Price forces Payless Energy to pull plug

A notice yesterday at Payless Energy's Dunedin office explains to customers how "funding pressures'' from recent volatile spot prices were unsustainable and the company was "exiting retail electricity'' supply. Photo: Peter McIntosh
A notice yesterday at Payless Energy's Dunedin office explains to customers how "funding pressures'' from recent volatile spot prices were unsustainable and the company was "exiting retail electricity'' supply. Photo: Peter McIntosh
A ''tornado'' of soaring spot electricity prices has blasted Dunedin boutique power company Payless Energy out of business, leaving the family company in a precarious position.

Payless, which employs seven people, has stopped trading and its more than 754 customers have moved to Otago-founded, country-wide competitor Pioneer Energy, 100% owned by the Central Lakes Trust.

Customers of many of the boutique power suppliers around the country, which buy electricity on the volatile spot market, were exposed to extremely high prices in recent weeks - crippling for some.

However, Payless customers were on fixed prices, so Payless had to make up the massive difference, not its customers.

In a letter to customers, obtained by the ODT, Payless managing director Chessa Mierzejewski said the company was ''discontinuing its retail electricity business'', a decision Payless was ''unable to avoid''.

She said Pioneer Energy had offered to provide continuation of supply, including an agreement to maintain contracted prices for no less than 12 months, which started on November 1.

Payless' website said yesterday it was ''not taking new customers on now'' and its central Dunedin office was locked, but Mrs Mierzejewski eventually came to the door.

She described starting Payless as like having ''built a dream house'' with a ''beautiful garden'' but ''then the tornado came''.

''The [spot] electricity market is now a tornado. We can't maintain it,'' she said of the high spot prices having to be paid, in advance.

In October last year, the spot price was just over $50 per megawatt hour, while last month it was just under $350. The spike was largely because of lower than usual hydro lake levels.

When asked if Payless' contract hedging was inadequate for the price volatility, Mrs Mierzejewski said, ''No, we had a wonderful hedge, and are hedged [contracted] for the next year.''

She was asked if Payless was solvent, and Mrs Mierzejewski said ''that remains to be found [out]. It depends on customers paying their bills.''

Beyond the company's door, a source close to Payless said the company had been paying 5c-8c per unit for spot electricity in the past, and selling it for 15c.

However, Payless had to buy its power 58 days in advance and recent costs were about 40c a unit, meaning Payless in recent weeks had to pay and absorb the 25c difference.

Payless' finance director Radek Mierzejewski was contacted for comment, but did not return calls.

Payless Energy Ltd's status on Company Office records was unchanged yesterday, still being a registered company. The company had been an Otago Volts cricket sponsor.

Unlike some other ''boutique'' spot market retailers, Payless offered customers a fixed price, and would have hedging contracts in place to buy some power at guaranteed prices, if the company could correctly predict the market volatility.

A second source close to the company, who asked not to be identified, said Payless had for the past five years offered fixed-price contracts to customers, which had only been slightly changed once.

Last month, that fixed price was 17.229c per kilowatt hour, meaning Payless had to pay any difference, not its customers.

''It wasn't just October. All last winter the wholesale prices were very high.

''It comes down to what hedging they had in place and if that covered it [cost of electricity shortfall],'' the source said.

On the electricity spot market, when there is plenty of power, generators sell it to retailers at a low cost, but when generation is low and demand high, the charges can be brutally high for the retailers to purchase, and for their customers not on a fixed price contract.

Pioneer Energy had 1300 customers, mainly small to medium business and large commercial clients, before taking on the Payless customers.

Pioneer's chief operating officer in Alexandra, Jonathan West, confirmed Payless' former customers would continue with the contracted rates for at least a year.

He was asked how Pioneer's business model could absorb such a relatively large number of new customers.

Mr West said Pioneer had its own generation capacity, mainly in Central Otago but also elsewhere in the country, it had extensive hedging and was more sheltered from having to use the spot market.

Payless is owned by the Mierzejewski family, who came from Poland in 1984, and was founded by Paul and Chessa Mierzejewski in 2010, with certification from the Electricity Authority.

Payless was formally launched in July 2013, after having been restricted to having just 10 customers while it proved its business model during a two-year trial period.

Radek Mierzejewski said in 2013 the company, like all retailers, purchased electricity on the daily spot market for sale to customers, making its savings in cutting down overheads, including using cloud-based accounting.

''It is areas like administration, information technology, overheads, salaries and wages which make the difference,'' Mr Mierzejewski said at the time.

Starting with just a handful of customers in Dunedin, Payless spread to 754 customers across 14 towns as far afield as Twizel, Queenstown, Clinton and Owaka, up to Oamaru, and also Nelson. By mid-2016 it had more than 550 customers and that year made the Deloitte Fast 50 growth index, in 18th place with 385% growth.

Mr Mierzejewski said in 2013 that, in theory, Payless could take on ''tens of thousands'' of customers from wider Dunedin.

A market analyst contacted yesterday said ''spot prices raced up in October'', putting pressure on all electricity providers.

''The smaller providers, who may not have sufficient price hedging in place, and customers on spot pricing plans have seen huge bill increases,'' he said.

Customers directly using the spot, or wholesale market, do not pay a fixed rate, but pay the exact cost of power on the wholesale electricity market, which changes every 30 minutes.

-The Electricity Authority triggered its ''trader default process'' in October, after being alerted to a ''default event'', when an unnamed defaulting trader transferred its customers to an unnamed new trader.

simon.hartley@odt.co.nz

Add a Comment

tfe_top_banner.jpg

tfe_bottom_banner.jpg