Consumers want lower bills, the PM is pushing for that too and now energy retailers have a plan
Energy retailers have copped a lot of flak for rising power prices, but now they’re saying they will be part of the solution to help households cut costs.
Ahead of an energy ministers’ meeting next week, the Energy Council of Australia — which represents retailers — has unveiled its plan for something called a reference bill.
The plan is to arm consumers with a comparison rate to help them shop around for a better deal — an index of sorts.
How would this index work?
The reference bill would be a single figure that retailers will compare their offers against.
The Energy Council of Australia said it would be calculated using the estimated energy usage of a two to three-person household in each network area.
Then retailers could then offer discounts against that figure.
The reference bill would be calculated using publicly available retailer prices, and would be set by an independent consultant.
Let’s go through an example scenario:
- In Western Sydney and parts of regional New South Wales, power is distributed across the network area by Endeavour Energy
- A reference bill would set a benchmarked price for annual power bills for households of two to three people in that area
- If, for example, the reference price is $2,000 per year, consumers in that network area can go to the various electricity retailers and compare their offers against the reference price
- There might be four different retailers all offering different discounts, but they would all be calculated from the reference bill price
- It means consumers can compare the discounts and deals side by side — and then select a retailer
The Federal Government has been trying to bring down prices and has been asking industry to do its bit.
In November, industry was offered the chance to develop what’s called a comparator rate so consumers could compare prices more easily. The reference bill is what industry came up with.
Already in the market to switch?
A reference bill will make it easier to shop around, but there are already a number of tools out there if you’re keen to run the numbers on your power bill.
Energy ministers are meeting on Wednesday, where they’re expected to discuss the reference bill plan. If they approve the plan, it could be in place as soon as February.
Federal Energy Minister Angus Taylor said he had a “first look” at the reference bill and thought it was “a good move in the right direction”.
“We’ll want to analyse it and look at it particularly from the point of view of customers, making sure customers get the clarity and comparisons they need to get the best possible deal from their energy service provider,” he said.
The plan for a reference bill would help consumers in New South Wales, south-east Queensland and South Australia.
Victoria is moving ahead with its own system, while the ACT, Tasmania and the rest of Queensland are regulated markets. The NT and WA are not part of the national energy market.
What does this mean for me?
If you’re already actively in the market shopping around for offers, it should make it easier for you to compare deals.
And if you have never tried to negotiate a better deal, this should give you more confidence to do so. It could help you know where you stand.
In the past, it has been hard to know if you are getting a good deal because every retailer offered a different standing offer.
A standing offer is the price you pay for electricity if you don’t shop around. It’s like a default rate that you’ll be charged for power.
The problem is, retailers offer discounts on their own standing offers. Given all those offers are different, it can be extremely confusing for consumers to compare deals.
If it’s tough to switch, we probably won’t …
And that ultimately costs us more.
New research from Energy Consumers Australia shows about 50 per cent of customers have never switched electricity providers, with the energy market described as a “confusion-opoly”.
Energy Consumers Australia spokesperson Rosemary Sinclair said it suited retailers to keep things confusing, because it put them at an advantage.
“That’s our view, and the ACCC [Australian Competition and Consumer Commission] called that out clearly in their report,” she said.
Ms Sinclair said consumer sentiment told the ACCC people were not confident about the market, or the “tools or information that are available to them to make choices and switch providers”.
“So we’re really supporting the work that industry is doing because we think if choice is made easier by a simple comparison, then that will be part of rebuilding consumer confidence in the market,” she said.
“Then they’ll be more encouraged to pick a package that really suits them, and that should bring down the number of people who are on the higher-priced standing offers.”
According to the ACCC, a standing offer should be there to make sure people who don’t want to shop around are still getting “reasonably priced electricity”, but any discounts should be offered from a more comparable figure such as the proposed reference bill.
“The confusion of the role of the standing offer is that over the last few years as retailers have been able to set the price of the standing offer, they have used that as the basis from which to offer extremely different discounts,” Ms Sinclair said.
What do consumer advocates think?
The plan has merit, according to St Vincent de Paul Society energy expert Gavin Dufty, who acts as a voice for consumers when policy is being developed.
Mr Dufty said electricity retailers were “on notice”.
“The big issue is industry coming out and trying to show some leadership or strategic thinking about how to help consumers,” he said.
“They need to improve because they don’t have another chance here.”
He said the proposed reference bill was similar to unit pricing.
“It’s like when you go into the grocery store,” he said.
“You have a look and you will see how much per kilo it is and then it will tell you down the bottom about how much per kilo you’re paying. And then you can sort of scan across similar items.
“You’ll know relative to what is a reasonable price whether you’re above the odds or below the odds. And that will give people some understanding about whether they should shop around or whether they’re doing OK.”
Ms Sinclair said she was optimistic about the industry’s plans.
“There’s every chance that industry will actually land a simple, clear comparison offer that will make choice in the electricity market much easier for consumers,” she said.
“And that will be a much better outcome than the confusion-opoly that we have at the moment.”