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Fuel poverty in the land of plenty

Soaring electricity prices are causing more New Zealanders to struggle to heat cold, damp, unhealthy houses.

In July 2010, five-and-a-half-month-old Roretana Holland was found dead in the bed he was sharing with his four-year-old sister, at his parents’ home in Warspite Ave, Porirua. The coroner for the case, Ian Smith, warned once more about the dangers of cot death when sleeping arrangements are shared. Social deprivation, smoking in the household and excessive alcohol consumption were all there. But one part of the deprivation picture the coroner didn’t mention was why the children were sleeping together in the first place.

The four children shared a bedroom because the family had only a single oil heater to keep warm. The Holland household was one of the estimated 400,000 in New Zealand whose members are living in fuel poverty, where heating the home to a comfortable temperature eats up more than 10% of income. Pressure mounts to either skimp on heating or miss out on other essentials, instead.

The Federation of Family Budgeting Services reports that at this time of year, many financially stressed families are in arrears on their electricity and gas bills, as the high cost of the cold months hits home. Says chief executive Raewyn Fox, “We do seem to have had a lot of people through our doors this winter facing disconnection.” In Dunedin, the Budget Advisory Service reports its clients often come in with monthly bills of $350-400, with some as high as $600.

New research from the University of Otago’s Housing and Health Research Programme has found fuel poverty soared during the decade to May 2011, in which electricity prices rose 87% to 26c a kilowatt-hour. In 2003, 10-14% of New Zealand households were estimated to be living in fuel poverty. By 2008 that had jumped to 25%.

“We found that fuel poverty is a major issue in New Zealand, particularly for people on low incomes, and it’s a problem that’s growing,” says lead author Philippa Howden-Chapman, a professor at the university’s Department of Public Health. Once upon a time, keeping a cold home was a badge of stoicism for the hardy Kiwi. Now it’s becoming clearer a cold home is a health hazard, as low living temperatures put the body under stress in a variety of ways, including increased rates of asthma and respiratory infections. In New Zealand, cold homes probably play a role in the 1600 extra deaths that occur each year in winter but not in summer, says Howden-Chapman.

How so? This “excess winter mortality”, as it is called, isn’t found everywhere. “It doesn’t occur in very cold places like Sweden or Siberia, it doesn’t occur in Canada. It occurs in temperate countries, and the most famous examples are New Zealand, Portugal, Greece and Scotland. And they have in common that they’re basically temperate countries but the housing is built as though they were much warmer countries.

“Being inside a house where people are actually shivering, where they can see dragon breath, where their breath is condensing, makes the body work much harder in terms of reduced immunity and more stress on the circulatory system if they have a compromised circulatory system. “We know it has an impact on older people’s circulation in particular, because the blood gets more viscous and is more likely to form plaques, and people are more likely to have atrial fibrillation, or stroke and malfunctioning of their heart.”

It seems plausible that cold homes are partly to blame for extra winter deaths, Howden-Chapman says, because the home is where most people spend the most time, particularly the elderly. Fuel poverty is a concept originally developed in Britain in the 1980s and is based on a healthy home temperature being 21°C for living areas, and 18°C for bedrooms. The Otago-led research modelled electricity costs needed to keep a 100sq m house at those temperatures in different parts of the country.

Understandably, fuel poverty is running at higher levels in colder parts of the country, affecting an estimated 47% of households in Dunedin, 40% in Christchurch, 24% in Wellington and 14% in Auckland. Among Western countries, some of the worst rates of fuel poverty are found in parts of the UK: 27% in Scotland and 44% in Northern Ireland.

As part of other research, Howden-Chapman has visited many homes that are very cold, about 8-10°C. “They’re unheard of temperatures in other parts of the world for inside housing. That’s when your body has to work particularly hard to keep warm. Shivering is your body trying to generate some heat to keep your organs warm,” she says. In the past five years new evidence has emerged that viruses last longer in colder temperatures. And in homes where everyone is clustered in a single warm room, the chance of sharing bugs rises. Cold homes are a particular issue for asthmatics. One in five New Zealand children has asthma.

