By Bernard Hickey
Over the last couple of weeks households all over the country have been receiving bag-loads of nasty surprises in the mail.
Electricity retailers such as Genesis Energy and Contact Energy have advised customers of power price increases of around 3% from April 1, with some being advised of increases of as much 24%.
Often the retailers are arguing in these letters that they are simply passing on higher distribution costs being charged by lines companies.
Lines companies, meanwhile, are furious at being blamed for increases that they say are only partly due to higher distribution charges.
It's true that Transpower is just finishing a NZ$2 billion upgrade of the national grid, the cost of which is being passed on through 10%-plus increases in a variety of charges to 28 lines companies.
They in turn are passing on a variety of charges to 14 retailers with 22 brands, each of which have a variety of deals.
The end result is thousands of variations and endless confusion. Hardly anyone can work out who's charging how much for what and why.
Retailers such as Contact blame lines companies for having over 1,400 different types of tariffs. Everyone is pointing their finger at each other and the poor old consumer has no hope of knowing.
Grey Power and the likes of Mighty River Power have called for a debate about whether distribution charges and energy or power charges should be separated out in bills.
Labour's Energy Spokesman David Shearer even drafted a private member's bill this week to unbundle power bills to make the breakdown between lines and electricity charges explicit.
The Commerce Commission has also announced Transpower will have to disclose the details of its revenues, profits and charges, but not until 2015.
All the finger pointing forced the Electricity Authority to announce this week it would analyse the various claims and counter-claims. "It is unacceptable that different parts of the electricity industry blame each other for price increases," said the Authority's CEO Carl Hansen.
A cynic might recall at this point the famous words of former Telecom CEO Theresa Gattung in a briefing to analysts in 2006. "Think about pricing," she said. "What has every telco in the world done in the past? It's used confusion as its chief marketing tool. And that's fine."
To be fair to Gattung, she then went on to say that consumers subconsciously knew this and Telecom wanted to eventually become more transparent. But the comments about confusion being used as a marketing tool to bolster profits unleashed a storm of criticism and in part led to the eventual break-up and re-regulation of the industry by an angry Labour Government.
Now some in the electricity industry can feel a similarly angry red mist rising from the populace and being channeled through Parliament by the Labour and Green Parties after a doubling of prices over the last decade and a 20% rise over the last five years.
That's why some in the industry are calling for an unravelling of the confusion. They can see it's stopping consumers from being able to sensibly compare competing offers and adding fuel to the Labour/Green drive for a single state-owned power buyer that would upend the current market structure.
The Electricity Authority has been working since 2010 to change the industry's structure and encourage competition. It forced through an asset swap and set up a hedging market that reduced some of the pricing volatility and allowed new retailers to confidently buy power on the wholesale market.
It also set up the Whatsmynumber price comparison website that has helped many switch.
Now about 20% of electricity customers switch providers every year and many are getting discounts or up front payments of NZ$80 to NZ$300 to switch or stay when a retailer launches a 'win-back' or 'save' campaign. But it's still only a minority who are switching or even looking to switch.
A survey by UMR for the Electricity Authority in early 2013 found only 30% had switched in the last two years, even though 82% of households had heard of Whatsmynumber. Almost half of those who did switch did so only after they were approached directly by another retailer and only a quarter of the switchers did so after using a price comparison tool.
The survey also found that even though 68% of households had been approached by a competitor about switching, only 11% of households said they were actively looking to switch or planned to switch in the next 12 months. Older customers and poorer customers were found to be the least likely to switch, with 45% of over 60 year olds not interested in switching and 43% of those with a monthly power bill under NZ$100 were content to stay put.
Why are there so many passive consumers willing to just keep taking the blows to their wallets without a fight? Are they so scared or lazy or just plain apathetic?
Confusion about the different offers is a major disincentive for many to switch, given the Whatsmynumber and its associated Powerswitch comparison websites give only an indication of potential savings and then offer up a myriad of options. They don't know who to trust and whether they're comparing apples with pears or pomegranates.
The Electricity Authority has launched a project to compile a comprehensive database that drills down to the information for each home's identifying 'Installation Control Point' (ICP) number. It would show exactly what the distribution and power costs are for each ICP and allow a household to reliably compare retailers and know that when they switch that they'll save money. The authority would offer this database up to comparison websites such as Powerswitch to use to create a more reliable tool.
"It's all about simplifying it, making it easier, more transparent and more authoritative for people," said Hansen, who hopes a prototype for the Auckland market can be ready within a year.
It can't come soon enough for many consumers.
Meanwhile, those nasty surprises in the mail should incite more than just a shrug and a curse from the bill payer who can't be bothered switching.
It's time to stop being passive and start being active.
15 Comments
"after a doubling of prices over the last decade and a 20% rise over the last five years"
Hmmm,so say 10% per year increase average (roughly). Thats makes investing in electricity generation pretty attractive. Thinkin solar. For you first year a return of say 7%, then 17, then 27. Not sure if the maths are correct but get the drift.
This is not new of course but this investment should be viewed as part of a diverse range of investments.
