“I would like to see a change in behaviour:” Rule maker wants retailers to act before it has to intervene

Retailers are staring down the barrel of more regulation, but a bit of proactivity could reduce the threat of even more, the market rule maker says.

The Australian Energy Market Commission (AEMC) is about to put the onus of making sure customers are on the best plan onto retailers, and make sure all market signals are simple and easy to follow, following months of consultation on six draft recommendations published in December last year.

And while economist and AEMC commissioner Sally McMahon says retailers often call them out for over-regulating the sector and adding costs that consumers ultimately pay, she’s also found they tend to wait for an intervention before acting.

“We don’t want to regulate retailers if we don’t have to, but we’d really like to see some behaviors that suggest that we don’t have to,” she said at the Australian Energy Week conference. 

“I would like to see a change in retailer behavior… where the retailers take on the role of risk and managing the complexity, they’re really proactive in providing better offers to consumers, so we can really avoid the loyalty tax, but they’re also proactive in providing the appropriate safeguards.”

McMahon wants to see a culture shift among Australian retailers to a “more proactive competitive rivalry” that allows consumers to “relax and be a desirable consumer to multiple retailers at every point in their consumer journey.”

It’s a move the boss of Victoria’s pricing regulator says can’t come soon enough.

Victoria Essential Services Commission chair Gerard Brody says a key factor driving distrust is the loyalty tax, the higher tariffs people pay simply for not checking their retailer’s homework every year.

He’s surprised that despite having a competitive electricity retail marketplace, Australia is yet to see a retailer proactively say it will put all customers on the best offer it has. 

“That would seem to me to be something that would build trust in that company,” he says. 

“I don’t understand why that hasn’t happened, and that’s why we’ve had to resort to looking at new protections to really address this to build trust in that way instead.”

Analysis by the Commission last year showed that customers  on the same plan for two years or more, on average, are being charged $410 more a year than a cheaper option, and up to $950 per year if they’ve been on the same plan for a decade. 

From October, Victoria is changing the rules so retailers must move any customer who has been on a contract for four years to a cheaper offer.

“I’d like to see the industry really compete around this, so that you know they are offering the best offer to all their customers,” Brody says. 

“We don’t want people to be wearing the burden of choosing between a multitude of different complex offerings and bearing that risk of getting it wrong.

“More choice, more disclosure, more information is not necessarily in the consumer’s interests. The choices must be effective. They must be safe. They must deliver on the promise that’s offered.”

However, in a fast-changing energy market sometimes those promises are hard to keep. 

In Victoria, consumers have been left increasingly disappointed after the Essential Services Commission rapidly reduced rooftop solar feed-in tariffs to as low as 0.4c per kilowatt (kW) exported. 

“People found that very unfair because they had been promised when they purchased solar panels that there would be this ongoing benefit to them,” Brody says. 

“That’s a salient lesson when we think about further transition, and the promises that are being given now to customers who are making choices about investing, whether it’s batteries or other things in the home. 

“I think there is a risk of over-promising, and then when that’s not delivered, the trust will fall out again and exacerbate some of the problems.”

But retailers could mitigate that by refocusing on outcomes for customers, rather than on the individual transition of winning or losing accounts, he says. 

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