Will Powershop save me money?
So you’ve probably seen the Powershop advertisements on TV. You may even have wondered what it was all about (indeed, some of the people I’ve spoken to thought that Powershop was a new online shopping-mall like the late and unlamented Ferrit – so it might seem the adverts aren’t communicating the Powershop proposition as well as they could).
Powershop – a wholly-owned subsidary of Meridian Energy – is trying to turn the old model of electricity retailing around. Just as the breakfast foods aisle in the in the supermarket contains lots of different cereals with different origins, attributes and prices, so Powershop offers a range of power packages from different generators, each with different characteristics. For example, some might be entirely wind-sourced; while others are carbon-offset. Some might be a fixed price for winter power to buy now but to consume later; while others might be cheap summer power available now. You set Powershop to be your power supplier, and then pay by credit card for the packages you want.
It’s a little complicated, and it’s probably not for everyone. But it sounds interesting, particularly as the prices quoted are, at the moment, much cheaper than anything you’ll get from a traditional supplier.
However, I think a little caution is advised. But before we get there, let’s work out what my current usage might be.
First of all I pulled together all our power bills for the last six years. The important data are really bills based on readings – the rest are just confusing crap. You’d think my current provider, Meridian Energy, would have a handy download of this data from their fancy new My Meridian website… but no, they just allow you to download your total bill dollar amounts, which are useless in this context. Anyway, after much sifting and sorting, I graphed the results:
And in doing all this I’ve noticed some things that are interesting, at least to me:
- our winter consumption is up to double our summer consumption (no surprise there, but the amount of difference is an eye-opener);
- the power companies are terrible at estimating our usage – and as a result our monthly bill can swing from $80 – $300 as the bi-monthly readings force a catchup payment;
- sometimes the meter-reader enters a wrong reading – as in January 2008 when the visiting meter-reader seems to have mis-read us by -1000 units, causing at first a credit, then a colossal bill a couple months later after the next reading (exacerbated by the intervening estimate-based bill then attempting to reflect our supposed lower usage) – and I’ve had to correct my data for this;
- there have been a number of substantial cost increases in power in the last few years: for example, the power we used in 2007 and 2008 cost us $3,770; yet the same power at the prices prevailing today would be $4,560! (this actually did surprise me – I had no idea prices had increased so much – I wonder if it’s the line charge);
- our electricity usage varies year to year quite substantially, but on average appears to be on the increase.
All of this tells me that our household has plenty of room for improvement. And now we have enough data to make some cost comparisons with Powershop.
Right now, Powershop has a Wellington-area standard price of 18.18 cents per unit for a household metered like mine. One’s first instinct might be to multiply this price – it’s all-inclusive of line charge and GST – by the last two years’ unit consumption to get a figure ($3,590) to compare to that $4,560 above. And thus decide that Powershop is going to save us 21% on our power bills.
Not so fast. Because we are making an implicit assumption here that the Powershop prices are going to stay steady all year. Clearly they are not, as Powershop is already selling winter power now that costs more (22.49 cents per unit) than the standard price, implying that when we get into winter the standard price will be MORE than the winter powerpacks for sale now, in late summer.
And there’s the problem. We don’t yet know exactly what those winter prices are going to be.
What we could do is make a couple assumptions:
- we’ll buy all our winter power now, locking in that price; and
- without seeing the terms and conditions for this power pack, and for ease of calculation, let’s say “winter” means May through to August and that in all other months we’ll be able to purchase power at today’s “summer” price.
Applying these to the last two years, this would have cost $3,960, a 13% saving or $250 per year, over today’s Meridian retail prices in Wellington. But this doesn’t include factors like the cost of purchasing power up front (after all, you could have put that same money on deposit – ha! – at the bank, right?). And of course we are also making a pretty generous assumption about that summer price rate. If I was in marketing I might say “up to $250 savings”.
Even so, up to $250 per year is better than nothing. So why then, aren’t I jumping at it?
Well for one, I’m not sure if I can be bothered with the hassle of remembering to make intelligent decisions about my power purchasing right through the year. I might be able to make a more reasoned decision about this if there was a fully usable demo on the site.