I think Simon Bridges recenlty pointed out the "foolishness" of solar verses say hydro because they can generate much cheaper than we can.
Diff being we get the profits through solar in our pockets.
Solar Thermal Hot water good start. It *is* more expensive than using the existing system but electricity is going up faster and faster.
There is a theory of using direct-to-hot-water connected PV, but that would require enough panels to get 2 - 3 kW depending on your element. Thermal is more efficient, then use the PV for baseload.
One mans special offer is anothers higher default rate.
check out from 11' mark.
http://www.radionz.co.nz/national/programmes/afternoons/audio/2588211/t…
http://www.radionz.co.nz/audio/player/2588211
industry speak (for they use a cost stacker model) is lets increase the consumer price, so we can have competition (that funds the web sites, the offers, the knock on the door, the display stand at the supermarket).... turn it round, we must have competition, if so... the price must go up...
competition that the rest of us understand, lower prices, ease of use, added services of value, - that competition is not in the room....
also the core issue of economists v accountants. why is system and generation charged at new build cost. i.e. revalue the asset, and then raise the tariff to retain equity yield on the now new higher asset value....
add that to the use of a same day rather than next day wholesale market (where a clever gen dispatch analyst can tell you now the wholesale price for next Wednesday - give or take)...
we can't see any industry srtucture that would encourage the competition that the rest of us understand, the prize we play for must be the mug ...
Henry,
All good points. The surprising thing to me is that commentators (including Bernard in this case) and politicians pretend to expect a different outcome from a model where there is no incentive for the gen retailers to actually bring down prices. As an industry, given demand more or less matches supply, then the optimal price for them is the maximum price times demand at that price, allowing for price elasticity of demand. Electricity is a relatively essential item, so demand is not all that elastic, even allowing for current prices being enough to justify more efficient light bulbs and even rooftop solar.
The only foreseeable event that would genuinely disrupt this, would be if Tiwai closed, and Meridian then forced some excess relatively low cost power on to the market. My simple reading of the situation is that the real loser then would be Genesis, given they probably have the highest marginal cost plants in NZ, and before consumers won too much, Huntly would slow or shut down.
I'm not sure closing Tiwai is in NZ Inc's interest, as according to Rio Tinto, Tiwai Pt provides $3.65 billion of benefit to the NZ economy. Even taking this view with a grain of salt, and then halving it, the National government has significantly hampered NZ's long term strategic options by selling off Meridian. To subsidise Tiwai in the future will subsidise the private shareholders of MRP, Genesis and Meridien, and would likely take quadruple the last effort given Meridian could play hard ball.
So don't expect a different outcome for some years, other than rising electricity prices, albeit the elasticity models probably do show some real drop in demand at current prices. So you would expect some tempering of rises in the next few years, as real change incentives kick in.
If Labour and the Greens get in it seems to me their model is more likely to bring down prices, in a still sustainable way, but it seems from polls we are unlikely to find out.
yes power assets are not what they once were
and their now businessisation (increase theoretical aset value, increase real cash prices) - its the concept that utilties and essential services need be"marketed" that catches... these are utilities, not branded consumer goods/indulgences.....
Hear the eaxmple on midday report, electricity users on prepay plan pay more than those on account in arrears....
Most commercial logic would have one obtaining a reduced price for handing over the money before any service/product exchange occurred......
and from some accounts it may be that those with account payment difficulties are directed onto such
cowboy,
The hardball scenario I imagine is as follows: Meridian apparently currently receives ~5 cents per kwh from Tiwai, for 5.4 million mega watt hours per annum. The $30 million spent by the government subsidising this price further amounts to an extra discount of 0.5(half) of a cent per kwh. Current wholesale prices are apparently 20 c per kwh. So a Meridian shareholder would likely say, let's dump Tiwai and sell for say 15 cents a kwh on the wholesale market. For the government to match that differential would take not $30 million, but $540 million.
While this dumping might on the surface seem good for consumers, Meridian could in the short term force the price down to the point where Genesis owned Huntly, which coincidentally produces about the same as Tiwai's offtake, is no longer economic and has to close. In fact the mere threat of this would likely force some plant's closure. The Greens may or may not like the coal out of the system, but that is an aside. The price would then quickly revert back to the current norm plus regular increases.
New Zealand's consumers get no win. New Zealand economy hurt by $3-4 billion. Or the government of the day stumps up half a billion to enrich the now private shareholders of Genesis or Meridian.
Apart from the almost bizarre conceding of dividends much greater than its cost of funds, this scenario is just one of the strategic losses the government has conceded by selling off the country's energy.
Actually, if you want to feed 10 billion people in 2050 (we won't and can't) you'd have to shoot all the cows.
Hickey misses the goal because he isn't on the right field; this is energy we're talking about - the only underwrite of money. Why would you be so dumb as to try and apply a mantra like 'the market' to a physics issue? I've just come from a lecture on this very thing - and the lecturer is off to brief Treasury next week.
Which isn't surprising - Treasury are paid to delve, and still get paid for depressing answers. Others - many here - rely on there only being satisfactory answers.
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