From the CEO
I have a distinct memory of discussing with Treasury officials the impending roll-out of retail competition in the energy sector. What I remember most was the unanimous and sincerely held view that competition would prove to be a great social leveller because people on the lowest incomes would have the greatest incentive to seek out cheaper contracts.
25 years have passed, and the reality is quite different.
I’m sure that every market contains some level of friction impeding perfect – classically ‘rational’ – outcomes. Anyone looking at energy would have to conclude that these obstacles are high and, for many, insurmountable. And the ACCC has just proved this.
A recent report noted that 79% of households are paying more than they could – or should – if they signed up to a better deal. In fact, nearly half (47%) of all residential consumers are paying at or above the reference price (remember, this is not in itself a low or even competitive price; it is designed for retailers to price their acquisition contracts under). What’s happening? Without realising, customers who stay with their retailer are paying more and more over time. The ACCC quite rightly calls this a ‘loyalty penalty’. And a troubling proportion of those paying too much are those who can least afford to.
So, why aren’t people looking for better deals? Well, clearly some are – but a great many are not. I grow increasingly tired of hearing the responsibility for this sits with consumers because they are disengaged, time-poor, or lazy. When 4 out of 5 consumers are paying over the odds, the responsibility lies elsewhere. I feel very strongly that there are structural barriers that actively prevent consumers getting better outcomes. Among them:
- older contracts often include conditional discounts that many – particularly those struggling financially – will rarely achieve.
- when a market contract ends, many retailers don’t put customers back on the reference price. Instead, the price just goes up…and up. And don’t forget, prices can also go up during the course of a contract.
These are contract issues that we are asking governments and retailers to address. However, this would not be enough to move the dial sufficiently. Why? Consumers struggle to understand energy pricing and so consistently find it difficult to compare offers. Even the sites designed to help consumers do so (Energy Made Easy and Victorian Energy Compare) struggle with the enormous complexity.
Contemplate this: our independent surveying shows 36% of all consumers (and, worryingly, 44% of renters and 48% of people who say they struggle to pay their bills) are unsure what tariff structure they are on. All of the behavioural nudges in the world on simplifying bills – but not prices – haven’t helped. Imagine if 36% of people in a supermarket couldn’t read the price labels, or at a petrol station couldn’t see what it cost to fill their car. I’m pretty sure there’d be a massive outcry saying this is unfair. Well, yes.
I think the well-intentioned Treasury officials I met all those years ago would have been horrified with a market in which 36% of people are unsure what price they are paying, 47% are paying at or above the (uncompetitive) market price, and 79% are paying more than they need to.
We’ll have more to say on these issues in coming months. Stay tuned.
Brendan French
Chief Executive Officer
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Retail pricing and consumers
What the latest DMO means for consumers…
We welcome the AER’s draft decision last week to reduce the retail margins allowed in the Default Market Offer. However, to prevent customers from paying more than they should, we strongly believe the onus should not be on people to have to switch, it should be on retailers to do the right thing.
You can also watch ECA’s Jacqueline Crawshaw discussing the announcement and what it means for consumers on ABC News.
Why consumers aren’t switching
Last year, only one in five households switched to a better energy offer. So what’s stopping them? Our latest bECAuse blog investigates the barriers to Australians accessing the best energy deal and what can be done about it.
Getting off gas
Households all over Australia are benefiting from going all-electric. While many people are already on this journey, it’s not always simple. We’ve put together a handy guide and video to help households make a plan to transition away from gas when the time is right for them.
These resources are part of our Consumer Advice Hub, which also has consumer content on how to reduce energy use, support available to those struggling to pay an energy bill, and how to check the best energy deals.
Webinar Opportunity: Supporting CALD communities
CALD communities in Australia face additional barriers that prevent them from taking part in the energy transition. We’ve partnered with the Sydney Community Forum to explore CALD communities’ priorities, concerns, and expectations about our energy future through a series of community workshops. We’ll be sharing these findings, alongside the solutions developed by CALD communities, in a webinar on 19 April.
The value of community-scale storage
Energy storage is key to ensuing that the grid remains reliable and that the transition is affordable. But to achieve this, we will need different scales of storage working together. While household and large-scale storage is growing in Australia, there’s scant information available about a third type of storage – “community-scale”. To better understand the potential of this ‘missing middle’ in the storage market, and what might be needed to achieve any benefits for consumers, we commissioned The Brattle Group to conduct some exploratory research.
Transition to electric vehicles
As more and more Australians choose electric vehicles, they will reduce both their own electricity bills, and those of all consumers. Read our submission to the Inquiry into the Transition to Electric Vehicles to discover what government policies can support consumers during this process.
From the Grants Team
We’ve loved seeing some of the organisations we have supported through our Grants Program in the media. Check out Rewiring Australia discussing HECS for solar energy on the 7.30 report and Better Renting discussing their latest report, Cruel Summers, in the SMH.
For your calendar
ECA is getting out and about! Here are three upcoming events for your diary:
- Our CEO, Brendan French, will be speaking at Power & Utilities Leadership Summit on 7 May. Ahead of the event, he spoke to Power & Utilities about ensuring that no one is left behind during the energy transition.
- ECA staff will be at the EEC National Conference, happening in Sydney on 15-16 May, on the future opportunities for the energy management sector. Register here.
- Brendan is also speaking at Australian Energy Week (11-14 June) on Ensuring the energy transition benefits consumers instead of causing suffering. Grab your ticket here and use the code ECA10 to secure a discount.