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Regulator: It’s OK to charge customers more for energy

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As Malcolm Turnbull invites eight heads of energy retailers to Canberra on Wednesday for a dressing down, or at least a salad dressing, on consumer energy bills, he will realise he is not just facing industry resistance but institutional inertia too.

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The defense of Australia’s ridiculously high electricity bills is often made – by the likes of regulators and rule-makers such as the AEMC – along the lines that if consumers could be bothered, they could find cheaper prices.

Well and good, but it begs the question: Why should those who do not have the time, or inclination, or knowledge, to shop around for better deals be charged such usurious prices for what is supposed to be an essential service?

This will be a major theme of Turnbull’s chat with the retail chiefs on Wednesday, but this little gem, below, from the NSW-based pricing regulator IPART highlights the institutional resistance.

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It is part of IPART’s submission to the ACCC inquiry into energy prices, and its focus on the opacity of the retail sector, and the bidding practices in the wholesale market.

As we have written, confusion is profit for the energy industry, and this suggests a rubber-stamp of that approach by the regulators who are supposed to be keeping them in check.

Basically, it suggests that charging really high prices to consumers is fair. It is the consumer’s fault if they don’t go searching for better deals.

Given that discounts obtained by the proactive can be up to half of their bill, then it is probably reasonable to assume that the others are making up the difference, and paying possibly 50 per cent more than they should.

After all, if a national electricity market cannot be designed to provide cheaper electricity than a single diesel generator, then what was the point of doing it in the first place?

This is the fundamental issue that many consumers are wrestling with. Now, thanks to the falling cost of solar and battery storage technology, there are cleaner and cheaper ways of dumping the grid.

Until the regulators get their minds around this, it seems they will be incapable of making any equitable decision around the future of the grid, a point that the welfare lobby has been at pains to make, even if we’d rather they spend more time demonising regulators than leaving the door open to demonise the clean energy solutions.  

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  • john

    When the price of retail electricity is set with head room to allow discounts the end result perhaps 10% go shop that leaves 90% paying the headroom price so no wonder they can discount to those 10%.
    Why on earth is this fantasy head room figure added on?
    To put up the argument that customers have to go kick the tyre of every supplier dealer this is rubbish.
    Tell me how paying dozens of retailers overheads is going to lead to cheaper supply and I have a bridge to sell to you!

  • George Michaelson

    This ‘rational choice’ thing is way tired. it’s “Hobson’s choice” really: take it of leave it. Oh, it’s entirely rational to take something we did for community benefit, privatise it, then stand back and watch it fail as people walk away from excess profit seeking behaviour because ITS RATIONAL.

    Mate: it wasn’t rational to privatise it in the first place.

    • MaxG

      No! It is neoliberal… I wonder when people are actually understanding what has been happening for the last decades under their very eyes.

      • Rod

        As we saw in the QLD survey. Just blame renewables even though they have bugger all.

  • CaresAboutHealth

    Until recently, it was very difficult to identify the best deal. The government comparison site – http://www.energymadeeasy.gov.au/ – has major limitations that make it unsuitable for a lot of customers. If Malcolm had provided a tiny bit of money to fund this properly, many more people would have been able to get cheaper power.

    Commercial comparison sites work on commissions, so they don’t necessarily show you the best deal.

    The great news is that there is now a comparison site – wattever.com.au – that can easily compare all available offers, even for companies that don’t give them any commission. I have no financial or other interest in this website, apart from as a very satisfied user. If other people find it useful, they should let other people know.

    It’s a real shame that the deals on offer are so complicated that you need a computer to determine the best options, but at least now it can be done without a great deal of effort. Thanks to wattever for doing what the government comparison website was incapable of doing! Let’s hope that the government website will be able to do a better job in future.

  • lin

    So we can’t push a more rapid move to renewables because its too expensive, but charging some of the highest electricity prices in the world to create extraordinary profits is OK??
    Looks like it is tumbril time again.

