This article first appeared in Law News Issue 19 (20 June 2014), published by Auckland District Law Society Inc.
There has been some heated debate this year about electricity prices. One aspect of that debate has focused on billing – whether consumers get enough information about what they are paying for energy, as opposed to lines services. The Electricity Authority is currently considering what, if anything, should be done.
In simple terms, electricity in New Zealand is produced at a generator’s power station, transmitted long distances over Transpower’s national grid, then transported further over a distributor’s local network, before being sold by a retailer to a consumer.
In some cases, a consumer has a direct contractual relationship with both the distributor and the retailer (and receives separate bills from both). Often, however, the consumer deals only with the retailer. The retailer charges the consumer for both energy and lines services, then pays both Transpower and the distributor. In that situation, it is not always easy for the consumer to understand what is driving the overall price. Especially when the overall price is rising, that arrangement can lead to tension. The consumer may blame the retailer; the retailer may point the finger at the lines companies.
Recognising that issue, successive Government Policy Statements issued during the early 2000s emphasised the importance of pursuing “transparency of charge components”. Little practical progress was made towards achieving clarity, however.
The “Improving Transparency” project
Responsibility for overseeing the broader electricity market has now shifted to the Electricity Authority (Authority). Since the passage of the Electricity Industry Act 2010 (Act), the Authority has been charged with overseeing the Electricity Industry Participation Code (Code) which governs the electricity industry.
With respect to the retail electricity market, the Authority takes advice from a Retail Advisory Group (RAG) consisting of stakeholders from across the industry. In 2013, the Authority asked the RAG to consider the question of transparency of consumers’ electricity charges and recommend alternative approaches that would promote competition by allowing consumers to better understand what is driving price changes.At an early stage in its work, the RAG identified several options for the Authority:
- do nothing (i.e. leave retailers to consider whether to provide better information to consumers);
- take a more active role in educating consumers;
- require retailers to provide greater information to consumers at an aggregate level;
- require retailers to disclose the component charges on consumers’ bills (a less disruptive alternative than requiring lines companies to invoice consumers for their services separately, as suggested by some participants in the market).
The RAG carried out extensive consultation, and reported to the Authority in April 2014. The details of the RAG’s recommendations are not currently public, but it appears that the RAG’s preference was for the Authority to consider the issue as part of an existing wider project to improve the quality of retail data available to all stakeholders. Whether that workstream will mandate some form of ‘unbundling’ of component charges on consumers’ bills remains to be seen.Currently, the Code does not require that consumer bills be broken down. If the Authority concludes that there should be greater disclosure of component charges, it may need to consider amending the Code under section 38 of the Act. In that case, careful analysis of the feasibility and net cost of such an amendment would be needed under section 39 (even greater complexity would arise if the preference were to instead require lines companies and retailers to invoice consumers separately).
There are, of course, other ways in which this issue could be addressed. One is by way of legislative reform. Labour’s David Shearer MP has drafted an Electricity Transparency Bill, which would insert a new section into the Act requiring each consumer’s bill to itemise the components arising from generation, transmission, distribution, retail and taxes and levies (it is not entirely clear how that change would fit with the NZPower initiative, if Labour are successful in the election later this year).
Another option would be to look at the issue through the lens of the Fair Trading Act 1986. Section 9 generally prohibits engaging in conduct that is misleading or deceptive, or likely to mislead or deceive; more specifically, section 13(g) prohibits making a false or misleading representation with respect to the price of any goods (which includes electricity). In 2003 and 2004, the Commerce Commission negotiated settlements with several retailers in respect of statements wrongly blaming lines companies for price rises. Whether particular conduct or representations fall foul of these prohibitions can only be determined in the particular circumstances, but it is obviously possible that a regulator or disaffected commercial partner will take action if there is a risk of consumers being misled.
The electricity market is notoriously complex, and so often misunderstood. It has also become a politically sensitive topic in this election year, making the Authority’s task just that much harder. As is so often the case when dealing with such delicate regulatory balances, it will be challenging to chart a successful course between the competing interests of diverse stakeholders and achieve a sustainable solution.