Retailers should take responsibility for high power prices, former Genesis exec says

Tuesday, 13 November 2018

There are lots of components in a typical power bill.

A former Genesis executive says retailers should be held to account when their pricing models land customers with large bills.

New Zealand's electricity market has been operating through a period of sustained, high wholesale prices.

At the end of October, a spike in parts of the country took wholesale prices to $1000 a MWh. They have since fallen back under $100, but that's still more than twice the level prices were last year.

Most retail customers haven't noticed the difference.

* What's gone wrong with New Zealand's electricity market?

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

At the end of October, a spike in parts of the country took wholesale prices to $1000 a MWh.

But it has been tough for customers of retailers who pass on wholesale prices to their customers, such as Flick Electric and Paua to the People.

Historically, people have paid less on these plans, with the caveat that could change if spot prices shot up.

Bob Weir, former general manager of energy management at Genesis Energy, said the spike was significant but it couldn't be described as unprecedented.

'When I was in there we pushed the spot price from $50 to $20,000 and that lasted all day.'

That price spike was in 2011, when Transpower closed part of the network to upgrade lines into Auckland.

'I've seen some pretty major carnage from people dabbling in the market who don't know what they are doing,' Weir said.

Some customers were surprised by the increase in their bills.

'I have a real issue when these retailers are tempting small businesses, and the general public, to sign up to deals that expose them to this market when its complexities are well beyond almost all of our capabilities to understand nor manage – this is simply wrong.

'I admire the small retailers' attempts to shake up a slow, arrogant industry which until recently had shown no genuine focus on customers. I also commend efforts to improve how the market works – it, like every market, can definitely be better.'

But he said retailers could not offer variable pricing and then when it turned against them, claim they were not responsible.

'You have to be careful who you take along for the ride.'

Warnings that customers could sometimes face higher prices had been insufficient, he said.

'What if that increase is 10 times and it comes at a time when they are cash-strapped?

'If you decide to start an electricity retail company, and there are so, so many in New Zealand, and decide to play in this market without the means to manage risks, don't cry foul if things turn against you. Even worse, don't try and tempt innocent, ill-informed customers to sign deals that expose them to these risks and then shout 'hang in there' when those risks were not fully understood by them, and they got out for fear of facing their own financial ruin.'

AUT finance department associate professor Aaron Gilbert said there was an information imbalance.

'What makes it worse in this instance is the way that Flick advertises its product online. It is relentlessly optimistic regarding making savings and doesn't really mention the risk at all.

'Wholesale energy companies are more than familiar with the ups and downs of spot energy markets, and hedge it accordingly. Everyday consumers, who have spent a lifetime paying fixed prices, are unlikely to be aware of the potential for extreme volatility and uncertainty in spot prices.'

But a spokesperson for Flick Electric said it was confident it had met its compliance requirements to make it clear to customers what they were signing up for, including explaining how spot pricing works.

'We are a licensed participant under the Electricity Authority [EA], and as such, are regularly audited by an external auditor appointed by the EA. We have also met Consumer NZ Trusted accreditation, electing to be externally audited for fair business practice that extends beyond the requirements of the Fair Trading Act. To meet this accreditation, we have to meet stringent standards.

'When customers sign up for our Freestyle spot price plan, we have always provided them with information about how the spot price changes every half hour, that these prices are subject to change depending on supply and demand, that there will be highs and lows, and how to use our tools to best take advantage of the spot market.

'We also have always provided all new customers with information on the 'stress test', a compliance requirement under legislation. With the current unusual market conditions we are taking additional steps to communicate with customers. Right now, every single customer that joins on Freestyle will also get a call from us to ensure they're aware of current conditions.

'This information is also on our website - on the landing page and our pricing page. Once someone is a customer, they have access to our web and mobile app, which helps them understand forecast, current and paid spot prices and how these flow through to their bills (including a daily bill tally). These are supported by regular communications via email and on our blog.'

The Commerce Commission said it was not investigating.

Utilities Dispute Commissioner Nanette Moreau said her office received a spike in inquiries when spot prices rose.

'While we can't make decisions about price, we encourage consumers to keep asking questions to understand fully what they're signing up to with a spot price plan. When prices are high, we encourage consumers to find out from their company about their options are - for example, can they switch to a more manageable fixed plan? It's important that energy companies provide clear and adequate information to their customers.'