by chris | Oct 7, 2016 | Energy
Following a recent article on energy advisors published on LinkedIn by Energy Action CEO Scott Wooldridge, similar considerations apply to the New Zealand Market.
Correlations between the Australian and New Zealand energy markets
Similar to Australia, for a number of years now energy retail margins have been squeezed significantly due to increased market participation and retail options, increased fluidity in the ASX market and subdued energy demand leading to a lack of requirement for more generation capacity. Since late 2012 when over the counter retail prices dropped by around 20% to almost the same level as long term average wholesale Spot pricing, 3 year fixed price variable volume (FPVV) contracts have largely been priced at similar levels year on year.
With a large number of new entrant energy retail brands (some with or without ownership of generation assets) competition continues to increase which has assisted in keeping pricing down and keeping the big 5 honest. As energy consultants and advisors it is our job to ensure that customers get visibility of all available and reputable retail options and provide safety in the knowledge that pricing and contract terms / conditions are independently vetted before being accepted.
The energy retail space is not the only part of the market that is facing competition. In New Zealand there are over 30 companies offering procurement services for electricity and gas. The consultant and adviser industry for energy is not regulated, effectively anyone can put up a shingle and start a business that offers procurement services.
Questions to ask potential energy advisors
The quality of service and outcomes varies drastically. If it were my business, there are only a small handful of organisations I would consider using in New Zealand to obtain an energy contracts on my behalf. The following are few questions I would ask before engaging a professional services company to act on my behalf:
1. Does the company you are working with have certification with the Financial Markets Authority.
Post global financial crisis, New Zealand made a number of changes to the Financial Securities Act, this extended to any company offering trading or advisory services around energy futures, derivatives and wholesale market products. To comply with the act, companies must hold accreditation under section 38 as this ensures companies have a high standard of conduct and expertise when advising customers of their options.
2. Does your adviser or Consultant review the entire market?
There are currently 29 energy retail brands in New Zealand, however only around 15 or so can supply business and not all of these can supply all regions in NZ. A smaller number again can supply natural gas and LPG however, many consultants only obtain pricing from favoured retailers meaning customers may only see pricing from 4 or 5 companies. In cases like this the customer may be missing out on the best available pricing and contract terms from reputable retailers due to sub-par market evaluations.
3. So you get a report that only outlines the price of contestable energy…
Around 35% of electricity costs and around 40% of natural gas costs relate to third party charges such as transmission and distribution. While these costs are not contestable charges there may be opportunities to reduce the impact of these charges i.e. aligning capacity so it better matches peak demand or required throughput. Some networks also have the option for customers to move load groups to better suit their energy profile; this can also lead to annual savings. Are these charges being reviewed as part of the procurement process by your consultant or adviser?
4. Energy market intel – what’s happening?
The rate of change in both energy markets is only increasing. While we can’t necessarily predict what will happen, it is still important to keep your finger on the pulse. Does your adviser or consultant track wholesale pricing, the forward ASX curve, industry developments? Do you get regular updates in these areas? Knowing when to go to market and timing it right can have a massive impact on pricing obtained, it should not be a matter of waiting until the end of your contract term before looking at pricing as in most cases this will limit your options as you have to take what the market is offering or risk default business prices.
5. Contractual terms and conditions
While the Commerce Commission recently cleaned up anti-competitive clauses in energy contract, such as automatic renewals, right of renewals and right to match terms, there are still a few gotcha clauses to look out for, such as maximum and minimum quantities, assignment and conditions of force majeure. Does your consultant outline these issues in their procurement process and how they may impact you as a customer in the long term?
6. Large Energy Consultant or Adviser versus small Consultant or Adviser, does it matter?
A better question would be how many procurement exercises does the company you are looking to engage with conduct a year? The energy market is highly dynamic, energy retailers are entering and leaving the market at unprecedented rates and pricing models and practices are changing daily. If the consultant or adviser is not pricing in the market on a regular basis, then you and they are likely to be caught out by the market changes. Look for companies conducting over 100 procurement exercises per year, Total Utilities as an example conducts over 500 procurement exercises per year.
7. Insured or not?
For companies providing professional services, they should hold public liability insurance and professional indemnity insurance of more than $2 million dollars.
So are energy advisors friends or foes?
Energy advisors and consultants should develop a relationship with their customers built on trust. This trust is based on significant market knowledge and intellectual property, creative business problem solving and transparent processes while upholding strong business ethics to ensure sustainable business and commercial outcomes.
