Government can ease the misery of electricity bills

by David Blowers

price-pain-report-web-graphicPublished by The Herald Sun, Tuesday 14 March

Politicians don’t really seem to care about your soaring electricity bills. How do we know? Well, the amount Victorians spend on electricity has more or less doubled in the past decade.

But the cause doesn’t appear to be renewables or green schemes or any of the other things pollies bicker about. We’re just paying more into the profits of the electricity retailers. And politicians are not sure what to do.

In our new report, Price shock: Is the retail electricity market failing consumers?, the Grattan Institute calculates that Victorians spend $250 million a year more on electricity than they need to. That wasn’t what the state government expected when it stopped setting electricity prices in 2009 and opened the market to competition. The figures are stark. An average Victorian household on the worst deals is paying $400 a year more than it could be. About 200,000 households are on the deals. And there are many more paying a very high price because they haven’t changed their provider in years.

A big part of the problem is that choosing a good deal is not easy. Retailers will encourage you to sign up by advertising big “discounts”. If you don’t look closely, 30 per cent off your electricity bill sounds great. But there’s a catch — actually there’s more than one. The 30 per cent may not be off your total bill — only part of it. And it’s not off the amount you are currently paying, it’s off the very high default prices the retailer sets.

And if you don’t pay on time, you pay those very high charges.

And after your 12-month “discount” expires, you may end up paying those very high charges.

There’s nothing wrong with discounts, of course, but the way electricity retailers use them is just confusing. If you understand the way the market works, you can get a really good deal. But if you find it all too complex, you’re going to get a nasty shock every time you open your electricity bill.

Our politicians can do something about this. The government should ensure retailers give you easy-to-understand information about their prices and contracts and “discounts”.

Their offers should have to be expressed in a standard way — such as the amount you would pay each month. That would make it easier for you to tell whether you’re on a good deal or should make the switch.

When your “discount” deal is about to expire, the retailer should have to tell you how much extra you will pay each month if you don’t negotiate a new deal.

And the government should do more to ensure Victoria’s most vulnerable citizens are on the best deals. At the moment, the government spends about $130 million a year helping people with concession cards to pay their energy bills. But some of those customers still pay more than they should and in the process waste not just their money but taxpayer dollars as well.

Governments have been lazy in assuming that “the market” will take care of this. But electricity retailers do what any private business does, whether it’s Bunnings or your local coffee shop: they try to maximise their profits. And that’s certainly what the electricity retailers in Victoria are doing. Grattan calculates their profit margins are about 13 per cent more than double the margin regulators considered fair when they had responsibility for setting prices.

But why should the government care about the electricity retailers’ profit margin and not the local coffee shop’s?

Well, everyone needs electricity: there aren’t a whole lot of other ways to light your house or power your TV. I can choose not to buy coffee at my local shop, especially if I think they charge me too much. But I can’t really choose not to buy electricity.

Politicians need to get on to this problem and quickly. Electricity bills are the number one cost concern for Victorians. Electricity prices are about to go up again, by a lot. There’s little the pollies can do about the increasing cost of generating electricity.

But there is a lot they can do to make sure people can easily get hold of the best deals in the market.

A few actions by a caring government might just help the market deliver the outcome that we had all expected.