Time to give electricity the flick?

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heapsort

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#2486793 20-May-2020 07:01

ice2004:

Today I got a call from Powershop as I sent them my current bill with Meridian Energy to compare, I was advised that they Powershop will give me $150 credit if I stay with them for 12 months (Powershop did mention they dont have contracts) and also they will beat any other Power company offer I find and will give me credit on my account so I will never lose out (guaranteed savings) refer to Powershop website https://www.powershop.co.nz/why-powershop/guaranteed-savings/

I did mention the rate Flick (fixie plan) gives me and was promised that they Powershop will beat their rates and give me credit on my account to guarantee savings plus the $150 credit

what you think? should I sign up with Powershop or Flick?

Found a website dedicated to NZ power industry http://thatpowerguy.nz/

The answer to your question really depends on what is important to you. If it's just price, who knows. They are probably close enough that there's not much in it.

I've been happily with Flick for a few years now. Ex customer of Powershop before them, and Meridian a long time ago. Personally, I do not want to be a direct retail customer of one of the big "gentailers" (generator-retailers) like Genesis or Meridian or Contact because I dislike the ways they manipulate the market. I'd also not want to be with one of the smaller "independent" retailers that is 100% owned by a gentailer. So that excludes Powershop. If I was looking to switch from Flick, Ecotricity would be my first option.

boosacnoodle

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#2486824 20-May-2020 08:45

Anyone know why theres been so many spikes this week?

michaelmurfy

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#2486907 20-May-2020 11:04

boosacnoodle:

Anyone know why theres been so many spikes this week?

Cold, many people at home with heaters on.

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nickb800

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#2486975 20-May-2020 11:34

boosacnoodle:

SBQ:

This is VERY informative and never understood the workings of the Orion Network pricing scheme. I do agree, they should change their approach however, being mostly owned by the Christchurch City Council, it's is very very VERY unlikely they will change. Our city is vastly in debt and spending like crazy so they need every source of revenue as much as possible. Since living in NZ, I found this arrangement will a local gov't owns a critical asset such as electricity distribution.. makes a fair % of money off the residents ; it's as if they don't get enough $ coming in from all the rates payers. I suppose this is nothing new in NZ, we have many examples where gov'ts have ownership of key assets, like Auckland City Council owning the Auckland Airport, etc.

Yup. Total sham on Orion's part. The fact no other network doesn't it should be the tell tale sign. The fact that you can never reconcile it also means it's a truly terrible model (for the consumer). Presumably compliance costs on retailers are passed onto consumers as well.

How is it a sham? Sure, it's a complicated pricing mechanism and the retrospective element is a PITA, but at the end of the day they get the same return on their asset base as any other lines company - it's regulated by the ComCom. It's just a different path to get there.

The nature of peak demand charges from Transpower is such that there has to be some sort of retrospective wash up - Orion does it directly in the same year based on consumption. Other lines companies do it indirectly by adjusting rates across the board in the next year.

The ComCom doesn't let local government owned lines companies to earn a higher return than privately owned ones. And at least Orion isn't playing shenanigans with it's profits to avoid tax like the privately owned Wellington Electricity

boosacnoodle

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#2487003 20-May-2020 12:16

As you already know, the methodology doesn't allow retailers to accurately model what their true energy prices are going to be in future which results in inefficient consumer pricing making up for this so that retailers do not make a loss. It also makes price comparisons difficult as different retailers account for this differently.

Winter prices don't reflect reality as retailers smooth them
One of the impacts of this is that you'll now see Flick's pricing on the Orion network actually does not reflect the cost price anymore. Flicks approach is to smooth the winter peak charge across the summer months. This completely defeats the price signals to reduce power consumption at peak times. It also means that if you consume less in summer (maybe you have solar) you are actually paying more than you otherwise would have due to the price smoothing. Following a complaint a friend made, they have updated their marketing materials to reflect that it is "near" cost price. Ultimately, Orions stupid pricing model means Flick cannot deliver power at cost in Canterbury.

Retailers induce demand during network peaks, further overloading the network and increasing cost to all customers
Orions pricing model also doesn't fully account for peak periods. Electric Kiwi has a free hour of power. This is offered when generation tends to be of lower cost. However, on quite a number of occassions this coincides with Orions network peaks in winter. Ultimately this means Orion has to invest more to reduce the peaks caused by EK's customers at what they think is, but is not really, "off peak".

