As has been widely reported, wholesale energy prices are on the rise and we are seeing this translate into higher energy bills.
The question on many people’s minds is “What can I do to reduce my energy bill?”
There’s no one answer to how diverse consumers can better manage rising energy bills. However, what we do know is that consumers need to feel a sense of control and agency over their bills, no matter what this looks like to them.
In April this year, ECA engaged Essential Research to conduct qualitative research on how people are managing their bills, their preferences when it comes to how costs are passed through, and preferences for different retail pricing structures. In a series of online focus groups, 59 people across Australia were interviewed from three groups of consumers: engaged; financially vulnerable and small businesses.
While this research was conducted prior to recent price rises, the findings are more important than ever, providing important insights into how consumers view electricity bills.
You can READ THE FULL REPORT HERE. So, what did we find?
“Bill shock” is real
Our research found electricity bills are amongst the highest and most variable of many household and small businesses’ regular expenses.
This aligns with our ECSS findings, with 52% of households ranking electricity as one of the top 3 bills they have the most concern paying.
We also found that people find it difficult to estimate their upcoming bills accurately.
Participants reported being surprised by bills and noted that this uncertainty causes stress and anxiety around their energy service.
“I pay a little each fortnight so the chance of “bill shock” is lowered”– Engaged consumer from Queensland
“…in electricity’s case, not knowing how much they are going to be quarter to quarter really doesn’t allow you to plan for them properly”– Financially vulnerable consumer from Queensland
In the context of predicted price increases over the next 18 months, bill shock will only become more acute.
People are actively trying to manage their bills
People have their own ways of managing bills to help avoid bill shock.
For example, some consumers we spoke to choose to pay a small amount every week or every fortnight, even if their bill comes monthly or quarterly. This helps them feel in control of their bills, by reducing the total amount due.
“I don’t have a formalised payment plan as such, I just choose to pay a certain amount each fortnight towards all of my utilities. Which makes it much easier for me to budget and organise my finances”– Engaged consumer from Victoria
Financially vulnerable consumer from South Australia
“I pay a set amount each fortnight through Centrepay. I decided to do this after I was hit with an enormous bill…I am just about always in enough credit now, that when the bill comes through there is enough in the account to cover it.”
Other activities people said help to reduce the impact of their bills include shopping around for better deals, or reducing their energy usage. While this will have some impact on reducing bills, as we have noted previously there is a limit to how much people can save due to failures in the retail market and increasing fixed supply charges.
Options such as solar panels or better insulation are also seen as an energy efficiency or saving solution, however are out of reach for many people, such as renters or those struggling financially.
For some, predictability and consistency is critical
We also asked people their preferences on how changes in network costs should be recovered from consumers.
Network costs are determined by the regulator every five years. This process can mean a step change in network costs being charged to consumers.
To test consumers’ preferences for how these costs should be passed through, we gave participants two simplified options:
- Changes are immediately passed through, meaning a big change in the first year and consistent bills in the following four years; or
- Changes are passed through gradually, meaning step changes in cost over the five years.
Many participants found option 2 appealing, preferring small increases to a large jump in costs.
However, not being able to predict cost increases each year was stressful to others, particularly small businesses and financially vulnerable consumers, who find consistent bills easier to manage.
“Option 1 allows us to have a pretty good idea of the bills coming in. If it changes every year like option 2 we have to guess at what that change would be to plan for the next year”– Business owner/decision maker from Queensland
“Looking at the slow increase of option 2 gave me anxiety you can’t predict your future and if you’re struggling now imagine when the price continues to climb!!”– Financially vulnerable consumer from NSW
‘Control’ looks different to different people
We also asked people their preferences about a range of different retail price structures.
Simplicity helped some people feel in control. These consumers preferred price structures that are easy to understand as it allows them to manage their bills through simple to calculate plans (such as flat prices) or set costs (that of an ‘all you can eat’ option, where customers pay a fixed amount no matter how much they use).
These options were particularly preferred by people who do not have the ability to alter when they use their energy.
On the other hand, some engaged consumers, or those focused on reducing costs, like the idea of being able to reduce their electricity bills through time-of-use pricing structures. These participants felt in control when they could choose to change when they use energy and be rewarded for doing so through a lower energy bill.
Perhaps unsurprisingly, time of use pricing structures were particularly appealing for households and small businesses if the off-peak and peak times aligned with the way they currently use energy.
Environmental concerns were also important to some people, who are mindful of pricing structures that may encourage excessive electricity use and the associated environmental impact. For this reason, some participants did not like the idea of having a fixed price for all electricity use.
So, what does this all mean?
People want to feel in control of their bills, but “control” looks different for different people. Decisions in the energy sector should account for this diversity to deliver the system and services that people want.
People should have the ability to choose what electricity plan or pricing structures works for them. However, this must be accompanied by easy-to-use information and tools that equip them to understand how different bill options are being calculated, so that they can identify which ones best suit the way they want to live their lives or run their business.
However, while these measures may support customers in usual times, we are not living in usual times. The recently-announced interventions by state and Federal Governments are necessary and welcome offers of bill relief at a time of crisis. However, this research shows that giving consumers more optionality around how they like to be charged for energy and how they want those charges communicated to them will have an important role to play in delivering the kind of energy system that meets their needs in the longer term.