The jump in fuel poverty in New Zealand appears driven by a troika of causes – low incomes, rising electricity prices and New Zealand’s crummy, badly insulated housing stock.

“Real wages are dropping for a proportion of the population, and unemployment is still relatively high,” says Howden-Chapman. “We have large houses compared with the rest of the OECD, and we’re making good progress with insulating them, but we still have a long way to go. And the cost of electricity in particular has been rising exponentially in the residential market.

“Sadly, those on the lowest incomes pay the greatest proportion of their income – almost 13% – on household energy, yet we know that houses in New Zealand are still cold and damp with all the problems that ensue from that.” Often it is the homes of the poorest that are the worst-insulated and therefore the most expensive to heat. Since 1996, a series of insulation subsidies have been offered, most recently in the Warm Up New Zealand programme. Under this latest one, more than 100,000 of the 900,000 homes estimated to have had substandard insulation have been upgraded so far. However, rental properties are under-represented in the Warm Up programme, making up only 15% of the numbers, even though they are eligible for a 60% subsidy if the tenant has a low income. A third of all households are rentals.

Christchurch second­hand trader Paul Stephenson’s 130-year-old weatherboard cottage is one of those that are hard to heat and have few protections against the cold. The floorboards are close to the earth, the walls are unlined. Until he got a heat pump five years ago under a council scheme, it used to get so cold that sometimes ice would form on the inside of the panes. He left a DVD on the floor in its case one night, and by morning it had cracked in the overnight cold.

He gets fewer coughs and colds now, but Stephenson is still cautious about how much heat he uses, with his most recent power bill just $140 for a month. “I dress like I’m in Siberia. I have long johns, woollen vests and jumpers.” During recent snowfall he added scarves and gloves. “It’s just so cold at night in these old wooden houses.”

The rented home of Wellington research assistant Nicola Grace is only about 11 years old, but it is also difficult to heat because of poor insulation. She and her partner try to keep the house warm for the sake of their 10-year-old daughter, Waimarino, who gets frequent coughs and respiratory infections. They certainly aren’t poor, earning $100,000 between them, but over the winter, power bills have been $370 a month.

Once their rent, bills and food are paid, nothing is left for discretionary spending. A recent visit to the doctor for Waimarino has not yet been paid for. The windows of their home weep with moisture. “The landlord says that’s the norm in Wellington and to wipe it off with a towel.” The family operate two oil-filled heaters and an electric one, but the house still feels cold. Often in the daytime they draw the curtains just to keep the heat in.

“We struggle a little bit, and we’ve got quite good pay,” says Grace. “I can’t imagine how those on ­benefits even pay for power.” The answer is they often go without, says Sarah Free, a senior energy adviser for the Sustainability Trust, who visits homes in Wellington to give residents information on heating their homes more efficiently.

Those who struggle with fuel poverty fall into two main groups, she says. There are those who use no heating at all because that’s the only way they can manage their power bill. They are often older people. “They go to bed by seven o’clock, they’re often quite cold at night, but they rug up really well. “We had one lady who was quite sick. Her flat was probably about 10°. She had high blood pressure and was spending quite a lot of money going to the doctor, and there is a connection between being too cold and having an increase in your blood pressure, because your body gets stressed.”

The other group of cases worry Free even more. These are families paying big power bills, but who still end up with cold, damp, mouldy homes because the homes are so badly insulated. “Their children are sick – we’ve had several instances of homes we’ve visited where the children are away [from school] as much as one or two days a week on average. They’re spending $300, maybe $400, a month. Their house still isn’t particularly warm, but it’s getting mouldy because it’s damp and slightly warm. They’ve got these huge power bills and they’re really at their wits’ end.”

Ventilation is important, says Free. Opening a couple of windows even a smidgen lets moisture out and makes the air easier to heat. She recommends security stays on a few windows so they can be left open during the day. In Britain, energy regulator Ofgem has a brief that extends to the needs of vulnerable customers, including older people, those with disabilities and those on low incomes. The six biggest energy suppliers will this year give annual rebates of £130 ($250) to vulnerable customers.

