Government's threat to power companies: End prompt payment discounts or we will

Prohibiting power companies from offering prompt payment discounts is being considered by the Government, but they hope companies will do it without regulation. 

Energy Minister Megan Woods announced on Thursday the Government's response to the final Electricity Price Review which recommended prohibiting prompt payment discounts but allowing "reasonable" late fees. 

Woods said the Government welcomes the recommendation, but rather than immediately regulate retailers, she will write to the industry with the "expectation they make discounts available to all consumers". 

"When Meridian did this, it handed $5 million back to consumers," the Government's response said. "Should the companies not follow suit, we will regulate."

A Consumer NZ survey last year found more than a quarter of households with incomes less than $50,000 a year had missed out on prompt payment discounts because they paid late. 

Following the first report in September last year, Meridian Energy's chief executive Neal Barclay said he acknowledged prompt payment discounts were unfair on the poor, and pledged to stop them the next month.  

Six months on, the company observed no discernible difference in late payments, levels of customer debt or disconnections. The review estimates customers would save $45 million a year if other retailers followed Meridian's example.

"We will also be requiring retailers to follow Meridian's lead and change pricing structures to pass discount rates onto all customers instead of relying on hidden late payment penalties," Woods said. 

The Government's response to the review comes as residential prices have risen 48 percent since 2000, faster than those in other OECD countries.

The review was agreed in the Coalition Agreement with New Zealand First.

Energy Minister Megan Woods, Prime Minister Jacinda Ardern and Consumer Affairs Minister Kris Faafoi.
Energy Minister Megan Woods, Prime Minister Jacinda Ardern and Consumer Affairs Minister Kris Faafoi. Photo credit: Newshub / Zane Small

What else could change? 

Energy hardship has emerged as one of the most pressing problems the review has uncovered, with more than 100,000 households feeling it.  

Woods said work will "start immediately" on setting mandatory minimum standards to protect vulnerable and medically dependent consumers, as recommended in the review. 

Officials will start developing "statistical indicators of energy hardship" to assist in measuring and tracking it over time and assess the measures taken to help people. 

Extra financial support for households in energy hardship is also being considered alongside reforms to the social welfare system. 

The review recommended establishing a fund within six months so eligible households can buy items to improve the energy efficiency of their homes, leading to lower consumption and bills. 

To strengthen competition in the sector, the Government expects the Electricity Authority - an independent agency - to make it easier for customers to request consumption data. 

That could make it easier for new retailers to enter the market because customers might want to seek a better deal if they can see they're being ripped off. 

The review found that a large number of consumers are disengaged and have not switched retailers in many years. These consumers could receive better price deals but for certain reasons do not shop around.  

To make it easier for people to switch to a different provider, the Government is kick-starting a pilot scheme to help customers who have not switched power providers before to shop around for better deals. 

Power companies will be required to put information about how to make the switch, in the communications they send consumers.

The review has also raised questions about whether generators are making excessive profits at the expense of consumers, which it said risks undermining confidence in the wholesale market (the sale of goods to a retailer). 

Despite the review finding no evidence to support this, the Government is welcoming the recommendation to require those companies to report on the financial performance and to use a common set of rules. 

"I will urge the Electricity Authority to expand its monitoring of the wholesale market to include periodic comparisons of wholesale contract prices with new-generation costs," Woods said. 

Another issue raised in the review is the need meet the demands of increased electricity consumption as New Zealand moves on from burning fossil fuels. 

The Electricity Authority will examine the security and resilience of electricity supply, and the Government will ask them to report back on its solutions within 18 months.