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Power struggle

Reform of energy industry must switch on to consumer needs

In December 2013, I was invited to a meeting of energy ministers from around the country, as part of a roundtable discussion with industry and consumer groups.

The industry reps outnumbered us by about four to one so dominated the conversation, regaling us with stories of the great things they were doing, and how happy their customers were.

I knew this just wasn’t true. When I finally got a word in, I laid out the facts from the latest CHOICE research, which showed that consumers were deeply concerned about rising energy costs, found it too hard to compare energy plans and wanted governments to do something about it.

Sadly, on that occasion, the ministers in the room didn’t want to hear this message.

Four years on, it seems that the tide has turned.

While it is refreshing to see political attention to rising energy bills, the solutions won’t be easy. That’s because the problems in our energy markets stem from more than a decade of failed economic reforms.

Our energy markets have been designed on the 1980s model of competition that assumes that if you build it they will come: if we simply open the market, we’ll end up with lots of firms competing to outdo each other with better offers and/or lower prices.

In theory, this model should work particularly well in a market for a product like electricity, where at its core every provider is pretty much selling the same thing, but our experience shows the flaws in this way of thinking. In the Australian states where competition has been introduced, energy markets are dominated by three big players, who offer a ridiculous array of plans that are impossible to compare.

They have then layered misleading discounts over the top ­– which may only apply to one part of your energy charges or end after an introductory period. Even if you get a good deal, they can then increase your tariff without having to tell you in advance.

These problems could have been avoided. We could have made it easier to compare plans from the start, or forced retailers to provide a comparable price indicator like the comparison rates we use for mortgages. We could have required retailers to tell consumers about price rises in advance.

Even better, we could have created incentives for retailers to do more to help consumers to reduce their energy consumption.

CHOICE generally favours competition. When consumers have genuine choice, this should drive down prices and encourage providers to compete by offering features that consumers value.

But that doesn’t happen automatically. If we want reform to deliver these benefits, we’ve got to design the system with an eye to the consumer experience from the start. I live in hope.

Alan Kirkland, CHOICE CEO
Email: alan@choice.com.au
Twitter: @AlanKirkland

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