We all need electricity and gas. Every day. We have to buy it, to have an acceptable standard of living. But competition is not delivering us this essential service in the most cost effective way. Nor is it bringing us the services and innovation that were expected. Growth in energy retail revenues has far outstripped the costs incurred to bring us energy. There is no one trend, intervention or cause that can explain it.
The energy retail market is failing us.
That is in summary what was found by the recent Independent Review into the Electricity and Gas Retail Markets in Victoria.
As a result, Victorians are paying unusually high prices for power – and we’re not getting anything that great in return.
Why is interesting. But also obvious.
The report points to three elements: the cost of competition, the structure of the market and the practices of the industry. But at the heart of all three is a simple truth.
For most consumers, energy is a homogenous product.
Switching from one company to another makes little difference to what happens when we flick the switch. So we must make our retail choices based on other things. Service. Innovation. Price.
Our expectations for customer service from energy companies have started from a pretty low base. Reliable power (the job of other parts of the sector) aside, we expected regular, accurate, bills attached to some kind of call centre for when we needed help. We want the power switched on when we move home. For the vulnerable, who can’t pay a particular bill on time, much lobbying and government regulation puts in place extra protections so power is not easily switched off.
After years of protest, the industry’s main players finally – in the last few years – abandoned detested, often deceiving, door-to-door sales. Other than that, it feels as though service offerings have not undergone any form of significant step change since privatisation in the 90s.
Without the competitive forces working to demand more, innovation in energy retail has been limited. Case in point: even digitisation is only now beginning to enable new, better customer services for us. When compared to our banks, and the apps we have to do everything, the lag seems especially stark.
For most of us, the choice between one company and another becomes therefore about price. But prices are deliberately confusing. Even for the most energy literate.
Anyone who has ever tried to investigate price offers will have experienced the absolutely perplexing comparison between apples, oranges, bananas and pineapples that only an expert mathematician with a powerful spreadsheet can begin to decipher.
Discounts that are applied based on the fancy of the company to different components of the bill. Every company has different fixed and variable charges. Our consumption charges − that we can control and reduce through how much energy we use − are now a shrinking component of the bill with “daily” service fees making up the rest. It all means that despite our growing energy efficiency, as a result of retail price rises, what we actual fork out for each bill has seen little change, or in fact, risen.
What can be done to make this market work for us?
The independent review puts forward 11 recommendations – and calls plainly for strong government intervention, including new regulation on consumer prices. The Victorian Government will respond to this by the end of the year.
What it boils down to is that no market can work if its biggest participants, the people buying things, can’t make sense of it.
More than half the recommendations effectively call for more meaningful information for the consumer. That is, practical, uncomplicated, easy to use stuff so we can make informed choices, in our best interests, on prices, services, contracts, and consumption.
Nestled within these recommendations are major opportunities – for energy retailers, consumer advocates and all levels of government to do better. Some of it is quite simple, and needn’t wait for the heavy hand of government (re)regulation. That will be the subject of the second blog in this series of two – as we explore some easy ways for co-creation, shared value and social impact to put the energy consumer back in charge.
Talk to us about how to better connect with energy consumers.