Flip the switch on deregulation priorities

The key for governments and utilities when deregulating electricity is keeping customer decisions easy and taking care of struggling households.

Electricity customers are as cross as cut snakes, right? We read and hear a lot in this vein but, according to the keeper of the nation’s energy rule book, in New South Wales at least, it’s just not true.

The Australian Energy Market Commission is engaged in an exercise to examine electricity competition in New South Wales, the country’s largest power sub-market by far, with 3.3 million households and small businesses.

Its draft report – which, in a nutshell, says yes, deregulating the state’s retail electricity market to follow Victoria and South Australia is a good idea – reports surveys it has had undertaken showing that “on the whole customers are satisfied with their market experience".

To put this in context, some 60 per cent of New South Wales customers have decamped from the regulated tariff regime and are picking and choosing among a dozen energy retailers.

While there are grumbles about the complexity of information they are given, “the majority of customers appear satisfied with the choices available,” says the AEMC, noting that six in 1,000 customers in the state have been sufficiently unhappy to complain to the energy ombudsman.

It also points to a survey by CHOICE, which found that 91 per cent of customers Australia-wide rated their current retailer as excellent, very good, good or fair.

In New South Wales, this is more remarkable because average household electricity prices have doubled since 2008. If a customer was paying about $1,100 then, he or she is forking out more than $2,300 now.

One of the effects of this has been a cut in consumption – the state’s pricing regulator, the Independent Pricing & Regulatory Tribunal, has found that average household power use has fallen back from seven megawatt hours a year to 6.5 MWh as prices have shot up.

Another, much publicised, effect has been the take-up of solar photovoltaic systems on household rooftops, although how much of this is driven by price rises and how much by people using the investment as part of keeping their superannuation within federal government bounds is an interesting question.

The interplay of the solar surge with greater network costs for the majority of consumers is only now seeping in to the public arena and there will be a lot more pushing and shoving before it is resolved.

The third consumer reaction to soaring bills has been to turn to the market to pursue better price deals, with 21 per cent of New South Wales small customers “churning” in just 12 months – and under one in eight of them dissatisfied with the experience, according to the AEMC.

Not the least reason for this, no doubt, is that the “churners” are gaining discounts on their bills of between four and six per cent “as well as other benefits such as sports club membership and frequent flyer points,” says the AEMC.

What this information throws up, and not for the first time in this and other parts of our lives, is the fact that perceptions can be badly skewed by ambulance-chasing media, headline-hunting politicians and other meretricious players. The perception that our streets are awash with crime is another example of the genre.

In the case of electricity supply, it is equally important, however, not to lose sight of the underbelly of the beast: the sub-section of consumers who get tagged with the adjective “vulnerable.”

I chaired a two-day power pricing conference in Sydney last week where a number of organisations engaged in dealing with the “vulnerable” segment had the opportunity to set out just how much stress exists in the suburbs. The key message from this discussion was that governments need to be far more alert to the dimensions of the problem and to work with essential service providers to do a much better job of mitigation.

There is nothing good about the fact that, in New South Wales for example, there can be 50,000 and more households for whom paying the power bill is a major problem and a wider cohort where people get by through doing without meals or through throwing on as many clothes as possible to keep warm because they can’t afford to switch on heaters.

The fact that these folk form a relatively small minority of households – with a larger and less easily definable cohort of people struggling with such bills on top of rent or mortgage payments – doesn’t mean that the issue should be downplayed.

What the AEMC report, the power pricing conference and other inputs do highlight is that both governments and utilities still have a pretty large job in front of them.

Part of this task is to adequately address the stress issues for vulnerable customers, part is to stop faffing around and get on with the job of deregulation, part is to ensure that an open market doesn’t enable suppliers to play pea and thimble games with perplexed consumers and part is to ensure that making decisions about the best deals available are relatively easy.

Inherent in the AEMC case for deregulation is the bonus that an increase in customer choice will lead to greater innovation by energy retailers and to more tailored products and services being made available. And, to be on the safe side, the commission tells the New South Wales government, carry a large-ish stick that enables you to come down hard on dodgy behavior.

For retailers, there’s a lot riding on how the state government reacts to the AEMC report.

If New South Wales is encouraged to deregulate, only Queensland will be left on the east coast mainland clinging to price controls – and an argument is starting to be promoted that the Newman government should deregulate the populous south-east corner while continuing to protect the subsidized 97 per cent of the state.

If that comes about, some eight million household and small business power customers will be in the free market by later this decade.

Getting there while genuinely dealing with the vulnerable customer issue is the real trick.

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