Electricity prices twice as high as the guideline trigger calls for a revision of consumer protection

Some households are paying more than double the regulated benchmark price for electricity, reinforcing the claim that consumer protection in Australia is failing and needs to be overhauled.

Although energy regulators have cut the so-called Default Market Offer (DMO) in most countries this year, many electricity consumers have reported double-digit bill increases in recent weeks.

Among them is a customer from South Australia whose new costs are “estimated” to be 103 percent higher than the standard offer, the so-called government reference price.

Others have faced spectacular bill increases estimated at over $1,000 per year.

Retailers rejected any accusation that they were charging consumers too much, pointing to the industry's slim profit margins.

They also found that long-term energy bill costs were rising, even though wholesale electricity generation costs had fallen sharply over the past two years.

The structural price increase is due to the huge investments in the generation of new energy that are necessary to replace existing coal-fired power plants, the retailers argued.

In addition, there will be significant expansions of electricity pylons and power lines throughout the country, it said.

Joel Gibson, director of consumer protection group One Big Switch, said it was hard to believe that some bills were rising so much at a time when wholesale electricity prices were falling.

“We were told that electricity prices were supposed to go down this year,” Gibson said.

A price cap that exists more in name than anything else?

Due to decisions made by energy regulators in May, reference prices in New South Wales, Victoria and South Australia have fallen by up to 7 percent since July.

In Queensland they rose slightly.

The Australian Energy Regulator (AER) pointed at the time to the significant decline in wholesale electricity prices since the peak of the energy crisis in 2022, when coal and gas costs soared.

The regulator said the rule would protect consumers by setting a cap on the price retailers could charge their subscribers.

But Mr Gibson pointed out that fewer than one in 10 residential customers received the standard offer, meaning most were exposed to the open market.

And this is exactly where too many consumers are disappointed, he said, which led him to ask whether it might not be necessary to renew the safety precautions on the market.

“Five years ago, the government completely redesigned the retail energy market, ostensibly to protect the country's most vulnerable households from price gouging,” he said.

“Now, five years and millions of dollars later, I don’t think we’re any better off.

“Some households have not actively participated in the market and therefore, according to the evidence we have, are currently paying double the government-set guide price or $1,000 more than necessary.”

Questions about the adequacy of reference prices have become more frequent since a report by the consumer protection organization last year found that a large number of electricity consumers had to pay higher tariffs.

As standard we offer a safety net: AER

The Australian Competition and Consumer Commission found that in 2023, almost half of customers in the national electricity market covering the east coast paid a price equal to or higher than the standard tariff.

This figure was particularly high in South Australia, where 61 percent of consumers had tariffs that were equal to or higher than the reference price.

In response to questions, the AER said it stood by the design of the Default Market Offer (DMO) and explained that it was intended to provide a “safety net” for customers who were unwilling or unable to participate in the market.

A spokeswoman for the regulator said that about nine percent of households and 18 percent of small businesses had received a standard offer.

However, all retailers are obliged to provide a permanent offer, the spokeswoman said.

“The DMO also serves as a reference price for comparing energy contracts,” said the spokeswoman.

“This makes it easier for customers to compare prices across different offers.”

“Customers can ask their current retailer to provide them with a standing offer if they wish, and their retailer is obliged to do so.

“The DMO protects consumers from unjustifiably high prices while allowing retailers to recoup their costs.”

A spokesman for French retailer Engie, whose customers are expected to pay an estimated 103 percent above the benchmark, said many factors contributed to the price differences.

Retailers defend “tiny” profits

The spokesman said that a price increase of 15 percent was planned for the affected customer from August. He indicated that other reasons such as changes in consumption, price reductions or solar power could also have played a role.

“Like all electricity retailers, we inform our customers about the differences between market prices and standard prices so that they can make an informed decision about the offer that best suits them,” the spokesman said.

“Although this is only an estimate, it appears that this customer would be significantly better off with the DMO and can use it at any time if he wishes.

“We are also concerned that the DMO in South Australia does not accurately reflect the true costs or risks of retail in that state.”

Similar comments were made by small retailer Globird, which imposed a bill increase estimated at more than $700 per year on one of its customers.

Managing director John McCluskey said the customer affected was likely a market offer with an expired discount.

According to McCluskey, retailers' offers to attract new customers often come with “tiny margins” – or even below cost – and it is unfair to compare them with standard offers.

“I know it's tempting to think the retailer is evil or greedy, but we operate on very tight margins and never increase rates unless absolutely necessary,” McCluskey said.

“We think the prices are reasonable as long as the retailer retains only a negligible margin.”

System errors too often

Ross Womersley, chief executive of the South Australian Social Council, said it was clear that the standard pricing system was failing consumers, particularly the poorer and more vulnerable.

Mr Womersley asked why customers could not automatically be offered a retailer's “best available price” when their contract expired.

Without such reforms, he believes, too many people would continue to pay too high a price for electricity – an essential service.

“It is clear that the DMO has only limited effectiveness as a price cap and reference price,” said Womersley.

“South Australians – particularly those on low incomes or in need – need additional price and contractual guarantees for the energy market.

Mr Gibson, of One Big Switch, said reforms were needed because the standard offering on the market did not sufficiently protect consumers.

He said it was unacceptable that a retailer “could switch you to a price above the government reference price without giving you prior written notice. [when] You have a market offer.”

“The reality is that the DMO currently only applies to 10 percent of households,” Gibson said.

“The rest of us have to rely on market offers and, as we have seen, there is a loophole in this legislation that allows you to drive a fire engine through it.

“Some retailers have done this and some homeowners are paying a high price for it.

“So there is a real problem here that we need to address.”