And then there’s some extra risk inherent in switching to Powershop: you become more exposed to the wholesale market. What if it’s a dry year, or the Cook Strait cable breaks? The wholesale price will rise sharply, and Powershop’s prices will rise too – and possibly quite a bit faster than other power companies.
(Incidentally, there’s a great site showing in near-realtime the wholesale electricity prices here. I love it. Info-pr0n!)
I’ve worked out that if the average Powershop unit price I pay over the year rises above 23 cents per unit then I’ll start losing in comparison to staying where I am. I’ve been talking to some people who say that if this happens to them, they’ll just switch back to their present supplier. And to that I say again: not so fast. If there’s a power crisis, and the power retailers have to buy wholesale power to sell at a massive loss to their retail customer base, then they may refuse to take any new customers on board – something that I believe has happened before in dry years. You could end up stuck on the higher prices for longer.
The contra applies too. In a good year (and this year is likely to be one of those, with the hydro lakes full) it should be easy to save some money.
I’ve asked Powershop about this price volatility, and they said:
In answer to your question yes the customer is more vulnerable to the fluctuations in the wholesale market, but Powershop endeavours to smooth this volatility throughout the year. Our business modellers are very confident that over a year we will be able to deliver savings to the large majority of Kiwis.
It is our intention that what you gain on the swings (cheap prices in summer) you will not totally lose on the roundabouts (slightly more expensive in the winter). This is looking especially good this year with the great dam levels and generation capacity.
So yes, there’s risk, but Powershop say you should still save money. Fair enough.
One other thing that might sway me would be if their website allows me to easily monitor power usage. (We really need Google’s Powermeter, in other words.) There’s a hint of this in their demo video, but just a hint. I don’t know how that works or how easy it is to use.
In summary then, Powershop will save me money – up to $250 per year – but it’s not clear to me if this $250 is enough to offset the hassle of shifting; the small increase in price risk; and the unknown usability qualities of their website, both for purchasing power and monitoring our usage.
So, after all that, I’m not 100% decided on switching. You may, of course, come to a different conclusion – and I hope you do. I really like the idea of Powershop, and I hope it succeeds. I don’t think our power companies have really done us proud thus far, as today’s Sunday Star-Times would seem to confirm, and maybe – call me naïve – Powershop can be the lead for something better.
Update March 2, 2009: Commenter Jeff Weir asks if I’ve factored in the amount of the 10% prompt payment discount which may be obtained from many existing retailers if you pay on time. I thought I had, but in reviewing my calculations I see that I haven’t.
Stupid mistake! We’ve missed just one of these in four years of supply from the company, so for us it’s a discount we must include.
This makes the amount I would have paid for the last two years of electricity at today’s Meridian prices $4,107.23.
This explains why the price of power had, according to my earlier calculations, risen so much in the last two years. It hadn’t.
It also brings my calculations into line with the calculator on the Powershop website, which the other day did predict that the savings I could get would be around 3%.
And, as you’d expect, all this has the effect of making the Powershop savings much less spectacular (3.5%, or about $70 or so per year when calculated using the assumptions outlined above) compared to earlier, with of course no lessening of any of the other factors that were giving me pause.
Update August 31, 2009: Since writing the above, I’ve joined Powershop anyway. We have saved significant amounts, even after just a month or so; and a summary of these is here, at Powershop: the first month.
Koz
1 March 2009, 21:23 #
There’s another aspect to powershop vs your current retailer, with powershop you pay in advance whereas your current lot are charging you monthly in arrears.
So there’ll be some fiscal drag where you pay for two months as you sign up. One wonders if the market segment willing to ‘piss around’ buying electricity in a webstore to save $250 a year, intersects with the market segment able to pay two months power in one month. I’m guessing no.
In my case, I switched for a few reasons:
But most of all, we have gas heating and hot water, so our power bill is actually pretty tiny as is. So even a 100% increase wouldn’t be noticeable alongside the gas charges, internet, telephone, etc.
