New report misses the mark for energy consumers

CFA member, CHOICE says that effective competition in Australia’s energy markets is far from a reality, despite the rosy picture painted by a major new report.

2832802704_4ee9260681_bResponding to the first national review of competition in retail electricity and gas markets, released today by the Australian Energy Market Commission (AEMC), CHOICE says that the experience of many consumers is low on trust and high on complexity and price.

“Our recent Consumer Pulse survey found that electricity continues to top the list of national cost-of-living concerns, at 84 per cent,” says CHOICE Director of Campaigns and Communications, Matt Levey.[1]

“It is also a complex and distrusted market, with 54 per cent of Australians saying they distrust the advice of energy providers, and only 9% confident it is in their best interests.

“The number of consumers who switch products does not equal genuine competition, especially when past research has shown that only half of those who recently changed providers were confident they made the best choice,”[2] Mr Levey says.

CHOICE says the bright view of the energy market provided by the AEMC was disappointing given only last month the Commission released a draft decision that would allow electricity retailers to continue increasing prices at will, even during fixed-term contracts.[3]

“It is hard to see how consumer confidence in the energy market is going to increase when the benefits of shopping around can be eroded as soon as you sign a long-term contract,” Mr Levey says.

“A proposed rule change from Consumer Action Law Centre and the Consumer Utilities Advocacy Centre would have fixed this problem, and taken a step towards the genuinely competitive markets that we all want to see.”

A recent CHOICE review of Energy Australia’s market retail contract highlighted this issue of unfair contract terms that allow energy suppliers to play by their own rules at the expense of consumers.

The 52-page contract states that the company can “vary the tariffs and charges set out in your Energy Plan Details, or introduce new tariffs and charges, for any reason.”[4]

It also has the power to discontinue any discounts, rebates or other benefits in a contracted plan if the network tariff changes.

“In effect, Energy Australia, along with other electricity suppliers, reserves the right to shift the goal-posts mid-contract at the customer’s expense”, says Mr Levey.

“Is it any wonder that we have a problem with consumer trust in the energy market when flexibility is a one-way street?”, Mr Levey says.

Consumer Action has also commented on the energy market in light of CHOICE’s survey. They noted that An annual review of Australia’s energy markets suggest competition alone isn’t enough to keep the market running efficiently and to keep energy prices down. Research commissioned by the Australian Energy Market Commission reveals that, despite declaring Victoria’s energy market the most competitive in the country, it’s where energy retailers were making the biggest profits.

‘If the market was working correctly retailers would be competing, putting downward pressure on energy prices. The fact that Australia’s most competitive market is also the most profitable for retailers tells you energy retail competition isn’t working,’ said Denise Boyd, Director of Policy and Campaigns at Consumer Action Law Centre.

‘Victoria is often held up as the model for other states to follow because of the number of retailers in the market and the level of switching. But if the market is leading to bigger profits for retailers, you can be sure it’s consumers that are out of pocket.’

Ms Boyd said the metrics by which the energy industry measures market success don’t take the customers’ experience into account. ‘The AEMC has measured effective competition by activity amongst the retailers and a retailers’ ability to enter the market. Additionally, consumer satisfaction was measured as being relatively high, but the research said that this might more accurately be described as lack of annoyance.’

‘You can have all the energy offers you like, but if they’re too complicated and hard to compare consumers will tune out. It doesn’t help that retailers can sign you up to a fixed term contract only to increase the price before you get your first bill.’

‘The AEMC points to the number of Victorians who switched retailers as a sign that consumers are engaged, but when you look beyond the headline it’s clear consumers have little understanding of, or time to engage with, the retail market. The research cites confusion, complexity, a sense that they won’t get a much better deal, and a feeling that it will be too much hassle as the main barriers to consumer engagement.

‘A competitive energy market can have benefits for consumers, but without real attention to consumers’ needs and motivations, those benefits are likely to remain out of reach,’ said Ms Boyd.


[1] The survey was designed and analysed by CHOICE with fieldwork by GMI/Lightspeed Research conducted with 1001 consumers aged 18-75 years between 13 and 25 June 2014. Final data has been weighted to ensure it is representative of the Australian population based on the ABS Census 2011. Cost of living questions about people’s concerns with expenses is based on the total population including people who do not have a given expense. We have done this to represent the overall views of Australians.
Photo credit: abhisawa