Divide appears in power market
Review reveals how a ‘‘two-tier’’ market of winners and losers is developing.
Gail White used to pay $350 a month for power for her three-person household, even though no one was home during the day. She had been with Genesis Energy for three years, since moving back from Australia, and used a quick-connect service.
‘‘I think a lot of people are under the assumption that power costs what it costs and that all companies are the same, whereas I found that the rates can be quite different,’’ she said.
‘‘And if you are on the wrong sort of plan for your usage, it’s pretty much guaranteed your power company isn’t going to tell you that there is a way you can save money.’’
While looking to cut her living costs, she noticed power was her biggest bill, shopped around and changed to Electric Kiwi. She has saved at least $100 a month through winter, and more in summer.
Another customer, Anna Kelly, said she was saving $50 to $60 a month since switching, partly thanks to an app monitoring her usage.
A discussion document released yesterday as part of the independent Electricity Price Review (EPR) pointed to problems in the power market and says householders who aren’t switching, such as Kelly and White, are worse off.
The review was launched in February to look at whether the market is providing efficient, fair and equitable prices, in an environment in which technology is evolving.
Households pay 79 per cent more for power than they did in 1990, but commercial customers pay 24 per cent less and industrial users pay
18 per cent less.
The review found consumers could pay very different prices depending on whether they shopped around, and could miss out on promptpayment discounts of up to 26 per cent if they did not pay on time.
Households were switching retailers either frequently, rarely or never, it said. And it was not always easy for consumers to compare prices and contracts.
About 103,000 households spent more than
10 per cent of their income on domestic energy in the 2016 financial year.
‘‘A two-tier retail market appears to be developing: those who actively shop around enjoy the benefits of competition, and those who don’t pay higher prices,’’ the document said.
‘‘The average gap between the cheapest retailer’s price and the incumbent retailer’s price has increased by about 50 per cent since
2002, after accounting for inflation.
‘‘Some households struggle to understand the various plans and how to choose the one that’s best for them, and low-income consumers miss out more often on prompt-payment discounts – which can be as high as 26 per cent of the bill, and which budgeting and advocacy groups say are really late-payment penalties.’’
The review document said competition had increased but that had not benefited all customers, although retailers were not making excessive profits, based on available evidence.
‘‘Those who don’t or can’t easily shop around are paying more than they need to. Despite so many new retailers, the big five generatorretailers still have more than 90 per cent of the market, suggesting it is still hard for independent retailers to expand. New entrants are unhappy with ‘win-back’ discounts aimed at drawing back departing customers.’’
Industry commentator Tim Rudkin, who runs Saveawatt, said there was a ‘‘loyalty tax’’.
‘‘We are aware that the best offers are never advertised, and retailers have offers that they never tell their customers about,’’ he said.
‘‘There is no commercial incentive for retailers to offer better pricing to customers unless there is a risk of losing them.’’
‘‘These deals will never normally be presented until the retailers are at risk of losing a customer. Retailers have publicly said that there is not enough retail net profit across the industry to support switching every household to the best rate and yet the pricing exists.
‘‘Clearly this is evidence of a subsidy or ‘twotier pricing’.’’
He said the $371 million in savings that New Zealanders collectively missed out on in 2017, according to an Electricity Authority estimate, reflected a ‘‘subsidy’’ of about $206 per customer.
‘‘Under the current regime there is no commercial incentive for retailers to offer better pricing to customers unless there is a risk of losing them. Then it becomes a negotiation – we have seen many examples where retailers will make multiple offers.’’
Meridian chief executive Neal Barclay said the report highlighted sensible themes.
‘‘We’re confident that our market is one of the best in the world and we know we can work collaboratively to help customers further benefit through the outcome of this review.’’
Contact Energy chief executive Dennis Barnes said it showed the industry was becoming increasingly competitive.
‘‘While we’re pleased with the overall direction of the report in terms of the industry’s fundamentals, we’re committed to working through the next stage of the process with the EPR, including focusing on solutions for our most vulnerable customers.’’
David Goadby, founder of Energyclubnz, which is partly owned by Stuff Ltd, said the review needed to turn to action.
‘‘The ‘majority-owned’ Crown retailers have delivered increased EBITDAF [earnings before interest, tax, depreciation, amortisation and fair-value adjustments] profitability in the last year of $72.5m. The Electricity Authority has recently announced that the total savings available in New Zealand has increased in 2017 by $80.9m,’’ he said.
‘‘It doesn’t take a mathematician to work out that money is being transferred from the pockets of hardworking families to the shareholders of the big gentailers.
‘‘In our opinion this just isn’t right and [is] why all households should switch in protest against their current retailers.’’
The Electricity Price Review’s final report is due in April 2019.