Loyal electricity customers short-changed

Friday, 25 May 2018

Customers who have not tried to switch power company in the past two years are probably being ripped off, one new market player says.

Electric Kiwi chief executive Luke Blincoe said the customer retention strategies of the big electricity providers meant customers who thought about shifting got a better deal than those who stayed put.

He has written to the Electricity Authority's Market Development Advisory Group about the issue.

'Loyal customers get no benefit from competition and there is a lost opportunity to create downward pressure on price.

'The incumbent players only have to compete after a customer decides to switch. Consumers would be better off across the board if incumbent players felt they had to retain all of their customers not just that ones that try to leave.'

He said those who suffered were disproportionately those on low incomes or elderly, he said.

'Just this week we've seen research showing more than half of New Zealand households cut back on heating their homes in winter due to the cost. So it doesn't seem right that the big power companies are ripping off their most loyal customers to fund discounts and payments to people who switch away.'

Blincoe said power companies were fighting so hard to hold on to customers who tried to switch that they retained about half of them.

'The more successful they are at this strategy, the less need there is to offer competitor prices to all consumers. The best-value offers are only available to new customers, while loyal customers pay higher prices to fund the good deals and saves.'

David Goadby, founder and chief executive of EnergyClubNZ - of which Stuff owns 49 per cent, said the good rates that were offered to hold on to customers did not last.

'[They are] effectively honeymoon rates - when the honeymoon is over you will be back getting ready to divorce your power company again.'

Goadby said Electricity Authority estimates that New Zealanders could save $291 million a year by switching to a cheaper provider were too low.

'EnergyClubNZ also considers it is wrong that two next-door neighbours, with the same incumbent electricity brand could be on pricing that could be up to 20 per cent lower in one household versus the other.

The customers missing out on savings were predominantly older and low-income, Blincoe said.

'This could be the difference of someone who has never tried to switch versus a person who has switched and then been 'won-back' by the losing retailer. Given that the forthcoming power review has a heavy focus on fairness, this has to be an area of investigation.'

He said, as power companies' profits rose, the good deals offered to new and switching customers were funded by loyal, non-switching households.

Consumer NZ head of research Jessica Wilson said whether people were paying too much would depend on their circumstances.

'If you're with a pricey company and you have done nothing you are probably paying more than you need to.'

But she said switching was not always the answer. Recent Consumer NZ research showed that, of consumers who had considered switching in the past year, one of the most common reasons for not doing so was because they couldn't find a good enough price to convince them to.

Jemmy Cameron, chief executive of the Electricity Retailers Association, said she supported the message that people should look at the deal they were on.

'Power companies all offer different products and services to their customers, that are based on price and non-price factors. Some have online customer care, others have real person customer care centres, some bundle the electricity with other services such as broadband and gas, some are offering incentives for electric vehicle and bicycle owners, some are offering digital tools to understand how much power each appliance in your house is using.

'There is intense competition to win and keep customers in New Zealand with over 30 power brands vying for your business. It has never been a better time to compare which power provider you are with and see whether the deal and service you are on is the right one for you. We recommend contacting your current power company, and also go on to Consumer's Powerswitch or the Electricity Authority's What's my Number to check and compare.'

Nationwide power prices rose 2.4 per cent last year after falling 1.7 per cent the year before.