Politicians and policy makers who believe a move away from carbon pricing will result in a drop in retail electricity prices haven’t been paying attention – Australia’s retail energy markets are broken and there simply isn’t enough competitive pressure to force retailers to pass savings onto consumers.
Figures from Victoria’s Essential Services Commission showing the State’s energy retailers’ gross margins increased by between 20 and 60 per cent in the five years to 2011-12 are a clear indication that there isn’t enough competition to force retailers to pass on savings.
Gerard Brody, CEO of Consumer Action Law Centre, said if the energy retail market was working effectively we wouldn’t have witnessed a 65 per cent increase in the cost of electricity over the last four years. ‘We calculate that moving away from carbon pricing should deliver a $277 drop in the average household’s annual electricity bill, but we’re sceptical we’ll see such a reduction,’ said Mr Brody.
‘Energy retailers can increase electricity at any time during a contract, so even if someone spends hours finding the best deal, the retailer can increase the price even before they’ve received their first bill.
‘It’s positive that the ACCC is given sufficient power to monitor pricing with the repeal of the carbon tax, and it’s important it is resourced to take enforcement action where possible. But we rely on competition to keep prices down. There is simply no incentive for consumers to contribute to competition by shopping around when retailers can up prices at will. And as long as competition is so limited, we can’t rely on the market to pass savings onto consumers,’ said Mr Brody.
Consumer Action believes the most effective way to ensure reduced costs in electricity production are reflected in household energy bills is to address the flawed market structure.
‘Under the current system energy retailers can lure customers in by advertising a below market rate, then increase the price as soon as they’ve signed on the dotted line. Customers can’t even take their business elsewhere without being hit with a termination fee. This is the sort of ridiculous situation stifling competition and distorting energy prices,’ said Mr Brody.
Mr Brody said governments across Australia need to address the lack of real competition in energy markets. Only then can we be confident that retailers will offer the most competitive prices and pass on savings in energy production.