Energy free market needs action from those who champion it

Politicians, energy suppliers, comparison websites all speak of the savings that can be made by switching energy retailers or by putting pressure on your current retailer to give you a better deal. But there are a number of aspects of the energy retail market that make finding the best deal harder than it needs to be, and it is many of the same people who promote switching – politicians, energy suppliers and comparison websites – who create these problems.

Energy retailers make finding the best deal harder by using door-to-door sales; switching websites and group buying advocates confuse the issue by promoting ‘headline savings’ which won’t apply to or suit everyone; and governments make it hard for consumers to get price certainty by allowing energy companies to increase their prices at any point during a fixed term contract.

Door-to-door sales – Retailers continue to rely on this form of selling to sign up new customers – they argue that it is a vital part of a competitive energy market, but this couldn’t be further from the truth. Indeed, we believe door-to-door sales stifle competition.

Competition is created when a customer looks at a range of products, considers their features and costs and makes an informed decision about what is right for them. This happens when you have the capacity to compare a number of products from a number of providers, but when you’re visited by a door-to-door salesperson you are only being shown one company’s product. At the doorstep – even if they are told the truth, which they often aren’t – consumers have no chance to consider other products or their electricity usage patterns, and they’re highly unlikely to know what they’re paying under their current plan. Quite simply, door-to-door selling promotes ill-considered, rash decisions and can actually leave a household paying more for electricity.

Confusing saving claims – It’s not uncommon to hear energy retailers, energy comparison websites or other vested interests making bold statements about how much consumers can save – some claiming savings upwards of 15 per cent. But in a market as complicated as energy, blanket statements about how much is being saved can disguise the individual experience. 15 per cent off what?

These discounts usually refer to what customers can save if they’re currently on a ‘standard rate’, but only those customers who have never changed retailers before are likely to be on this rate. The good news for those not on a standard rate is that there may be still savings to be had. But they’d be wise to take the savings promoted by some companies with a grain of salt.

Blanket claims also often mask negative impacts a deal might have for individual consumers or groups of consumers.  For example, does the discount of 14% or otherwise only apply if all payments are made on time?  If so, beware low or fixed income consumers – they may not be able to access the discount and could face fees for late payment.

Unrestricted price increases – Perhaps the most problematic issue with choosing between suppliers is that, even after you’ve gone to the effort of weighing up your options and signing a fixed term contract, the energy company can simply increase the rate it charges.

Yep, that’s right, when a customer signs a contract they’re locked in and face a fee if they wish to break the contract, but the same rules don’t apply to the retailer. In fact, its terms and conditions could allow it to increase your electricity rate at any point of your contract, even multiple times.

It means shopping around for the best deal could be a waste of time if the retailer then goes and alters its prices. It means it is harder for households to budget for their electricity because they can’t predict the price with any certainty. And it means the promised savings from group switching or comparisons websites may be short lived.

Consumer engagement in energy is arguably greater than ever before due to higher prices. Historically consumer engagement has been very low – with most consumers (quite understandably) simply interested in the lights going on.  But a competitive market assumes engaged consumers are willing and able to shop around, find a deal that suits their needs, and obtain ongoing savings. That means making it simple.   If Victorians are to receive the promised fruits of competition we need those in charge of the energy market—the energy firms, the regulators, the politicians – to address market practices that are keeping Victorian households from making informed decisions. Only then will consumers really be able to take steps to alleviate the impact of the seemingly inevitable price rises.

Gerard Brody,  Director of Policy & Campaigns, Consumer Action Law Centre Gerard is a lawyer who has worked as a consumer advocate for over 8 years. Gerard has worked on a number of consumer campaigns, including the “Fair Fees” campaign against bank penalty fees, and is the inventor of the Do Not Knock sticker. Gerard previously worked with the Brotherhood of St Laurence where he led the financial inclusion program.

This article was originally posted on the Consumers Federation of Australia website (21 November 2012).

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