Give power back to the people

Politicians and power suppliers need to shake-up energy markets to let consumer choice once more drive the electricity business.

Speaking to a conference I chaired in Sydney last month, Australian Energy Market Commission chairman John Pierce made an important point: in the end it will be consumers doing what consumers do -- making consumption decisions based on price and the service options open to them -- that will drive the way the electricity business develops.

Pierce asserted that “we have clearly commenced a new stage where the (east coast power) market’s development is being driven by consumers making a choice about the way they source and use energy.”

His view is reinforced this week by professional service managers Ernst & Young publishing a new survey of power consumer attitudes in which they urge suppliers to be faster in adopting new technology and practices “to improve the customer experience.”

However, the suppliers are not Robinson Crusoe in terms of the need to move faster and more effectively to react to the ever-louder voices of consumers.

Speaking at the same Sydney conference in mid-September, United Energy chief executive Hugh Gleeson urged policymakers and regulators to get off the slow reform boat, calling for tariff and other reforms to be implemented in three to five years rather than up to 10 years as seems to be currently contemplated.

How far and how fast the COAG Energy Council can move will be up for scrutiny in December when the ministerial committee chaired by Ian Macfarlane next meets with a heavily-loaded agenda.

Gleeson commented that, while suppliers, governments and regulators “all appear to be singing from the same hymn sheet,” he feared politicians will continue to drag their feet on reform because of concerns about a consumer/voter backlash.

The EY report provides Macfarlane and his ministerial colleagues from around the country with a more useful guide about what’s on consumers’ minds, I think, than the “I’m as mad as hell” feedback flowing from the opinion polls and focus groups.

EY note that electricity prices continue to cause financial stress, with nearly one in three accountholders missing a payment on an electricity bill in the past year, but it is what the consultants go on to say that should give suppliers and policymakers pause for further thought.

(In passing, the affordability issue is demographically skewed. EY found that 32 per cent of those who missed an electricity payment had simply forgotten it and most of them were living in urban areas -- while significantly more people living in rural and regional areas didn’t pay because they couldn’t afford to.)

The reaction of 55 per cent of people to getting a nasty power bill surprise is to think about finding a new retailer, EY report, but one in five of the potential switchers find the change process too complicated.

Nine out of 10 of the people EY interviewed say they have or would consider switching part of their energy supply to rooftop solar PVs -- and seven out of 10 say saving money is the key driver. But the main reason half of those who think about PV don’t follow through is the cost of installation.

The EY take, in part, is that retailers need to do a much better job of making clear what they offer to would-be switchers, should be more flexible about meeting consumer’s individual needs and more forward thinking about what services they offer.

EY’s Stuart Hartley says offerings such as no-frills, fixed price monthly contracts and apps that help customers to manage their energy use should become more common.

He urges retailers to think harder about what their businesses may look like in the future and points out that Australian suppliers are not alone in grappling with declining consumption, affordability issues and a switch to self-sufficiency (actually semi-self sufficiency) -- it’s a trend around the world.

The corollary to this is that the retailers, as well as generators and network service providers, need a substantially reformed and then stable marketplace in which to strategise, innovate and sell their products.

One of the members of the COAG Energy Council, Queensland’s Mark McArdle, told last month’s energy market outlook conference that the reform process is “bogged down in bureaucracy.”

He lamented that a “stagnant” process is “not getting near tackling the tough questions and resolving the real issues.”

The Energy Supply Association argues that the key to creating “a more dynamic, flexible and consumer-focused” supply system is to “allocate costs to market participants in line with the requirements they place on the system and to allocate revenues to participants in line with the benefits they provide.”

AEMC chief executive Paul Smith has acknowledged that a problem for governments and regulators arises when markets get ahead of them and they have to play catch-up.

Australia, he says, needs an electricity system that keeps pace with changing consumer demands.

The EY report demonstrates that this isn’t happening – and the buck really stops with the COAG Energy Council.

The ministers are presiding over a set-up where many energy consumers pay more for electricity than the costs caused by their usage and others pay less.

They are being told constantly that the way forward is to give consumers the means to decide what works best for them and that this will help reduce their charges.

Will December’s meeting see them rise above “stagnant” process?