Electricity disconnection: an unregulated threat for households

According to Consumer NZ’s electricity survey, this happened to an estimated 40,000 households in the past year, and not due to power cuts, but because they couldn't pay their power bill. We also found that, over the past 12 months, one in five households had trouble paying their monthly power bill – that’s around 361,000 households.

Electricity is essential. The risks to our health and the healthiness of our home are serious if supply is cut off. Yet, with the cost-of-living crisis, it’s harder than ever for many New Zealanders to meet their monthly power payments.

What is the problem with disconnections?

In 2007, Folole Muliaga passed away after her power was shut off because of an outstanding balance of $168.40. Muliaga was terminally ill and using a home oxygen machine. She died just hours after her power was cut.

More recently, the Consumer Advocacy Council surveyed 1,000 New Zealand residents and reported that over the year until June 2023, 34% of medically dependent consumers experienced disconnection pressures – this means they are seriously concerned about, are struggling not to be or have been cut off from their electricity supply.

Among people aged 18 to 39 years, 14% experience the same disconnection pressures.

Disconnection data excludes prepay customers

After Muliaga's death, disconnection rates dropped from 44,055 in 2006 to 10,775 in 2008 – according to Electricity Authority (EA) data. However, the rate slowly built up again and by 2013, disconnections had risen to 37,751.

Now this figure could be even higher, because since the introduction of modern prepay in 2013, auto-disconnections – disconnections due to lack of credit – are excluded from the official data.

By 2016, reported disconnections had dropped again to 23,703. However, as prepay disconnections were excluded, this didn’t represent the actual number of households going without power for non-payment. The trend continued and in 2022 only 8,564 disconnections were reported.

Yet, although the lowering figures are a good sign, we believe the omission of prepay auto-disconnections means these figures do not reflect the reality for prepay customers.

Disconnecting on prepay is framed as a choice

Many New Zealanders who are struggling financially often have no choice but to opt for prepay power, as it avoids the need for a monthly lump sum payment. In our survey, 6% of households said they had to switch to a prepay plan because they experienced trouble paying their electricity bill. Of those on prepay plans, 50% said they had been auto-disconnected at some point.

Prepay plans claim to offer consumers more control over their financial input. The idea of this is that if you’re about to run out of power, you simply top up your account. However, if you don’t have money to top up, you’ll be disconnected. Disconnecting on prepay is framed as a choice.

Contact Energy, Globug (owned by Mercury) and Wise Prepay (owned by Nova) all emphasise in their advertising how prepay gives customers greater control over their bills and money, which helps with savings.

Many consumers facing financial hardship also find they are locked out of the cheaper electricity plans that would help alleviate their situation. Retailers are not obligated to take on consumers and any history of previous non-payment can make those customers less appealing. In our survey, 9% of respondents told us they had been denied as a new customer of an electricity provider because of previously missed payments.

Yet, Consumer found people on some prepay plans are charged, on average, 14% more for their power than those who have access to the lowest cost plans.

Prepay is failing struggling New Zealanders

Dr Kimberley O’Sullivan has been studying energy poverty for the past decade and is currently a senior research fellow in the Department of Public Health at Te Whare Wānanga o Otāgo ki Pōneke (University of Otago, Wellington).

“[Prepay is] a really hidden space and so we're not fully on top of the struggle that people are having,” O’Sullivan told Consumer. “We aren't tracking it, and we don't require any disconnection statistics to be shared in any way [and] there's been no moves to improve that, since, you know, I started looking at this in 2011– 2012.”

If providers are under no obligation to record and share prepay disconnections, then New Zealand is unable to reliably track how many people are struggling and need support.

“We do things to make sure that people get access to the other essential services,” O’Sullivan said, referring to policies around healthcare, housing, water and food. “But we don't […] give people what they need in terms of electricity. We don't even really check when they're without [power]. If a company knows that they've disconnected someone there's no [legal] obligation to then go and check, to see if they got reconnected, follow up, like there's nothing.”

Prepay power has been around for a long time. There used to be coin meters, then cards you could load with credit, then codes and phone payments, and now online payments, including with a credit card, although that’s not a viable option for many customers.

