Defeat for big power companies as regulator settles on 180-day 'win-back' ban

Tuesday, 18 February 2020

Under the current rules, consumers who don't shop around for power can end up paying hundreds of dollars a year more than they need to, price comparisons sites suggest.

Electricity retailers will be barred for 180 days from trying to 'win back' customers who have switched to a rival supplier, the Electricity Authority has announced.

The decision is a victory for small, independent power companies, some of which feared the regulator would only impose a shorter, 90-day ban.

The majority state-owned 'gentailers' Meridian, Mercury and Genesis Energy had all called for a ban to be limited to between 30 and 90 days.

The goal of the temporary ban on win-backs is to prevent large electricity retailers from waiting until customers decide to switch supplier before offering them a competitive price.

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Flick Electric chief executive Steve O'Connor says it saw customers offered incentives worth '$500 to $600' to switch back to their former suppliers as soon as they had left them.

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The move is designed to address concerns raised in last year's Electricity Price Review that a significant minority of Kiwis who have never shopped around for power are paying hundreds of millions of dollars too much, because their custom is taken for granted by their supplier.

Independent retailer Electric Kiwi has estimated the size of that 'loyalty tax' at $500 million a year.

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.

There will be nothing to stop customers switching back to their original supplier during the 180-day period, but their original supplier will not be able to approach them with offers to entice them to return.

Flick Electric chief executive Steve O'Connor said the authority deserved a 'pat on the back', though more fundamental change was still needed in the wholesale market to encourage competition.

Flick had won customers only to see their original supplier call those people the following day and offer them a $400 up-front payment and a 4 to 5 per cent discount on their previous electricity price to return on a two-year contract, he said.

'We started facing what are called 'zero day switch-outs', which means you backdate it a couple of days, so in fact they never became a customer.'

The tactic sometimes backfired if customers took umbrage at what they took to be previous overcharging, he said.

Large retailers were reducing discounting just at the moment because of a spike in wholesale electricity prices, O'Connor said.

Electric Kiwi chief executive Luke Blincoe said the decision was a big win for consumers.

'We have been calling for this for some time, so it's a case of better late than never.'

Electricity Authority chief executive James Stevenson-Wallace said the ban on win-backs, which will start from March 31, would be an incentive to retailers to offer better prices and products to their customers upfront.

The authority forecast it would make it easier for new power companies to enter the market and for smaller retailers to grow their businesses.

But Meridian submitted that the ban would disadvantage customers who did switch provider, because they would have fewer options if losing retailers were prevented from making counter-offers.

The Electricity Authority said it would monitor compliance with the win-back ban and its impact on competition, and review the rule within the next three years.