  • brucelee

    In the UK the regulator has a rule that all suppliers must inform the consumer if they have a better deal they can switch to. Let’s do that.

    https://www.ofgem.gov.uk/publications-and-updates/suppliers-must-tell-customers-if-their-cheapest-deal-marketed-under-different-brand

    • MaxG

      Grab it by the balls and publicise energy, charge on price for all.
      Or, have you thought about water (a public good) why you pay $4 per kilo litre, while Coca Cola next doors pays $4 per mega litre? It is all the same neo-liberalism, as some have stated already.

      • John Saint-Smith

        You neglected to mention that Coca Cola sell the water they buy at $4 per Mega litre for $1 million per Mega litre!

        • MaxG

          Deliberately, because I assume a certain cognitive ability of the forum members. 🙂

  • Ian Franklin

    I was just listening to Mathew Warren. His message: it is the fault of the customers for failing to shop around. I reminds me of my aged mother-in-law (in the US) who was being charged outrageous fees by AT&T for her telephone connection. When we discovered this, a friend suggested that it was her fault (despite her dementia), for not calling around to get a better deal. As we know, most companies follow Milton Friedman’s advice that the only responsibility a company has is to maximise return to its shareholders (even if it has to screw its customers to achieve that aim).

    • MaxG

      See my posts further above… in essence, if you’re sane you can enter contracts, which is your responsibility to understand; otherwise do not enter in said contract. If you are in any form in a diminished capacity then seek help from family friends, custodians, etc. This is how the world works; get used to it — and do not blame other for your misfortune.

      • Ian Franklin

        I understand what you are saying – I once had a roommate who was a graduate of the Nathaniel Brandon Institute. I just don’t accept that it is reasonable to accept corporate behaviour that preys upon the aged, the gullible and the disabled.

        • MaxG

          🙂 Well, there are three things you can chose about anything in front of you: 1. accept, 2. ignore, 3. change. This is it.

          Since I cannot (do not want to) do anything other than voting with my purse and where I do my business, I chose in this case ignorance. I do not condone this behaviour, but this is the world we live in; get street smart 🙂
          Like I said, it takes sometimes drastic steps to make a change; e.g. I deliberately sold suburbia and kissed the corporate world good bye, for a place in the sticks, and over all have improved my health, hardly expend any dollars, live happy, in simple words: is has been f’n brilliant! 🙂
          But then, most are not prepared to ditch what does not add a value to their life.

  • MaxG

    I agree with the headline… charge the heck out of it; let the fools who buy it bleed… have you seen these eBay offerings where the item is usually sold for say $50, and then one clown offers it for $386, and when you look at the feedback, some idiots have actually bought at this price… unbelievable one might think.
    The same with energy prices, I can tell, because I was one of these fools being robbed of thousands due to my complacency alone.

    • drjas

      But there is one big difference:-

      You’re ebay suckers are making a deal right now for a product that the can see is equivalent, so if they are paying more it is exactly caveat emptor, because they could always walk away.

      Signing an energy contract you are agreeing to future transaction on terms that the retailer controls more than you do (such as ability to change the price) on a product you may struggle to understand (any version of two part tariffs) with an implied gamble (will I be able to meet these conditions all the time?) – and if you don’t like it, what can you do to escape the deal? forgo your electricity? Unlikely.

      • MaxG

        While I understand the slight difference, the underlying problem is the same: wilful ignorance. It is part of today’s culture to blame others for their misfortune; which is what you maybe subconsciously doing here. If you consider a person to be sane and capable of entering a contract, it is their responsibility to understand the terms and conditions on said contract. Full stop.
        If the other party makes changes, get onto them, ask for correction or terminate the contract. There is no advantage for a consumer to enter any fixed term contract. It is a consumer’s choice to pick no frills, no terms, no exit fees contract; there are heaps around and at very competitive prices. This applies to mobile phone and Internet contracts as well. The choice is yours.

