Power companies face ban on "saving' departing customers

Power companies face a ban on so-called "save" calls, where they ring a customer departing for a rival and try to entice them back with a better offer, to the dismay of large electricity retailers.

The Electricity Authority published its decision today to ban the practice, but has stopped short of banning "win-back" offers, in which an electricity retailer tries to entice a customer who's switched power companies to return to the original supplier after the switch has occurred.  Retailers wanting protection from "save" activity will have to opt in to the scheme, which will also require them not to make save calls of their own.

The move comes after complaints from small, often start-up retailers that they were losing money on campaigns to entice new customers away,, only to have the customer change their mind after a "save" call from their existing provider that, in some cases, offered inducements of up to $200 not to switch.

The size of the "save" inducement is generally related to the quality of the customer in question, with power companies willing to sacrifice unprofitable customers but bid high to keep high value customers.

A similar prohibition on saves applies in the telecommunications industry.

However, Tauranga-based TrustPower, which the EA identified as one of the most hard-hit by such save call activity, remained opposed to the move.

"Blocking saves is not in the best interest of the consumer, and has not been proven to increase retail competition," said its operations general manager, Chris O'Hara. "There are major flaws with the problem definition, the complexity introduced to the market by the opt-in system outweighs the authority’s perceived benefits, and .... there are no examples of save blocking in other electricity markets," he said in a statement to BusinessDesk.

"Despite the fact that Trustpower has been shown  to be one of the retailers most impacted by saves of its acquisitions, we do not support any restriction on retailers’ current ability to save or win back customers they lose."

In particular, Trustpower had discovered misleading sales activity by competitors through the save process.

"The removal of this safety net will, we believe, increase the frequency of this sort of behaviour," said O'Hara.

James Munro, general manager for retail electricity at MightyRiverPower, which owns the Mercury brand, said the ban added a costly layer of unnecessary bureaucracy to a market that was functioning competitively.

"If saving is negative for competition, for which we do not believe any evidence has been established, then it should just be banned outright. This would be a preferable outcome to the halfway house of allowing retailers to choose to opt-in/opt-out, which will undoubtedly have unintended consequences," he said.

Genesis and Contact Energy declined comment and Meridian Energy did not respond to requests for comment.

The EA concluded, after investigation and taking submissions from the industry, that saves and win-backs both had the "potential to have a negative impact on retail competition."

The only exception to save activity will be if a customer initiates contact with the electricity provider they are switching away from before the switch is completed.

(BusinessDesk)