. Location and occupancy level are better predictors of energy use than age or income.

Increases to power bills have been driven to a greater extent by wider factors, such as wholesale price increases or changes to network costs.

The phase-out will continue as it is expected to benefit all consumers

The phase-out will continue as it unwinds a cross-subsidy that is increasing bills for higher-use households, including low-income households. The phase-out also unlocks innovation, which has the potential to:

• Enable the investment required in New Zealand’s electricity infrastructure.
• Allow for a greater range of plans so that households have more choice and can find plans that best suit their needs.

The Regulations are getting in the way of retailers introducing smarter pricing plans meaning the full benefits of the phase-out aren’t yet being felt.

This is why the Power Credits scheme is being extended – to continue to support households affected by the phase-out, until pricing plan innovation materialises.

The Power Credits Scheme will continue to support households

The $5 million, industry-funded, Power Credits Scheme exists to support those through the phase-out. It provides $110 credits to households made worse off by the phase-out. The existing Power Credits Scheme remains available to consumers who need it.

The Review found that, among the minority of households whose bills have increased during the phase-out, the average impact on their bills was less than the power credits available.

The larger retailers and lines networks have agreed to an extension to this scheme of over $5 million out to 2032. The extension will be for $1 million in 2027, then $1 million (plus inflation) for each of the further four years.

To access the scheme, you should contact your electricity retailer.

Building an evidence base 

The review utilised both quantitative and qualitative analysis. 

Analysis of quantitative information has helped enable factual, evidence-based analysis. We accessed detailed price information provided by electricity distributors and retailers.

Given the consumer impacts, focusing the review exclusively on quantitative data risked providing too narrow a perspective on the impacts of the phase-out. So we also engaged with a wide range of stakeholders. Engagement with industry groups, regulators, community support organisations, consumer advocacy groups and financial mentors have provided a greater understanding of the real-world impacts. 

Scope of the mid-point review 

The mid-point review aimed to address 3 distinct questions 

• How have prices changed during the phase-out (and to what degree was this driven by the phase-out)? 
• Are the original aims of the phase-out being achieved, or will likely be achieved, when the regulations are removed? 
• Could additional support measures be necessary to mitigate the impact of the phase-out on particular consumers - now or from 2027 when the Power Credits Scheme ends? 

Out of scope of the review

The proposed benefit of simplifying plans is excluded from this assessment. This simplification can only fully occur at the end of the phase-out when retailers are no longer required to offer both a standard and low usage option for every retail plan offering. As a consequence, it has not occurred yet and is out of scope of this review. 

Governance and management

The Ministry of Business, Innovation and Employment (MBIE) is the lead agency responsible for undertaking and delivering the review.

The review is not a Ministerial Inquiry. 

Support available if you are struggling with your power bill

Removing the Low Fixed Charge Tariff regulations is essential for creating a fairer playing field for all New Zealand households. While all households are expected to benefit in the long term from the regulations being removed, some households may face higher power bills.

Your power company can help

Anyone struggling with their power bills, or who has questions about their pricing plan, is encouraged to contact their power company in the first instance.

Power credits scheme

The power credits scheme is a $5 million industry fund that opened in June 2022 to 2027. Industry has agreed to provide additional support of a further $1 million a year, adjusted for inflation, through to 2032.

The scheme supports low electricity-use households finding it hard to pay their power bills as the Low Fixed Charge Tariff regulations are phased out. Support will now be available until 2032, when more innovate plans should become available.

How electricity customers get a power credit

Power credits are only for customers at their main residence.

Customers can get a $110 power credit from their electricity providers if they:

• are finding it hard to pay their electricity bill, and
• have been on a low-use electricity plan within the last 6 months

You can contact your energy company to find out if they are providers in the scheme, and you should check with your electricity provider for more information.

Other support

There are other government programmes already in place to help households make their homes more energy efficient and lower their power bills. These include:

Warmer Kiwi Homes

Covers 80-90% of the total cost of ceiling and underfloor insulation installed in your home, and up to 80% of the cost of an approved heater.

Warmer Kiwi Homes(external link)  — Energy Efficiency and Conservation Authority (EECA)

Winter Energy Payments

Extra payments for beneficiaries to help with energy costs from May to October every year.

Winter Energy Payments(external link)  — Work and Income

Support for Energy Education in Communities (SEEC) Programme

Nearly $8 million has been committed to expand the existing network of community-level support services that help people experiencing energy hardship achieve warmer, healthier, and more energy-efficient homes and lower their energy bills.

Currently, there is a request for proposals, which will offer up to 7 providers grants to deliver at least 800 unique in-home energy interventions and support services, each by 31 June 2027. You can read more about this here:

Support for Energy Education in Communities (SEEC) Round 5(external link)  — EECA

Free budgeting advice and support

There are financial mentors who can help households manage their finances.

Building financial capability(external link)  — Ministry of Social Development

Consumer Care Obligations

The Consumer Care Obligations are rules that all power companies must follow to help you stay connected and manage your power bills. Some of the most important rules are to help you from being disconnected.

Your power company must have a consumer care policy that explains how they will meet these obligations and publish it on their website in a place that is easy for you to find.

Consumer Care Obligations(external link)  — Electricity Authority