"A large number of consumers are disengaged and have not switched retailers in many years," Woods said in the Government's response to the EPR.
"These consumers could receive better price deals but for certain reasons do not shop around," Woods said, with the EA pushed to develop a business case for the scheme.
Cameron Burrows, chief executive of the Electricity Retailers Association (ERANZ), said although the organisation was generally supportive with the direction of the EPR and the Government's response, there were concerns about the proposed pilot.
"The devil will be in the detail but it's important that people can choose for themselves, rather than having it done for them."
While price was the main driver for some customers, others bought electricity with other products, or preferred companies who sent physical bills or had customer service staff available.
"It's important that people engage and choose what's best for them rather than a situation where they say 'oh, the government just does that for me'."
Wholesale change
The Government is also pushing ahead with changes to the wholesale market.
Although there was little detail, Woods said the Government would require big companies to "sell electricity at affordable rates into the wholesale market to level the playing field for smaller and independent retailers".
The Government will direct the EA to do work to improve a market which allows retailers to purchase electricity for future use, a means of hedging against what the prices will be at the time.
"I propose to make clear the Government expects the [Electricity] Authority (EA) to give this matter high priority," Woods wrote in a Cabinet paper on the review.
"I want to be assured the fragility previously observed in the wholesale market at times of stress is not repeated in future, and I will make it clear I do not want to wait for a 'better solution' that might never be found."
New Zealand's four largest electricity generators, Contact, Meridian, Mercury and Genesis, already operate as market makers in the wholesale markets, where electricity is traded both in real time (the spot market) and electricity for future use (contract).
The EPR, which was chaired by QC Miriam Dean, warned the contract market under which companies and customers cover future demand was prone to stress when it was needed most: when the spot market was under stress, generally at times of high demand and unexpected disruption.
"The spread between wholesale contract buy and sell prices has become uncomfortably wide – exceeding 50 per cent at times," the EPR's final report said.
"Spreads of this magnitude are inconsistent with a well-functioning contract market and undermine confidence in it as a way to manage electricity price risk."
Periods of stress in the contract market tend to disadvantage retail-only companies, while the major energy companies can arguably sustain loses in their retail businesses due to unusually strong profits from generation.
The EPR recommended giving the industry 12 months to come up with a plan to improve the contract market itself, although Woods' statement suggests she wants the electricity regulator to move straight to finding a means to force generators to add liquidity to the wholesale market.
National's energy spokesman Jonathan Young said the changes failed to identify how much the moves would save households.
"Some changes seem perverse and poorly thought through, such as removing prompt payment discounts while retaining late payment fees, which will punish people who pay their bills on time. These discounts can reduce electricity bills by up to $600 a year for the average household."
