Five million households are paying way too much on their electricity bill

Just before Christmas the Australian Competition & Consumer Commission (ACCC) released its 14^th Electricity Market Inquiry Report, “urging households to change electricity plans”.

Even though the Report revealed that “millions of Australians are still paying more than they need to be”, it didn’t receive much media coverage, probably due to its timing.

For me, the most startling finding is that 73.3 per cent of the 6.8 million residential electricity customers in the National Energy Market that were surveyed (i.e. 5 million households) are not on their retailer’s cheapest plan (see Figure 1).

The Report calculated an annual saving of $291 on average by switching to the retailer’s cheapest plan – a theoretical collective saving of $1.5 billion (my figure).

Fig 1 – Proportion of customers on their retailer’s best (cheapest) plan

Of course, even those 26.7% of households that are on their retailer’s cheapest plan are likely to find even cheaper plans with other retailers. This means that well over three-quarters of households could save hundreds of dollars this year, simply by switching plans or retailers.

Maybe, as a reader of Renew Economy, you are well across this issue and are already on the cheapest plan. But it might be worth checking. 

One interesting finding in the Report is the significant variation in customer savings between retailers. 

The percentage of households not on their retailer’s cheapest plan ranges from 59 per cent to 85 per cent, and savings vary from $198 to $490 per year (see Figure 2). 

Fig 2 – Average annual savings quoted per better offer message by retailer

For small business customers the variations are even larger. The percentage not on their retailer’s cheapest plan ranges from 42 per cent to 92(!) per cent, and savings vary from $220 to $931, averaging $554 per year. 

Retailer 1 in Figure 2 stands out with the highest savings for both household and small business customers – hopefully triggering scrutiny by the ACCC.

The Report also found that 2.5 million households (37 per cent) are paying the default tariff or above (see Figure 3), with 0.4 million paying more than 10 per cent above the default. (The default tariff (offer) is set by the Australian Energy Regulator (AER) as a safety net and maximum price that a retailer can charge for a new plan.)

Remarkably, a few customers are paying more than 25 per cent above the default tariff whilst others a paying more than 25 percent below.

Fig 3 – Proportion of residential customers paying more, equal to, or less than the default offers

At this point it is relevant to state the obvious – your chosen retailer and chosen plan do not impact or add any value to the quality or reliability of the electricity and gas supplied to your premises. Paying a higher retail price does not result in better electrons or gas molecules.

So, how is it that after two decades of retail competition, three-quarters of residential customers are not on their retailer’s best/cheapest energy plan? 

No doubt the overriding reason is the complexities of the process and energy plans on offer. 

It is daunting for most and impossible for some to sift through hundreds of plans from fifty or so retailers with differing terms and conditions, tariff structures, rates, discounts etc.

And those complexities are exacerbated by some devious retailer practices, like automatically transferring customers to more expensive plans at the annual renewal. 

Three words of advice.

First, never automatically accept the plan your energy retailer suggests. 

Second, find the message on your bill typically titled “Could you save money on another plan?” The AER requires every bill to include a message advising whether you are on your retailer’s cheapest plan, and if not how much you will save by switching. It’s of concern that many people aren’t aware of this message.

And third, whether or not you are on your retailer’s cheapest plan, it is likely that other retailers have cheaper plans. You can find out through the government comparison services Energy Made Easy or Victorian Energy Compare. 

I suggest you make it a (late) New Year’s resolution to check whether you are one of the 5 million Australian households (or a small business) that could save hundreds of dollars this year by switching energy plans or retailers.