Profiteering claims as stats reveal households pay more for power

Thursday, 26 July 2018

Consumer NZ says households are getting a raw deal compared to commercial customers.

Residential power consumers are getting a raw deal on their bills compared to business customers.

Data from the Ministry of Business, Innovation and Employment (MBIE) shows power prices that households pay have shot ahead of what businesses are charged.

In inflation-adjusted terms, residential power bills have increased 15 per cent over the past 10 years, compared to 4 per cent for industrial customers and a drop of 4 per cent for commercial consumers.

Consumer NZ head of research Jessica Wilson said it was a problem.

* Customer complains about $7000 power bill

* Preparing for New Zealand's energy revolution**

'The difference shows consumers are getting a worse deal. Rising powers prices are also having a significant impact on some households,' she said.

'Our latest survey found 18 per cent of consumers had run into financial difficulties paying their power bill in the past year. Fourteen per cent had overdue fees added to their account because they couldn't pay on time. Thirteen per cent had borrowed from family or friends to pay their bill, while 8 per cent had taken out a loan.'

Electricity market commentator Geoff Bertram, of Victoria University, said it was a sign of market power.

'Residential consumers have none and so can be price-gouged without serious short-term consequences.

'Under New Zealand's Commerce Act 1986 outright profiteering by monopolists was legalised - by overriding the old English common law precedents - and this remains the case today. Blame our Parliament for that. The big electricity companies are just maximising shareholder value while the sun shines.'

Saveawatt chief executive Tim Rudkin, who this week launched 'The Big Switch' in New Zealand, said it made sense that businesses were getting a better deal because they had the scale to negotiate, the infrastructure to help them reduce costs and the skills and experience to negotiate supply agreements.

'It's simply leverage. Big businesses have much bigger turnover, dedicated client managers, more say.'

He said there was not as much competitive pressure as switching data might indicate. Only 9 per cent of households moved power supplier in search of a better deal. Most switches were still people moving house.

Rudkin said there were 20,000 different electricity pricing plans in the market and it was hard for the average householder to understand what they were paying.

'It's the most simple thing that comes out of three points in the wall but it's not so simple to work out where you stand and what your options are.'

Luke Blincoe says retailers are taking advantage of customers who are complacent.

Retail prices are made up of a competitive component, which relates to the cost of the power used, and a regulated component, which covers the cost of transmission and distribution via the network.

The Electricity Authority said regulated costs had been rising over the last 10 years. The competitive part had been flat in real terms for the past seven, it said.

The MBIE data had not included all prompt payment discounts and retailer specials, the authority said.

'As such we believe the data over-estimates retail prices.

'In 2013, the Electricity Authority used MBIE data to look into historical electricity costs. At that time, we concluded that prices for residential consumers had risen, but only to a level consistent with costs. We do not think there have been any changes in the market to suggest that this has changed. Residential consumers cost more to serve because their consumption varies significantly across the day, which is more expensive to supply compared to the flatter industrial and commercial demand profiles.'

The Electricity Retailers Association said industrial and commercial customers were high-volume users. One big customer was cheaper to serve than many smaller ones.

Reasons for power price increases included economic growth requiring infrastructure, the emissions trading scheme and the GST increase.

Across the Tasman, the Australian Competition and Consumer Commission has released a report calling for new powers for the Australian regulator to target 'market manipulation' and reduce unnecessary costs.

It said the state of the market there was unsustainable and big companies generating and selling power charged a large premium on their wholesale electricity,

Electric Kiwi chief executive Luke Blincoe said many of the issues applied in New Zealand, too, particularly around the behaviour of big firms offering incentives to 'win back' customers who tried to switch to a new provider.

In Australia, the regulator said: 'Incumbents are able to make very attractive offers to retain customers, effectively through cross-subsidies paid by their inactive customer cohort. This has enabled incumbents to compete only selectively, and with a disproportionate focus on efforts to retain profitable customers rather than to win new ones.'

Blincoe said the situation was only getting worse in New Zealand.

The amount of savings that Kiwi households could make if they switched to the cheapest deal available to them had increased year-on-year by $82 million to $372m. 'The gap between switcher offers and stayer offers is actually growing.'