Meridian Energy has axed "unjustifiable" prompt payment discounts, effectively cutting its power prices to all customers by the 10-to-16 per cent discount it has traditionally offered to those who pay their electricity bills on time.
The move gives Meridian the moral high ground after Tuesday's initial report from the government's electricity review panel criticised the widespread use of the discounts, which really operate as penalties on customers who pay late.
The impact of those penalties made electricity more unaffordable for low-income households, which were the most likely to pay their power bills late. The review panel's report was less critical than the industry had feared about the way the electricity market works, but focused heavily on the more than 100,000 low-income households who spend more than 10 per cent of their income on electricity.
Meridian chief executive Neal Barclay told BusinessDesk that Meridian had been looking at doing away with prompt payment discounts for more than a year and had concluded they were "unjustifiable".
"When we looked at the cost of following up to recover debt, it was a fraction of the value of the discount we were taking away. That makes it manifestly unfair."
The move was expected to cost Meridian around $5 million a year in lost revenue, but Barclay did not expect an increase in bad debts.
While there was a tiny percentage of customers who were "just taking the piss" and never intended to pay their power bills, "99.5 percent of customers do want to pay." The company also had numerous ways of assisting low-income households to pay their power bills, including payment plans, a "level pay" product that keeps monthly bills the same throughout the year, and options to pay for power weekly rather than monthly.
"People who are struggling, we can work with them," said Barclay, who expected Meridian to be "a bit firmer with new customers coming in." Nor did the company intend to become "a bank for the big end of town" and would ensure commercial customers paid their bills on time or faced a penalty charge.
The company will move tariffs for its residential customers to a single advertised rate in coming months as it changes back-office billing systems that have been hard-wired to include discount calculations.
Rival power retailers are likely to come under pressure to follow suit, with Contact Energy particularly exposed as it has led the market in raising the size of its prompt payment discount to 22 percent.
Barclay suggested the prompt payment discount approach had come into the electricity industry because it had historically been owned by local government entities, which charge late fees on rates bills.
"We're the only industry that does this. The only others are councils. That's where the industry came from. It's a local government approach and it stuck."