IT Brief New Zealand - Technology news for CIOs & IT decision-makers
Story image
NZ Compare calls foul of EA deal with Powerswitch
Thu, 20th Jul 2023

Consumer comparison and advocacy platform NZ Compare is calling foul on the Electricity Authority for extending a $2.8m taxpayer-funded contract with Powerswitch, despite widespread criticism of its failure to reduce consumer power prices.

The contract was first awarded from the EA in 2015 to help educate consumers on power pricing and plans to increase retail power competition. The goal is to halt electricity cost rises for consumers. 

NZ Compare says the system has been ineffective. According to the platform, only 6% of New Zealand consumers use Powerswitch to switch to a better deal, and without meaningful competitive pressure electricity prices have risen 20% faster than inflation over the last 14 years.

Powerswitch, owned and operated by Consumer NZ and majority funded by the Electricity Authority, is responsible for assisting consumers in finding and switching to the best power deals. However, NZ Compare and other critics have identified several critical issues that hinder Powerswitch's effectiveness in advocating for consumer rights and ensuring fair competition in the electricity market. 

The largest issues are a lack of listing all electricity retailers on their website, charging switch fees to retailers, and a lack of capability to and the information needed to properly compare bundled utility deals.

NZ Compare says the absence of a reasonable tender process during the contract renewal between the EA and Powerswitch in June is a concern. NZ Compare, which operates competitor site Power Compare, discovered that the contract was extended for two years without an open competitive process. 

"It raises questions about transparency and equal opportunities for all suppliers. More concerningly, the omission of a tender demonstrates a complete disregard to get the best result for the New Zealand public," it says.

NZ Compare submitted multiple OIAs in the months leading to Powerswitch being awarded the contract. 

"In early February I submitted an OIA request to the Electricity Authority about the tender. The EA said they'd get back to me, that took nearly three weeks," says Gavin Male, CEO of NZ Compare and Power Compare. 

"After further communications they responded with some interest to my proposal on the 8th of May, but they gave me no dates, timeline or anything concrete to work with."

Fast forward to June this year, the Electricity Authority awards a contract worth $2.8m to Powerswitch with no tender. 

"As an independent crown entity, the guidance for contracts over $100,000 is an agency should use open competitive procurement processes to give all suppliers the opportunity to compete," says Male. 

"By my math thats 28x unfair, and provides a disservice to taxpayers who are left funding a project that fails to help them save money when the cost of living is out of control."

 Male also points to what he says is Powerswitch's limited scope and functionality. 

"With only 17 retailers listed compared to Power Compare's 30, Powerswitch fails to offer a comprehensive view of the market," he says. 

"This undermines consumer choice and prevents Kiwis from accessing potential savings of $300 to $400 per year, as indicated in Consumer NZ's own methodology."

Data analysis from the Electricity Authority reveals that Powerswitch's switching rate has decreased to 6% since its engagement by the Government. 

"In contrast, Power Compare has witnessed website traffic grow to over 28,000 visitors a month. These figures indicate more could be done to stimulate competition in the energy market and that Powerswitch is not meeting the public's need," Male says.

 Male says when consumers are switching power companies it encourages retailers to consider their prices and become more competitive. With switching rates low, many larger energy retailers have announced record setting profits in the energy market. 

"Energy hardship is a real issue in Aotearoa, and in the middle of winter when people need warm, dry homes the most, they are being let down by a system that can't show them what the cheapest power provider is," Male says. 

"What's worse, they are paying for the privilege with their own taxpayer dollars."

According to MBIE's data, the power market's structure has allowed electricity prices to rise significantly faster than inflation over the last decade. In New Zealand, the average residential electricity price increased by 79% between 2003 and 2017, while inflation rose by just 27% during the same period. 

"Coupled with the rising costs of other essential household bills, this situation disproportionately affects vulnerable demographics, including Maori and Pacific households, renters, and low-income households," says Male. 

"It is crucial to address these issues promptly to alleviate energy hardship and promote fair pricing for all consumers."

Male says two solutions to increasing switching are giving the Electricity Authority the means to compel retailers participation within the system, and the removal of the $50 switching fee retailers must pay to receive new customers through Powerswitch.

"Giving the Electricity Authority the teeth to compel retailers to work with NZ Compare or Powerswitch will address a lot of shortcomings and help deliver a more effective and cost-efficient power comparison platform," he says.

"I would like to take things a step further and remove the switching fees imposed on retailers, and with $1.4m funding a year I don't understand why Powerswitch doesn't."

A recent report by the Electricity Price Review (EPR) from MBIE identified the need for improved competition and transparency in the electricity market to ensure fair pricing. The EPR found that consumers who actively switch retailers can save up to $390 per year on their power bills.

"NZ Compare urges the Electricity Authority to employ the tender process for future contracts and carefully consider the effectiveness of an organisation before awarding significant taxpayer funding," Male says. 

"Empowering consumers to make informed choices and fostering fair competition within the electricity market are essential steps toward improving affordability and reducing energy hardship in New Zealand.

"NZ Compare ensures consumers have access to the widest range of options available in the market. Consumer advocacy is at the core of its mission, and it will continue to work towards improving transparency, competition, and affordability in the power & electricity market."