Flick Electric stops taking on new customers in blow to power competition

Wednesday, 21 July 2021

Flick Electric chief executive Steve O'Connor says decision is tough for staff, but it doesn’t make sense for any independent retailers to be taking on customers in current market.

Flick Electric has stopped taking on new customers as the remaining wheels threaten to fall off independent retail competition in the electricity market.

Chief executive Steve O’Connor said Flick would continue to supply its existing 27,000 power customers.

But he said it would stop accepting new customers until wholesale electricity prices became more “affordable”, which he believed would require market reforms.

“It is likely the Government will need to step in to support some fundamental change,” he said.

* Energy Minister Megan Woods concerned high electricity prices may 'persist'

* National taking fresh look at power market as Flick asks public to 'revolt'

* Electricity Authority's defence of power market prompts backlash

* Lack of competition pushed up prices when Meridian spilled water, Electricity Authority says

Energy Minister Megan Woods told Parliament in April she was taking the situation in the electricity market very seriously.

O’Connor said the suspension was ironic, given Consumer NZ named Flick “energy retailer of the year”, and was tough for staff and the business.

But it didn’t make sense for any independent retailer at the moment to be acquiring new customers, he said.

The suspension does not affect a “small number” of sign-ups through Flick owner Z Energy, which began selling power plans under its own brand in March, sourcing its power and services from Flick.

The wholesale price of electricity has spiked this year, with spot market prices spending long periods above 30 cents a kilowatt hour.

Requiring Meridian Energy to shed some of its generation assets could be a “good first step”, ElectricKiwi chief executive Luke Blncoe says.

Energy Minister Megan Woods has expressed concern high prices could persist and Enerlytica analyst John Kidd has said uncertainty is affecting futures prices out until 2024.

Luke Blincoe, chief executive of independent retailer ElectricKiwi, said it was still taking on customers who approached it.

But it is not marketing power to new customers and like Flick had stopped promoting its plans through the Powerswitch website backed by the Government and Consumer NZ earlier this year.

Both companies have called for the Government to forcibly split the majority-state owned gentailers Meridian, Genesis and Mercury into separate generation and retail businesses.

They argue they cannot buy energy at competitive prices in the wholesale market as it is currently designed, given gentailers can retail their own power and are largely shielded from the wholesale market.

There is speculation that a review of the wholesale market being conducted by the Electricity Authority will recommend that the country’s largest power company, Meridian Energy, should be required to shed some of its generation assets to reduce its market power.

The authority took the usual step last week of releasing a redacted version of a briefing paper updating Woods on its review, which said it was looking at whether the size of power companies might be hindering competition in the electricity market, among a variety of issues.

But there has been no suggestion to date that the authority is likely to come out in favour of structurally separating gentailers into separate generation and retail businesses of its own accord.

Blincoe said requiring Meridian, which is valued at $13.6 billion on the NZX, to shed some generation assets would be a “good first step”.

O’Connor said downsizing Meridian “could assist”.

“I still believe though that we need a market where you have generators competing to sell energy on a common market, and retailers competing to buy that energy and to win and service customers.”

Suggesting that retailers such as Flick should build their own generation was like suggesting Noel Leeming should build washing machines, he said.

“Our market is designed to accommodate independent retailers so we have competition and good outcomes for consumers.”

Meridian has previously noted the Government’s Electricity Price Review described structural separation as “unnecessary” and pointed to an Australian Competition and Consumer Commission report that said vertical integration of power companies in Australia “had the potential to be pro-competitive”.

The ACCC qualified that comment, however, by saying it was concerned about “a combination of vertical integration and market concentration” which it said reduced the likelihood that vertical integration enhanced competition.

Meridian has also referenced a 2016 report by Britain’s Competition & Markets Authority that did not identify any areas in which vertical integration was likely to harm competition in that country, and said it could have generated efficiencies that might be passed through to customers.

The authority came to that conclusion after noting that Britain’s six large power firms did not have the market power to earn excess profits from power generation.

The Electricity Authority is investigating, as part of its wholesale review, whether that is the case in New Zealand.