Shell warns against cost of living relief via power bills

Shell-owned Powershop Australia has told the Australian Energy Regulator not to use the default market offer as a mechanism for delivering broader household bill relief.

The Australian Energy Council representing the big energy companies said current margins for their ­retail customers were too thin.

A spat over official calculations used to guide electricity bills continues to simmer with electricity retailer Powershop Australia, owned by energy giant Shell, telling the national regulator not to use an official price cap measure to address cost of living pressures.

Australia’s big energy companies want to keep in place a set profit margin for electricity retailers in a move which may stifle efforts to cut household bills when the next round of price caps take effect from July 1 next year.

The Shell-owned Powershop Australia has weighed into the debate and told the Australian Energy Regulator not to use the default market offer, which sets a price cap on how much energy ­retailers can charge consumers, as a mechanism for delivering broader household bill relief.

“We consider it essential that the default market offer reflects the realities of the energy market, and that it is not seen as a mechanism to address cost of living pressures, nor should it be positioned as the best offer,” Powershop said in a submission to the AER ahead of a determination on the 2024 offer.

“There are state government instruments which are better suited to assist with cost of living pressures that would not distort the retailer returns required to sustain a healthy, competitive industry.”

Australia’s big energy companies want to keep in place a set profit margin for electricity retailers in a move which may stifle efforts to cut household bills.

The AER has approved two consecutive years of price rises of up to 20 per cent, at a testing time for the economy following 13 interest rate rises and soaring levels of inflation.

However, the Australian Energy Council representing the big energy companies said current margins for their ­retail customers were too thin, noting the industry had been competing in a highly volatile and challenging environment.

“Powershop did not support the previous default market offer final decision made by the AER,” Powershop said.

“Powershop considered the AER was diverging away from the methodology of its price cap mechanism to drive short term outcomes at the expense of true market conditions, including costs to retailers and ultimately to consumers.”

An AER issues paper is the first step in setting the 2024-25 default market offer, with a final determination to take effect from July 1.

Still, the big energy players may struggle to win over the public after several big years of price hikes.

Climate Change and Energy Minister Chris Bowen said last week the energy pricing regulator should prioritise cost-of-living pressures over guaranteeing already “healthy” company profits, as he batted away big power companies’ complaints their margins are being unreasonably squeezed.

Tony Wood, the director of the Grattan Institute’s energy program, said the discussions around the retail margin allowance needed to be put in the context of a 2024 default market offer that should be lower than the ­previous year’s.

Electricity retailers have ­become concerned the default market offer could be cut as the regulator balances tough household budgets with adequate returns to industry players.

Large retailers use the default offer as a yardstick to set their own offers for customers on market contracts.

A potential cut by the AER in its estimates for retail costs, reflecting a company’s operating expenses, has also caused concern among many large companies.

A retail allowance of 10 per cent for households and 15 per cent for businesses was set but is up for review as part of next year’s settings.

Originally published as Shell warns against cost of living relief via power bills