Households using prepay electricity are at greater risk of energy hardship. Despite rationing their electricity, many households on prepay are disconnected for long periods, and these disconnections are not being reported, explains Dr Kimberley O’Sullivan.
Prepay electricity works in a similar way to having a prepaid mobile phone – top up the credit and you can keep using the service. When it runs out, the service is disconnected until you top up the credit again.
Except that while having your phone cut out for a day is a bit inconvenient and you can still call emergency services if you need to, when you’ve had your electricity disconnected at home you’re left with no lights, no cooking, no fridge, and no heaters.
A new survey from Consumer NZ has found that people who struggle to pay for electricity are doing it tougher than before. Its latest energy survey found that among people who say they have struggled to pay their bill in the past year, 28 percent have had their electricity disconnected – a rate that has almost doubled since 2019.
Of those who say they’ve struggled, 15 percent switched to prepay, with 27,000 households currently using prepay electricity across the two biggest prepay providers.
However for those on prepay, disconnections are hidden so we can’t see if they are disconnected and need more support. Electricity companies have this data and could report it, but they are not required to do so like they are for standard post-payment disconnections.
This is despite the evidence that people on prepay are often those at risk of disconnection when they were on standard post-payment electricity plans.
Prepayment has been an option for electricity in Aotearoa for a long time. Over 10 years ago, looking for a way to find households in energy hardship and unable to meet their electricity needs (including for heating) at home due to the cost or access to electricity, I led research surveys with people using prepay electricity.
The first survey in 2010 was a nationally representative survey that found that households using prepay were typically on low incomes, with Māori and Pasifika families over-represented. Fifty-four percent of these households using prepay included children. That survey found 52 percent disconnected at least once in the past year. Of concern, one third of those who disconnected were without electricity for 12 or more hours, and 17 percent disconnected six or more times in the past year.
A follow-up survey with the same group in 2011 investigated patterns of disconnection among prepay electricity users over time, and their home heating practices. Disconnection remained problematic and potentially harmful for many prepay consumers over time. Rationing of electricity was common and prepay electricity encouraged restriction of heating in already cold homes. More than two thirds of prepay users experienced shivering at home at least once during winter.
Comparing the results for those households with and without children found that households with children, who were using prepay electricity, experienced greater hardship than those without children. Households with children were significantly more likely to cut back on groceries to afford prepay electricity credit.
When asked what the worst thing about their last disconnection was, 15 percent of people mentioned their children, saying things like: “I can’t cook my kids’ dinner” or “not being able to prepare baby’s bottle”. Even when disconnection was avoided, having to constantly reduce electricity use at home could increase family tension, with one parent saying, “The kids get sick of me telling them to conserve power”.
A further interview study with people using prepay found they liked not having the threat of a large bill at the end of the month and that their prepay meter helped them to budget and see where they were using electricity in their house.
However, for those who were really struggling, this encouraged them to take extreme measures to cut back on electricity use in their home to avoid disconnection. These extreme measures included choosing between having the TV or lights on in the living room, using no heating, cutting back on laundry, and using hot water only every third day.
The results from Consumer’s new survey indicate that what our research team suspected is true: people who are experiencing disconnection are moving onto prepayment. Once they are using prepay, any periods of disconnection are not reported in the official statistics of electricity disconnections collected by Government.
Participants in my 2010 survey said the worst thing about being on prepay were things like “being on a budget and not having enough money to buy more”, “if you run out and no money left until next pay”, or “when I don’t have enough money”. This is not something that has changed over time; if people don’t have enough money to cover the basics, prepayment isn’t going to improve their situation.
If we can’t see the problem, it’s easy to forget it exists. We also can’t understand anything about how problematic those prepay disconnections are. If prepay disconnections are happening every now and then and the household is reconnected within a few hours, it would be easy to assume they’ve forgotten to pay and topping up is a minor inconvenience.
But if disconnections are happening regularly – say monthly or weekly for the same households – and, or, people are at home for more than 12 hours without power then we are ignoring that there are an increasing number of people without access to an essential service needed to support their health and wellbeing. Everyone in Aotearoa should have access to a warm, dry, healthy home. In most cases it is not possible to achieve this without the home having a continuous and affordable supply of electricity.
Companies offering prepay, including Mercury’s Globug, are open to sharing these statistics. However they note that it would be important to include statistics on the length of disconnection as well as the total number of disconnections, and based on our research this makes sense.
Mercury shared statistics with Consumer showing that on average 2.6 percent of its 21,000 prepay customers disconnect each day, and 93 percent of these are reconnected within 12 hours. That leaves 38 households disconnected every day for more than 12 hours. While Mercury makes an effort to phone these people to understand why they haven’t topped up after 12 hours, there are no rules in place to ensure households that need support are given it, and no official statistics about the size of this problem are collected and reported.
Prepayment as a system is not the problem here. For people who can pay, prepayment does make energy use visible. This encourages better awareness of where energy use is happening at home so people can make informed choices about their energy ‘spending’, which is also good for environmental reasons.
But this is about questioning whether it is right to shift people who can’t afford to pay for electricity – an essential service – onto a system that will automatically cut their supply, leaving them in cold dark housing, and government and social services in the dark about their struggle.