Our Two Cents – ‘MySuper’ for Energy

This article appears in our April issue of the On The Wire Energy newsletter. Subscribe to On The Wire here.

In 2014, the Federal Government ‘MySuper’ reforms came into effect. These rules recognised that many of us had little interest in our superannuation investments, and hadn’t made an active choice of fund. This lack of engagement meant that people found themselves paying high prices and for services they didn’t need. The ‘MySuper’ fund is a safe, regulated product that has lower fees—a more appropriate default product for the disengaged.

There are lot of parallels between superannuation and the energy industry from the consumer perspective. These include that the service is essential (we can’t choose not to have it) and that there are high levels of disengagement. The MySuper reforms may be replicable in retail energy.

On the surface, it looks like there are lots of good deals in the marketplace. Adverts offering high discounts or other benefits are common. While there are a range of issues with these offers, one significant issue is that discounts and benefits commonly last only a limited time—usually one year, sometimes two. The contract with the provider continues, but the price jettisons up high, usually to a standing offer level price.

The ‘solution’ for this is that people are told to shop around. However, this is solution that is not based in reality. For example, even the Australian Energy Market Commission found in 2016 that only 30 per cent of electricity and 20 per cent of gas customers had switched energy providers in the previous 12 months.[1] Many people don’t shop around and the contract defaults to a very high price. Chairmen of the Essential Services Commission Dr Ron Ben-David has estimated that less than 30 percent of households may be benefiting from discounts.[2]

Even for those that do shop around, they may not end up with a good deal. This is because the offers are complex and voluminous, making comparing them very difficult. Even those working in the industry tell us they have difficulty navigating the market. For those that are unable to meet conditions of offers (such as paying on time), any benefits or discounts can evaporate.

In Consumer Action’s submission to the Victorian Review of Electricity and Gas Markets recommended a version of MySuper for energy. We recommended that retailers be required to move people on standing offers or on offers with lapsed benefit periods onto a product that meets criteria such as simple service and low prices. Other submissions also recommended similarly. Dr Ben-David recommended customers be placed on the nearest matching offer. The Victorian Council of Social Services recommended that the introduction of “a simple, low cost energy offer with a reasonable tariff, specifically targeted at low income and other vulnerable households.”

This sort of reform would represent a new architecture for the retail energy industry, designed from a customer—not an industry or product—perspective. A MySuper for energy can mean that disengaged customers benefit from competition, and that retailers will be focused on designing and delivering products that benefit consumers, not exploit them due to their lack of interest.

[1] See page 65 AEMC, 2016 Retail Competition Review, available at: http://www.aemc.gov.au/getattachment/d5a60d5b-d2dc-4219-af60-51c77d8aaa4f/Final-Report.aspx

[2] See Ron Ben-David submission to the Victorian Review of Electricity and Gas Markets https://engage.vic.gov.au/application/files/6914/8999/0461/Ron_Ben_David_Submission_Final.pdf

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