Bernard Hickey says households are too passive about their escalating power bills. They should look at switching, and the industry should help

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.