Energy pricing review fails to rein in the loyalty tax

It’s no secret that the business model of the energy retailer industry does not operate in the best interests of its customers. It’s turbocharged to squeeze out profits as more and more retailers furiously compete for market share.

This explains why most of us are paying more for energy than we should be.

One standard tactic is to continually lure in new customers with low prices, then stealthily raise them after they sign up.

Retailers are well aware that energy switching rates are very low. Customers will just keep paying, unaware they’re being taken advantage of. That’s why the term ‘loyalty tax’ applies to so many of us.

Tricky energy pricing was the subject of CHOICE’s first designated complaint to the Australian Competition and Consumer Commission in 2025, and it’s also a subject covered in a recently published energy pricing review by the market rulemaker, the Australian Energy Market Commission (AEMC).

The hope among consumer advocates, including CHOICE, was that the AEMC review would result in recommendations to curb the pricing machinations that underpin the loyalty tax. Instead, customers have been left to continue paying it.

The final energy pricing review is a turnaround from the AEMC’s position in its draft version, which recommended that retailers charge all customers on the same plan the same price. They’ve now been given the green light to continue rolling out different versions of the same plan with different prices, setting consumers up to continually pay more as long as they stick with the same offer.

On the plus side, the AEMC’s final recommendations would at least require retailers to inform customers how much more they’re paying compared to new, cheaper available plans, but there is no proposed rule requiring them to simply give customers a fair deal without constantly pushing up prices.

‘Massive missed opportunity’

Energy Consumers Australia (ECA) CEO Dr Brendan French says the keenly anticipated AEMC review “is a massive missed opportunity”.

“The loyalty tax is a trap that households, small businesses, and even retailers find themselves in. Just to keep their market share, retailers will offer unrealistic low prices – which they then need to hike up, often by 20% or more, within a year,” says French.

“What’s worse, they fund these low prices by charging loyal customers more. In reality, it’s a catch-22 because no retailer can really afford to step out of this cycle. This is why we all hoped that the AEMC, as the system rule maker, would step in.”

French says it’s customers who ultimately pay for the market mayhem.

“We are all footing the bill for retailers to spend tens of millions marketing unsustainable prices to new customers, only for the customers to then move on to other retailers when they find out the savings weren’t going to last,” French says.

“This means the energy market often becomes a race to the bottom, forcing retailers to rely on consumer confusion and a loyalty tax just to stay competitive. This reinforces churn, not service, as the engine driving the retail market.”

Making a mockery of ‘loyalty’

Other consumer groups were equally dismayed at the lack of regulatory intervention.

CEO of the Consumer Policy Research Centre Erin Turner says “making consumers jump through hoops to get a better price for the same power from the same retailer is deeply unfair”.

Eleanor Doran, assistant director of policy and campaigns at the Consumer Action Law Centre, says “callers to our frontlines are suffering in this cost-of-living crisis where every dollar in their paycheck has to be accounted for. Penalising long-term customers makes a mockery of ‘loyalty’ and is profoundly unfair. People deserve the best deal today regardless of when they signed up to their plan.”

Council on the Ageing (COTA) CEO Patricia Sparrow says “many older Australians are already stretching every dollar to cover rising costs. They’re less likely to switch energy plans, which means they’re more likely to be punished for their loyalty with higher bills. When you’re living on a fixed income, like the pension, paying hundreds of dollars more for the same service is unsustainable.”

Other groups, including Financial Counselling Australia, Financial Counselling Victoria and the Council of Small Business Organisations Australia, have also expressed outrage at allowing pricing practices that penalise loyalty to continue.

Roadmap for change

AEMC chair Anna Collyer nevertheless says that the review’s recommendations on the whole “set out a clear roadmap for change”.

“Electricity pricing has become too complex, too hard to compare, and too often unfair. You shouldn’t need to be an energy expert to get a fair deal, and long-standing customers should not pay more than someone who just walked in the door,” Collyer says.

But the pricing review stopped short of recommending a ban. The AEMC’s position is that loyalty taxes “are likely to create material consumer detriment, including higher prices for customers on older offers, potentially including customers experiencing vulnerability. It is also unlikely that the loyalty tax will dissipate without additional measures to encourage it to do so.”

When those measures might come along – and who will enact them – remains unclear. Meanwhile, Dr Brendan French of ECA says the retail energy market continues to exploit the people it’s meant to serve.

“The failure to tackle the loyalty tax in a substantive way is yet another example of how broken the current energy market is for consumers. It perpetuates a model in which the entire obligation for getting a fair deal falls on households and small businesses.”

“It’s really a question about what kind of world we want to live in. We cannot allow more than a million households – who are often lower-income or otherwise disadvantaged, as the AEMC acknowledges – to fund short-term benefits for those with the time and resources to repeatedly switch retailers.”

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Andy Kollmorgen

Andy Kollmorgen is the Investigations Editor at CHOICE. He reports on a wide range of issues in the consumer marketplace, with a focus on financial harm to vulnerable people at the hands of corporations and businesses. Prior to CHOICE, Andy worked at the Australian Securities and Investments Commission (ASIC) and at the Australian Financial Review along with a number of other news organisations. Andy is a former member of the NSW Fair Trading Advisory Council. He has a Bachelor of Arts in English from New York University. LinkedIn

Andy Kollmorgen is the Investigations Editor at CHOICE. He reports on a wide range of issues in the consumer marketplace, with a focus on financial harm to vulnerable people at the hands of corporations and businesses. Prior to CHOICE, Andy worked at the Australian Securities and Investments Commission (ASIC) and at the Australian Financial Review along with a number of other news organisations. Andy is a former member of the NSW Fair Trading Advisory Council. He has a Bachelor of Arts in English from New York University. LinkedIn