New Zealanders have been warned their electricity bills will likely increase from next year. 1News looks at what goes into a power bill and why those costs are piling up.
Households already grappling with tight budgets likely found little comfort in yesterday's announcement that power bills will increase by around $15 a month from next year — with further price hikes to follow.
The Commerce Commission has proposed increased revenue limits for Transpower and local lines companies to allow for more investment in New Zealand's ageing electricity network.
That would equate to the extra $15 a month on power bills from April 1, 2025.
Those monthly bills would then increase by an average of $5 a month for each of the following four years, meaning bills would be $35 more a month on average by 2030.
The overall increase has been smoothed across the five-year term to help consumers adjust to the higher bills, Commissioner Vhari McWha told 1News.
But how are our power bills even determined in the first place?
A bill of many parts
The average electricity bill is made up of a few different costs.
They include variable charges that relate to how much power you're using, but also include daily fixed charges that relate to ensuring there is an electricity supply to your home. Those daily fixed charges are why you still get a bill even if you're away from your property and not using any power that month.
Power companies usually set prices for electricity usage in units of cents per kilowatt-hour (kWh). Each power company sets their own kWh rate, which is why it's worth checking what each of the companies available in your area charge.
But, according to the Electricity Authority, power bills also have fixed charges that need to cover:
- Generation costs (the costs of producing the electricity)
- Distribution costs (the costs relating to the power lines that carry power from the grid to your property)
- Transmission costs (the costs relating to building and maintaining the power grid)
- Retail costs (your power company's operating costs)
- GST
- Metering costs
About 1% of each power bill also pays market service and market governance fees — these go towards the organisations who either regulate the electricity industry or operate the electricity market.
So, why are these increases being proposed?
The Commerce Commission limits the amount of revenue that Transpower (the state-owned enterprise that manages the national electricity grid) and most local lines companies can earn over a five-year period.
It is raising that revenue limit from April 2025.
The increase is based on the power companies' own forecasts and balanced against what the Commerce Commission thinks is appropriate and necessary, McWha said.
She said the increase the Commerce Commission has proposed is below the companies' forecasts.
The warning comes from the consumer watchdog's draft decision to allow lines companies and Transpower to spend more money. (Source: 1News)
There are several reasons why increased revenue limits are needed, McWha said.
These include the recent high inflation pushing up companies' costs; population growth driving an increase in demand for power; the electrification of New Zealand's economy; and ageing electricity assets that either need to be replaced entirely or maintained.
Investing in the infrastructure was vital, McWha said.
"It's really important for the long-term interests of consumers that we continue to have a safe and reliable electricity network."
She said if New Zealand deferred too much of this investment, the network may not be able to deliver enough electricity to people in the future.
Feeling the squeeze
The Commerce Commission's proposal comes at a time when many consumers are already worried about their power bills, Consumer Advocacy Council chairwoman Deborah Hart said.
"We know people are struggling now. MBIE's 2022 research found that 110,000 households already cannot afford to heat their homes."
The Council was urging the Commerce Commission to consider all alternatives before confirming its decision on transmission and power line charges, she said.
Public consultation on the proposed revenue limit increases is taking place in June and July. A final decision will be released by the end of November.
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