Alan
1 March 2009, 21:41 #
Good point! I didn’t think of that. And if you want to lock in some winter power that’s even more initial outlay.
Ari Sargent
1 March 2009, 21:53 #
Hi Alan,
Firstly, thanks for your good wishes.
This is a great piece of analysis of your power consumption. I guess you will acknowledge that not all people have the ability or INCLINATION to go to this much detail.
Just one clarification I would like to make, in relation to wholesale price volatility. Powershop undertakes to ensure that there will be at least one product available that will deliver savings to ‘typical customers’ – implicit in this undertaking is that Powershop and/or its suppliers will manage this wholesale price volatility.
Like you, we accept that we are not for everyone. Powershop, amongst other things, has an objective of creating “engaged” customers. Most people do not currently have a clue how much power they are using, or how to go about saving power or money. Our tools are deliberately simple to allow people to engage with very little effort. We do have additional information and charts available to track historic usage, prices, costs etc. for thos who desire it. We do not have sufficiently detailed metering information to be anything close to the Google PowerMeter, but equally importantly we do not think electricity users are ready for this level of sophistication yet. We are comforted when we hear customers talking about how much power they are using each day and how much this has gone up or down, and why – this is engagement in action. The only discussions I ever recall about traditional power company’s bills are not very plesaent and have very little to do with consumption :)
We also intend to track our price/cost performance over time to provide additional reassurance to potential customers. But being only a week old we don’t have much information.
Perhaps after winter we may have done enough to dispel your current reservations?
Ari Sargent
1 March 2009, 22:05 #
I see a discussion emerging about pre-payment.
A couple of points:
+ pre-payment is optional. Customers can pre-pay, pay as they go, or post-pay (monthly in arrears).
+ the transition from post-pay to pre-pay at sign may require an additional outlay, if the customer wants to get ahead. But this doesn’t need to be done in one hit. Gradually building up a “reserve” is possible and sensible for some people.
+ similarly, we are not advocating that people go and drop $500 dollar on their winter power at one time. We will encourage people to spend a little bit on Winter power each time they buy during summer (when the cost of their consumption is lower), thus smoothing their power costs.
+ the combination of information, tools and products we have available very much supports budgetting and planning.
+ powerpacks will typically have an adjustment for the time value of money, so even if the energy price doesn’t change the product will be slightly cheaper if bought several months in advance.
Alan
1 March 2009, 22:16 #
Ari:
thanks for your replies. I am particularly happy with this bit of your answer:
That’s very reassuring.
With respect to prepayment though – do you think it will be possible for some to not bother prepaying for ANY power and still save money? Or to get the most benefit of cheaper prices will they need to prepay for at least some power?
And yes, looking at your record after winter will be good.
Ari Sargent
1 March 2009, 22:37 #
Our objective is to delivery savings to typical customers even in ‘set-and-forget’ mode, that is never login and always post-pay. Additional savings will be available for ‘active shoppers’, a bit like coupon-cutters who shop around for specials.
We are also hopeful that actually engaging customers and finally closing the feedback loop between consumption and payment will enhance consumers awareness and lead them to modify behaviour and reduce consumption, thus saving even more.
Stephen Judd
2 March 2009, 09:27 #
Great piece of geekery-wonkery, Alan. I have linked from Frugal Me. Also nice to see some engagement from Powershop; good PR in action.
Brian
2 March 2009, 09:46 #
I’m currently embarking on the “how do I reduce my power usage” project. We’ve got a house full of old fashioned brass hanging lights – in which the energy efficient bulbs look like c**p. However my last trip to the supermarket revealed that you can now get candle shaped bulbs that look ok.
Result – I replaced 300W worth of bulbs with ones that should produce a similar amount of light and only draw 35W. That should make a difference. Now – if I could only find a way to make similar reductions to my gas bill while keeping the (1900’s villa with no wall insulation) house at acceptable temperatures in the middle of winter.
jeff weir
2 March 2009, 20:44 #
Great blog. Couple a things you might be interested in.
