The Riverbank Market provides a good example for fair electricity pricing
The Riverbank Market is a fair and efficient market accessible to everyone, where customers can compare the price and quality of products and make an informed purchase choice. Below is a simple comparison between the Riverbank and electricity markets as they currently operate.
The Riverbank Market: open to all sellers and buyers
Customer experience: At the market, it takes a consumer approximately half an hour to compare the price and quality of fruit and vegetables at different stands, and 15 minutes to buy.
Regulation: To sell produce at the Riverbank Market, stall operators must obtain a permit from Hutt City Council.
Benefits: This model benefits both consumer and seller - consumers can quickly compare quality and price of products and make an informed purchase decision, and sellers have access to a great many customers to buy their products.
The Electricity Market: designed to benefit large players only
Customer experience: In the electricity market, small consumers can only compare price through the Consumer Institute's website (http://www.consumer.org.nz/powerswitch). Though this website is a valuable tool for consumers, it only provides estimates based on average use, and only from the major providers.
In terms of quality, there is very little variation in the electricity market. Generally speaking, there are two 'products' of electricity: controlled and uncontrolled. The controlled variety is the second grade 'product', and usually includes hot water cylinders being turned off at certain times when demand is very high. Only a few providers offer other options such as cheaper electricity in the middle of the night. Also, the price difference between the two grades of electricity product is very small compared to other markets such as the Riverbank Market.
Regulation: The market's Rulebook is a thousand pages long with half a million words, and is being changed continually. Only the five big retailer-generators are able to use the Rules to their advantage. They generate 94% of New Zealand's electricity and sell 97% of it - small players barely get a look in.
In almost all countries, electricity is recognised as an "essential service". Under common law, an essential service must be supplied at a reasonable price. But in New Zealand, the Commerce Act 1986 extinguished this common law protection for consumers.
Benefits: The electricity market as it stands benefits electricity providers. These companies operate solely as businesses selling a product. They are allowed to maximise their profits whenever they can, even when this means withholding supply and driving prices up. Because there is no "essential service" protection, prices can rise continually, and not be seen as excessive by the industry or by Government.
How the electricity market could reflect the Riverbank Market model
While the Riverbank Market is in an entirely different industry to that of electricity, the electricity market could take pointers from this model.
Ideally, the electricity market would allow anyone to compare prices accurately with full information about the quality of the 'products' they are choosing from. For example, the information on the quality of the product could include how likely it is that partial or complete power cuts will occur.
At the Riverbank Market you know the price before you buy the product. The Electricity Market is different. Electricity retailers and major electricity users both buy electricity on the wholesale market. The price is decided after retailers and major users have made the purchase. Wholesale consumers get the bill a day or two late. Domestic consumers buy electricity on the retail market. Most of them only get an accurate bill two months after the meter is read. Before then they have no idea how much electricity they have used - it is not an easy job to read the meter yourself.
Another aspect of the Riverbank Market that provides a great example for the electricity market is the range and diversity of products available. Currently, five major electricity companies dominate the market and offer very similar products. Independent companies, such as Powershop, offer alternatives to that offered by large companies, but they are competing on the fringes. If the electricity market operated like the Riverbank Market, customers would be able to see all their options and the compare prices for each product.
Find out why domestic electricity prices are too high... and still growing.