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

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.