Poverty-stricken households penalised with extra fees after their power is cut off

Poverty-stricken families who can't afford to pay for power are cut off, then charged an extra fee to add to their debt. Are electricity companies charging a premium for being poor?

The first time Debbie Leyland had her power disconnected because she couldn't afford to pay the bill, her electricity company charged her $60 for the privilege. Leyland, a struggling mother of two, had pleaded with the company to give her more time to come up with the money but it had refused, and so the family was plunged into the dark in the middle of the Wellington winter, facing an extra debt on top of their misery.

"It was disastrous. When your power goes off you're stuffed, you've got no heating, no water, nothing," Leyland says. "We had to use candles but I didn't have any money to buy them, so I had to go down the road and borrow money just to get candles."

For more than a week, Leyland begged the power company to turn her lights back on. But on top of the money she already owed them, they wanted $140 for a reconnection fee. She couldn't afford it, so she switched companies. But about three months later, her daughter needed a new school uniform and Leyland was unable to afford her bill, and was cut off again.

"We just didn't have enough money coming into the house," Leyland says. "But there's no empathy with these power companies whatsoever, they don't care if people are cold."

Every year, more than 8000 households like Leyland's have their power disconnected because they can't afford it. By then, they are usually hundreds, if not thousands of dollars in debt with their electricity provider. On top of that, companies are charging between $25 and $275 each time the power is cut off and reconnected - a practice consumer advocacy groups say is unethical and unfair.

"They're piling hardship on top of hardship," advocate Kate Day from campaign group Common Grace Aotearoa says. "We see the fees as punishing people when they are already suffering."

Clients who are disconnected are then punished a second time, Day says, because they have bad credit, and struggle to find a supplier.

Leyland says she had to ask the Ministry of Social Development for help after the second time she was cut off, because she couldn't convince a power company to take her on. Her case worker found her a provider, but that meant that power was automatically deducted from her benefit each week, at a cost of $60, because she was considered "unreliable."

She was also required to go to budgeting classes. "Which is a bit of a waste of time when you don't have any money to budget with," Leyland says. "It was the most humiliating experience I'd had for a long time."

Other families are instead forced to go on prepay plans - a kind of pay-as-you go scheme similar to paying for credit on a mobile phone.

Mere*, a mum from Porirua who didn't want her real name used for fear that people would judge her, told RNZ that after her power was cut off, she went five months without electricity because she was unable to clear her $2000 debt. Until she paid it - and a disconnection fee - she was unable to reconnect.

"That time was really difficult, but we tried our best to make it not affect the kids, to carry on with everyday life," Mere says. She and her three children pretended they were "camping". They would put washing in bags and take it to her mum's house, then carry the heavy, wet washing home. Mere would buy food daily, and put the milk in a sink full of cold water to keep it cool. They would play games like eye spy, and go on long walks, or play with glow bracelets in the dark, Mere says.

"Sometimes we went to the pool and pretended to swim, but actually we were there to use the shower," Mere says. "My work didn't even know, I didn't want them to know because it was so embarrassing."

Mere was unable to find a company to take her on a normal plan, and instead was put on prepay power. But a debt means out of every $20 she adds, $4 is deducted against her bill. Currently, Mere has nine people in her home. She spends about $90 a week on power, and is lucky if it gets her through to payday. Often, their credit runs out on Monday and they spend a day without heating until Mere is paid on Tuesday. "They control us being warm or not but I just do what they say because you have to pick and choose your battles," Mere says. "I feel powerless to challenge them."

Energy poverty expert Dr Kim O'Sullivan, an academic at the University of Otago, has been railing against prepay power plans for more than 10 years. Not only is prepay more expensive, she says (a recent Consumer survey found prepay prices were up to 17 percent higher than regular plans), but users are more likely to be disconnected. There is also no accountability for the energy companies, O'Sullivan says, because unlike with regular plans companies do not have to report "self disconnection" when prepay customers run out of credit.

"Ten years ago we did a study and found that of the people disconnecting, a third were for 12 hours or more. The longest was more than a week," O'Sullivan says. "But because we don't collect the data, we are flying blind on the size of the problem."

Recently, Consumer New Zealand estimated that each night, around 50 households on prepay are going without power. And that, O'Sullivan says, is a problem, because often those families live in low quality housing, and often include either elderly people or small children, who are worst affected by the cold. Some are medically dependent on devices like ventilators, or kidney machines, to survive.

Voluntary guidelines for power companies

In 2007, Mangere woman Folole Muliaga died after Mercury Energy cut the power to her home. Muliaga was using an oxygen machine, and the lack of electricity contributed to her death, the Coroner ruled. Following the tragedy, a set of guidelines was introduced to protect vulnerable consumers - covering issues like disconnection, non-payment, and ensuring families are on the best plan. However, as of this year, those guidelines remain voluntary. At least half of all power companies are not following them, according to a review by the Electricity Authority, the industry regulator.

