Electricity pricing to change

Most people who use a lot of electricity, don’t shop around for power, or who sometimes pay their bills late, can expect lower power prices as a result of a sweeping overhaul of the electricity market.

But others who rely on gas for most of their power needs, or who have invested in their own homesolar systems, could end up paying hundreds of dollars a year more as plans that reward low electricity usage are phased out.

Energy Minister Megan Woods has announced the Government is backing 20 changes to the electricity market, that together amount to the biggest shake-up for the industry in 20 years.

The reforms, which include new regulations to bolster competition, stem from the Electricity Price Review that the Government ordered last year.

One of the most widely anticipated new rules will temporarily ban electricity companies from offering discounts to win back customers who have given them notice they intend to switch suppliers. The move is designed to address concerns that Kiwis who have never shopped around for power are paying a $400 million ‘‘loyalty tax’’ because power companies can wait for customers to threaten to jump ship before offering a competitive price.

Electricity companies will also be encouraged under threat of regulation to stop offering special pricing to customers who pay their bills on time, in the expectation that should lower power bills by $45m overall as bills average out at a lower rate.

Woods said the ‘‘prompt payment discounts’’ amounted to ‘‘hidden late payment penalties’’ for those who didn’t get them.

In what may prove one of the most controversial changes directly affecting consumers, the Government plans to phase out the requirement for electricity companies to offer plans with a low fixed daily charge and a higher variable charge for power used.

Industry sources said about 60 per cent of consumers were on such low fixed charge tariffs but the Government has ordered officials to develop proposals to

No ‘win-backs or saves’

Electricity companies have been offering last-minute deals to dissuade customers from switching suppliers.

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 the 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 move, though there’ll be some devil in the detail. How long will retailers have to stand back before trying to win back customers, and what if they sell bundled services such as broadband?

No 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

phase them out. Households that consume less than about 8000 kilowatt-hours of electricity a year can expect to lose out to varying degrees in that particular change, depending on how little power they consume. In its final report, the Electricity Price Review acknowledged the change could discourage people from installing solar systems or insulating or double-glazing their homes.

But it said the low fixed charge tariffs ‘‘shift costs to households

with low incomes and high electricity consumption’’.

Under-the-bonnet changes to the way the electricity market operates could have big implications for the balance of competition in the industry.

Auckland University professor Stephen Poletti said last year generators were earning nearly $800m a year in excess profits, potentially dwarfing the impact of ‘‘win-back’’ offers in the retail market. Woods said new

rules would force large power companies to sell electricity to independent retailers through the wholesale market ‘‘at affordable rates’’. It is understood the Government is backing a recommendation that would force Genesis, Meridian and Mercury to buy and sell electricity in the wholesale market at an agreed spread.

That requirement emerged as a main battleground issue when the Electricity Price Review published an earlier paper in

February. ‘‘Right now, our electricity system is dominated by a small number of big ‘gentailers’ – companies that generate and sell electricity,’’ Woods said.

‘‘It can be too hard for small and independent retailers to compete and survive, meaning fewer choices for consumers.’’

Woods said the reforms would help consumers, and the Government would check ‘‘in our second term’’ that the expected savings were passed on to them.