Meridian cuts prompt payment discounts

AUCKLAND: Meridian Energy has axed ‘‘unjustifiable’’ prompt payment discounts, effectively cutting its power prices to all customers by the 10%to16% discount it has traditionally offered to those who pay their electricity bills on time.

The move gives Meridian the moral high ground after Tuesday’s initial report from the Government’s electricity review panel criticised the widespread use of the discounts, which really operate as penalties on customers who pay late.

The impact of those penalties made electricity more unaffordable for lowincome households, which were the most likely to pay their power bills late. The review panel’s report was less critical than the industry had feared about the way the electricity market works, but focused heavily on more than 100,000 lowincome households which spend more than 10% of their income on electricity.

Meridian chief executive Neal Barclay told BusinessDesk that Meridian had been considering doing away with prompt payment discounts for more than a year and had concluded they were ‘‘unjustifiable’’.

‘‘When we looked at the cost of following up to recover debt, it was a fraction of the value of the discount we were taking away. That makes it manifestly unfair.’’

The move was expected to cost Meridian about $5 million a year in lost revenue, but Mr Barclay did not expect an increase in bad debts. Although there was a tiny percentage of customers who never intended to pay their power bills, ‘‘99.5% of customers do want to pay’’.

The company also had numerous ways of assisting lowincome households to pay their power bills, including payment plans, a ‘‘level pay’’ product that keeps monthly bills the same throughout the year, and options to pay for power weekly rather than monthly.

‘‘People who are struggling, we can work with them,’’ said Mr Barclay, who expected Meridian to be ‘‘a bit firmer with new customers coming in’’. Nor did the company intend to become ‘‘a bank for the big end of town’’ and would ensure commercial customers paid their bills on time or faced a penalty charge.

The company will move tariffs for its residential customers to a single advertised rate in coming months as it changes backoffice billing systems that have been hardwired to include discount calculations.

Rival power retailers are likely to come under pressure to follow suit. Contact Energy is particularly exposed as it has led the market in raising the size of its prompt payment discount to 22%.

Mr Barclay suggested the prompt payment discount approach had come into the electricity industry because it had historically been owned by local government entities, which charge late fees on rates bills.