Gathan Beaga

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:

Units used per bi-monthly period.

Yearly usage.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:

  1. we’ll buy all our winter power now, locking in that price; and
  2. 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.

Update September 8, 2010: After a year on Powershop, we’ve saved quite a lot; read more at Powershop: the first year.

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