Nearly a million customers on standing offers, or default contracts, in NSW, South Australia, south-east Queensland and Victoria have already seen automatic savings to their electricity bills.
Average savings on standing offers since the electricity pricing reforms came into effect on 1 July 2019 amount to between $130 and $430 a year for households, according to the Australian Competition and Consumer Commission’s (ACCC) August 2019 electricity market report, which was published on Monday.
But the report also shows that most consumers can achieve further savings by comparing advertised prices and shopping around, particularly with smaller electricity retailers.
About 800,000 household customers on standing offers were placed on the new, cheaper standing offers from 1 July 2019.
“Prices of many standing offers have already fallen significantly, providing immediate and automatic savings for some households,” said ACCC chair Rod Sims.
“We estimate households on standing offers will save an average of between $130 and $430 a year, which is good news for these consumers.”
The standing offer pricing reforms, which were based on recommendations in the ACCC’s Retail Electricity Pricing Inquiry report, reduce and cap the excessive prices of electricity plans for customers who are not on competitive market offers. These customers end up on standing offers, which effectively represent the maximum price.
“There are many offers available in the market that are cheaper than the standing offers,” Mr Sims said.
Under advertising reforms, which also came into effect from 1 July 2019, it is much easier for customers to compare prices, because advertised prices must be compared to a common benchmark (known as the reference price).
“The new advertising requirements also replace previous advertisements with confusing ‘discounts’ which could not really be compared with one another,” Mr Sims said.
In one example, before the reforms, a retailer in South Australia advertised a conditional discount of nine per cent, which was a deal that would have cost an average consumer $560 more than the cheapest offer without an advertised discount.
The report finds that since 1 July 2019 retailers have moved away from offering discounts that are conditional, for example, for paying on time, making offers easier for consumers to understand and compare.
Smaller retailers are offering the lowest prices
ACCC analysis of recent changes in prices shows that a number of smaller retailers had cheaper offers than the ‘big three’ retailers (AGL, EnergyAustralia and Origin).
For example, an average Sydney household could save around $100 per year by switching from the cheapest offer by one of the big three retailers to the cheapest market offer available.
“Our report shows that households can find an even better deal, potentially saving hundreds of dollars a year, by shopping around and looking at the offers of some of the smaller retailers in the market,” Mr Sims said.
As at 12 July 2019, the annual cost of the cheapest market offer for average households, depending on which distribution zone they lived in, was:
- $290 to $380 lower than the standing offer price in New South Wales
- $260 lower in south-east Queensland
- $300 lower in South Australia.
In Victoria, the cheapest market offer, depending on the distribution zone, was $250-$300 a year below the maximum price.
The report also found that in most regions, the big three retailers, when looked at together, had narrowed their price range more than the price range of the market as a whole.
Calls for continued reform
The report also examined the cost components of electricity bills, highlighting the importance of progressing policies to restore electricity affordability.
In 2017-18, network costs were the largest component of a retail bill, making up 42 per cent, followed by wholesale costs (33 per cent), retail costs and margin (17 per cent) and environmental green schemes (eight per cent).
Network costs fell by 7.8 per cent, or $55 per customer, in 2017-18; these costs are highest in NSW, south-east Queensland and Tasmania, largely due to past over-investment in network assets.
“As we recommended in our Retail Electricity Pricing Inquiry report, addressing this past over-investment by writing down asset values or providing rebates on network charges for privatised assets would save average residential customers in those states at least an extra $100 a year,” Mr Sims said.
“Although environmental green scheme costs make up a relatively small part of the bill, they still have an impact on prices and the reduction in green scheme costs in south-east Queensland of around $60 per customer shows the impact of government decisions to absorb such costs rather than passing them on to customers.”
Wholesale costs increased significantly in 2017-18 by 28 per cent or $113 per customer. Several important reforms focused on improving competition in the wholesale market are in process, including for wholesale demand response, which would allow electricity users to reduce their demand and save money when prices are high.
Have you noticed any change in your energy bills since 1 July?
If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.