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Penny drops for Turnbull: Consumers are being gouged on energy

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Confusion is profit. It is one of the unwritten tenets of Australia’s retail electricity businesses. And it’s worked beautifully for the electricity industry as it has for the mobile phone and other sectors.

The principle is simple: overwhelm the consumer with a bewildering set of options for their billing arrangements; some will find their way through to a good deal, but most will give up – delivering bumper profit margins from consumers possibly paying 50 per cent more than they should be for the service.

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Australia’s retailers have acted like an unchallenged oligopoly for years, thanks to their market power and their complete capture of the regulators who should have been keeping tight on the reins.

The farce – and there is no other way to describe an electricity market that fails to deliver electricity to consumers any cheaper, and hardly any cleaner, than a diesel gen-set – is so deep that utilities even convinced pricing regulators to grant them something called “retail headroom”.

Essentially the right to charge all households extra money “to pay” for the cost of providing discounts for those smart enough to shop around for the cheapest deals.

It’s a merry go-round of money, but the consumer is never invited on. As Adrian Merrick, the founder of a consumer-based start-up Energy Locals has noted, the fact that retailers are able to offer discounts of up to 50 per cent shows the likely size of the mark-up they impose on all customers.

The problem is, there is such little visibility in Australia’s electricity markets – both in retail and wholesale markets, particularly the nature of long-term contracts – that you have to wonder what the regulators thought their purpose was, apart from being invited to nice lunches.

Finally, however, the Coalition government has decided to tackle this head on – deflecting its obsession with renewable energy sources and commissioning first the ACCC to investigate this nonsense, and now summoning the retail heads to a meeting in Canberra next Wednesday with prime minister Malcolm Turnbull.

Turnbull has apparently discovered that many households and businesses are paying significantly more than they should be, as they are pushed onto higher plans. He says they need to be given better information so they can seek better deals.

“This situation must be addressed – urgently and directly,” Turnbull wrote in a letter to the companies, asking them “what the electricity sector can do to ensure no family pays any more for electricity than it needs to.”

The natural response is to be less greedy, but that is hard to achieve when shareholders are breathing down the necks of boards and executives for ever rising profits.

The Queensland government showed what can be done when consumers are prioritised over profits, and in the space of a wink, a nod, and a letter of instruction, Queensland-state owned generators have gone from producing the most expensive power in the country to the cheapest.

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Turnbull’s summons to the summit comes as Australia’s electricity retailers prepare to release what many expect to be bumper profits, at least from their electricity customers.  AGL is due to deliver its earnings the very next day. Analysts expect AGL’s earnings to jump 50 per cent over the next few years as it locks in the benefits of recent price rises.

As Michelle Grattan reports in The Conversation, Turnbull says the electricity price rises of the past decade have “put serious strain on Australian households and businesses. Disconnections have risen sharply in some states, and there are reports of spikes in the number of people suffering financial stress.”

“It is simply not good enough that some families and businesses cannot always afford to turn on their lights, heating and equipment …. it is important to ensure no family pays a cent more for electricity than it needs to.”

Thankfully, the government is realising that the problem is not with renewable energy schemes, or even renewable energy itself.

The surge in prices have come from a mixture of over investment and gold plating in networks – something that may be addressed in the move to cut down the networks’ avenue to appeal regulatory decisions  – and in the surge in wholesale prices and retail margins.

The wholesale prices, it is now widely recognised, are not the fault of wind or solar investments, but rising gas prices and bidding patterns by the handful of generators that dominate the market.

The reality is that Australian are probably paying twice as much as they should be for an essential service. The arrival of new technologies, such as rooftop solar, battery storage and smart controls, means that they will have the opportunity to deliver that cost saving themselves, by disconnecting from the grid.

That’s not a great outcome. Some defection is inevitable. But what is needed now is a wholesale rethink of the rules and regulations put into place that have served little but to defend the position of the incumbents.

This means encouraging more renewables into the system, not preventing them. It is clear from all assessments that renewables offer the path to a much cleaner, cheaper and smarter system.

But to achieve this, and to deliver real cost savings to consumers, then it may be necessary to a broom through the hierarchy of people responsible for those rules then so be it.

After chewing the heads off the retail chiefs, Turnbull could be well advised to bring federal and state regulators to the table and ask them what they are going to do about it. Chief among them should be the main rule makes, the Australian Energy Market Commission.

   

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  • Ray Miller

    Maybe Premier Jay should be asked to open the meeting, just to set the scene and get things off in the right direction?
    How about we start a fund to sponsor Jay to the meeting?

    • Joe

      Hasn’t Joshie F personally delivered the invite to Premier Jay ?