This is achieved by market wide reviews, in-depth reports and financial analysis to ensure that all angles are covered and customers get the best possible information to make strategic business decisions.
by chris | Jun 14, 2016 | Energy
The 2016 Energy Management Association of New Zealand conference was recently held in Auckland. This was attended by myself and Pushkar Kulkarni from Total Utilities along with Dr Paul Bannister from Energy Action. Paul was presenting as part of the speaker programme. His presentation can be found here along with his review of the event here.
Productivity and partnerships
The program consisted of 30 speakers over two days. Overwhelmingly this year’s theme was on productivity and partnerships, the New Zealand productivity commission gave energy management a pass mark but added comments of “must try harder”.
In a small but dynamic market like New Zealand, partnerships are definitely key to making business successful. To be effective we can’t do everything ourselves. If we do, we run the risk of being the old cliché, a jack of all trades and a master of none.
Working with companies that hold specialist expertise can assist in writing business cases that are technologically and financially robust. Having a solid business case allows the business to move forward and instigate change. The right provider can be relied upon as a trusted adviser in their specialist field.
Strategic Energy Management
With energy management, a compelling story will provide qualified evidence, measurement and assurance. This evidence can be used as a strategic tool by company executives. It is important to consider and answer questions under the following categories:
• Strategic
• Economic
• Commercial
• Financial
• Management
Energy management and optimisation must create outcomes that lead to strategic value. All work must consider the wider business strategy and take into account other business cases and projects that are being run in parallel. It should not be used as a mechanism by the engineering department to merely justify the purchase of new gadgets, widgets and kit. This view is echoed by my colleague David Spratt when companies review their IT asset bases.
Total Utilities, as fully independent consultants, are able to give unbiased advice to optimise energy consumption ensuring businesses maximise the value of their energy using assets. We have specialist, qualified staff who are experts in energy efficiency and can assist in building a comprehensive business case.
For more information on how we might assist your business in driving more value from your energy consumption please contact myself on 021 650 336, [email protected] or Pushkar Kulkarni – Sales Manager | Energy Efficiency on 021 273 4337, [email protected]
by chris | Mar 10, 2016 | Energy
In the past two years we have seen an unprecedented number of customer switches between retailers taking place within the electricity market specifically the small commercial market.
As the market has become more fluid over the last 2-3 years with the introduction of ASX Energy Futures, it has opened the door to more retailer options or “second tier” retailers where generation is not required for companies to on sell energy to customers. Some of these companies have a very small amount of generation underpinning their retail business however they can grow market share through ASX purchases. The increase of retail participants such as Flick Energy, MegaTel, Prime Energy, Pulse Energy, Switch Utilities and Utilise but to name a few, overall market competitiveness has seen switching trends rising annually between 2009 and 2015. With an expanding retail market it is important for customers to know that all retailers must comply with the Electricity and Gas Complaints Authority (EGCC) and that consumers have a number of guaranteed rights when dealing with their utility suppliers.
The below graphic shows total monthly switches that have taken place from 2004 to 2015. We can see from 2009 switching trends rising to double the number of monthly switches seen in the previous 5 years from 2009.
As a result customers are reporting that they are increasingly confident in a competitive energy market place as outlined in the below graphic.
With the advent of new energy retailer companies and various product offerings it is important that customers understand their rights if a dispute arises.
Picking the winners
There have been clear winners amongst the various retailers in the switching war we have seen over the past two-three years, who have capitalised on customers desire to seek out the “best offer” available in the market, while other retailers have struggled to keep up the pace in the increasing competitiveness of the market.
While past trends have showed retailers using high credits to entice customer to switch to them, the new “trend” we can observe in the market place is to offer high prompt payment discounts, with highly competitive rates, provided the customer locks in for a two/three year term with fixed pricing on the retailer (contestable) portion of the rates.
Small commercial customers have typically preferred to go for uncontracted offers in the past however more and more customers are seeing the benefits of securing good deals in a competitive market by locking into fixed pricing for a 24 or 36 month term.
With this in mind once a retailer has been able to win a customer, they must be able to provide a high quality level of service, while still offering the best deal possible. Ultimately the greatest test of a retailer’s service is how they deal with difficult situations and complaints that can arise within the customer-retailer relationship.