        • John Saint-Smith

          Crap! If the real cost of an electricity bill was clearly stated on the company website, in language which would allow it to be easily compared with other ‘deals’, then it ought to be the customer’s responsibility to shop selectively.
          My experience was nothing like that. Having accepted a deal from the ‘best offer’ available on a comparison website, my existing supplier magically found another 9% discount NOT mentioned in any of their prior advertising or correspondence.

          • MaxG

            John, you are missing my point. I am not saying price obfuscation is great; I am saying it is the individual’s job to make sense of the information. If you can’t, get someone who can. The solution is consumer law regulation (nanny state); e.g. like in the EU.
            Of course they found a discount, to keep you. When my retailer said this to me, and I replied, this is not a desirable relationship where I get screwed over until I want to leave. You do not deserve my business, and I vow never to return. And I won’t, even their stuff is cheaper — it is a matter of principle for me.

            So, do not enter lock in contract, observe the market and move as you see fit. I have quite a few companies which I will never deal with again; e.g. Telstra, Optus, Origin, and few others. I cannot be bought. I can/maybe be screwed once, but that is the end of it.

            To further explain: Price obfuscation is a strategy, which reduces the customer’s ability to fully understand the price, and therefore to compare prices.

            Even bills are structured in a way to make it hard to add up the charges, usage, tax, and discounts.
            In a nutshell, obfuscation (in price or time or both) is done to screw you over.

            Maybe you want try EnergyLocals. No lock-in; clear fees, end of story. In any case kick your current supplier in the shins. What they do is betray you until you notice and then promise to behave. Yeah, right. Why would you trust such a company.

  • drjas

    At least one regulator has been consistently, if not officially, rejecting the efficiency and effectiveness of the market – and holding up a mirror as to how compromised regulators have become.

    The latest submission explicitly rejects the “it’s the consumers fault” thesis – there is a lot of good economic theory that says it is rational for consumers to flag in the face of the obstacles in the market.

    Submission to Victorian retail electricity review
    https://engage.vic.gov.au/application/files/6914/8999/0461/Ron_Ben_David_Submission_Final.pdf
    If the retail energy market is competitive then is Lara Bingle a Russian cosmonaut?
    http://www.esc.vic.gov.au/wp-content/uploads/esc/fc/fc947897-7d4f-4772-97c9-959e3baad0db.pdf

  • Rod

    I consider myself an educated consumer but I am going through this process now and find it incredibly difficult. Every retailer wants to know if you have solar so I am thinking these bottom drawer offers are not available to solar owners.

    Working out pay on time discounts, supply charges, off peak rates, FiTs etc is doing my head in.
    Time to knock up a spreadsheet and punch in my previous year’s usage but I don’t hold out much hope of finding that magic deal.

    • MaxG

      The latter is how you do it. Do the numbers yourself!
      Consult resources, such as Whirlpool forums; a bunch of retailers stick out for cheap… some list pitfalls, and once you’ve done your home work, ring ’em up and quiz ’em for discounts, which you plonk into your spreadsheet as you talk; once you have the results, ponder over it, make a decision and move on.

      • Rod

        Yes, dicking about with their websites is hopeless. They ask about your last bill but that is no use for those with PV and FiTs complicate it too.

  • MaxG

    Also agree with the notion of “Not participating in the market can be a rational decision”. So you save $100 or more at the end of the year; who cares? … if your share portfolio earned you 10 grand. Makes sense. However, if short on cash, you have to participate to get the best deal. The emphasis is on the individual.

    On a side note: looking at the fundamentals; we privatise, then regulate, to make a commercial product look like a public good. It does not work like that. corporations are not social enterprises!
    I deal with it, like with any other product; either I want it or not, or can afford it or not; or do it myself, if I can’t get want I want. I do not care, given the current circumstances of the energy market. So, I produce my own, have battery, and have been laughing ever since.
    Stop blaming the world; stop whining, stop waiting for others to take action or change; take action and change the outcome for you. It works for me — every time.

    I wanted to reduce bill, dependencies, pollution, noise; sold in suburbia, moved to the sticks; AU houses are crap, building my own, etc. When are you taking your life in you own hands?