For example, the guidelines say disconnection fees should be transparent, and reflect reasonable costs. But Day says when she asked for a breakdown from each company of their charges, none were provided. She could not work out why the fees were so variable between companies, given they were effectively charging for the same thing.

The authority says it is "concerned" by the low level of compliance. On the ground, advocates believe the situation is even worse than reported, given the review was based on a self-assessment by the retailers.

"Some of the retailers who self-assessed as compliant were the same ones we spend hours and hours on the phone with trying to advocate that our clients are on the wrong plan," Christchurch Anglican Advocacy's Jolyon White says. "We don't think it should take an advocate picking through blatantly false information and demanding to speak to managers to get a decent plan for people who are struggling to pay their bill."

White says part of the issue with the guidelines is the definition of "medically dependent".

"If you think what it's like in a poorly insulated rental house in Christchurch in winter, then a bunch of children going through a freezing night are dependent, in my mind. But they're not covered by the guidelines."

White says it's ludicrous that companies are allowed to disconnect power in that situation.

"Eventually there is going to be a death and the inability to keep the power on is going to be a factor," he says. "There is going to be a family where a child is sick or an aged family member is sick and we will have another coroner's ruling. But we shouldn't need that before we see change."

Advocates have launched a petition to make the guidelines mandatory.

The Electricity Authority now has a clear objective to protect the interests of domestic consumers with regard to electricity supply, following a law change in 2022.

"Nothing is stopping the Electricity Authority," says Day, who wrote the petition. "Nothing is stopping them from banning disconnection fees that target the poorest households, and ensuring prepay prices are fair."

The Electricity Authority says it will be reviewing the guidelines later this year, as it believes the retailers' alignment with them is "too variable". It will consult on options in September, which "may involve" making the guidelines mandatory, it says.

However, it is conscious of a need to "balance making quick changes with avoiding unintended consequences for consumers that could inadvertently make them worse off."

The authority says it's also considering improvements to how it monitors the market, including the collection of data.

Power companies want 'workable' guidelines

The power companies say they are "very conscious" of the cost pressures many households are facing, and are focused on targeting support to customers most in need.

A spokesperson for the Electricity Retailers' Association of New Zealand, which supplies more than 90 percent of households, says retailers are serious about implementing the Consumer Care Guidelines and ensuring they are continually improved. They would not offer a view on whether the guidelines should be mandatory.

"We'd like to see guidelines that are easier to understand, workable and focused on achieving the right consumer outcomes," the spokesman says.

Disconnection is always a last resort, the spokesman says, and there is a robust system in place for working with customers who don't pay their bills.

Whether firmer guidelines will be enough to temper high prices is unknown. O'Sullivan says part of the reason power is so expensive is New Zealand's poor quality housing. She believes the highly deregulated structure of the electricity market, and its focus on profit, is also to blame.

In the last decade, the four largest electricity companies - Contact, Genesis, Meridian and Mercury - increased their profit by more than 150 percent. In that time, their net profit totalled $7.7 billion, with another $10 billion paid to shareholders. In 2022, the chief executives of those companies were each paid more than $2 million a year.

"There's a real tension around using a market structure to provide an essential service - and electricity is essential, for protecting health," O'Sullivan says. Even Winter Energy Payments, a government grant for low-income households of up to $30 a week, aren't a silver bullet, O'Sullivan says, as retailers can still raise prices, dulling the payment's effectiveness.

"I think that we need to start treating electricity in a different way anyway, and to provide a basic minimum service to those people who can't afford to pay. Because even if they're going to talk to a budgeting service, there's just not enough in the piggy bank to be making the budget stretch across everything that they need."

O'Sullivan is evaluating the impact of a new model, run by Wellington-based Sustainability Trust, through its new electricity retail arm, Toast. The service was launched last September and is run for public good, with any profit made off full-paying customers used to offset prices for its "energy wellbeing" clients. Those clients make up 15 percent of the 500-strong customer base, and are referred from health services, budgeting advisors or iwi organisations. They guarantee everyday lower prices, no disconnections, and home energy assessments where advocates help ensure families have sufficient heating and insulation.

"Social equity is foremost for us," the trust's fair energy manager Phil Squire says. "We wanted to create something that was not for profit or income, but was generating social good."

Toast wants to keep growing, Squire says. But the electricity market is complex, and expanding will likely require financial support through a corporate partnership.

Debbie Leyland, meanwhile, is filling up a hot water bottle for her neighbour down the road who is struggling to pay her power bill.

Leyland's house is a bit warmer now, because she has a new heat pump. Last year, she had throat cancer, but couldn't afford to use the heater in her Kainga Ora house. Instead, she stayed in bed most of the day, and only warmed her house for an hour at a time. "It was freezing cold but I couldn't afford it, even though I was doing chemo," she says. "The bill for that heater was $310 a month. I had to choose between eating or paying for power. And that's happening to a lot of poor people. I'm one of thousands."

Leyland says all she wants for herself, her friends, and other families is to be comfortable. "We want to be able to eat properly, and be warm and enjoy our lives. That's about it."