But the New Zealand regulator, the Electricity Authority, has no brief to look at social needs. Established in November, it must simply ensure the efficient operation of the electricity market. Before the introduction of state-owned enterprises and the electricity reforms in the 1980s and 1990s, cheap electricity was provided at cost by state-owned generators. Now the sector is geared to profit-making, and apart from the disciplines of competition, there is no particular provision for low-income customers.

The only concession to need has been a slowing down of disconnections in the wake of the 2007 death of Folole Muliaga, whose oxygen machine was cut off as a result of unpaid bills. Now disconnections are increasing again, according to the Electricity Commission’s 2010 statistics. Customers who have trouble paying their bills are offered prepayment meters, but other research by the University of Otago team shows electricity is charged at a higher rate through the meters. In Dunedin, power through prepayment meters is 22% more expensive.

Cash-strapped customers are being told to shop around. This winter the Electricity Authority exhorted customers to switch companies with the What’s My Number campaign, prompting 128,000 people to change suppliers. In response, Contact Energy is offering an extraordinary 22% discount for online customers, forgoing $14 million in revenue.

But, predicts Domestic Electricity Users’ Network spokeswoman Molly Melhuish, the Contact offer will not be sustained once it has won customers back. “The negotiating power we get is choosing between different peas in a pod,” she says.
Instead, it is commercial and industrial users that are reaping the big gains of a competitive energy market, with their prices rising moderately as those of households soar. According to Melhuish’s analysis, household prices rose 4% more than inflation each year in the decade to 2010. But industrial and commercial prices rose only 1.8% more than inflation each year in that decade.

She says those most in need often can’t switch power companies. “Increasingly, if you don’t have a good credit record, power companies say, ‘We don’t want your custom.’” Acting Energy Minister Hekia Parata says the Government is concerned about the impact of rising electricity prices, which is why it called for a 2009 ministerial review into the electricity market. Those recommendations have now been implemented, with half addressing cost, prices and market competition.

“Competition in energy supply provides choice to consumers and places downward pressure on prices. The reforms make it easier for more electricity retailers to operate across New Zealand, so customers have more choice of providers.” These initiatives, as well as insulation subsidies and the What’s My Number campaign, “have helped all Kiwi families, especially low-income earners, manage a core component of their everyday costs”.

Another change is that homes being built now are about 30% cheaper to heat as a result of changes to the Building Code in 2008. New homes or major extensions must include double-glazed windows and a much higher standard of insulation. Howden-Chapman does see signs of hope. “I think we’re doing something about the quality of houses. But it really concerns me that there’s no requirement that people renting out homes have to take up the insulation subsidy, and it’s a very generous subsidy. We’re not dealing with rental housing, and that’s where there tend to be people on low incomes who are more vulnerable.”

She would also like to see fuel poverty an accepted part of the political debate here. “In Britain they have targets to try to lower fuel poverty. But the current government energy strategy has no mention of fuel poverty. “The idea that some people don’t have enough money to heat their homes properly isn’t even on the political agenda.”


Will household electricity prices keep rising at the painful speed of the past decade, when they almost doubled? “That seems very unlikely,” says John Stephenson, a principal economist at the New Zealand Institute for Economic Research. He points to the rapid growth in new generating capacity going on at present, particularly in geothermal power. At the same time, demand has dropped in the industrial sector, and it is not clear if it will recover.

“You can see a hollowing out of demand for electricity in the manufacturing sector. In the next five years you could see a real decline in prices.” He sees the electricity market as highly competitive and aimed at producing lower prices. “The current policy framework strikes me as very focused on the long-term benefit to consumers and what competition can bring.”

Economist Geoff Bertram, a senior associate at Victoria University’s Institute of Policy Studies, agrees prices could be more restrained in the next few years. But he has the polar opposite view on the way the market is operating. “What you have is an unregulated cartel who have gouged the captive customers and kept the business customers sweet. They have taken captive customers and put them up against the wall and played ‘hold ’em up’ on a grand scale.”

National has pledged to sell off up to 49% of state-owned generators Mighty River Power, Meridian Energy and Genesis if it wins the election. Will private shareholders make any difference to power prices? No, says Bertram. State companies are already run as “predatory profit-maximisers”, so new shareholders will simply continue with what is already there.