Fight goes out of big power rivals

By CHRIS DANIELS energy writer

With the attention of the nation focused squarely on the power crisis and savings campaign, the latest blow to electricity competition went largely unnoticed.

Trustpower, the country's fifth-largest electricity company, said it would no longer fight for customers in Christchurch and Wellington.

The last stand-alone power retailer, Todd Energy's FreshStart, shut its doors last month, selling all its customers to state-owned Genesis.

It all began so differently, on April 1, 1999 - a red-letter day for former Energy Minister Max Bradford.

This was the day New Zealand homes and businesses could choose which power company they wanted to buy their electricity from.

Bradford explained to the Herald then that every consumer now had choice.

"It's a very easy and virtually costless process now for both the companies and consumers to change. If you don't like the power prices you're paying from TransAlta or any other company, shop around."

But shopping around, Bradford-style, is no longer so easy to do.

Latest research from the Ministry for Economic Development shows that, taking into account recent changes in the retailers, there will be 25 local network areas with three or more retailers offering service.

There are 17 with only two retailers (the latest being Christchurch, where only Meridian and Contact are now competing). The worst served are the residents of the Scanpower and Centralines areas in the southern Hawkes Bay, where only one retailer, Meridian, supplies electricity.

It is understood that in Auckland, where Mighty River's Mercury brand is king, about 1500 customers a month leave it, but about the same number join up.

Contact Energy's Empower brand, the only other retailer to advertise to Auckland households, is the only real rival to Mercury.

Energy Online, part of Genesis, was the only retailer to expand its operations in the May 2003 quarter, moving into the UnitedNetworks (Waitemata) area on April 1.

Energy Minister Pete Hodgson's office said there had been some improvement in competition in the regions, but this was still not enough.

On Energy, once New Zealand's largest power retailer, is a distant memory, its customers sold off to the state-owned power companies, with 290,000 in the North Island going to Genesis and 128,000 South Island customers going to Meridian.

The plight of NGC-owned On Energy - which at one point in 2001 was losing $1 million a day - convinced all but the bravest retailers that selling power without your own generation was a risky game.

All On Energy customers are now with its one-time rivals, who try to match their generation output with customer demand.

Contact, the only big-four power company not owned by the Government, says this does not mean competition is dead. It says it could sign up nine out of 10 households tomorrow if they wanted to switch.

But at the moment its "book is full"; every unit of power from its power stations is committed to a Contact customer that needs it.

Critics of the electricity market structure say this vertical integration, the matching of retailing power to generation, discourages new companies joining the retail market.

Contact spokesman Pattrick Smellie said the small number of competitors did not mean consumers got a bad deal. He points to other sectors, such as petrol stations, supermarkets and telecommunications, where households have the choice of only a few rivals.

A 12 per cent jump in its customer base over the past half-year showed it was competing and winning business from its rivals.

But competition is not exactly cut-throat. An Aucklander will not see advertising for Meridian, nor will a Cantabrian be tempted by the wing-heeled messenger of Mercury.

Contact's Empower brand is the only company actually trying to entice new customers in most areas.

David Russell, chief executive of the Consumers' Institute, says the initial flurry of retail competition is now over and "the dreamers" have left the industry altogether, along with some overseas companies who thought they would make big money on these shores.

"We're down to essentially four big retailers, with two operating in most areas of New Zealand. Is it keeping the industry honest enough to have just two competitors? Maybe."

The real determinant of the price of electricity was always going to be the wholesale price and whether the retailer had its own generation.

That is why the five biggest power retailers in New Zealand are also the five biggest electricity generators. If the wholesale price of power is high, then they make money from their generation business. If the wholesale price is low, it becomes cheap to supply all their customers.

In Australia, competition regulator the Australian Competition and Consumer Commission is now opposing the purchase of a big Victorian power station by retailer Australian Gas Light.

Commissioner Allan Fels said the ACCC was "concerned at the prospect of large-scale generation and retail operations being put back together in deregulated markets where competition has yet to take root".

Russell says the four biggest companies left standing seem to be the logical result of the market structure and make sense for a country the size of New Zealand.

He sees little prospect of change until the makeup of electricity generation alters - likely to be when smaller power stations and dams are built to service local communities.

Only then is there a possibility for "boutique retailers" to again enter the electricity retail business.

Monopoly lines firms such as Vector and Orion are the most likely entrants into this business. Under the Bradford changes, lines companies were banned from generating power. They can currently generate up to 10 per cent of the power they shift over their network. An increase in this level is likely this year.

Mighty River Power's general manager of retail, John Foote, says the high fixed cost of electricity makes it hard for retailers to compete on price.

Mercury prefers to compete on service. It reads meters every month, offers gas, and has put effort into its online services and billing.

Foote says the expansion of the Mercury brand to other parts of the North Island, south to Taupo and up to Northland is going well, with the Waikato and Bay of Plenty potential markets.

"I wouldn't want to say that there's going to be no new players in the market," says Foote.

"It is surprising what a couple of new generating plants might do to the market ... A lot has happened and a lot more is going to happen."