Electricity users could save up to $35 million a year, and $300m over time, after the Electricity Authority scrapped a charge.
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The authority said it would end a series of payments made by lines companies to producers for electricity that goes directly to them and bypasses the national grid.
The charge was supposed to ease pressure on the grid at peak times.
The Electricity Authority said such "distributed generator" schemes were often set up in regions where there was little need for them.
"Many distributed generators are in regions such as the lower South Island where generation is plentiful relative to load and the grid is used mainly to take electricity out of the region," the authority wrote in a report.
"Distributed generators in such regions may actually add to grid costs rather than reducing them."
The cost of the scheme blew out by 79 percent over eight years, to about $50m by 2016, the authority said.
Consumers were effectively subsidising the producers of some electricity generation, so the payments would be phased out, it said.
Transpower, which runs the national grid, would be able to make its own arrangements to ease pressure on the network.
"We will have Transpower do the work that they are really good at," authority chief executive Carl Hansen said.
"That is analysing and assessing whether they need some distributed generation to support the national grid for reliability reasons."
Changing the system would avoid a wealth transfer from consumers to companies of $25-35m a year, he said.
Transpower said it wanted to study the ruling before making any comment.
