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Smaller power retailers cry foul over switching tactics

Niche electricity retailer Electric Kiwi has asked for urgent action address issues with the Switching Saves Protection scheme and Powerswitch website saying they are disadvantaging new entrant retailers, most consumers, and retail competition.

Papers release by the Electricity Authority’s Market Development Advisory group shows high levels of debate around the development of the Savings and Win back’s issues paper.

A letter from Electric Kiwi says the response to new entrant retailers gaining market share has been for incumbent retailers to adopt increasingly aggressive and discriminatory customer retention and acquisition strategies which focus on “switchers”.

“Saves and winback activity has increased to the point where some incumbent retailers are saving or winning back over 50% of the customers they lose (or would have otherwise lost). As a general rule, the more successful the incumbent ‘saves and winback’ strategy the less need there is to offer competitive prices to all consumers (including the majority who are “stayers”).”

The letter says “there is an increased prevalence of very sharply priced acquisition offers” only available to new customers which are leveraged off higher prices for “stayers”.

“While statistics such as trends in market share and the HHI index paint a rose-tinted image of improving retail competition the outcomes for consumers aren’t as positive as these would suggest. In a healthy, properly-functioning, competitive market all consumers should expect to benefit from increased competition.”

Other information provided to the Advisory Group shows 171,000 trader switches (8.8% of ICPs, 2018). This was with 226,000 switches initiated and 55,000 (24%) withdrawn. Also 40% of ICPs have never switched retailer

Electric Kiwi said the EA could usefully measure the extent to which “stayers” are missing out on the benefits of competition by using its information gathering powers to measure the widening gap between the prices for most of the incumbent retailers’ respective customer bases (the “stayers” prices) compared to acquisition and saves/winback prices (the “switchers” prices).

“If the current rule settings are maintained, and the incumbent retailers’ saves and winback strategies continue to become more widespread, the nature of competition in NZ may increasingly to look similar the UK retail electricity market which is now widely viewed as failing the majority of consumers and the subject of intense political intervention. The evidence from the UK suggests the consumers missing out on the benefits of competition are those for whom electricity is least affordable.”

The company said while saves and winbacks is back on the EA’s work programme it did not have confidence the review will be progressed and completed in a timely manner.

Electric Kiwi also took issue with the way data was shown on the Powerswitch website saying it showed a misleading picture about potential customer gains.

Papers released by the EA show a draft issues paper on the issue should now be before the EA Board.

Article originally published in the NZ Energy and Environment Business Alert on May 16.
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