Energy ‘loyalty tax’ costing households $300 could be scrapped under new plan
A pricing review from The Australian Energy Market Commission has made a bold call to axe a “loyalty tax” costing some Aussies $300 more on energy, and find a way to change tariffs.
The Australian Energy Market Commission wants to put an end to the “loyalty tax” that sees millions of households paying $300 more than new customers even though they are on the same plan.
The sector rule maker is also proposing an innovative way to set regulated tariffs by getting retailers to make bids and then picking the cheapest one.
The ideas are contained in the AEMC draft “pricing review”, released on Thursday, following 18 months of work.
The first of six recommendations is a requirement for “energy service providers to charge all customers on the same plan the same price, to address the ‘loyalty tax’ on customers who don’t switch and ensure every customer is always on the best price”.
Customers on flat-rate offers that are two or more years old pay on average 17 per cent or $317 a year more than those on newer offers, the ACCC has found. The typical gap is even bigger in South Australia.
There are more than two million households who haven’t switched in the past two years.
“We think if retailers are offering a discount for the same plan, then everybody should get that,” AEMC chair Anna Collyer told this masthead.
It would also save consumers the hassle of having to switch plans regularly to get a reasonable rate.
Another recommendation, which Ms Collyer described as “more radical”, is to replace the annual process of regulators setting default prices with a competitive tender, as happens in Italy and the US.
Ms Collyer said the tender would ask retailers to submit bids to be the default offer.
“Then you’d pick the cheaper one,” she said.
The last auction in Italy saved consumers an average of €130 ($230).
“It’s a way of getting a price through competition” rather than from the information regulators have before them.
More than 800,000 households are on default standing offers across NSW, Victoria, Queensland and South Australia, mainly because they haven’t shopped around.
The AEMC is calling for more funding for the Energy Made Easy (EME) comparison site operated by the Australian Energy Regulator.
Consumers did more than 1.25m searches using EME last financial year, leading 181,000 to switch retailers.
But EME has fallen behind the times.
The AEMC argued “the AER could draw on technological developments, including but not limited to Artificial Intelligence, to support its comparison service to provide information to allow consumers to make informed choices through an independent and trusted site”.
Meanwhile, in a separate determination, the AEMC has decided that households who want a new gas connection should pay the full cost upfront, instead of it being spread across all users over time.
The AEMC said it would “enable new retail customers to make more informed and efficient choices about their energy sources and whether to connect to gas distribution networks”.
The average cost to connect a house to gas is $2100 in NSW, about $2500 in Victoria, and more than $3000 in SA. Queensland does not have gas.
Ms Collyer said the change would protect lower-income households, renters and apartment dwellers, as well as small and medium businesses, from bearing the costs of new connections as other users decide to leave the network.
The AEMC said the decision also aligned with its “strategic narrative, which focuses on how the gas regulatory framework can best support consumers and the electricity system during the transition to net-zero emissions.”
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Originally published as Energy ‘loyalty tax’ costing households $300 could be scrapped under new plan
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