Power prices won’t drop till energy industry removes smoke and mirrors

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ACCC report identifies too little competition in market, but chooses to leave status quo in place. That won’t help energy prices.

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I’ve worked for energy retailers for a decade and a half and even at times even I struggle to understand my own power bill.

Given this, it’s no surprise the long awaited ACCC report into the sector has found gaping holes in the industry, and predicted that changes could save punters up to 25 per cent off their power bill.

But don’t plan how you’ll spend your newfound savings just yet. There’s no doubt that the recommendations will make a difference, but not by as much as they could.

The problem is not in what the report has pointed out, all of which industry insiders already knew but had stubbornly refused to self-regulate – instead choosing excess profits while policy decisions floundered. It’s that executing its recommendations will be tough, and many that can be pulled off will be difficult to police.

Take the ACCC’s idea to set a single reference price for all power plans, that consumers can benchmark their current plan against.

It’s a great idea as it will bring some much-needed transparency to the market and will make price comparisons much easier.

I’d expect the setting of that price to generate significant industry tension, as the major players try to push it as high as possible or not have it see the light of day at all. Nobody wants to be caught out as that power provider charging the vast majority of their customers above average rates.

And large retailers, with hundreds of thousands or more customers on rates above where the reference price will likely be set stand to benefit from each day it’s delayed.

According to the report, one of the biggest drivers behind the rise in power prices is that the cost of wholesale power. Basically, the people who create the electricity are selling it for a higher price, forcing retailers to pass that cost onto consumers.

The ACCC reckons too few organisations control the generation of power, and has recommended that no energy retailer control more than 20 per cent of a state’s power generation. A sound recommendation.

The issue is, the market is already too concentrated.

Three big energy retailers already control 60 per cent of the power generation of NSW and Victoria, for instance.

The recommendations don’t include unwinding this but rather to leave the status quo in place, with the restriction coming into place only if a company tries to merge with another generator.

It may therefore have an impotent effect on wholesale prices relative to the benefits we’re already seeing from the roll-out of new large-scale renewables, combined with the recommended government support for new dispatchable generation.

The report also takes aim at comparison services, which claim to help you find the best energy deal, but really end up funnelling you to a provider for a slice of commission. They don’t compare all of the market – only those who are willing to pay up to $200 to get you to switch.

The ACCC wants these services to declare that they earn a commission and the fact that they don’t compare all offers. A step in the right direction, yes, but not as far as a European market went when it demanded that comparators actually compare all offers, some or all of which could be linked to a commercial relationship.

Network costs, which commonly make up nearly half the bill, come under fire following the ‘gold plating’ that some States have allowed to take place.

Writing down these assets and passing on the savings through lower rates should be welcomed by all. All but the network companies that is, and their industry body has already demonstrated an allergic reaction which suggests the savings won’t be realised quickly enough.

Only when all players in the industry agree agree to remove the smoke and mirrors and compete on a level playing field, will we fully realise the full benefit of the report’s recommendations. I should be able to fully understand my power bill. And so should you.

Adrian Merrick is the founder/CEO of Energy Locals and is a former senior executive and head of retail at EnergyAustralia.

 

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14 Comments
  1. MaxG 5 months ago

    @Adrian, you know I like what you do and what your company stands for; but if you can’t read your power bill, you shouldn’t be in business… outch :))
    No, seriously, you’re right, and findings are just that, so are recommendations… those who will suffer (due to potentially reduced profits) will whine the most and declare how bad it all is for business.
    Also, I am waiting for the gen-tailers to run their own comparison sites 🙂

    • Adrian Merrick 5 months ago

      Hi Max, the red tape hasn’t yet been cut in order for us to operate in Victoria so I still have to try to understand one of our competitor’s bills! 🙂
      Re comparison sites, most of the biggest move home aggregators in the energy space are actually – wait for it – owned by large energy companies.

      • MaxG 5 months ago

        Damn… this is awful; I hope you get your ‘license’ soon… and I hope the VICtorians join in droves.
        I agree, some of the fine print needs to be read, to understand what has a discount, and what hasn’t… and what gets charged when.
        … and yes, I may have been to harsh, but it was meant tongue-in-cheek.

        • Adrian Merrick 5 months ago

          Harsh is good Max! It’s exactly what’s needed to create the step change that’s required.

    • Umbrella Man 5 months ago

      Unfortunately, millions of American consumers never take a close look at their power bills. In many areas, the power companies prefer it that way.

  2. Ron Horgan 5 months ago

    “Agree to remove the smoke and mirrors”??
    Make smoke and mirrors illegal ( fraud ) might be more certain of gaining cooperation?

  3. hydrophilia 5 months ago

    Is this a business opportunity? Might some web comparison site agree to take no remuneration from retailers, but just take a month of your savings if you switch providers?
    I suppose the questions might be
    1) is the retail pricing data and service region data publicly available?
    2) would such a service be legal?
    3) would the retailers attack you with lawsuits?

    A further refinement might be to simply have retailers who think they can compete on price keep their data on the site up to date. Consumers could compare their current bill to the predicted ones on the site, skipping data about gougers entirely.

    • Adrian Merrick 5 months ago

      A couple of people are having a go at this. Wattever, for example, compares all plans across all retailers. Others are trying to get customers to pay (directly or indirectly) for impartial advice as you suggest.
      However, without charging retailers a lot more than customers are willing to pay, it’s hard for these guys to generate enough marketing budget to squeeze into the noisy world that’s owned by the well known comparators.
      The feedback we normally get from customers is that they don’t want to pay for comparisons. I’m sure there are many exceptions to that rule but we hear customers say that they’ll either use a ‘free’ site that they’ve heard of and take their chances or crunch the numbers themselves.

    • MaxG 5 months ago

      The problem is: nobody really wants to pay a months worth of savings; supported by the lack of a guarantee that the outcome (savings) remain stable over (at least the short to mid term).
      I looked at Energy pricing at least once per months over the last six months; every month another retailer ‘won’ the price game. — Energy pricing has become like petrol pricing: unpredictable.
      The latter is in line with the ‘smoke and mirrors’ Adrian mentioned; and I can’t see any solution which would fix this; similar to petrol pricing — unless, energy companies have to publish their prices in real time on a government run website. The same should apply to petrol, because these bastards change prices multiple times per day. All that’s needed is an app that shows the cheapest (real-time) price on your intended route.

    • Greg Hudson 5 months ago

      The ‘refinement’ you mention is already in place in Victoria via the ‘Compare’ web site at:
      https://compare.energy.vic.gov.au/
      ALL retailers are required to keep the data up do date within 48 hours of making any changes.

      • Adrian Merrick 5 months ago

        You’re right, and the government comparison site for all other states – Energy Made Easy – makes a similar requirement of retailers

  4. MarkH 5 months ago

    How does this industry get away with behavior that would put you in jail in any other? On one level i want to claim market failure here, but there has never been a proper competitive market playing by the normal free market rules to fairly judge against. It’s like the poli’s took the worst aspects of capitalism and combined them with the worst aspects of government control to create this Frankenstein monster we have today.

    • MaxG 5 months ago

      Well, there is not a law for the poor and one for the rich; there is no law for the rich. Generate the GFC and you get indemnified by the president. Convert assets owned by the public into private monopolies for profit taking, and you get elevated into the hall of fame with a state pension on top of it.

  5. Greg Hudson 5 months ago

    One initiative no-one seems to mention is the different rate per postcode, making it extremely difficult to compare. If they mandated the price for all postcodes be the same, much like ALDI does with their supermarket prices, it would be very easy to see the true price. e.g. no need to enter your postcode to get the price…

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