Prepaid power customers borrowing to pay bills, survey shows

Wednesday, 12 June 2019

Kimberley O'Sullivan, a research fellow at He Kainga Oranga housing and health research programme in the University of Otago's department of public health, said her research has shown that prepay customers usually ended up paying more than they would on the open market.

A third of households on Globug prepaid power have had to borrow from family and friends to pay their bills, new data shows.

Consumer NZ has released its latest survey of energy retailers. It surveyed the opinions of about 1500 customers across a range of retailers.

It highlighted concerns about Globug, a prepaid power provider operated by Mercury Energy. Globug is the most popular prepaid power option in the market, with just over 25,400 customers.

Prepaid is usually used by people who do not have adequate credit histories to apply for a standard power account with another retailer.

* Rising power prices pushing Kiwi households into power poverty

* Here's how long that 'best before' food should last**

A spokeswoman for Mercury said it was pleasing to see customer satisfaction levels with Globug had increased year-on-year and were above 60 per cent. Its overall satisfaction score came in at 61 per cent.

Prepaid power can help avoid 'bill shock'.

'We're not surprised by insights that suggest a number of customers facing financial stress are likely to be with Globug. Globug, a pre-pay service, is specifically designed to be a useful tool to help customers manage their energy costs within their household budget. For the same reason, we understand why value for money is top of mind for these customers and that is a focus area for us as well.'

Kimberley O'Sullivan, a research fellow at He Kainga Oranga housing and health research programme in the University of Otago's department of public health, said her research has shown that prepay customers usually ended up paying more than they would on the open market, although its discount for Community Services Cardholders helped.

'It's not just paying for electricity. There are top-up fees that put more burden on those least able to pay.

'For example, with Globug the cheapest way to top up is with internet banking, which costs 20c - and a lot of prepayment households that are experiencing severe energy poverty don't have home internet - but to top up in store costs 75c.'

She said people reported it being difficult and expensive to move off prepay because they needed to have systems changed over.

There are lots of components in a typical power bill.

The Electricity Price Review, which is submitting its final report to Government, highlighted 'shopping around' as one of the key drivers of getting a good deal on electricity prices. O'Sullivan said she had heard of landlords refusing to let people replace prepaid meters.

Consumer NZ head of research Jessica Wilson said Globug's customers were most likely to be dissatisfied with the value for money they received.

'They were also more likely to experience financial difficulty paying for power. One third had borrowed from family or friends to pay their power bill while 20 per cent had taken out a loan.'

That compares to 9 per cent of all customers having borrowed from friends or family and 5 per cent taking a loan.

'We've been calling for better consumer protections to ensure prepay customers are treated fairly and don't face disproportionate costs,' Wilson said.

'Despite paying for power in advance and receiving a more restrictive service, customers on prepay are charged comparatively high rates and encounter other fees.

'They're also more likely to experience energy poverty and be unable to afford adequate home heating.'

O'Sullivan said some people liked the prepaid option because it meant they did not have to cope with 'bill shock'.

'It does allow them to work out for example how much a load of washing costs to dry or how much it will cost to use the oven for a couple of hours - so they have more control over their budget. But overall I don't think that it is a comparative deal or that there are enough consumer protections in place - otherwise higher income households would use prepayment too. '

Financial coach Shula Newland said she had a few clients using prepaid power.

'They need to be aware that if they are paying off a debt from the installation, that this is taken out each time they top up. So it can appear it is costing them more than they realise. Also if they top up little and often, this will have an effect on their cashflow - they will run out of power quicker.'

Overall, Consumer NZ found just 51 per cent of people thought they were getting good service from their power companies.

Most people were with one of the big five retailers: Genesis, Contact, Mercury, Trustpower and Meridian. But it was the smaller brands that rated highest for customer satisfaction.

Powershop was the stand-out performer, with 66 per cent of its customers very satisfied with the service they received. Nova Energy was in second place.

About 15 per cent of customers said their houses were not as warm as they wanted because they had cut back on heating to save money.

More than 30 per cent were very concerned about their household power costs.