Account-switching drive sparks competition among electricity suppliers

A SURGE in the number of powercompany-switching consumers is likely to have contributed to a sharp fall in regional dominance by retailers, new research shows.

The Electricity Authority has published data comparing regional dominance among electricity retailers in both 2004 and 2011.

It suggests New Zealand has gone from having electricity retailing in most areas dominated by one or two companies, to one with a far greater spread of market share.

The Herfindahl-hirschman Index is a measure used to calculate how dominated a market is by a small number of companies. A score of 10,000 represents a total majority while a market with five evenly sized players would score 2000. A score of less than 3500 is considered ‘‘reasonably’’ competitive.

According to the Electricity Authority, in 2004 the weighted average HHI score for electricity retailing across New Zealand was almost 6500, with only Auckland and a few other parts of the upper North Island showing a reasonable spread of competition.

By the end of 2011 the weightedaverage score had dropped to just above 3500, and the speed with which the decline was occurring was increasing. Most major centres had scores of around 3000.

Though the electricity reforms of the 1990s saw a number of electricity companies formed, initially there was little competition within individual geographies.

Electricity Authority chief executive Carl Hansen said the index showed a dramatic fall in areas where one or two companies dominated the market.

‘‘The move from 2004 is a very significant reduction in the seller domination across the various regions around the country,’’ Hansen said.

For example, in 2004 Contact Energy had a 78 per cent market share in Dunedin; that figure had fallen to 28 per cent in 2011.

‘‘It’s only one indication of competition but it’s a very significant reduction in seller concentration that hadn’t really been appreciated in the past,’’ Hansen said.

The regulator said increasing amounts of churn between retailers might be behind the accelerating spread of market share. A campaign to encourage account switching by making tariff comparison easier had seen the number of account switches increase from 200,000 in 2008 to 390,000 in 2011, with high switching rates continuing in February as increased transmission charges prompted a round of price increases.