Prompt payment discounts to go
Latepayers' power bills may drop by $30 a month if everyone gets discounted rate
Low-income families who struggle to pay their power bills on time may save about $30 on their monthly bills through a new package of electricity reforms.
The centrepiece of the wideranging package, which follows a 13-month review of electricity prices, is a proposal to scrap the discounts that most power companies offer to customers who pay promptly.
The discounts can be up to 20 per cent on an average household power bill of $173 a month, or about $34.
Most people get the discounts because they set up direct debits to pay their bills on the due date, knowing that they will have enough money in the bank to cover the bill.
But about 100,000 households who were found to be in “energy hardship” often don’t have enough cash to cover their bills on time, so end up paying higher electricity prices than better-off families.
The Electricity Price Review Group has recommended that the Government should regulate to prohibit prompt payment discounts, although still allowing late payment fees as long as they reflect the actual costs of recovering debts.
Energy Minister Megan Woods has declined to regulate immediately, but said she would write to power companies stating “the expectation that they make discounts available to all consumers”.
“Should the companies not follow suit, we will regulate,” she said.
Overall, the power companies are expected to forego $45 million a year if they give all customers the same power prices now paid by those who get the prompt payment discounts, cutting a little over 1 per cent off the $3.9 billion that households pay for electricity each year.
There is no guarantee that the companies wouldn’t try to recover that revenue by raising charges in other ways.
However, Consumer NZ head of research Jessica Wilson said she would be watching.
She said the review team, which included Consumer NZ chief executive Suzanne Chetwin, had come up with “long overdue consumer protections which we are very pleased to see”.
Apart from scrapping prompt payment discounts, the package includes several measures to make it easier to switch between power companies to get the best deal.
On average, switching to the cheapest company saves $20 a month.
Woods will ask the Electricity Authority to develop a business case for a pilot scheme to identify consumers who haven’t switched for many years and are paying aboveaverage prices, and negotiate a cheaper bulk deal with the lowest bidder to supply those consumers.
The review group has also proposed phasing out a 2004 regulation that requires power companies to offer a low fixed charge of 30c a day to households that use much less power than the average.
The regulation, backed by the Green Party at the time, was aimed at encouraging energy conservation.
But in practice it has also penalised many large, low-income families in poorly insulated homes who use a lot of power and end up paying a fixed charge of $2 a day because of it.
Recent political history might have suggested the Government’s response to the Electricity Price Review may have been deeply concerning for the sector. The review was promised as part of the coalition deal between Labour and NZ First, which promised a “full-scale review into retail power pricing”.
NZ First has previously railed against the power prices and pledged to buy back the shares in the companies partially sold by National.
Labour’s last major proposals for the electricity sector — NZ Power, launched jointly with the Green Party — represented such an overhaul of the sector that even though the parties were in Opposition, the New Zealand sharemarket sank in response.
The resulting partial sales of Meridian, Mighty River (now Mercury) and Genesis reaped hundreds of millions less than expected for the Government.
But Thursday’s release was summed up by the response of the sector and the Government’s opponents.
The Electricity Retailers Association, which counts New Zealand’s largest electricity generators as its members, largely welcomed the proposals.
National’s energy spokesman Jonathan Young came close to suggesting the reforms did not go far enough, saying the proposals “failed to deliver meaningful savings for New Zealanders”.
In some areas the Government’s response was tepid. Having long complained that prompt payment discounts were simply a tax on those who struggled to pay their bills on time, Energy Minister Megan Woods stepped back from regulating the discounts out of existence, giving the industry six months to do so voluntarily.
But the reforms are not without substance. Woods has signalled to Cabinet that she will direct the Electricity Authority to work out how to compel New Zealand’s largest generators to sell more electricity to the wholesale contract market and at a price within range of the spot market.
New Zealand’s electricity supply is good, but at times of stress — such as an unexpected supply outage when lake levels in the South Island are low — prices rise so far that small retailers complain they can quickly become uncompetitive.
Meanwhile the Government is to pilot a scheme to somehow get those households who have failed to change retailers in years to consider a switch.
The industry is likely to oppose the measure: Although competition is fierce for customers who change, those who do not often pay much more than they otherwise might.
These customers will be highly profitable and the retailers know if they lose them, they will probably not get them back.
In some ways, the reforms may disadvantage those who have engaged closely with their bills. Retailers often offer discounts to those who merely threaten to leave, or contact those who have recently left with special deals.
The Government is considering banning such “save and win-back” tactics. Likewise, prompt payment discounts are clearly popular with consumers.