Electricity Authority bans win-backs
The Electricity Authority has introduced a long-signalled ban on "win-backs", which commentators say will free up the retail electricity market and lower prices, Marc Daalder reports
Electricity retailers will no longer be able to entice former customers with steep and exclusive discounts, the Electricity Authority has announced. The regulator will prohibit retailers from targeting marketing to former customers for 180 days.
The prevalence in such "win-backs" skyrocketed in the years after the EA launched the voluntary Saves Protection Scheme, which sought to ban "saves". Saves occurred when a retailer about to lose a customer would offer them an exclusive deal.
These declined in prevalence after the protection programme stopped retailers from offering saves to customers who were switching to retailers that had opted in to the scheme. Retailers then turned to win-backs, offering such deals to customers immediately after they had formally switched. Now the Saves Protection Scheme will be expanded to all retailers, in addition to the win-back ban.
Long-time critics of the saves and win-backs practices said that customers who tried to switch received discounts that Kiwis who stayed with their companies didn't know were available. Now, competition will have to occur purely through electricity pricing, which Electric Kiwi CEO Luke Blincoe says will drive prices down.
"We've always said it should be a priority but it's better late than never," Blincoe told Newsroom. "In principle, this is a pretty good solution. It will see downward pressure across the market on the margins, which is to the consumers' benefit. We're supportive of it."
Under the previous system, apathetic, non-switching customers paid more than they would have if they had attempted to switch and received a save or successfully switched and received lower prices from a new retailer. This increased price, which Blincoe had previously described as a "loyalty tax" amounting to $500 million a year, subsidised the discounts offered to would-be switchers.
According to the EA, 750,000 households haven't switched retailers since 2002. Mercury NZ retained 40 percent of its would-be defectors through saves and win-backs.
However, Kevin Angland, general manager for Mercury's retail and digital operations, told Newsroom that the company was always "broadly in support of the recommendations".
"Mercury has been working consistently and over a long period to distinguish itself in how it serves and supports all of its customers. Our focus has been on engaging strongly with our loyal customers rather than seeking to win business at any cost. As a result we don’t see that we will be differentially impacted by the restrictions announced today."
Independent retailer Flick Electric also praised the regulator for its decision. "We hope that after being forced to ditch win-backs, companies will treat all their customers more fairly and even start to reward their loyal, long-standing customers," Flick chief executive Steve O'Connor said.
"The new ban will also encourage competition, as it will give smaller companies longer to prove themselves to new customers before the big companies swoop in with big deals that seem too good to turn down."
In submissions on the proposal, only Genesis Energy, Nova Energy and Trustpower explicitly opposed the ban on win-backs. Contact Energy and Meridian were described as having "mixed views".
In a statement, a Genesis spokesperson said the company "was not in favour of prohibiting saves and win-backs because we felt it would be detrimental to consumers who are the primary beneficiaries of this practice and will now not receive all the benefits of a highly competitive market".
"Positive outcomes for smaller retailers do not necessarily translate to benefits for consumers and we do not expect average electricity prices reduce as a result."
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