O’Sullivan said, “Most people that have prepay, do not have a credit card. If they've got a credit card, it does not have any money on it ... It's not a great option to be putting your essential service on a high debt credit card.

“I think that's the main problem with how we're using pre-payment in this country. It's not a good system for the group of people who genuinely cannot afford to pay and need additional support to access an essential service and a human right.”

Connection charges are making prepay inaccessible

Vanessa Mazzola is an economic harm specialist at Good Shepherd NZ, an independent charity that helps those struggling financially. She told Consumer that the connection charges that come with some prepay providers make it inaccessible for those it’s designed for – stressing how even $30 can be really difficult for some clients to have.

Some companies also charge to reconnect you – on prepay, as well as post-pay. Fees range from $22 to $242, depending on your provider. If you’re on a post-pay plan it costs more, but the time of day also affects the charge, with reconnections after-hours costing more. Charging reconnection fees to access a necessity which is already unaffordable for people who have been disconnected, appears counterintuitive.

These pressures do not affect everyone equally. The Consumer Advocacy Council reports that while 10% of people overall experience payment pressures with respect to their electricity, for Māori it’s 15% and Pasifika 26%.

O’Sullivan confirmed this, saying studies consistently show an increased risk of energy poverty for Māori and Pasifika people, as well as other at-risk groups, such as single-parent families, older people, households with children, people living with a disability, tāngata whaikaha Māori, and tertiary students.

“We need to do better to support people who aren’t being well-served and having their electricity needs met through the current market system,” O’Sullivan told Consumer.

What needs to change

As someone who has experienced unmanageable debt and electricity disconnections in the past, Mazzola understands people’s struggle and the effect energy poverty can have on whānau. Her role at Good Shepherd NZ now involves supporting clients who are experiencing the financial and economic impact of family violence.

Mazzola reported that Good Shepherd NZ is seeing a significant change in power companies wanting to do better for their customers.

“We've had power companies reaching out to us, wanting to work with us, and to learn more about what we do, and … what they can do to help their customers,” said Mazzola.

Some providers are developing specialised teams to work with vulnerable customers and those experiencing hardship. Other providers are collaborating with Good Shepherd NZ and asking for its support and advice.

These initiatives are leading to positive results for some New Zealanders. Mazzola reported that, after working with Good Shepherd NZ, one provider took on a client with a bad credit record who otherwise wouldn’t have access to power, while another has given discounts to struggling consumers.

However, Mazzola thinks more choices are still needed for consumers who are struggling. Consumer agrees. We think there needs to be more of this sort of action happening across the board and it needs to be mandated.

More protections are needed

Consumer reached out to other organisations supporting New Zealanders experiencing energy hardship or harm. They had the same story to tell.

Christians Against Poverty said rising prices across Aotearoa are having a “squeezing effect” on New Zealanders’ financial and emotional resilience. People are allocating more of their income towards essentials, which continue to go up in price, making it harder for them to avoid debt, pay off debt, or establish some savings.

These pressures work together to make it harder for people to manage their finances and life.

Chair of the Consumer Advocacy Council, Deborah Hart, confirmed this assessment. “Now more than ever our most vulnerable consumers need better protections.” Hart explained the council’s view of what this protection should look like regarding electricity.

“Electricity retailers must be telling consumers if they can save money by going on a better plan. We think that should be part of a minimum set of rules all retailers have to abide by, and we are urging … the Electricity Authority, to do that urgently.”

Electricity Authority’s Consumer Care Guidelines

The Electricity Authority (EA) published Consumer Care Guidelines in July 2021. The guidelines’ purpose is to guide retailers to foster positive relationships between providers and domestic electricity users, ensure access to and affordability of electricity, as well as minimise harm for domestic consumers.

With respect to disconnections, the guidelines state they are a “last-resort measure”. However, this does not apply to prepay services, where disconnection is framed as a choice not to top up one’s account. Although the guidelines do advise against disconnecting prepay services in conditions that could negatively impact the customer’s health, or where it would be difficult for them to reconnect quickly, providers are otherwise free to cut off electricity supply once the prepay money runs out.

