Plan to stop power companies trying to win back customers

Tuesday, 5 November 2019

The Government said the Electricity Price Review would benefit consumers but, a year on, doubts remain that all power companies have adopted the spirit of its recommendations.

If your old electricity company soon stops trying to persuade you to resume buying power from them again, it won't be anything personal.

Electricity companies would be banned from trying to 'win back' customers who switched to a rival retailer for 180 days, under a proposal put forward by the Electricity Authority.

Placing restrictions on win-backs was one of the main recommendations of a government-ordered review of the electricity industry that was completed in May, and the idea was endorsed by Energy Minister Megan Woods last month.

The Electricity Authority now has the task of working out exactly how such restrictions should be implemented.

The first step has been taken in attempting to implement the recommendations of the Government's Electricity Price Review.

* Electricity reforms will 'take pressure off monthly power bill', Government promises

* Power industry grapples with right way to fight for customers**

The Government hopes that preventing electricity companies from offering incentives to recover lost customers will motivate them to offer more competitive pricing to all their customers in the first place – including to those who can't be bothered to shop around for electricity.

Analysis has suggested that a significant minority of Kiwis have never shopped around for power and may be paying a $400 million 'loyalty tax' because power companies can afford to take them for granted and wait for customers to jump ship – or threaten to do so – before offering them a competitive price.

Electricity Authority chief executive James Stevenson-Wallace said banning attempts by retailers to win-back customers during the 180 period after they switched supplier would 'put the pressure on retailers to fight for their customers and offer them something new and different'.

Power users who consume more than 8000 kilowatts of power a year are expected to benefit from other changes, but those who use less will lose out.

The policy is expected to benefit smaller independent retailers that compete against larger incumbent 'gentailers' such as Meridian Energy, Mercury and Genesis.

But imposing controls on win-backs involves managing a dilemma, the authority noted in a consultation document.

Don't touch for 180 days after flicking the switch, would be the message to power companies.

If the ban was not long enough, the losing retailer still would have better information about a customer's electricity usage and what they really cost to supply, but if it was too long, their new retailer would have the information advantage.

Customers' interests were best served if rival suppliers were equally well-informed, according to the authority, which is proposing a 180-day ban as the optimal solution.

The ban on win-backs would not stop customers from returning to their original supplier of their own accord, but would prevent their original retailer from targeting marketing directly towards them.

The authority will seek submissions on its proposal until December 3 and expects to make a final decision early next year.

Meridian was among companies that lobbied against controls on win-backs.

Its regulatory analyst Alannah MacShane told the authority in August that retailers' ability to make offers and counter-offers, and the freedom of consumers to receive them, were 'a vitally important part of competitive dynamics of the current retail electricity market'.

Controls could lead to 'unexpected and unintended consequences', she said then.

Other changes that are in the pipeline as a result of the Government's Electricity Pricing Review include phasing out the requirement for retailers to offer electricity plans that are priced to appeal to customers who use relatively little electricity and reforms of the wholesale market for electricity.

Phasing out low-usage plans could lead to single people, gas users and households who have paid for solar power systems paying significantly more for electricity, but is expected to flow through to cheaper prices for households that use more than 8000 kilowatt-hours of electricity a year, including larger families living in poverty in poorly insulated homes.