Electricity Authority seeks protection for small retailers

Power companies face new restrictions on the widespread practice of "saving" and "winning back" customers who've decided to switch to another retailer for a more competitive offer, under new rules the Electricity Authority has released for public consultation.

The issue is particularly acute for small retailers trying to build a new customer base. As many as 10 percent of the 385,000 successful attempts in 2013 to get a customer to switch from one power company to another was reversed as losing retailers target special offers to encourage valued customers not to leave.

That is harming electricity retail market competition by making customer acquisition campaigns more expensive and, where only the most valuable customers are "cherry-picked" for saves, such campaigns could be unprofitable, a discussion document from the industry regulator says.

Industry figures show smaller retailers suffer most from "saves" and "early win-backs" and that one in particular, Pulse Utilities, has been losing 20 percent of its new customers to these practices, which often see customers offered inducements of between $150 and $300 not to switch retailer.

"For small and new entrant retailers, saves and early win-backs present a barrier to entry and expansion," the EA says. "The effect on profitability is greater for such retailers as the costs of an acquisition campaign have to be spread across a smaller (or non-existent) customer base."

To counter the problem, the EA is proposing to allow "retailers that are traders" to choose to be protected from both practices within the 10 day switching period or for up to 10 days after a switch has occurred.

"Saves are not possible in most markets, and are disallowed in some of the markets where they are possible," the EA notes.

Win-back offers would be allowed from 10 days after the switch had occurred. Retailers that chose to be protected would be bound by the same prohibitions if their own customers switched to competitors.

"The authority considers that the proposal is for the long term benefit of customers," the discussion paper says, arguing that the loss of save offers "would be outweighed by broader competitive effects" including increased marketing activity by acquiring retailers since they would make better returns than at present on the cost of customer acquisition campaigns.

It was also likely that retailers would increase activity to keep customers before switches were initiated, "making it more likely that a customer would receive an improved offer from their current retailer."

The paper notes that save and winback activity is not applied to all departing customers, but generally only to those who are known to be profitable, credit-worthy and loyal. Low-value customers or those with a poor credit record were less likely to be discouraged from switching.

Submissions on the proposed changes are sought by August 5.

(BusinessDesk)