“…so Powershop offers a range of power packages from different generators, each with different characteristics…”
Well, not quite yet, according to a tweet from them:
“ @felix1234 we are not direct competitors to current retailers, just a different channel. if we get enough customers they will want to join”
THey sound pretty optimistic that other retailers will hold hands with this meridian spinoff, and they ARE in competition by any decent definition of the word.
Also, just wanted to check whether you’ve made allowances for Meridian’s Prompt Payment Discount, when you said “Applying these to the last two years, this would have cost $3,960, a 13% saving or $250 per year, over today’s Meridian retail prices in Wellington.” Powershop have no PPD, I understand.
Cheers. @jeffweir
jeff weir
2 March 2009, 21:13 #
Interesting point from Ari Sargent when he says “Powershop undertakes to ensure that there will be at least one product available that will deliver savings to ‘typical customers’ – implicit in this undertaking is that Powershop and/or its suppliers will manage this wholesale price volatility.”
Under the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004, section 5 (Obligation for electricity retailers to make low fixed charge tariff option available), retailers must “have 1 or more low fixed charge tariff options for each delivered electricity package that it makes available in respect of homes in each of its supply areas.”
So they don’t solely undertake “to ensure that there will be at least one product available that will deliver savings to ‘typical customers’” out of sheer kindness.
Basically, I think that means that due to the above regulation, Powershop have a legal obligation to ensure that they offer at least one product where someone using less than the average amount of electricity (8000 kWh) will come out better off. Now how they’re going to do that is beyound me, because this is a complicated product where rising and falling power prices can really catch that average consumer out.
So perhaps that’s what Ari means when he says “– implicit in this undertaking is that Powershop and/or its suppliers will manage this wholesale price volatility.”
In practice, does this mean that if consumers are caught out by higher than expected winter power prices, then Powershop might have to bite the bullet and give them a below market rate, in order to meet the requirements of the regulation?
Dunno. Ari?
jeff weir
2 March 2009, 21:24 #
Just posted something on low fixed charge regulations in response to something Ari said above, and was going to correct myself but suddenly can’t see my post above? Just in case it shows up, thought I’d add that in hindsight, perhaps Powershop doesn’t have any obligations under these regs, given their fixed charge is zero.
Alan
2 March 2009, 23:20 #
Jeff:
Bugger! I didn’t allow for the prompt payment discount. I’ve edited the article to account for this – and as you’ll see, it reduces the financial benefits quite a lot.
Thanks!
jeff weir
3 March 2009, 08:57 #
Hi Alan. I got caught out by this myself recently, when Nova salesperson tried to get me to switch to Nova (a gas company who are now entering electricity also). Of course, when comparing their rates they don’t highlight the fact that your existing retailer probably gives PPD, but they dont. Misleading…though I can’t say that this is intentionally so on their part.
On another note, I see from Powershop’s terms and conditions this:
“5.3 Powershop does not accept responsibility for any offers or benefits attached to or accompanying energy credits offered by participating suppliers (except in the case of energy credits offered by Powershop). If a supplier has failed to honour any offer or benefit attached to or accompanying energy credits, you must take this up with the supplier in question.”
I’m wondering whether this means that if you buy future credits, but the retailler goes bust (as does happen from time to time in the NZ energy market) then you’ve lost your money.
Have tweeted this question to powershop, as well as a question relating to low fixed tariff regs.
Cheers
@jeffweir
Lance Wiggs
3 March 2009, 11:00 #
Jeff
The 5.3 clause refers to things that some suppliers may add on to their products – such as gifts to charities, miles/fly buys, discounts at stores or even whether our (Powerkiwi) The Green Power Company product will actually buy the trees we promise we will.
The money you have spent on energy credits for, say, Powerkiwi’s FlowerPower, is held by Powershop, which is owned by Meridian, which is owned by the Government.
We cannot price below our cost without demonstrating that we can pay for it – which would essentially be in advance.
Like any other business we at Powerkiwi operate under the Fair Trading Act. We also operate inside Powershop, subject to their terms and conditions. Ari will be distinctly unimpressed if we or any other suppliers fail to deliver any extra benefits we promised – and that also would mean a very short life in the store.
