A run down on the Government power plan

Thursday, 3 October 2019

ANALYSIS: The electricity market will be overhauled by the Government.

These are the key changes:

No more 'win-backs or saves'

Electricity companies have been offering last minute deals to dissuade customers from switching suppliers and jumping ship.

Result: The Government has accepted a recommendation from the Electricity Price Review that such 'win backs' should be banned for a period of time while it assesses the impact on consumers.

Why: While the win-back offers might be welcomed by those who receive them, independent retailers say they are not fair.

Worse, there is evidence a 'two-tier' market has developed as large electricity retailers wait for customers to switch before offering them a competitive price – denying those who don't shop around the benefits of competition. 

Banning win-backs and saves would force electricity companies to offer more competitive pricing to all their customers, the Government believes. 

Winners: Independent retailers and consumers who don't shop around for power.

Losers: Large established electricity retailers.

Comment: A predicted and relatively uncontroversial move though there will be some devil in  the detail.

How long will retailers have to stand back before attempting to win back customers, and what if they sell bundled services such as broadband?

No more prompt payment discounts

Electricity companies have offered generous discounts to customers who pay their bills on time.

Result: They will be encouraged to scrap the discounts, or as the Government prefers to frame it, offer the discounts to everyone. Retailers will only be able to charge reasonable fees for late payment, or they will face regulation.   

Why: The Government says prompt payment discounts are really 'hidden' late payment charges for those who don't get them.

Winners: People who sometimes don't pay their bill on the due date.

Losers: Those who always do.

Comment: Prompt payments discounts for everyone, or for no-one? It amounts to the same thing – this change shouldn't cause bills to rise overall, but hopes it will lower prices overall may also be a bit optimistic.

Low fixed-charge tariffs will be phased out

At the moment, electricity companies have to offer plans with a very low fixed daily charge and a higher variable charge for electricity. These benefit people who don't use much electricity, including those who use gas or their own solar power.

Result: The Government has asked officials to develop proposals to phase out that requirement over a period of five years.

The Electricity Price Review has suggested allowing low-fixed charges to rise from their current level of about 30 cents a day gradually over five years, after which the cap would be removed.

Why: It has been argued that the plans amount to a subsidy for mostly middle-class people who can afford to invest in reducing their electricity bills – paid for by poorer people in larger families living in homes that are hard to heat.

Winners: People who use more than about 8000 kilowatt-hours of electricity a year.

Losers: Those who for whatever reason use less than that.

Comment: This change will be very popular within the industry and the Government's rationale is understandable, but has it underestimated the consumer backlash from those who will lose out? 

Grey Power expressed doubts and some people on low incomes will be worse off from this change, as will those who have invested in solar systems, or who mainly rely on gas. Expect heated arguments.

Reforming the wholesale market

There are concerns that large generators are creaming it.

Result: Generators selling electricity into the wholesale market will be required to 'make a market' in electricity by agreeing to buy and sell  it in the wholesale market at an agreed spread. Lesser changes include increasing their information-disclosure obligations to make the wholesale market more transparent.

Winners: Independent retailers, and the Government believes, all consumers. 

Losers: The large gentailers and their shareholders.

Comment: Much of the meat and most of the complexity in the reforms lies here. Make no mistake, the market-making obligation will cause most angst among the gentailers.

But the scale of the impact will come down to details which appear scant at present. 

Making it easier to switch

Too few people are spending their spare time trying to save a few bucks on electricity by churning between retailers, perhaps because they have other things to do.

Result: A pilot scheme to help customers who have not switched power providers before to shop around for better deals. Power companies will need to tell people how to switch when they send out bills, and the Government will ask the Electricity Authority and Consumer NZ to merge their price comparison websites.

Why: If people don't shop around and switch, competitive pressures in the industry are weakened.

Winners: Consumers and competitive electricity companies, the Government hopes.

Losers: Electricity companies that over-charge.

Comment: People who reckon the costs of electricity competition have outweighed the benefits have not the won the day. The Government's fix for limp competition is more competition.

Still can't be bothered to shop around? The moratorium on win-backs should bring some of the benefits of stronger competition to you.

Help for those in hardship

Heat the home or feed the kids? The concern about hardship needs little explaining.

Result: A fund to help those in energy hardship make their homes more energy efficient, new rules to protect the vulnerable and those with medical needs, and the possibility of other support.

Comment: The Government has stopped short of fulfilling the Electricity Price Review's recommendation for straight financial support for households in energy hardship. 

But there is a package of other measures to address socio-economic concerns. Opinions on this will inevitably come down to people's politics.