Consumer advocates welcome ACCC Final Report on electricity market

The top section of a telephone pole

Consumer advocates have welcomed the findings of the Australian Competition and Consumer Commission’s (ACCC) Retail Electricity Pricing Inquiry Final Report, released yesterday.

Energy Consumers Australia Acting CEO Lynne Gallagher said the final report confirms what consumers have been saying: that the electricity market is not working as it should and not delivering good value for money outcomes for households and small businesses.

“If the ACCC’s estimate of consumer savings from these reforms can be achieved consumers will see bills fall by 20-25 per cent which would be a welcome outcome for households and small businesses desperate for relief from high bills,” Ms Gallagher said.

Ms Gallagher said after a decade where their bills have almost doubled, consumers lack confidence that the market is working in their interests or will do so in the future but this was an opportunity to turn this around.

“We are now at a pivot point where we can actually start to get this market working for consumers and bringing bills down. Rebuilding confidence starts with tackling affordability by optimising the existing system to make sure not one more dollar is spent than necessary on the energy system.”

Consumer Action Law Centre CEO Gerard Brody agrees: “The ACCC has drawn a line in the sand, and it’s about time. Australian energy consumers have suffered for years as a result of poor energy market policy which has enabled retailers to charge punitive prices and punish the most vulnerable. The report contains important reforms that are long overdue. ”

The ACCC report takes direct aim at misleading and confusing marketing practices that have led to Australian households paying record high prices for electricity—and calls for them to be abolished.

Significantly, recommendation 33 of the report calls for an end to abusive ‘pay on time’ discounts, which Consumer Action and others have long regarded as unfair and punitive late payment penalties in disguise.

Under the recommendation, retailers would be restricted to applying ‘pay-on-time’ discounts no higher than the reasonable savings they could expect to make when the customer pays on, or ahead of, time. This measure would prevent the worst-off households from being punished with unaffordable penalties when they are simply trying to make ends meet and may need an extra few days to pay a bill.

The ACCC has also called for the abolishment of standing offers—which are the “default” offer designed to protect those unable to participate in the market but are also the highest priced. These offers are to be replaced by a fairer, regulated price set by the Australian Energy Regulator (AER). Consumer Action commends this recommendation, but says that any regulated price should be low and not include hefty costs of marketing and customer acquisition.

Queensland Consumers Association spokesperson, Ian Jarratt, says the recommendations to replace deregulated standing offers prices with default prices set by the AER will provide a common and easily understood basis for consumers to compare all the offers available from the numerous retailers operating in south-east Queensland.

Currently, many consumers incorrectly assume all standing offer prices and base prices for market offers are the same. However, each retailer sets its own prices which greatly confuses consumers, reduces price transparency and competition, and has resulted in excessively high standing offer prices.

In a sign that the ACCC mean business, the report calls for significant increases in the penalty regime for breaching Energy Laws—to bring them into alignment with the hefty penalties currently being considered for the Australian Consumer Law which will impose maximum penalties of $10 million, three times the benefit obtained, or 10 percent of turnover. Penalties of this level are essential to ensure that breaches of the law are not seen by large energy firms as a cost of doing business.

Other recommendations include the establishment of reference bill amounts (calculated by the AER) from which advertised discounts must be struck; an improvement to concession schemes; a much-needed mandatory code for price comparator sites and $43 million allocated for community groups to provide targeted energy literacy programs.

The Public Interest Advocacy Centre (PIAC) and COTA Australia have called on Australian governments to take strong action to bring down electricity prices and restore consumer confidence.

‘The report’s recommendations for wholesale markets and networks are key’, said PIAC’s Energy Policy Team Leader Craig Memery. ‘In particular, PIAC supports a new mechanism to bypass energy retailers who block demand response and the renewed focus on the size of network asset bases. PIAC agrees that writing down these assets would be an effective way to reduce prices for consumers’.

COTA Australia Chief Executive Ian Yates said the report includes a series of important consumer focused recommendations that could reduce their cost of living pressures faced by older Australians, and is a step in the right direction to ensuring the rights of older Australians in the electricity market are properly accounted for.

“Energy prices are going up and up and older Australians, particularly retirees on age pensions, are struggling with the rising cost pressures forcing them to cut spending in other areas such as health.”

“The onus is now on the Government to quickly adopt the consumer-focused recommendations and to take decisive action in protecting and safeguarding the rights of older consumers,” Mr Yates said.”

Looking ahead, Ms Gallagher said ACCC Chair Rod Sims is signalling that the sector needs to make a major shift away from the old compliance and cost pass-through culture, to one where consumer outcomes and fairness are driving business strategy.

“This report effectively puts the sector on notice that they need to deliver lower electricity prices and embrace a significant culture change.

“We now need to bring together the work of Rod Sims, the Finkel Blueprint, and the National Energy Guarantee, along with State Government reviews to map out a plan to re-build trust and confidence with consumers that the market can deliver a better value outcome for consumers.”

Read the ACCC’s Final Report here.

Read Consumer Action’s statement here.

Read COTA’s statement here.

Read ECA’s statement here.

Read PIAC’s statement here.

Read QCA’s statement here.