Deprived areas pay more for electricity than the wealthy

Monday, 22 October 2018, 6:49 pm
Article: NZ Energy and Environment Business Week

Most deprived areas pay more for electricity than the wealthy

This article first appeared in the Energy and Environment weekly bulletin on October 17

The Electricity Review Panel has released its initial analysis on billing data saying it shows people in the most deprived areas pay more on average for electricity than those in the least deprived areas.

The nine largest retailers were asked for the data and all provided it, with more than 50m individual bills supplied and analysed by decile meshblocks.

The released paper does not specify any policy implications, but lays out the Panel’s analysis of the data and includes areas for further work. It said consumers living in the most deprived areas pay around $79/year more on average for their power than consumers in the least deprived areas – after adjusting for differences such as usage levels. “This figure almost certainly understates the true level of difference,” the Panel said.

The biggest driver of this is the effect of lost prompt payment discounts. These raise bills for those in the most deprived areas by around $50/year on average. The data indicates 5% of consumers in the most deprived areas pay additional costs of $250/year or more due to lost prompt payment discounts.

Power charges are the next largest source of difference with consumers in the most deprived areas paying around $27/year more on average than those in the least deprived areas. Debt-related charges add around $9/year on average to charges for consumers in the most deprived areas. However, only 10% of consumers in the most deprived areas incur any debt charges, but for these consumers the average debt charge is around $100/year.

The Panel’s analysis was like work by the Electricity Authority showing households could make savings if they switched. This showed average savings of approximately $150/year to $250/year for consumers in the main metropolitan areas. Average savings vary more for other consumers, ranging between approximately $100/year to over $500/year in some areas.

Fixed terms were a significant factor with the data showing consumers on these pay on average around $100/year less than consumers on non-fixed term plans.

The difference between pre-pay households and those on standard plans has also dropped with them now aligned. Furthermore, the pre-pay rates match the average pay-on-time rates for post-pay service options. “However, consumers on pre-pay options may incur additional fees, such as for topping up their account. The analysis indicates pre-pay consumers on average pay approximately $40/year more than comparable consumers, primarily due to additional fees.”

The analysis also confirms the belief of most of the sector that low fixed charge regulations do not work. “The analysis indicates the regulations are not very effective at helping this group of consumers. Some consumers benefit from the regulations, but others end up paying more – and on analysis to date the two effects are similar in size.

“The regulations also have other unintended effects likely to be detrimental to consumers. Not all consumers choose the right type of plan. We estimate this raises total bills by up to $39m per year. Finally, the requirement to offer low fixed charge and standard options increases complexity (raising the total number of price plans across NZ to over 14,000). This added complexity is likely to make it harder for consumers to identify the best price plan for their needs.”

The Panel also said it would be looking further at the variation in power charges and marketing rewards.

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