Home World Business Push to reregulate energy retailing gathers pace

Push to reregulate energy retailing gathers pace

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Analysis

The mantra of the energy retailers is as ubiquitous as it is erroneous: shop around for the best deal, since you can save hundreds of dollars.

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Pressure needed on electricity prices

The government has ordered the ACCC to review retail electricity prices with the PM saying the companies profit margins are excessive.

But Victoria’s Essential Services Commission begs to differ. Dr Ron Ben-David, who chairs the body, argues the energy market is rigged and the case for government intervention is mounting.

He has made the claim in a submission to the Thwaites Review of the Victorian Retail Energy Market.

His concerns follow a recent study by the Grattan Institute which warned the government may need to step in and reregulate energy retailers. Despite the supposed high level of competition, profits, too, are high, particularly in Victoria where prices have risen in line with the rises in other states which have been slower to remove government controls.

All energy retailers offer discounts to customers, but Ben-David is not impressed.

“The discounts on offer are not discounts. The discounts on offer are lures – lures into buying a bundled product consisting of energy and a bet,” he wrote in a submission to the bi-partisan government inquiry. 

“Customers gamble they can keep their discounts for as long as possible, while retailers are gambling they can stop them from doing so … customers seeking lower prices are now forced to accept ‘bets’ where the costs of losing are getting bigger – and the odds of ‘winning’ are getting longer.”

Deregulated power markets have been under fire. Deregulated power markets have been under fire. Photo: Daniel Kalisz

In 2015-16 fewer than 30 per cent of household electricity customers may have been benefiting from discounted price offers, he estimates.

Nor are the regulators blameless, he argues, since they have played a “central role in framing the market in such a way that encourages customers to purchase the gambling products being touted by retailers”.

Former deputy premier John Thwaites is reviewing the electricity sector. Former deputy premier John Thwaites is reviewing the electricity sector. Photo: James Davies, AFR

“Regulators, whose objective is to promote the long-term interests of consumers, cannot stand on the sidelines,” he warns. “They must intervene on behalf of consumers to establish a level playing field.” 

Although Ben-David contends that price re-regulation represents the “nuclear option”, if the recommendations he has put forward do not work, “then the time might have arrived to reach for the nuclear codes”.

The discounts on offer are not discounts. The discounts on offer are lures

Ron Ben-David

Taking the example of a medium-sized Victorian residential gas customer, there was the choice between two types of market contracts – one with no conditions attached priced at $1196 per year, on average, while the second offer involved a conditionally discounted price of $1110 per year, on average. But If the conditions were not met, the average price rose to $1274.

“Retailers’ claims about the value of their discounts are misleading … Conditional market contracts are offering customers the opportunity to pursue a risky action undertaken with the hope of success. Conditional market contracts are not a discount. They are a gambling product.”

The rules of the energy market are stacked against consumers, Ron Ben-David argues. The rules of the energy market are stacked against consumers, Ron Ben-David argues. 

“The suggestion that customers can pay a lower price by shopping around is not in dispute. What we question is whether customers fully understand the … risks involved and [whether] the actions (and motives) of retailers are fully apparent to customers; and whether current regulatory frameworks and protections adequately attend to these new risks.”

The conventional view suggests the discounts on offer are a sign that the market is competitive and that regulatory intervention is not required, he said.

“I disagree … These very large discounts are not genuine. They represent a misalignment of retailers’ and customers’ interests and therefore cannot be in the long-term interests of consumers.”

The rules of the energy market are stacked against consumers, he wrote in the submission, since the energy retailer can change prices with little or no notice, while they can reset the terms when a contract expires and is rolled over. Additionally, regulators are focused on generally available market offers even though only a minority of households may be paying these prices.

To level the playing field, when a contract expires or a retailer seeks to alter the prices, the retailer should be limited to placing the customer on the “nearest matching offer” that it has generally available at that time, Ben-David argues.

As well, regulators need to rewrite the energy retail code, which lies at the core of how energy retailers operate, to put consumer interests at the centre of the code, while regulators need the power to gather data on prices paid by customers, and not just the prices published on government websites.  

“At a minimum, the regulator should be given explicit powers to gather data on prices actually paid by customers rather than just the prices published on government websites,” he said.

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