Genesis defends pre-pay premium
The boss of New Zealand's largest energy retailer is defending the premium it charges to pre-pay customers, saying the "budget-conscious" households cost much more to serve.
Genesis Energy's chairwoman, former prime minister Dame Jenny Shipley, and chief executive Albert Brantley came before the Commerce Select Committee in Parliament today, just weeks ahead of the company's partial float.
Labour Energy spokesman David Shearer said customers who were often on low incomes were paying hundreds of dollars more a year on pre-pay plans, even though retailers faced no risk of default as they did on those who pay on account.
In the instance of Genesis, which has 670,000 customers, the premium of pre-pay over account was up to $700 a year, he said.
Brantley acknowledged there was a high premium for some customers, but denied pre-pay was for people with bad credit ratings.
"It's people that are very budget conscious and look at ways to effectively manage the budget," Brantley told MPs.
He said the premium was justified, even though there was no credit risk because the customers paid before using the electricity.
"You still have the cost that comes with providing that [pre-pay] service, you have to service that service, you have to service those customers and they require a great deal more personal involvement than the normal customer."
When the company set up a pre-pay plan it quickly discovered that the extra costs made the plan not worthwhile.
"We made the decision that we weren't going to offer that option, and we would look at lower cost options that wouldn't attract the premium, that's why we're no longer offering that option," Brantley said.
He was later corrected by Shipley that the company was no longer "marketing" the pre-pay option that was still used by about 4000 customers, and Genesis had no plans to migrate them onto another option.
"We haven't moved the people who are on pre-pay off it because at the end of the day it's their choice if they want to stay on it."
Shearer said he found Brantley's explanation "totally unconvincing", but at least there was no denial that the customers paid much more. He claims that the gap between pre-pay and account is growing rapidly, in the case of Wellington customers from an annual premium of $229 two years ago to $694 today.
Shearer said that for some pre-pay was needed, but they were the ones who could not afford to pay more.
"Many people don't have any other option, they're forced onto pre-pay, but if they're paying up first they should get the same rate as a normal customer.''