Discount schemes seen as ‘penalties’ for power consumers
Your Money
Households are being told to make sure that any prompt payment discount offered by their retailer is actually a good deal.
Many retailers offer discounts of anything from 10 per cent to 20 per cent to customers who pay their bills on time.
But, in some cases, the pricing structure could be described as a later-payment penalty for those who miss the due date, rather than any bonus.
The low-fixed charge tariff scheme requires that companies offer a lower daily fixed charge, and higher per-kilowatt prices, to customers who use less power than the median. That daily fixed charge can be a maximum of 30 cents per day, excluding GST.
The only exception is where they offer a prompt payment discount that, when claimed, reduces what consumers pay to 30c.
Mercury’s everyday plan and Genesis’ classic plan both have a low-user fixed charge of 33.33c a day, excluding GST, and a 10 per cent prompt payment discount.
That means customers who get the discount pay only what they are meant to, anyway, on that portion of their bill.
Contact’s freedom plan has a 33.33c charge too, but a prompt payment discount of 18 per cent. Meridian’s basic plan charges 38c a day, including GST, with an 11 per cent discount, taking it, too, back to the limit, and Trustpower charges 35.9c a day, excluding GST, with a 15 per cent discount.
A Contact spokesman said customers could choose 30c per day or 33 per cent, depending on ‘‘a range of billing features’’ that would work best for them.
‘‘We work closely with our customers to ensure that they are on the right package and that we act in accordance with the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulation.’’
Mercury said it was working within the rules. ‘‘We follow what the law tells us, which is that the low user daily charge amounts to 30 cents a day after prompt payment discounts.’’
Jenny Cameron, chief executive of the Electricity Retailers Association, said the low-user scheme was acknowledged as needing to be changed because it was missing people it was meant to help.
‘‘It is one area where there was cross-party support and we are encouraged by the fact that it is part of the Electricity Pricing Review being undertaken by the Government,’’ she said.
‘‘Some retailers choose to offer their customers a prompt payment discount, other power companies choose not to. Each retailer constructs its prices to customers in its own way, and pricing is only one part of their service to customers.
‘‘Evidence shows that most customers do pay on time and in full and are able to get their prompt payment discount.
‘‘We encourage all customers to compare their power plan on a regular basis, especially if their circumstances change.’’
Flick chief executive Steve O’Connor said prompt payment discounts did not seem fair or transparent.
‘‘Prompt payment discounts operate as a late payment penalty for the people who fail to pay their bill on time for any number of reasons. This is a terrible outcome for these people – penalties can really add up.
‘‘[The discounts] are also a mechanism for price discrimination – some people on a standard 10 per cent discount are paying a whole lot more than an equivalent household with, say a 22 per cent discount they got in a special offer.
‘‘Having a base of customers paying higher rates – and using this to fund acquisition or retention offers – is bad for the market generally as they perpetuate price discrimination.’’
Tauranga mother-of-two Rachel Boyce said she suffered memory loss due to multiple sclerosis and previously had trouble paying her power bill on time. She ended up paying more than she should have.
‘‘I don’t set up direct debits because I need to make sure the money is there but I was getting caught out with fees because I did forget about it. I even told them a few times but they were not willing to give me the money back.’’
Over 12 months, she was penalised for late payments at least six times. She estimated it cost her an extra $150 a year more than what she would otherwise have had to pay on her $250-a-month power bills.
She has since moved to a provider which does not offer a prompt payment discount but is cheaper overall.
Consumer NZ spokeswoman Jessica Wilson said changes were needed to the low-fixed charge tariff scheme.
‘‘Regulations cap the daily fixed charge for low-users at 34.5c, but that’s after any prompt payment discount. In practice, if you miss paying your bill by the discount date, you’ll be paying more than 34.5c a day. Depending on the retailer, the extra amount could be 10 per cent to 20 per cent higher.
‘‘The regulations, which are being reviewed, need to be changed so low-users can actually get the benefit of the capped rate.’’