“Not a silver bullet,” Bowen says as energy retailers given a year to stop “sneaky” price hikes

Energy retailers will be barred from imposing “sneaky” price rises on their cherished customer base under new rules released by the federal government and the energy market rule maker on Thursday, but they will be given another year to comply.

Five new rules have been announced by federal energy minister Chris Bowen and the Australian Energy Market Commission, following outrage over the scale of consumer price hikes announced in recent weeks, and admissions that current regulatory settings, including the safety net known as the Default Market Offer, are not working.

The rule changes, however, appear to be only skimming around the edge of the issue. They will restrict retailers from jacking up the price more than once a year, and have several measures to protect vulnerable households, including around late payment fees.

But the actual structure of the DMO, and the ability of energy companies to ratchet up their everyday prices to what is supposed to be a cap, remains largely unaddressed.

“I’m not going to pretend that they’re a silver bullet, but clearly, the situation hasn’t been working,” Bowen told ABC Radio National on Thursday.

The changes announced by the Australian Energy Market Commission include preventing retailers from increasing prices more than once a year, which Bowen describes as “sneaky”, as well as banning excessive fees for late payments, and prohibiting fees for vulnerable customers.

But the major problem around the DMO remains untouched as yet. The safety net price cap is set with an “allowance” for “head room” or “competition”, essentially enough room for energy retailers to offer lower cost packages and still make a profit.

But energy retailers have confirmed that they have simply decided to “close the gap” on the DMO, and some are offering no competitive offers, even after jacking up their tariffs by around 25 per cent.

Energy experts warn that the steep price hikes, in some cases more than double that predicted by government authorities, is testing faith in the electricity market, and with it public acceptance of the green energy transition.

At the Australian Energy Week conference in Melbourne on Thursday, retailers and regulators admitted that consumer trust in the sector is being lost, although some retailers sought to shift the blame on onerous compliance requirements, which they said were costly and time consuming.

Jarrod Ball, from the Australian Energy Regular, noted that consumer confidence has withered since the 2022 global energy market events, when fossil fuel prices soared after Russia’s invasion of Ukraine.

“While we’ve seen some green shoots since it’s struggled to recover all of that lost progress, highlighting that there’s further work to do in building consumer confidence,” he said.

Damien Nicks, the CEO of AGL Energy, said the volume and complexity of regulation is costly and must be simplified.

“We spend around 20 to 25 million dollars a year just on capital costs to manage regulatory change to systems and processes,” he said.

“Regulatory reform must be front of mind to enable retailers to support customers on their electrification journeys. At this early stage of transformation, regulatory frameworks should enable the development of new energy services, without undermining the importance of energy remaining an essential service for all customers.”

That position gained some sympathy from Brendan French, from the Energy Consumers Association, who noted that there are about 12,000 rules in the electricity system, running to 1000s of pages. “I don’t know how energy retailers and networks operate in that dynamic. I think it’s enormously difficult,” he said.

French supported a shift to “something that is more principle based and that requires a trust relationship between the parties,” but he noted that the energy market rules, unlike those for the financial markets, didn’t even mention honesty and fairness.

“For the lawyers in the room … if you go and have a look at Section 912 of the Corporations Act, you’ll see one sentence which is really the only governing sentence of the Australian finance sector, which sounds ridiculous. It says, “Thou shalt act honestly, efficiently and fairly.”

“Compare that with the energy objectives, retail and other, and you will see an obligation to operate efficiently. So so it’s an entirely different construct. 

“At the moment, all of my obligations really are as a consumer to you as retailer. “I think that a more dynamic and more modern way of looking at regulation would be to require retailers to have obligations to me.

And one final observation from French: “Maybe it’s [The energy transition] moving at such a pace that you’re either the windscreen or the bug, right? And either way, it’s going to get messy.”

See also: Are renewables cheaper? What would our bills look like if we didn’t have wind and solar?

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