What’s more, the guidelines are voluntary.

At the time of writing, the EA is considering making the guidelines mandatory across Aotearoa and is accepting submissions. Consumer has made a submission. We have been advocating for some time for the guidelines to be mandatory. We believe they are the bare minimum required for the health and safety of consumers.

Are electricity providers playing by the rules?

While the Consumer Care Guidelines are not mandatory, the EA does monitor compliance with them through a self-reporting model, whereby providers rate and report on their own compliance. In June of this year, the EA released a summary of providers’ compliancy, based on their self-assessments.

So, Consumer spoke to some of the biggest electricity providers in Aotearoa to see how they felt they were doing.

Contact Energy, Meridian, Genesis, Wise Prepay and Mercury all told us they complied fully with the EA guidelines. All stated they have dedicated teams supporting customers experiencing financial hardship, and that disconnections are a last resort. Contact, Mercury and Meridian clarified that they typically only disconnect supply when they do not hear from and are unable to contact the customer.

For post-pay plans, the minimum time under the guidelines between non-payment and a disconnection notice is 44 days. Contact reported that sometimes longer timeframes can exacerbate the problem, with debt becoming unmanageable for customers. If a payment is missed, Contact sends its first reminder to the customer after 14 days. Contact told Consumer that of the small number of customers who do miss their payments, the majority of them pay when this reminder is sent.

Contact said its efforts to reduce disconnection rates are effective, and Meridian reported its disconnection rate, up to June this year, was 0.02%. While these approaches may be effective for consumers on post-pay plans, they are not necessarily applicable to prepay plans.

Mercury owns the prepay provider, Globug. It told Consumer that it checks in with customers disconnected on prepay power if it suspects hardship.

“Disconnection on prepay is quite different to post-pay. Many customers [use] it as a way to manage their budget effectively, for example some choose to disconnect while they are out of the house and reconnect when they return home.”

However, Consumer believes this isn’t an appropriate response from Mercury because access to electricity is necessary for a healthy home and body and not something to manage with a budget. If no one is home using electricity, your power bill should cost less anyway. Disconnecting can also thaw your fridge and freezer while potentially causing electrical damage or fire when the power returns to your home.

Wise Prepay is a dedicated prepay power plan provider. It told Consumer it follows the EA guidelines. To avoid disconnections, it ensures it explains its processes to customers, provides multiple account top-up options and offers a one-day IOU for a nominal fee.

Wise customers can keep track of their power allowance, and access educational resources and budgeting guidance. Wise also works with Work and Income NZ to set up payments towards customers’ electricity costs. If a customer is disconnected, Wise said they will reach out to them the following day.

Yet despite these measures, disconnections are still happening, causing additional hardship for struggling households. And because there is no nationwide regulation, different providers take different approaches to how disconnections are managed.

What’s more, electricity consumers may not even know what their rights are or where to get help if they need it. A 2023 Consumer Advocacy Council survey showed respondents had little awareness of their electricity provider’s consumer care policy or the EA Consumer Care Guidelines, with 77% unaware of both. In the same year, only 48% of respondents trusted electricity providers to do the right thing.

O'Sullivan finds it depressing that we have such low awareness about disconnections and energy poverty.

"People can’t understand the complete lack of action after repeated high-profile cases. I find it truly disappointing that so little has changed.

“Disconnections are still occurring and every study on NZ indoor temperatures shows that the country is blighted by energy poverty,” she told Consumer. O'Sullivan believes mandatory consumer protections, and stopping disconnections and associated fees for those in energy hardship are key solutions.

What we're calling for

• Mandatory consumer care guidelines, enforced by the Electricity Authority.
• More protection for prepay customers.
• For prepay disconnection data to be collected and shared.
• A phasing out of disconnections for vulnerable households.

Need help?

Utilities Disputes is the free and independent service that sorts your complaints about electricity and gas. You can call them on 0800 22 33 40, email [email protected] or go to their website.

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Public Interest Journalism funded by NZ on Air.