Resolving Disputes: Your Rights with the EGCC
Aside from getting a better deal, the other main reason customers will switch from their incumbent supplier is due to dissatisfaction with the current service they are receiving. Service offered between retailers will differ given different billing systems, procedures and organisational culture unique to each retailer.
When it comes to the handling of complaints or disputes there is a set process that all retailers and lines companies must follow as they are all members of the Electricity and Gas Complaints Commission (EGCC). It is important to highlight that most retailer standard terms and conditions require that any line item charge that is not in dispute is required to be paid by the due date of any invoice.
One of the most frustrating parts of having a complaint for customers is the time it can take for this to be resolved, sometimes weeks or even months. It is important to be aware of the fact that retailers have set time standards in which disputes should be resolved, outlined below:
- Retailer is to acknowledge your complain in writing within 2 working days (excluding delivery time.
- Retailer will respond to you within 7 working days to inform you of the steps they will take to reach a resolution.
- Retailer will attempt to resolve your complaint within 20 working days. In cases where it may take up to 40 working days to resolve they must explain in writing why it will require more time to resolve.
Under the EGCC scheme a complaint is considered to have reached “deadlock” if:
- It has taken longer than 20 working days to resolve the complaint and the customer was not notified in writing that they have good reason to extend the time for resolving the complaint; or
- It has taken longer than 40 working days to resolve the complaint; or
The EGCC is satisfied that:
- The retailer has made it clear they intend to do nothing about the complaint
- You (as the complainant) would suffer unreasonable harm from waiting longer, or
- It would be otherwise unjust to wait any longer.
If you are dealing with a complaint and you believe it has reached “deadlock” stage it is important to raise this with the EGCC within 2 months from when you consider it to have reached “deadlock” stage.
What can the EGCC look into?
The EGCC can look into almost any complaint about an electricity or gas company, with common complaints being around bills, meters, disconnections, and damage to property. The EGCC can also be used for complaints about the actions of staff or contractors while on land, as well as access to and use of land on which there is electricity or gas equipment.
The EGCC can also check if a company has provided accurate information about its tariffs and applied them correctly, but cannot look at complaints about the level of pricing for electricity or gas.
Once the EGCC has been approached about a deadlocked complaint they will act as a conciliator between you and the company with the aim of reaching an agreement on a fair and reasonable outcome for the dispute. As part of this process it could include:
- Taking part in a teleconference with the retailer and an EGCC conciliator
- The EGCC seeking expert advice about technical or legal issues
- Investigating the facts of the complaint – the EGCC will seek information about what happened from you and the retailer
Once their investigation is complete the EGCC will provide a summary of facts and its recommended resolution to the complaint to both the customer and the retailer.
Resolution and Settlement in the EGCC Process
If you as the customer accept the recommended resolution as full and final settlement but the retailer does not, the Commissioner can make the decision binding on the retailer. If you do not accept the recommended resolution then the complaint is considered closed and you will need to take the complaint to another forum such as the District Court or, if the company is a state owned enterprise, the Office of the Ombudsman.
While it is hugely advantageous for customers having the EGCC as an available forum for resolving disputes it is important to be aware of the fact that this process can take several months to reach completion which can be costly in terms of time spent in discussion with all parties involved and can be very frustrating at times dealing with the constant back and forth between each party. Particularly for large corporate businesses the cost of time spent can be several thousands of dollars in lost time of staff dealing with the process.
Who can help?
With these facts in mind it is highly advantageous to have industry experts like Total Utilities advocating on your behalf to navigate through this process which will save you both time and money having to deal with the process for you.
Typically complaints start of as small issues which go unnoticed which grow into big problems. Businesses can circumvent these issues by being signed up as a managed service client with Total Utilities as we will monitor your monthly invoices, cost and usage and reporting this to you in highly useful report summaries each month. As part of this process we proactively identify potential issues and resolve these immediately with the retailer ensuring minimal disruption to your utility accounts.
If you would like more information on having your utility accounts managed by Total Utilities please call us on +64 9 576 2107 or email at [email protected] to speak to an industry expert.
1 Source: Electricity Authority
2 Source: Energynews, 2014 – http://www.energynews.co.nz/news-story/17105/consumers-show-increased-confidence-retailer-competitiveness
3 Source: EGCC Annual Report 2014-2015 – http://www.egcomplaints.co.nz/media/248011/egcc.ar.15.final.pdf
by chris | Aug 25, 2015 | Energy
The New Zealand energy market is shifting sands once more with recent announcements concerning the future of energy generation.
