Vector responds to first report on retail electricity

Vector has today responded to the Government’s first report of its findings into retail electricity pricing, saying it highlights legitimate concerns that consumers are not yet benefiting from real competition or from technology advancement in New Zealand.

Vector Group Chief Executive Simon Mackenzie said, “At the time the initial terms of reference for the review were published, we strongly agreed with its stated focus on delivering efficient, fair and equitable prices to end-consumers, the importance of new technology for the sector, and responding to the challenge of climate change.

“The first report identifies legitimate concerns. It raises concerns about the wholesale electricity contract market and the market dominance of the vertically integrated companies who own both generating and retailing arms. The top five of Gentailers now make-up more than 90 per cent of the retail market in New Zealand.

“We also note the concerns about the ‘two-tier’ market of ‘haves’ and ‘have-nots’ – as found in the similar Australian and UK markets. According to the review panel, the average gap between the cheapest retailer price and the incumbent retailer price has increased by about 50 per cent since 2002 and many customers are unaware of the difference and do not shop around for the best price.

“Also of concern is the alarming issue of prompt-payment discounts, which in many cases effectively acts as a ‘late-payment penalty’ of up to 26 per cent of the bill, disproportionately penalising vulnerable New Zealanders unable to pay on time. It’s difficult to see how this state of affairs benefits consumers.

“We believe technology will continue to play an increasing role in promoting efficiency, choice and fairness for consumers. One of the reasons Vector has taken the lead on new energy technologies is because we want to ensure all consumers benefit and those benefits are as evenly distributed as can be. We are incentivised to use technology to enable smarter, more resilient, and lower cost network management and to provide consumers with access to greater control and lower energy costs.

“It is therefore vital the final outcomes of the review do not have the unintended consequence of discouraging investment in innovation from those with the most incentive to invest, and do not increase the risk of some consumers being left behind as the sector inevitably shifts away from legacy generation and transmission towards the distributed energy sources that will underpin the decarbonisation of our sector.

“While we are broadly supportive of the initial review findings, we do note they raise the topic of perceived lack of access to distribution networks. From Vector’s perspective, we are not clear on the problem they seek to solve – we already have a network with literally thousands of independently owned energy assets connected to it, ranging from traditional centralised generation sources, residential and commercial solar and battery systems, electric vehicle (EV) chargers and EV’s themselves. It is in our interests and in the interests of consumers to ensure distributed assets can work with our network.

“Finally, we caution on the risk of pricing policy being too reliant on economic theory. The focus should first and foremost be on what consumers want and expect, which in our experience is simplicity, fairness, transparency and choice. Basing pricing policy on theoretical economics risks increasing the complexity of tariffs and bills, potentially distorting the market and disadvantaging some consumers. As we have seen in other sectors such as telecommunications, banking, retail or entertainment, consumers value simplicity and certainty in the pricing of services, not complex tariffs as appears to be initially proposed. As the review panel themselves admit, “changing price structures will create winners and losers, and this will need careful management.” This is a concern we share with the review panel.”

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