The head of Victoria's energy watchdog has warned that households are being lured into deals with the promise of large discounts unaware that companies can ratchet up prices at any time.
Ron Ben-David, the chairman of the Essential Services Commission, says discounts of up to 40 per cent offered by electricity and gas retailers are rarely locked in, and called for a dramatic rethink to make power bills fairer for consumers.
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Power prices too high: Grattan Institute
Tony Wood of the Grattan Institute says the electricity market is failing consumers: that we are all paying too much for power.
It comes amid growing concern about what has been described as a "confuse-opoly" in energy pricing.
While there are nearly 30 retailers competing for customers, experts and consumer advocates say the current system makes it difficult to work out what different options actually mean, let alone which is best.
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Dr Ben-David said rather than a competition between retailers for customers, energy pricing had become a gamble pitting households against the industry, with the odds weighted in the favour of retailers.
"The playing field is tipped away from the customer," he told Fairfax Media. "You are going to try to keep the low price, retailers are going to try to get you off the discounted price, so what are the odds that you are going to win?"
With Victoria holding a bipartisan review of the retail electricity and gas markets headed by former Labor deputy premier John Thwaites and ex-Liberal cabinet minister Terry Mulder, Dr Ben-David is urging reforms to force more effective competition between companies.
Should those steps fail, he says Parliament should consider the "nuclear option" – starting to re-regulate electricity pricing – just eight years after the state became the first in the country to fully de-regulate.
Power bills have increased dramatically in recent years, with retail margins playing a significant part in the rise in Victoria in particular. Several submissions to the review suggest retailers are making large profits and vulnerable households are paying the highest prices.
Last month, think tank the Grattan Institute found up to 43 per cent of household power bills goes into the pockets of electricity retailers as profits.
Prime Minister Malcolm Turnbull ordered an Australian Competition and Consumer Commission inquiry, and Victorian Premier Daniel Andrews appointed himself chair of a new cabinet taskforce on energy and promised to keep the state's electricity supply "as affordable, resilient and secure" as possible.
Dr Ben-David's latest intervention follows years of his raising concerns about energy retailers in Victoria reaping much larger profits than in other states.
He said electricity was the only market where customers were held responsible for making competition work, and were blamed for not shopping around enough. Retailers are only required to make their best endeavour to let customers know when changing pricing arrangements.
He gave two examples to highlight problems with the system.
The first involved one of his employees signing up to a new electricity contract. When he received his first bill a couple of months later, the conditions of the contract had been changed – legally – making it more expensive than agreed.
In the second, Dr Ben-David went to a government website to find the best electricity offer for his family. He came back with 253 different options.
"They're all a bit different and they're all a bit the same, but who on Earth has got time to look at five contracts, let alone 253?"
Dr Ben-David said modelling suggested fewer than 30 per cent of households enjoyed discount prices in 2015/16. Typical households who did get a discounted deal faced a huge increase in bills – up to $600 a year – if they breached terms by making a late payment or failing to pay by direct debit.
He suggested changes to the system to address the problems, including:
- Forcing companies to put a customer on the "nearest matching offer" when a contract ends, rather than a new deal of the retailer's choice.
- Customers being told in exact dollar terms how much it will cost them if they do not meet the terms of a contract.
- The creation of an energy customer code that prioritises customer rights over retailer rights.
- Regulators being given beefed-up powers to monitor electricity prices across the range of deals offered.
After more than 20 years of national competition policy in Australia, Dr Ben-David said it was time for a reappraisal. He said Australia's relatively small population mostly spread over a small number of large cities meant competition had limits.
This applied not just to energy, but also other areas including banking, insurance, supermarkets and petrol.
"We should stop pretending we have a highly competitive market, and start to think about how we regulate the market for what it is, not what we would like it to be," he said.
The energy review is due to report to the government by May 31.