We’ve come along way in the last 17 years since energy markets in Australia began deregulation. The plan in the beginning was to allow private companies to enter into the market and offer retail contracts to consumers, and in doing so competition would drive positive price outcomes to customers. Well, that was the plan anyway, but has it actually been the best outcome for energy consumers? For the period 2007-08 until 2017-18, residential electricity prices have increased by 56% as reported by the ACCC on an inquiry into electricity retail pricing*.
How energy retailers make money
The core role of an energy retailer is to take your meter reading (which is done by the distributor for your area) and bill you for your usage. Therefore, the role of an energy retailer is relatively simple and in a competitive landscape can be difficult to differentiate. This means that for energy retailers to differentiate and appear competitive they need to compete primarily on price to win business.
So how does electricity pricing differentiate?
- Usage charges which is the per kwh unit price. These can be different if you’re on a standing offer (basic plan) or a market contact (usually with benefits such as discounts, credits etc.).
- Pay on time discounts. This the big one where retailers offer huge discounts, sometimes as great as 45% off your usage charges. But check the details, sometimes you might only have 7 days to pay on time and if you miss the date by even just a day, your 45% off usage charges all of a sudden effectively becomes a 45% late payment charge! A recent report by the ACCC suggested that only 73% of residential customers achieve their conditional discount*.
- Discounts only off a portion of the bill. You might see some advertisers spruiking huge discounts, but don’t be fooled, these are often only off the usage component of the bill. If you’re a low user, the supply charge component of your bill could actually be greater than your usage component, so you might not necessarily be better off.
- Total bill discounts. Some retailers will offer discounts off the entire bill which includes both usage and supply charges.
- Guaranteed discounts are sometimes offered and regardless of whether you pay on time or not, you will still get the discount. Whilst the discount might be less than some of the other offers, if you miss just one payment in a year, these types of offers could be better for you.
- Usage and supply charges are different from retailer to retailer. Because retailers set their own rates and charges, these can be dramatically different from retailer to retailer, postcode to postcode. Often you will find that with a huge discount offer will come higher rates and charges.
- Benefit periods lapse and consumers often default to standing offers. This is where consumers can really lose out. For some market contracts, the benefit period will lapse after 12 months, for some 24 months, others the benefits will be ongoing. So hypothetically, if you were receiving a great offer and this was reducing your bill by let’s say $200 per quarter, if your benefit period was to lapse, the next bill might give you a huge shock when the $200 all of a sudden isn’t coming off the cost of your bill.
- Credit offers. Often retailers will entice you with a credit on your first bill, gift cards or other monetary based offers. Whilst these can be great for some customers, often they won’t be as good as competitive pricing on rates, charges and discounts. Always best to crunch the numbers first.
The sole purpose of all of this price differentiation is for retailers to create confusion and to appear competitive, but at the same time, sneakily find a way to make money off their customers. With all this confusion what appears on the surface as a great offer, might not necessarily be the best option until all the facts are considered.
So what can you do about it?
The easiest and fastest way to stop being ripped off is to act with your feet. Changing to a better provider, with a deal that is suitable to your requirements can save you loads off your bills. But with all the complexity described above, this can be a daunting task for many. This is why GoSwitch has invested heavily in our comparison technology to cut through the complexity of energy pricing and come up with a simple, easy to understand quote, which is custom to your unique situation and needs. Simply enter in your postcode below and complete a few quick questions and we’ll be able to provide you with a custom quote within minutes.