NZ Electricity Reforms - What Do They Mean for Retailer and Consumer?

The government has announced it is backing 20 changes to the electricity market which is the biggest change in the industry for 20 years. The changes, which include new regulations designed to bolster competition, stem from the Electricity Price Review that the Government ordered last year.

There are going to be some wins for consumers who use a lot of electricity and don’t shop around with a reduction in power prices and consumers who sometimes pay their bills late may no longer loose the additional prompt payment discount. However, those who use gas or who have their own home-solar systems could end up paying more as plans that reward low electricity usage are phased out.

No More Winbacks

One of the biggest changes will temporarily ban electricity companies from offering discounts to win back customers who have given them notice that they intend to switch suppliers. This is to counter the concerns that the existing retailer can wait for customers to threaten to jump ship before offering them a competitive price.

Removing Prompt Payment Discounts

Electricity companies will be also encouraged to stop offering Prompt Payment Discounts. Energy Minister Megan Woods said the "prompt payment discounts" really amounted to "hidden late payment penalties" for those who didn't get them.

Removing Low User Plans

Also, in what appears to be the most controversial change, the Government plans to phase out the requirement for electricity companies to sell plans that offer a low fixed daily charge and a higher variable charge for power used.

About 60% of residential consumers are on low-user tariffs, but the Government has ordered officials to develop proposals to phase them out. Households that consume less than about 8000 kilowatt-hours of electricity a year can expect to pay more than they currently do, depending on how little power they use.

In its final report, the Electricity Price Review acknowledged this could discourage people from installing solar systems or insulating or double-glazing their homes. But it said the low-user plans "unintentionally shift costs to households with low incomes and high electricity consumption".

Wholesale Market Changes

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 the generators to buy and sell electricity in the wholesale market at an agreed spread.

That "market-marketing" requirement emerged as the main battleground issue when the Electricity Price Review published an earlier paper in February.

"Right now, our electricity system is dominated by the a small number of big "gentailers" - companies that generate and sell electricty," Woods said. "It can be too hard for small and independent retailers to compete and survive, meaning fewer choices for consumers and less innovation in the market"

The Electricity Price Review recommended against going further by forcing the separation of electricity generators from retailers.

Woods said the reforms would "level the playing field" for consumers, and the Government would check "in our second term" that the expected savings were passed on to them.

Best Option Now

The Government has a variety of measures to tackle "energy hardship" and improve the information available to consumers about switching retailers.

To read all of the Electricity Pricing Review recommendations:

https://www.mbie.govt.nz/dmsdocument/7000-electricity-price-review-recommendations-from-final-report

Article by Amanda Cockcroft - Portfolio Manager, Webtools New Zealand

Published on:

Tuesday, October 15, 2019