Zac Gillam, Senior Policy Officer, Consumer Action
It arrived nine days before the anniversary of the moon landing, and for energy advocates across Australia it probably had more significance. Like the moon landing, it’s fair to say that the ACCC’s final report – Restoring electricity affordability and Australia’s competitive advantage – will be picked over for years to come. There will be champions and sceptics. Some will accept the narrative, while others will question everything.
The ACCC clearly and unequivocally, with reams of supporting data, draws a line under the debate about market dysfunction in retail electricity. To quote (emphasis added):
“Electricity retailers have also played a major role in poor outcomes for consumers. Retailers have made pricing structures confusing and have developed a practice of discounting which is opaque and not comparable across the market. Standing offers are priced excessively to facilitate this practice, leaving inactive customers paying far more than they need to for electricity. Pay on time discounts, which have emerged as a response to attempts to constrain late payment fees, are excessive and punitive for those customers who fail to pay bills on time.” (p. v)
Those of us who advocate for consumers, and particularly the people who struggle to pay the bills because they live in substandard housing with inefficient appliances, need to take the ACCC report and leverage it with all the effort we can muster, to lock in important and long overdue reforms. Finally, we have the objective, credible data we need to ice some debates that have been going on for far too long.
Key opportunities include:
- Putting the nail in the coffin of pay on time discounts (at least as punitive charges). In Victoria, it’s fair to say that the Thwaites/Mulder report already sank these – and that work is in progress. The ACCC report should now do the same for the rest of the NEM. We should push hard for the implementation of recommendation 33 as soon as possible.
- Getting real about penalties. If retailers are to be brought to heel then regulators need a stick to whack with them, and clearly the available penalties are totally inadequate. If the NEL, NER, NERL and NERR are to be properly enforced then recommendation 42 is absolutely essential.
- Pushing back on the myth of consumer engagement. The ACCC, as a body committed to realising the benefits of competition, contorts itself to preserve the dream of retail competition – while at the same time acknowledging that the majority of customers simply do not engage with this market. The report identifies that retailers wilfully take advantage of consumer inertia to overcharge consumers – to quote (emphasis added):
“For inactive or ‘loyal’ customers, retailers appear willing to intentionally increase their prices and use the customer’s loyalty against them. For example, a strategy document referring to the disengaged (passive) customer segment, comprising 87 per cent of that big three retailer’s customers, contemplates that ‘[t]he aim is to increase customer value to this passive group via increased margin’” (p. 144)
In the face of credible evidence of mass non-engagement, the ACCC’s recommendation that the Customer Acquisition and Retention Costs (CARC) should be included in default offers (recommendation 30) is perplexing. Why would a default offer need CARC? Surely we either design a default offer to protect the mass of unengaged customers, or we continue down the well-trodden, doomed path of prompting consumer engagement – continuing to place the onus on consumers for making the market work. The CARC element of this recommendation seems self-defeating – it puts a foot in each camp.
To be clear: electricity is a homogenous good and an essential service that we all must buy and continue buy all our lives. It’s a necessity, not just another discretionary consumer product. None of us get a kick out of buying it or want to give it anymore thought than absolutely necessary. Report after report, both here and overseas, has confirmed this view. There’s no reason to believe consumers will ever become highly engaged in purchasing electricity – so we need policies that accept that behavioural reality and proceed on that basis.
Some say the moon landing never happened. Some also say that if only consumers engage, the market ‘will work’. And that is exactly the kind of thinking that has brought us to where we are now.
Enough. The eagle has landed. It’s up to us to plant a flag – and take that giant leap forward.