'$146 for power this week? No just no': Spot-price power customers burned

Friday, 26 October 2018

'$146 for power this week? No just no.'

'I know it's not your fault but a more than 120 per cent increase over the previous seven days without warning is a bit of a shock. I almost had to give myself CPR.'

'My bill is $100 more than last week yet we have used the exact same amount of power. $174 for one week is ridiculous for a household with two adults.'

These are just some of the complaints flooding in to electricity retailer Flick Electric as New Zealanders deal with the shock of an increase in the wholesale price of electricity.

*** 'Creaking and groaning' New Zealand energy system poses risk to economy

* Power retailer Flick warns new customers as spot electricity prices surge**

Spot prices have soared in recent weeks as low hydro lake levels combined with an outage on the Pohokura gas pipeline (which carries up to 13 million cubic metres a day of gas and gas condensate onshore) to fire up the wholesale spot price of power.

Usually, if lakes were low, there would be more gas supply brought in as a substitute. But that has not been possible because of the pipeline problems.

Why does it matter?

In the past, this would have just been the power companies' problem and customers wouldn't have been at the pointy end of spot prices.

Under the traditional power pricing model, electricity retailers sign customers up to fixed-price plans where they pay the same price, no matter what the wholesale market is doing.

Flick customers are feeling stressed by their wholesale power bills.

But variable-price models, based on wholesale or spot prices, have become more common in recent years.

These pass on the wholesale cost of power, plus a margin, plus GST, to customers.

Flick entered the market in 2015 and has promoted its ability to save customers significant amounts.

It says customers have saved an average $600 each in the past two years.

Paua to the People, and a number of other retailers, also offers spot-price based billing.

These players are small in the scale of the market. Flick has just under 25,000 connections. But they have been growing quickly.

While this model allows people to make the most of the good times when lakes are full and power is cheap, it also means they are exposed to price increases when times are tougher.

How much of an increase are we talking?

Customers are complaining of having bills that amount to hundreds of dollars a week. One, Gem Brain, said she was charged $480 for one week, four times her usual bill.

Wholesale energy prices peaked at $585.75 a megawatt hour this week, compared to less than $40 in November last year.

Flick has told customers that while it is dealing with 'sustained high spot prices' for people on its variable plan it also has a fixed-price option that customers can switch to if they are worried. It is also offering a 'payment hold' option for people who will struggle to pay.

The six-month fixed-contract option, Fixie, means customers will miss out on the lower prices that may flow through in summer.

Low hydro power lakes are helping push up New Zealand's spot power price.

Is it likely to last?

It's hard to tell. If rain filled the lakes, much of the problem could ease.

Flick said it had been told that the pipeline was likely to stay out of operation until the end of November.

Electric Kiwi chief executive Luke Blincoe said spikes would happen from time to time in the market, and being prepared for them was part of doing business.

But Ecotricity spokesman Al Yates said the current situation was the worst he had seen.

He said there had been an increase in the volatility of the spot market since spot-pricing retailers entered.

Generators were gaming the forward market, he said, which made it hard for new retailers to enter the market. 'Small bids, for example, on the ASX have wild price outcomes, which if the market was liquid, should not be experienced.'

David Goadby, chief executive of energclubnz, in which Stuff Ltd publisher of Stuff has a stake, agreed.

'The current market demonstrates that the current New Zealand electricity market is 'broken'. A lack of rain and a broken valve on a gas platform shows how sensitive this market is.

'The only people that will benefit from the current situation are the shareholders of the major gentailers who will ultimately pass on their higher generating costs through to their retail customers.'

Flick said the current high prices bore no resemblance to market conditions, nor the cost of delivering energy, nor security of supply issues.

'Someone is making money right now, and it's not us and not customers,' it said in a statement.

'Put simply: our Freestyle customers are paying the generators - Genesis, Mercury, Meridian, Contact and TrustPower - at a level that does not correlate with the costs of generating and supplying electricity. It is opportunism driven by a lack of competition.

'We are elevating this issue with the regulators on behalf of our customers and all New Zealanders who deserve a properly functioning market that enables product innovation and consumer choice.

'It is important to note that there is no benefit to Flick from current price conditions. Our Flick Fee has not changed since April 1. This was the first time we increased our fee since launching in 2014.'

The retailer said what was happening was indicative of a badly managed market. 'It puts all independent retailers under pressure (those with fixed price offerings are absorbing huge generation costs) - and it is independent retailers who have been proven over consecutive years of Consumer NZ surveys to provide the best outcomes for consumers through customer service and product innovation.'

What about the rest of the industry?

There is concern that if the high wholesale prices are maintained, new operators who offer fixed prices to customers might fold.

Bigger providers are able to hedge the cost of power into the future but the smallest firms are not. There are fears that, if the price remains so high, a handful could fall over. Blincoe said people who were unhedged would be 'in jeopardy'.

Flick still says customers have saved $600 on average over the past two years.

Spot prices have skyrocketed in recent weeks.

Data will not be available until the end of the month to show how many customers have shifted because of the high spot prices but Electric Kiwi chief executive Luke Blincoe said he had had to stop people switching from variable price operators to his company.

He said it could not handle a surge of customers beyond what it had planned and hedged for.