  • lin

    “He says they need to be given better information so they can seek better deals.”
    He is dead wrong. The government needs to stop essential services from being used as an instrument for greedy businesses and governments to gouge as much money as possible from the public.

    • Johnnydadda

      Exactly, electricity generation is critical infrastructure and should never have been privatised.

      • Robert Westinghouse

        Totally agree. Privatisation has failed and needs to be abandoned

      • Roger Franklin

        Privatisation seems to be fine as long as it’s the Govt selling Public Assets to their friends under the guise of “Privatisation”, however when private people procure, produce, store and use their own electricity – it’s not fine….. Oh and this energy situation has been years in the making…

        • Mike Westerman

          Privatisation of monopoly assets has only ever been about privatising value and socialising costs, as it makes no sense otherwise. It provides a ready form of risk transfer: politicians don’t have an ongoing obligation to make hard decisions about allocations and outsource that to the private sector thru “commercial in confidence” agreements. The private sector is paid handsomely for taking on these obligations, and the pollies can say it’s out of their hands. Except when the costs become a political liability and competition is at last recognised as a fairly dumb but excoriating master.

    • Terry J Wall

      If a service provider even has a sniff of monopoly, there is at the very minimum an obvious need for a taxpayer owned alternative. Take Banks (Kiwi Bank) and our electricity retailers / wholesalers.

    • Ralph Buttigieg

      Well theres a big growth in renewable, so should the government nationalize them too? I would have thought have lots of different solar plants, wind farms etc competing would be the way to go. Decentralized and competitive.

      • lin

        Competitive would be an improvement. What we currently have is government approved theft.

      • Barri Mundee

        The key is market power. Under the current “regulatory” regime there is too much market power in the hands of gentailers.

        Its the same with industrial power: privatisations, anti-union laws and unions’ failure to adapt has resulted in a huge shift in power to employers.

        Not surprisingly, many employers have captured the growth in labour productivity for shareholders and management with employee wage growth now hardly keeping up with the inflation rate.

  • Mike Westerman

    Is this another thought balloon to forestall action (ie like the bank meeting vs Royal Commission) or a genuine intent to stop the gouging? The whole market structure needs a rethink from scratch.

    • Rod

      All optics. Will result in no long term solution.
      Although, I think he will have a few more pressing issues next week.

    • Goldie444

      There may be lots of reasons why Turnbull and the LNP may lose the next federal election (maybe within 12 months), but if he wants it NOT to be because of the cost of electricity, he has to do something about it now, to give it time to work. This means real cost savings to consumers and business.

  • Theodora

    Consumers are expected constantly to monitor for better deals. The big suppliers’ reward for customer loyalty is to keep them on expensive contracts while offering everyone else good deals. I had AGL for both gas and electricity for many years and was paying through the nose. I switched my electricity to Powershop (they don’t supply gas) and AGL called, begging me to stay, offering great deals, like an abusive spouse. Then recently I moved my gas to Energy Australia and AGL tried to call me (I didn’t answer) then wrote to me, same begging and promising to be better in future. AGL doesn’t realise that existing customers are more important than prospects because, once existing customers get fed up and leave, they’re unlikely ever to want to return.

    • Joe

      Theodora, sadly your experience seems to be the ‘business model of default’ these days and not just for the Energy sharks. Telcos, Insurance, Banks etc. are all the same these days. They focus on chasing new customers with ‘enticing sweet deals’ and at the same time ignore their existing customers. The only time existing customers get any attention is when they are leaving…suddenly all the stops are pulled out. All that does is tell an existing customer how valued they really are…NOT MUCH.

  • phred01

    The coalition have been side tracked with the attacks on renewables and their collective gaze has been off the ball (Electricity market). The massive price increases is fueling the attractiveness of battery storage without generous incentives. The looming specter of mass grid defections; the danger is the collapse of the electricity market as we know it. The private operators will just walk away from the mess like the French did with Hazelwood. In the end state govn’ts will not have the resources to rebuilt the nation’s network and this will ultimately fall on the shoulder’s of the federal govn’t

    • nakedChimp

      You think they’re that far ahead in their analysis of the situation yet?

  • tsport100

    Bundle electricity retailers in with all the other oligopolies in Australia extracting multi billion dollar profits from the general public… virtually every daily essential from housing, super, road tolls & green slips has been turned into a FIRE sector gravy train.. Turnbull has probably just woken up to the fact all this rorting is simply bringing the inevitable property sector crash and resulting recession closer to happening on his watch..

    • lin

      Yep. you cannot continue to extract that much money from the economy without causing disastrous results. The greedy are killing the goose that laid their golden egg.