Following the new deal for the Tiwai Point aluminium smelter with Meridian, Contact and Genesis, a series of announcements have been made regarding our thermal baseload generation.
Contact has been quite vocal about the recent announcements with chief executive Dennis Barnes saying “The role of thermal plant in New Zealand’s electricity future is to support renewable generation and the growth of new technologies. This is best met by fast-start, gas-fired peaking power stations rather than large base-load plants.”
Genesis announced the intended 2018 closure of the remaining coal turbines at Huntly. More recently Contact has announced that Otahuhu B will be closed next month. Last week’s set of announcements were concluded by Genesis announcing the cancellation of their Solid Energy contract for the supply of coal, coming on the back of Solid Energy being placed into administration.
The big change was the decision to close and or reduce thermal generation stemmed from the energy market as opposed to government legislative intervention. (more…)
by chris | Aug 3, 2015 | Energy
The news announced this morning ends the worst kept secret of the electricity industry in New Zealand. Months of speculation has been concluded with this morning’s announcement that NZAS will continue to operate Tiwai Point with extra hedge contracts being provided by Contact Energy and Genesis Energy. The deal will provide NZAS with greater certainty if Meridain’s hydro lake storage drops to low levels during summer periods in the future. This will no doubt have a flow on effect to the commercial market as there is now certainty regarding the future of Manpouri and the ongoing viability of thermal plants such as Contact’s Otahuhu B and Genesis’ Huntly power stations.
Energy News has posted the following:
New Zealand Aluminium Smelters has opted to retain its contracted supply cover with Meridian Energy.
A variation to the agreement between the two companies commits Meridian to cover the full 572 MW currently used at the smelter from January 1, 2017. The new deal will see that cover provided at more competitive rates for the smelter than would have applied if NZAS chose to rely on the previous arrangement.
“This variation will give the smelter the flexibility to operate at current production levels for the full contract period should it want to and provide Meridian with an improved overall price for its electricity,” chief executive Mark Binns says.
The Tiwai Point smelter at Bluff is the country’s biggest electricity consumer. The site can use up to 630 MW of power but has been running only three of its four pot lines since early 2012 when record-low South Island hydro storage sent wholesale prices soaring.
Tiwai is currently using about 572 MW annually, fully-hedged under a new lower-priced deal it agreed with Meridian in August 2013.
But that deal, signed in the lead-up to Meridian’s listing, required the smelter to reduce its cover to 400 MW from January 2017 or have its entire supply return to the higher electricity prices set in a new contract settled in 2007.
Contact
Under the deal announced today, the price on that supply will increase. Meridian describes it as a “blend” of the agreed post-2017 price on 400 MW of load and a more market-related price for the balance. Prices also increase if the New Zealand dollar value of global aluminium prices rise above certain levels.
Today’s deal will also see Contact Energy provide Meridian with a financial contract for 80 MW of supply to help guarantee its hedged position.
The Contact deal will apply for at least four years and a maximum of 14 years commencing from January 2017. It also includes provision of associated risk management from Meridian to Contact under certain limited circumstances.
Genesis Energy has also agreed to provide Meridian with 50 MW of financial cover from Huntly for two years starting in 2017.
Meridian is committed to cover Tiwai Point’s electricity usage at current production levels through to 2030, but NZAS retains all its termination rights from the 2013 round of negotiations, which includes a 12-month notice of termination that can be given any time from January 1, 2017.
New Zealand Aluminium Smelters has said it wants to keep operating here and has been sounding out other generators about providing a hedge over the other 172 MW of supply. It previously negotiated an additional summer supply from Meridian but was unable to utilise that due to the impact on the smelter’s transmission bill.
Predictions
More than 60 per cent of participants in an Energy News poll had expected the smelter to keep operating at 572 MW. Just 13 per cent thought the smelter would close in 2017; 25 per cent thought NZAS would drop its load to 400 MW.
Twenty-two per cent of participants thought a deal would be announced with Contact and Genesis – the two companies most exposed to lower wholesale prices if the smelter was to reduce its demand.
On the plus side for the smelter, the weaker New Zealand dollar is offsetting much of the recent price weakness. Longer term, changes to transmission pricing proposed by the Electricity Authority should also deliver big savings for the site.
(more…)