Admin costs transferred to retailers
The EA should really regulate Orion into using the same methodology as every other lines company (unless there is a genuinely compelling reason not to). There is an argument to be made here that having two separate pricing methodologies causes increases administration costs on retailers, as opposed to having just one methodology. Ultimately, who does this benefit? Orion has their admin costs transferred to retailers.

Overcharging to reduce rates bills
My final argument with Orion is that they overcharge on lines costs, make a profit and then distribute this back to CCC who ultimately use it to reduce rates. A much more efficient way of operating would be to just reduce the lines charges to reflect the actual cost.

In summary, Orion man bad.

nickb800

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#2487483 21-May-2020 06:47

boosacnoodle:

Winter prices don't reflect reality as retailers smooth them

Given that we don't have real-time lines charges in NZ (and that wouldn't be desirable), that will always be the case. Lines companies face charges from Transpower for peak demand after the fact. They all roll it into their costs one way or the other. For example, when setting tariffs effective April 2020, Electra makes adjustments based on their Transpower peak charges in the 2019 year. This provides an even blunter price signal than Orion's approach. The only difference is whether the lines company or retailer bears the uncertainty

Retailers induce demand during network peaks, further overloading the network and increasing cost to all customers

Surely peak demand between 9am-5pm and 9pm-7am are the exception rather than the rule. Orion's demand will peak far more regularly during mornings and evenings, so it is these periods that will drive investment

Admin costs transferred to retailers

Fair point - it is a complicated approach. But there is no truly simple alternative. If it's not the least bad approach, then it's pretty close to it.

Overcharging to reduce rates bills

That is simply not true - Orion's rate of return is regulated by the ComCom. In broad terms, they get the same return as any other lines company so whether they are owned by the council or not is moot. Even community trust owned lines companies charge to earn a "normal" return, then distribute a dividend to the community in the following year. They need to do this because there can be unknown costs in their business - like Transpower peak charges - and they need to know they have enough in the bank to cover them.

boosacnoodle

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#2487544 21-May-2020 09:46

I'm well aware of how the ComCom model works. However, Orion made a 25.8% profit after tax last year. That gets distributed back to it's shareholders (the council). That is excessive IMO and rates should be dropped unless there is exceptional circumstances.

nickb800

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#2487581 21-May-2020 10:19

boosacnoodle:

I'm well aware of how the ComCom model works. However, Orion made a 25.8% profit after tax last year. That gets distributed back to it's shareholders (the council). That is excessive IMO and rates should be dropped unless there is exceptional circumstances.

Umm that's a different company of the same name. Orion, the Christchurch lines company, earned a net profit after tax of 7.2% of shareholder's equity in 2019

BlinkyBill

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#2487583 21-May-2020 10:21

boosacnoodle:

However, Orion made a 25.8% profit after tax last year. That gets distributed back to it's shareholders (the council). That is excessive IMO and rates should be dropped unless there is exceptional circumstances.

didn’t they make $48m net profit after tax on revenues of $325m? And their distribution was $53m?

nickb800

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#2487604 21-May-2020 10:43

BlinkyBill:

boosacnoodle:

However, Orion made a 25.8% profit after tax last year. That gets distributed back to it's shareholders (the council). That is excessive IMO and rates should be dropped unless there is exceptional circumstances.

didn’t they make $48m net profit after tax on revenues of $325m? And their distribution was $53m?

I'm talking about profit in relation to equity (i.e. returns), you're talking about profit margins. ComCom regulates returns. A utility is always going to have a relatively high profit margin - utilities involve relatively large capital investments, so they need to earn a high profit margin in order to get a fair return on their investment. The profit of $48m (distribution of $53m) is their reward for owning $1,200m of assets (net $900m after debt).

7.2% return for a utility is normal - not excessive

BlinkyBill

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#2488578 21-May-2020 11:11

nickb800:

I'm talking about profit in relation to equity (i.e. returns), you're talking about profit margins. ComCom regulates returns. A utility is always going to have a relatively high profit margin - utilities involve relatively large capital investments, so they need to earn a high profit margin in order to get a fair return on their investment. The profit of $48m (distribution of $53m) is their reward for owning $1,200m of assets (net $900m after debt).

7.2% return for a utility is normal - not excessive

I was trying to point out that boosanoodle got his facts wrong. It’s handy, when presenting an argument, to base your argument on the correct facts.

I would agree that 7.2% is reasonable, and not excessive. And that return on equity is a better metric to base an argument on.

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