  • Andy Saunders

    Might be worthwhile euthanasing a few meerkats, as well…

  • bedlam bay

    Just as with SSM Turnbull is captive on renewables with Finkel on hold. The NBN to which the LNP was very hostile, is another fiasco. This is all a repeat of the chicanery of Sol Trujillo and Telstra which bit the LNP on the bum.

  • Grpfast

    The coalition allowing the right wing conservatives to control every major development has cost Australia mightily. You and I have paid through the nose and the country is worse for it.

  • wholisticguy

    It was always ironic to me that while the governments slammed expensive renewables as electricity prices went up, the consumers actual response was to install their own renewables to get some relief.

    While the government attacked renewables for reliability issues in the grid, consumers response was to look to home battery and solar systems to stay up during blackouts.

    It’s uncomfortable and unfair, but the best stimulus for roof top solar is high grid electricity prices and an unreliable network.

    • Rod

      And the more voters who have PV and or storage the more people who will realise the anti RE rhetoric is bullshit.

      • Mike Westerman

        Yes this is the point that seems lost on the luddites: companies own power stations and mines, voters own rooftops.

        • Michael Gunter

          lucky non-renting householders own rooftops. Landlords should retrofit residential rental with world’s best practice draught-proofing, insulation, double glazing, boxed pelmet, lined curtains, fresh-air-heat-recovery (countercurrent heat exchangers), *AND* solar hot water (using anti-monopolist THEMAL flatplate panels or evac tubes) . Enough of living in glorified tents, already! Ban brick veneer, put thermal mass on the inside.

          Hardly any of the low-hanging fruit is being picked, juicy edible fruit$$$ just lying on the ground! Time is overdue for a #negawatts revolution, then having done all the cheap, common-sense stuff, DNSPs and gentailers share price crash might make a public buyback feasible.

          • nakedChimp

            Even the ones building their own homes aren’t smarter.. maybe 2% of the homes they put up here around me have a flat roof you can lay full with solar panels.
            One I’ve seen even had a solar water system on.. though not with the roof angle, but on a frame that turned the angle of the solar water system towards north, while the flat roof was aligned towards east I think.
            Hilarious.

  • wholisticguy

    The political and media strategy of blaming renewables has been a failure on the level of the war on (some) drugs.

    The majority remain unconvinced, and the morality is highly dubious.

    The longer they hang on and deeper they dig with no results, the more impotent they appear.

  • Patrick Comerford

    I hope some public servant will have the tape recorder on during this “summit”. Turnbull say’s one thing in a private talk and something completely different to the public. Just ask the Donald. He’ll probably threaten them with a wet lettuce and then come out and say he “shirtfronted” them.

  • MaxG

    Given all this “privatisation” bashing, can I say (what I said before): people need to understand that privatisation, minimising to the point of removing government as a pillar of democracy is core neoliberal policy… which is at its core anti-social… remember Joe Hockey saying Australians don’t live so long to need a pension; indiscriminate removal of welfare; apply for a job per day, while there are no jobs to apply for; e.g the Qld job market has to date not recovered from Newman’s sacking of 20,000 people in 2012. Automation is another issue not even on the government’s agenda…
    My point: anyone who cares for community and the planet in general, cannot — as a matter of principle — vote for any neoliberal party (no matter where in the world, and no matter what they promise). Once this is understood, there is hope …
    I claim that Turnbull did not even understand the core neoliberal doctrine when he went into politics.

    • Barri Mundee

      The problem though Max is that all parties (other than a few very recently set up such as New Democracy Party) are basically neo-iiberal. Realistically, the choice is between shades of it with Labor seemingly starting to shed its “me-tooism”. Labor is the least worst of the majors though in my view.

      • MaxG

        Agree with you… 🙂 I clearly see the problem of established parties, silly voters — sorry, wilfully ignorant voters, and the good parties never getting their votes they deserve. Lots of issues at play (which I highlighted at various places are too long for the post)… while a few (many) decades ago people fought for a shared cause, the rise of individualism has significantly weakened that approach and turned it into f* all I do it myself — which I am guilty of too, but had no choice otherwise. I used to be a life-long labour voter, until a few years ago, when I could not longer support their (watered down) values.

  • David Hurburgh

    Love the tungsten light globe at the head of the article.

    Hasn’t RenewEconomy converted to LEDs yet ?

    • Michael Gunter

      HA! 🙂 — Turnbull as enviro minister a decade or more ago announced a total phase out of tungsten lighting. Don’t hold your breath whilst waiting for that transition! Industry responded, putting small halogen globes INSIDE bigger glass envelopes as a tricky response to deceive consumers into burning way more coal-via-electricity than we needed to. Woefully short globe life of halogens at 253 volts LV supply, too.

  • Roger Franklin

    The Penny has only just started to drop – it has a long way to fall yet!