In its ongoing attempts to promote more choice for electricity consumers in New Zealand, the Electricity Authority has banned electricity companies from luring back customers who have left for cheaper deals elsewhere.
The ban on trying to win back customers with cut-price deals will last for 180 days after a customer has switched to another retailer, and comes into effect at the end of next month (March 2020).
The background to the ban
Five years ago, the Electricity Authority undertook a project to understand the effects of win-backs in the retail electricity market.
It was concerned that the big gentailers (companies such as Contact and Meridian who generate power and then sell it through their own retailing divisions) could use the practice to stop their customers switching to smaller electricity retailers, thus stifling competition.
As a result of its research, the Electricity Authority passed legislation preventing companies from luring back customers. However, the rules only prevented win-backs occurring during the account transition period, it didn’t stop companies from pursuing them directly after the change had taken place.
As a result, all the legislation did was increase the number of people switching back and forth between electricity suppliers. So now, the Electricity Authority is extending the ban to a half-year period.
What it means for consumers
If you look at the new ban on a case-by-case basis, it can seem counterintuitive. How can stopping an electricity company undercutting a competitor’s deal be a good thing? Surely, it’s all about lower prices? And it is!
On announcing the new legislation, James Stevenson-Wallace, chief executive of the Electricity Authority, said: “Banning win-backs is good for consumers. It is an incentive to retailers to offer better prices and products to their customers upfront, rather than waiting until they decide to leave before offering them a better deal.”
It’s just one of the aims of the new legislation, which also aims to:
1) Encourage an electricity provider to offer its customers the best deal upfront, before they choose to seek a better deal elsewhere.
2) Reduce the administration costs associated with customers frequently changing providers. This has bigger implications for smaller providers with fewer customers, allowing the savings to be passed on to customers through lower energy prices.
3) Provide a level playing field for smaller retailers to win customers and expand, thus increasing competition and lowering prices for all consumers.
4) Make the electricity retailers work harder for their customers’ business, and consumers more aware of the different deals and cost savings available.
Overall, it will also prevent the big players from exploiting their customers through the use of loyalty taxes. In a submission to the Electricity Authority backing the win-back ban, small electricity company, Electric Kiwi, stated that: “The win-backs problem alone means consumers are paying circa $500m per annum in loyalty taxes.”
Regardless of which utility provider or financial institution you’re talking about – from broadband, mobile and electricity, to banking or insurance – they increasingly punish our loyalty by upping premiums gradually, year in and year out.
The sign-up deal might be great but, once the initial honeymoon period is over, costs and premiums increase. That’s why it’s essential to keep track of what plans you’re signed up to and to monitor the cost of these plans.
To help you choose the right electricity company to power your home, check out Canstar’s latest satisfaction ratings, where we rate and compare the country’s leading providers on how they perform on qualities such as value for money, customer service and environmental sustainability.
Enjoy reading this article?
Sign up to receive more news like this straight to your inbox.