One other thing to take into calculation account. If you buy weekly packs or monthly in advance, then you can get even cheaper prices. E.g. last time I looked mine went from 18.36 daily to 18.00 cents in a pack.
jeff weir
3 March 2009, 13:44 #
Just posted on another blog some stuff that I thought worth repeating here.
The level of savings you will or won’t get from Powershop depend totally on how crappy/not crappy your current pricing is.
The upshot is if powershop doesn’t save you very much, then at least you know you’re getting a good deal with your current provider.
A highly simplistic explanation is that the NZ electricity market is geographically segmented: generators typically want to service customers close to their generation in order to lower risks to them of transmission failures between their customers and their generators.
So generally, they want to be in some geograhpic regions more than others. But pay them enought money, and they’ll do business with you anywhere.
Also, some retailers compete heavily on price, and hope they’ll make a good profit if customer volume increases significantly enough to overcome the ‘lost’ revenue from charging a lower price. While others charge higher prices, knowing that many customers generally arent that savvy to what price they get currently and can’t be bothered shopping around.
And then some retailers behave the first way in one region, and the second way in another.
Powershop (or indeed consumer’s www.powerswitch.org.nz site) really helps those customers that are currently with power companies that aren’t actively competing in that particular region, or it helps customers that until now couldn’t really be bothered checking to see if they were on a good deal or a bad one.
Sometimes a customer will save peanuts, sometimes they’ll save coconuts. Unfortunately as you’ve pointed out, it takes you a bit of effort to find out. Kind of like a lucky dip, where everyone gets a prize for their $2, but most prizes are only worth about $2, while only a few are more valuable.
I’ve seen small businesses (pubs, motels etc) save $6k per year just by swapping from a power company that wasn’t competing heavily in a region to one that is.
@jeffweir
jeff weir
3 March 2009, 13:55 #
Thanks for the clarification, Lance.
One question I have is on your comment “If you buy weekly packs or monthly in advance, then you can get even cheaper prices. E.g. last time I looked mine went from 18.36 daily to 18.00 cents in a pack.”
Isnt this just a factor of the seasonal forward pricing of electricity? I.e. you don’t get cheaper prices because you buy power months in advance. Rather, you get cheaper power at periods of traditionally lower demand and higher hydro dam levels.
Ari Sargent
3 March 2009, 21:44 #
@jeffweir (and others)
A comment on low user tariffs. The regulations require retailers to offer a low user tariff that has a max daily charge of 30c/day and that is no more expensive than their standard tariffs at 8,000 kWh pa. It does not require them to be cheapest in the market or anything else, only that they themselves do not discriminate against low users. Powershop’s commitment goes way beyond that. We undertake to ensure that a ‘typical customer’ (see Powershop FAQs for details) will have access to at least one product that will save them money, compared to current published tariffs.
Ari Sargent
3 March 2009, 21:55 #
@alan – apologies for using your blog as a Powershop forum ;) twitter has its uses, but the nuances of electricity are a little difficult to squeeze into 140 characters!
@jeffweir – Powershop will refund energy the purchase price for unused credits when a supplier goes bust (or we terminate their agreement for some reason). You will obviously need to buy alternative products to meet the power you use, which may not be as well priced as the original purhcase, but you will not be completely out of pocket.
Peter Lynch
20 December 2009, 19:08 #
it’s all bloody confusing? and they’re are part of Meridian? Sound like the old Cartel is still going don’t you all think?
No I’ll stick with the devil i know in the meantime Meridian until the REVOLUTION happens all FAT BOY Gerry Brownlee has the balls to do something really constructive.
Neil Waddington
12 March 2010, 07:06 #
I like the way I can buy power at Powershop when I want to and have the cash available rather than waiting for power bills to land on me, many of which are wrong with the winter high usage to summer low usage switch over filtering through over a couple of months. I did the maths before joining Powershop and am convinced that I am saving around $30 (or more) a month – well worth having!