As we’ve mentioned in previous blogs, NZ’s electricity prices have been rising faster than inflation for a good few years now. In fact, we’re paying a whopping 79% more for power compared with the prices of 1990, and that’s blimmin’ tough on a lot of us.
For many Kiwi households, these changes have had a heavy impact on how we use our power: one University of Otago study found that nearly 20% of participants had gone without heating because they couldn’t afford to pay their power bills, and, as a power company, we don’t think that’s OK. Electricity is necessary in order to live a healthy and happy life, but that can only happen when we’re backed by an electricity market that takes care of all Kiwis - and especially our most vulnerable members of society.
So how do prompt payment discounts fit into this?
There are a number of issues with our current electricity market that contribute to unaffordable electricity prices, and prompt payment discounts are one of them. In the industry, they’re also commonly known as ‘late payment penalties’ because that’s exactly what they are, adding a penalty fee to the bills of those customers who are unable to pay on time.
Isn’t it more of a reward for those who do pay on time?
On the surface, prompt payment discounts do look like a legitimate way to encourage customers to pay their bills on time. And that’s great if you can afford to pay your bill on time, every time. But, in reality, prompt payment discounts are failing to take into account the very real challenges and needs of those folks in our communities who we should be looking out for - those with financial difficulties (often coupled with health risks related to age, health or disability) which can mean there’s a genuine struggle to pay power bills.
Fair enough! But doesn’t it cost power companies when bills are paid late?
That’s right, it does. But prompt payment discounts generally add between 10% and 26% to a household’s power bill, which is well above the actual cost to retailers of a late bill payment. So rather than rewarding those who pay on time, they’re heavily and unfairly penalising those who already can’t afford to pay their original bill.
So it’s partly about an attitude change, then - from making money to taking care of each and every customer?
Absolutely. We know that energy poverty – that’s having to spend 10% or more of your income on fuel to keep your home at a healthy level – is a very real problem here in New Zealand. Our homes are notoriously cold, damp and poorly insulated, and according to University of Otago research, energy poverty is thought to be a factor in our high rate of excess winter mortality and hospitalisations for respiratory issues. So adding to the problem by punishing the very people that need help to keep their homes warm and healthy seems, in our opinion, counterproductive and just plain wrong.
Will the other power companies get rid of prompt payment discounts?
We hope so! The Electricity Price Review (EPR) panel has recommended that prompt payment discounts be given the boot. Power companies will be allowed to charge late payment penalties in order to help them recover costs, but they’ll be required to reflect that actual cost.
As far as we know, Meridian is the only power company to have completely removed prompt payment discounts in line with the EPR panel’s recommendations last year, however, with the Government’s looming EPR announcement (any week now!), we’re hopeful this will see an end to prompt payment discounts across the board. Stay tuned!