Dialogue: Young electricity market needs time to grow

By KEITH TURNER*

It is almost inevitable that price increases for products from foodstuffs to fuel will spark a debate about the extent and the role of competition in the market.

How often have we seen the main petrol retailers increase their prices, seemingly in concert with one another, to howls of protest about lack of competition.

"They couldn't get away with it if there was genuine competition," is the catch-cry.

Yet anybody in the business of retailing liquid transport fuel is unlikely to doubt that the market is competitive.

With price offering only limited means of differentiating between brands, especially with products as generic as petrol or electricity, it is to other devices that competitors turn to win customers' hearts and minds.

The major oil companies battle it out for the motorist's dollar with a vast arsenal of marketing weapons such as competitions, giveaways, and one-stop shops offering the convenience of making other purchases with petrol.

With both petrol and electricity, the number of retailers in the marketplace is relatively few.

But as a recent report by the New Zealand Institute of Economic Research has suggested, competition is no less intense for a shrinking number of competitors.

Again, with price offering only limited means to differentiate between brands, competing retailers are looking to other means to win and keep customers.

Meridian takes the view that it operates in a competitive market. It is a national retailer, with its doors open across nearly the whole country and, apart from periods of major customer transition, it has done so since its start in April 1999.

Indeed, it has been the catalyst for competition in electricity in many parts of the country. At the heart of our competitive drive has been a strong desire to offer customers sharply increased standards of service as well as a range of innovative options for electricity supply.

Only three years ago, when electricity consumers had no choice, industry service satisfaction was measured at 43 per cent.

Now there is choice and multiple product offerings - and the service satisfaction statistics have risen to 60 or 70 per cent and are still climbing.

The journey to excellent service is a long one, and is far from over.

But our research tells us that our customers are beginning to see the benefits of our large investment in customer service at our retail operations centre in Christchurch.

Meridian has also taken a highly innovative approach to adding value to electricity supply.

An example was our ground-breaking partnership between Sky television and electricity, an initiative which was hugely popular up and down the country.

It is early days yet in the electricity market, and offers such as Meridian's Sky combination are a sign of things to come.

Some of our competitors now offer electricity with other combinations as a result of our leadership.

Meridian, for its part, is looking at other innovative ways of delivering benefits to customers beyond the supply of electricity. Competition is prompting us to do this.

Competition is also making itself felt at the large industrial end of the market.

This market had a significant price drop in 1998 when the competitive model emerged, and about $1 billion of value has been received over the past five years by the industrial segment.

Those prices were never capable of being sustained, and last year's winter shortage prompted a price reset.

While that has resulted in a painful adjustment for us all, it must be borne in mind that we are a modern economy, and we need to have a sustainable supply of electricity if we are to be the innovative country we aspire to be.

To ensure this, prices must be conducive to investment in new generating capacity.

New Zealand's electricity market is still in its infancy, and, as with anything young, it is in a stage of rapid evolution.

It is far from perfect, as anyone will acknowledge, but it has demonstrated it has the capacity to serve the country well.

To condemn it for its youth, using price and number of competitors as the only measures, is extremely shortsighted.

The new market has yet to achieve its full potential.

* Dr Keith Turner is chief executive of the state-owned enterprise Meridian Energy.