Energy Price Review – arguments against electricity pricing

01 May 2019

In 2009 a visiting expert on commodity studies from Stanford University, Professor Frank A Wolak, opined that each year New Zealand’s electricity consumers were paying around $700 per household more than they should.

This figure also applied to the tens of thousands of small businesses using small amounts of electricity. What followed was a studied silence from the industry.

Government’s Energy Price Review

In April 2018 after years of consumer electricity prices continuing to rise at a rate far exceeding inflation, the Minister of Energy and Resources appointed Miriam R Dean QC to, among other things, conduct an energy price review. The aims included investigating whether the electricity market, as it exists at present, is delivering fair and equitable electricity pricing.

There has subsequently been a great deal of debate and finger-pointing as to just who is responsible for an electricity market that delivers average monthly bills of around $300 to Kiwi households, while our Melbourne, Australia, cousins are charged roughly the same price per quarter!

All this while Aussie generators are burning expensive and polluting coal, gas and oil to meet demand, and we mainly use sustainable hydro generation that has paid for itself many times over.

Business Impacts

As business people, we are not immune from this unresponsive market. Our staff are consumers too and their budget pressures impact wage demands. We are also just the last cab off the rank when it comes to increased electricity price charges.

If you signed a new, fixed price, 24-month electricity contract last September you will now be paying around 20 per cent less for electricity than if you signed a similar contract today. Everything indicates that this trend in the commercial market will continue as the industry continues to “adjust” prices skywards.

The Power Players

There are several players that influence our electricity market. Let’s start with the retailers. Most of us are aware of so-called “prompt payment discounts” that offer between 10 and 20 per cent lower pricing if we pay on time. For individuals or businesses under financial pressure these discounts can often be unattainable as the need to pay staff, taxes or put food on the table trumps their ability to pay by a given date.

What many of us don’t realise is that these discounts are often not discounts at all. The retailer has just loaded the “discount” onto their usual rate, leaving the late payer under even more cost pressure.

To their credit Meridian announced an end to this practice last September. The price review panel chimed in last month and called for an end to this practice altogether.

To Switch or Not to Switch?

There are also the much advertised switching campaigns that try to persuade consumers and small businesses to switch suppliers in the hope of getting a better deal. This is a complete fallacy for small businesses and households under financial pressure. While retailers are only too happy to accept businesses or individuals with good credit records, they simply decline switch applications from distressed payers.

It could be said that’s the outcome of paying bills late but in many cases credit checks will, at a time when they need to watch every dollar, exclude people or businesses from beneficial pricing.

Many retailers have also, until recently, offered significant incentives to stop customers from switching. Fair enough, you might think, except that businesses that pay their bills on time and loyally stick with their preferred supplier are not offered these incentives, and so end up paying more despite being great customers.

This, along with many other structural impediments, is exactly why Ms Dean QC and her team are finally taking a long, hard look at how our electricity market functions. This year’s energy price review should prove interesting!