Comment: Over the past month, electricity retailers have announced huge profit increases, at a time when the cost of living is putting additional stress on household finances. Our electricity market is made up of different elements; starting with companies that generate electricity and sell it to the wholesale market, others that then carry the electricity through the lines, some that own the meters that measure how much is coming into our homes, and the ones we know best – retail companies that households have contracts with to pay for all of this.
The thinking behind deregulation and arranging our electricity system like this was that it would create a market where people would actively search for the best deal and switch between electricity retailers who would compete to offer the cheapest and best service for electricity.
But in practice, this idea hasn’t worked well for keeping everyday electricity prices low for households, instead residential prices have continued to rise.
Firstly, people don’t tend to switch electricity companies very often – around half of New Zealanders haven’t switched for at least five years.
People experiencing energy hardship – when households can’t afford or access enough household energy to meet their needs – are often not able to switch because they have a payment plan, debt to their company, or use a prepay meter which costs more.
Secondly, our four largest electricity companies both generate and retail electricity and have a large share of the market: around 85 percent of households buy their power from these companies.
Our system hasn’t been working well to keep costs low for households for a long time, as evidenced by the 2019 Electricity Price Review and previous Ministerial Electricity Market Review in 2009.
These reviews suggested that electricity companies, particularly the big four that both generate and then sell electricity at the doorstep, dominate the market to the extent that competition is reduced, and their profit margins are larger than is reasonable.
Thirdly, it’s difficult for new retailers to start up because of the large costs involved in purchasing electricity to sell to households from the wholesale market.
The result? The four biggest electricity generator/retailers or ‘gentailers’ have just announced large profit increases at the same time new information shows households are increasingly struggling to pay their power bills.
Mercury reported earnings of $841m over the past year – up 45 percent from 2022, followed closely by Meridian earning $783m (up 10 percent), while Genesis earned $573m (up 5 percent), and Contact increased its profits by 19 percent, reporting earnings of $523.5m.
What do we know about the number of people in energy hardship?
Energy hardship is tricky to measure, but a number of new reports shed light on how many households are experiencing problems.
Looking at data from the Household Economic Survey in 2018/2019, we know that before Covid-19, 5.8 percent of the population, or around 110,000 households, were saying they were unable to keep their homes adequately warm.
Around 1 in 5 households (22%) in Aotearoa were spending at least twice the median household expenditure on energy after paying for their housing costs.
Post-Covid-19, the cost of living has increased, with housing and energy costs rising, alongside groceries, transport and other important spending categories.
In its June 2023 survey of residential consumers, the Consumer Advocacy Council found that 65 percent of households are concerned about electricity costs, up from 58 percent last year.
Similar to its previous survey, 42 percent of households say it is harder to pay than it was a year ago and the same number have experienced financial pressure in relation to their electricity bills.
Their results show that families, larger households, and lower income households are even more likely to experience financial pressure.
Concerningly, over half of people (58 percent and 56 percent, respectively) who are medically dependent on electricity to support their health at home, for example because they use a home dialysis or oxygen machine, are finding it harder to pay or are experiencing financial pressure due to the cost of electricity.
For those households not able to access a standard electricity account due to low-income or a poor credit rating, using a prepay meter that is credited in advance of using electricity is often the only option.
My research has consistently found that households using prepay are at greater risk of energy hardship.
Consumer NZ’s 2023 power company satisfaction survey found that 6 percent of households had switched to prepay because they had trouble paying their power bill.
The health costs of electricity retailer profits
When we have around one in five households experiencing energy hardship, and at least 110,000 households unable to keep their homes warm and dry, people in our communities – especially our older people and babies, and those with long-term health conditions or living with disability – are vulnerable to the health risks of cold indoor temperatures.
The result of allowing an electricity market that prevents people from being able to afford to heat their homes (not helped by our comparatively poor housing quality) is that on top of the stress and illness these people experience, we see excess hospital admissions we all collectively pay for through our public health system.
It has been calculated that cold homes account for 1834 hospital nights, and dampness and mould for 36,649, per year in Aotearoa, costing us an annual $141m in public sector health costs.
What can we do?
To ensure no one is forced to make impossible choices between heating and eating, we need to put people over profits.
We need to urgently increase consumer protections and hold electricity companies to account if they are not following basic rules for engaging with households, through making the electricity consumer care guidelines mandatory.
We need to reconsider banning disconnection and reconnection fees that penalise people who have been unable to pay for their electricity further.
We must ensure that buying electricity through prepay is not more expensive than on other plans, and make sure that we collect data on the frequency and length of auto-disconnections when prepay customers run out of credit.
At the same time, we must continue to increase the energy efficiency of our homes so that we need less heating to keep warm and stay healthy.
Other solutions may come in the form of not-for-profit electricity retailers (such as newcomer to the market, Toast Electric), increasing access to low- or no-cost solar panels for low-income consumers, or other innovative ideas coming from communities and iwi.
These are all options that will help a little within our current system.
If we really want to see no one is left behind as we continue our transition to a clean energy system, we may need to consider a more radical reorganisation of the electricity market to transform it to one that is truly capable of providing the best outcomes for households and health.