ELECTRICITY RETAILERS DENY SECTOR UNCOMPETITIVE
6 May 2008Tina Law
Retail electricity companies are disputing a new report calling for more aggressive competition in the sector.
A retail competition study, conducted by UMR Research for the Electricity Commission, says a combination of consumer inertia and the lack of aggressive competitive behaviour among retailers had created a "sticky" market with consumers unlikely to switch providers.
It found 49 per cent of respondents could not name another electricity company in the local area and a further 33 per cent could think of only one.
The study said consumers had a low level of awareness of competitive options and were deeply suspicious that any switch they made on the basis of price would last.
Most people had not researched what other companies charged and 54 per cent had not been approached by another company to switch. Some 86 per cent were unaware of consumer information site Powerswitch.
Electricity Commission chairman David Caygill said the report was part of a wider review of the electricity market structure, including competition in the sector.
Caygill was reluctant to talk about how the commission planned to increase competition because it was only weeks away from releasing a discussion document outlining options on the issue.
But Contact Energy communications manager Jonathan Hill said competition for customers was pretty intense and Contact competed hard to retain its customers and gain new ones.
He said it had probably never been easier for people to switch companies because it could be done in one phone call.
Contact, which supplies more than 500,000 customers, had been going door to door in Christchurch and other regions throughout New Zealand to gain more customers and Meridian Energy had responded with a series of advertisements.
That, Hill said, was a good example of aggressive competition.
Trustpower community relations manager Graeme Purches said it was too simplistic to say the sector needed more aggressive competition.
The only way that would happen was if retailers increased prices and someone came in to undercut them, but no-one wanted to be the discount retailer because that attracted price-conscious people who often did not pay their bills.
"If people were overcharging for a product then competition arises out of that."
However, there was no fat in the system to give consumers a discount, he said.
Purches said in some regions in New Zealand, including Christchurch, the profit margins were so slim the company was not interested in gaining customers there.
Meridian Energy spokesman Alan Seay believed the sector was competitive.
Competition would increase only when there was more electricity to sell.
"When supply is tight there is not a strong incentive to compete and we've had tight supply for some time in this country."
© 2008 Fairfax New Zealand Limited. All Rights Reserved.
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