Research Project: Effects of low fixed charges
Low fixed charge tariff option
The Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004 (LFC Regulations) were introduced in 2004. The objectives of the LFC Regulations are to:
- ensure retailers offer an LFC tariff (or LFC tariffs) for delivered electricity to domestic consumers at their principal place of residence that will assist low-use consumers and encourage energy conservation
- require distributors to assist retailers to deliver LFC tariffs.
Research into the market effects of the LFC regulations
In its 2014/2015 work programme, the Authority included research into the effects of the LFC Regulations. This was in response to issues with the LFC Regulations that consumer representatives and industry participants have highlighted. The major concern is the adverse effect the LFC Regulations have on the efficient operation of the retail and distribution segments of the electricity market and on retail competition.
The Authority requested the Retail Advisory Group (RAG) investigate the competition, reliability and efficiency effects of the Regulations, focusing on whether the Regulations inhibit efficient distribution and retail pricing and the efficient operation of the industry. The RAG initiated a research project on the effects of low fixed charges in December 2014.
Role of the Authority in assessing the LFC Regulations
The Ministry of Business Innovation and Enterprise (MBIE) is responsible for administration and amendment of the Regulations. The Authority is responsible for monitoring compliance, investigating alleged breaches, and if necessary, taking enforcement action on the regulations. The Authority is not able to revise or revoke the LFC Regulations.
The Authority is carrying out this review under its function to undertake inquiries into any matter relating to the electricity industry. The review is centred on the Authority’s statutory objective: ‘to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers’. Whether the LFC Regulations are achieving their stated objectives is outside the scope of the Authority’s review.
The project’s findings will be presented to the Minister of Energy for consideration.