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Wrong plans costing power consumers $39 mln - report

Being on the wrong electricity plan may be costing consumers up to $39 million a year, according to a study of household energy prices.

A review of billing data from nine retailers suggested thousands of households are on low-user plans when they should not be, and vice-versa.

While there is a large visible “hump” in the data where households that are close to the threshold for the scheme are on the wrong plan, that would not have a major impact on bills and doesn’t explain the rest of the data, the report for the government’s electricity price review says.

About 23 percent of customers with usage well below the scheme threshold are on standard plans and only some of those are for holiday homes which are exempted.

“This is unlikely to fully explain the 17 percent of households in decile 10 meshblocks - which are less likely to be holiday homes - that have low usage and are on a standard tariff option,” the report says.

“At the other end of the usage spectrum, some households with relatively high usage are on low fixed charge plans. This will appreciably increase their bills.

“It is not clear why so many households – at both ends of the deprivation and usage spectrums – are on the wrong tariff options,” the report said.

“It is possible that consumer inertia, or fear of making the wrong decision, accounts for some of the apparent misallocations. It is possible those consumers who have chosen a low-fixed charge tariff but have consumption higher than the threshold may have been confused and made the wrong choice.”

The government appointed a panel of experts in April to review the country’s electricity industry to test whether different types of consumers around the country are being fairly charged for power.

Within its brief was a review of the low user charge regime enacted in 2004 to reward consumers who used less power and to limit costs for the elderly and those living alone.

Submissions on the panel’s first report, which found no evidence of excessive profits in the sector, close today.

In its review of the billing data, published last week, the panel noted the low fixed charge regulations are not very effective in assisting the most deprived households.

While many low-income households benefit from the scheme, many do not. And the effect of the charges is that other households with greater usage pay a bigger share of fixed network and retail costs.

Almost half the consumers in the most deprived population decile will pay higher power prices because of the regulations, the study found. And that impact is compounded on networks that serve relatively poor communities.

“In the Eastern Bay of Plenty, the low fixed charge regulations are likely to result in money being transferred from one set of predominantly poorer consumers to another set of predominantly poorer consumers.”

The report also found the complexity the scheme created – doubling price plans nationally to more than 14,000 – had probably also made it harder for consumers to pick the best option for them.

The report found that on average, customers in the lowest income decile paid $79 a year more for power – after adjusting for usage – than those in the highest decile.

The actual difference in many cases was much higher, with the loss of prompt-payment discounts adding about $50 to some bills, but more than $250 to the bills of 5 percent of the lowest income households.

The report noted that while rates for pre-pay plans now generally match those of post-pay plans, users on the former tend to amass about $40 a year in additional fees.

Users on fixed-term plans tend to pay about $100 a year less than those on flexible options, while incumbent retailers in an area tend to charge about $45 a year more than their rivals.

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