8 August 2022

Prepay pain: struggling customers resort to prepaid power

People who struggle to pay power bills are now more likely to be disconnected – and have to go onto pay-in-advance plans.

The results from our latest energy survey paint a rosy picture at first glance. Despite cost of living pressures, the number of people who say they’re struggling to pay their power bill hasn’t grown.

But dig a little deeper and you start to see where the pressure is having an effect. While the number of people struggling hasn’t grown, those who do find it hard to pay power bills are increasingly having their power disconnected and going onto prepay plans.

The number of people struggling to pay their bills who have been disconnected has doubled in three years

Of the people who have struggled to pay their bills over the past year, 28% have had their power disconnected before. That’s close to double what the same group told us three years ago. Among those who say they struggle, 15% said they’ve switched to prepay.

15% of struggling customers have switched to prepay

Data is from an annual nationally representative survey of 1500 New Zealanders, carried out from April to May each year.

Prepay customers 'self-disconnecting' when money gets tight

On the upside, prepaying helps you avoid big surprise bills each month by letting you monitor your usage. But if times get tough and you can’t afford to top up, the lights go out.

Consumer NZ’s Powerswitch manager, Paul Fuge, is our expert on all things energy and said the survey shows the strugglers are feeling the pressure more than ever. “They were probably struggling to pay before, but they were paying. Now they are increasingly being tipped over and losing that ability.”

People who struggle to pay power bills are now more likely to be disconnected and have to go onto pay-in-advance plans. He also suspects we’re seeing the result of retailers not being as lenient with people as they were during Covid lockdowns.

“As we come out of it, retailers will increasingly be reverting to their previous approaches. That will mean some retailers are getting a bit more aggressive again.”

Fuge isn’t surprised that more people say they’re having to go onto prepay, because disconnections and prepay plans can go hand in hand. “People in financial difficulty end up on these plans because when you’re ringing around to find a new retailer after previously being disconnected, you are likely to find it hard to get another retailer to take you. The prepay options are kind of the retailer last resort.”

But with freedom from monthly bills comes the ability to self-disconnect by not topping up. “People work out they can’t afford to pay for power so they’ll disconnect for a day then put money back on. They know the freezer will stay cold for so many hours and they’ll just hack it for a day.”

Self-disconnections a hidden problem

The country’s official statistics hide the issue. Each quarter, the Electricity Authority (EA) releases statistics around how many disconnections retailers have made because of unpaid bills. The latest results available, for October to December 2021, show 1699 disconnections – way down from the 11,672 reported in the first quarter of 2006, when the statistics started being recorded. But they don’t include prepay self-disconnections. “So the stats provide a more optimistic view on those going without than is actually the case,” Fuge said.

The EA also publishes the market share energy retailers have. The two big prepay power providers, Globug and Wise Prepay Energy, have about 27,000 customers between them.

It’s a constant frustration for Dr Kimberley O’Sullivan, a senior research fellow at Otago University, that the disconnection statistics don’t include prepay self-disconnections.

“The key thing I’ve been arguing for years is if reporting the real rate of disconnections was mandatory, we would see them tracking up,” Dr O’Sullivan said. “Your survey tells us what we suspected: that it’s true people are experiencing disconnection more and are being moved to prepay, where we can’t see if they need any help.”

She said the providers of prepay electricity would know how often people are self-disconnecting and for how long they’ve gone without power. “But they’re not required to share it, even though I don’t see the difficulty with exporting the data.”

In the United Kingdom, it was easy to see that when prepay connections started to rise, the number of reported disconnections went down, Dr O’Sullivan said. “So those self-disconnections became hidden and that’s what’s happening in New Zealand, and we just keep ignoring it. If you can’t see it, it’s easy to forget about it.”

She said it isn’t right that people are struggling privately – “not when we’re all in agreement everyone needs electricity to participate in society and everyone should have a warm, dry and healthy home.”

Having conducted surveys of people on prepay power plans, Dr O’Sullivan said some people just go a few hours without power to save money, but others have to go without for days while they wait to get the money to top up.

“When they’re disconnected for three days, they’re dealing with food spoilage – if they had any food in the fridge or freezer. They might get a food parcel but it’s not fun eating a tin of cold baked beans when you can’t even use the microwave. We understand now the effects that has on mental health – it’s not just physical health.”

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Young families most likely to move to prepay

Our survey shows households most likely to move to prepay are young families with preschool-aged children. In a study Dr O’Sullivan led in 2010, parents reported the toughest part of disconnection was not being able to do things like cook their children dinner or prepare a baby’s bottle.

“Even when disconnection is avoided, having to constantly reduce electricity use at home can increase family tension. We were told ‘the kids get sick of me telling them to conserve power’.”

But without the self-disconnection statistics being reported, it’s impossible to tell if any attempts to help households are working. “The Winter Energy Payment might have helped but we don’t know,” Dr O’Sullivan said. “It’s hard to evaluate if any of the things we’re trying are actually working.”

Despite all this, prepayment has its benefits, she said. “For people who are in a position to afford electricity, it can make energy use more visible in the home, which we need to encourage both for environmental reasons and because people should know where they’re spending their energy money.

“But is it right to put people who can’t afford it into a system where the companies can automatically cut their supply and they’re hidden from support services? If people don’t have enough money to cover the basics, prepayment isn’t going to improve their situation.”

What the industry says

Globug, the country’s biggest provider of prepay electricity, said disconnections happened at noon and on average 2.6% of customers were disconnected each day. The average amount of time before a Globug customer reconnects is just under two hours. Customers who haven’t reconnected by 4pm receive a text message from Globug. About 7% are still disconnected the next day and these people get a phone call.

Fiona Smith, general manager of customer operations at Globug’s parent company Mercury, said disconnections had slightly increased over the last six months. When asked whether it would be easy for companies to share disconnection statistics, she said the challenge was making the data meaningful.

“Raw data can’t tell us whether a customer has disconnected because they’ve vacated a property, whether they’re waiting until they’re home to top up or whether it’s because they’re in hardship. These insights come directly from the teams who are interacting with customers day in and day out to support those customers who need it,” she said.

“We appreciate that there is a view that greater clarity in this space would be of value and that’s something we’re keen to work together on.”

The Electricity Retailers’ Association of NZ (ERANZ) represents electricity retailers. Its chief executive, Bridget Abernethy, said it had set up a group to start collecting and analysing self-disconnection statistics.

“This information will further improve customer care of prepaid electricity customers in the future,” she said. Abernethy encouraged people struggling to pay for their power to talk to their provider.

“Our members are committed to working with their customers to find solutions to help them stay connected. These may include referrals to budgeting support services, the setting up of affordable payment plans, working with customers to ensure their credit rating is not impacted by debt, more information about initiatives such as the Winter Energy Payment or referrals to the EnergyMate programme.”

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