Power price shock: ACCC warns households paying too much

The competition regulator warns small business and families are paying more than they need to, in a market dominated by three big energy retailers.

The ACCC investigation found households on offers more than a year old were paying over $238 more per year than households on newer offers.

Labor will enter an election year with household energy costs higher than when it came to office and with Australia’s competition and consumer watchdog warning many families and small businesses are paying over the odds in a market dominated by the big three retailers.

The Australian Competition and Consumer Commission said on Monday that more than 80 percent of households in the National Electricity Network were paying higher premiums than necessary.

The ACCC urged consumers to shop around or at least to contact their electricity provider to ask if a cheaper electricity deal was available while noting AGL, Origin and Energy Australia had a combined market share of 62 per cent.

Despite the price of electricity falling in the 12 months to August 2024, many households remain on deals set at premiums above the government safety net price and are missing out on lower prices.

The ACCC said energy retailers had increased their margins to $110 per residential customer and $411 per small business customer despite having to absorb a 41 per cent increase in wholesale energy costs.

It said AGL, Origin and Energy Australia had a cost advantage over smaller rivals in than their cost to serve residential customers was 36 per cent lower.

On the flip side, costs had increased more rapidly for the big 3 and the cost advantage had narrowed.

Climate change and energy minister Chris Bowen said the government would continue to encourage consumers to shop around for the best deal and make sure retailers “know they need to be doing the right thing”.

Mr Bowen defended the government’s efforts to keep energy costs in check despite the broken promise to reduce household electricity prices by $275 a year.

“The Albanese government is working to modernise our energy grid with cheap, reliable renewable power to protect it from international price spikes and move away from our reliance on ageing, expensive coal,” he said.

“We’ve delivered two rounds of energy bill support to provide immediate relief while continuing to work with states and territories to reform the energy market and make it fairer for all consumers.”

Shadow energy minister Ted O’Brien said the ACCC was right to encourage people to shop around for a better electricity plan.

“They should also shop around for a better government. The fact there’s been a drop (in electricity prices) from one bad year to another bad year under Labor will be cold comfort to the record numbers of Australians now on hardship arrangements with their energy retailer,” he said.

“If Labor is to deliver on its promise of a $275 reduction in household power bills on 2021 levels, this means a cut in bills by up to $1000 in the new year. There’s not a chance in the world that this will happen.”

ACCC commissioner Anna Brakey said it was likely households and small businesses were paying more than they needed to if they hadn’t changed electricity plans in the past 12 months.

ACCC has urged consumers to shop around or at least to contact their electricity provider to ask if a cheaper electricity deal was available.

The ACCC latest investigation into the electricity market found that households on offers more than a year old were paying $238 more per year than households on newer offers.

It also found that the size of this “loyalty penalty” increased with the age of the offer.

“We are urging Australians to take some time this holiday period to have a look on the Energy Made Easy or Victoria Energy Compare websites to see if there is a better plan,” Ms Brakey said.

“Alternatively, people could simply call their retailers to see if they have a better offer available. We know that customers that haven’t done this in a while are probably paying too much.”

The ACCC said pricing in the retail electricity market was becoming more complex as more customers moved to time of use or demand tariffs.

It warned of pricing pitfalls for consumers who failed to understand or stick to complex pricing elements around household appliances like washing machines at peak times.

The Australian Energy Council (AEC), the peak body for electricity retailers including the big three, said the ACCC’s report showed the market remained competitive, with prices falling during the year.

“This is good news for customers, but there are more opportunities available for those who are prepared to shop around,” a council spokesman said.

AEC said households and small businesses should visit independent government comparison websites to compare their deal to what was on offer in the market. It also advised consumers to contact their retailer and ask about a better deal.

The ACCC said the number of retailers seeking to enter the market but not yet established exceeded exits for the first time since 2021.

However, the bleeding continued in terms of active retailers exiting a market where there was significant decline in competition in 2022 and 2023.

The number of active retailers in Victoria and NSW, where the big three dominate, fell by three and four respectively in 2023–24.

Mr O’Brien said a well-functioning market would typically attract new players, but this was not happening because of government interference in the energy sector.

“There is too big a difference between electricity prices paid by households and the underlying costs of producing the electricity they receive,” he said.

“For prices to better reflect costs, an efficient and competitive market is key. But that’s not what we have today due to Labor’s big government interventions which have been a sledgehammer to competition.”

The ACCC said that on average, the big three retailer group’s margins increased dramatically in 2023–24 and were significantly higher than margins for the smaller retailers.

“We note that the large increase in margin for the big three retailer group reverses a trend of low and decreasing margins in recent years,” the ACCC said.

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