Former EnergyAustralia exec says electricity retailers are unethical
Summary: The former head of EnergyAustralia’s retail arm says the energy industry has reached a tipping point and company behaviour is at an all-time low as the industry tries to rebuild the perception of electricity retailers.....
“Major retailers have spent 15 years defending their indefensible behaviour and now they’re trying to have ethical energy retailing in Australia,” said Adrian Merrick, who is now the chief executive of electricity retailer Energy Locals.
“It’s pretty bad at the moment.”
Adrian Merrick was the head of EnergyAustralia’s retail arm for four years after spending five years working for energy business E.ON in the UK
In 2016, he started small renewable electricity retailer Energy Locals which Mr Merrick said aims to give at least half of its profits to local social causes or renewable energy development.
He said the electricity industry is at a tipping point and it needs to change to put the customer back in focus.
Mr Merrick said when electricity retailers change their tariff prices on July 1 – apart from Victoria which announces changes in tariffs on January 1 – they must decrease bill prices.
He said as wholesale prices have fallen as parts of the industry cut costs so too must retailers drop prices, as they can no longer lift retail margins and blame them on high wholesale prices.
“Last July, one of the larger retailers and generators, who operates in NSW, Queensland and South Australia, carried out a double-digit percentage increase and blamed it on the wholesale price increases but it is these three large 'gentailers' (companies who are both generators and retailers) who control the wholesale price,” Mr Merrick said.
Mr Merrick dismissed retailer discounts on these prices as smoke and mirrors, saying it was designed to confuse customers and had little basis in reality.
“Customers who engage in the market are presented with a bewildering array of offers, the discounting game has little relationship to what the market is actually willing to pay. Discounts based off a number that retailers can invent are making them highly conditional,” Mr Merrick said.
“You could even have a 99 per cent discount but it doesn’t mean anything if they’ve left the tariff high enough. Discounts on things such as usage are based on a percentage of the bill which is actually declining across the market, so a percentage off usage is a meaningless figure if you’re already using less.
“The fact that the regulator had to propose a rule change on discounts to make any impact is abhorrent as it requires taxpayer money just to stop something so morally wrong is a sad indictment of a broken industry.”
The Australian Energy Market Commission last month announced new rules to stop “pseudo-discount deals that leave consumers worse off”, where retailers provide a higher discount off a higher base tariff.
Mr Merrick backed flat rates, or no discounts, as a way to provide more clarity for the market.
The former head of EnergyAustralia and Ausgrid, George Maltabarow, said discounting made sense when there was a level of price regulation but in the current age of deregulation it doesn’t work.
“The benchmark used to be the government-regulated electricity price and the discount was calculated off that price,” Mr Maltabarow told Fairfax Media.
“In NSW and Victoria they’ve deregulated prices so now you have to ask the question of what the discount is actually off.”
The Australian Competition and Consumer Commission has a similar view of the discounting system being broken.
The ACCC has carried out a national inquiry into the electricity market and retailer discount practices, which it will release this month.
At a Committee for Economic Development of Australia lunch in Brisbane last month ACCC chairman Rod Sims described discounting practices as ‘‘opaque’’.
"A lot of people are on very high standing offers and I really do think the retailers are trying to make this market as opaque as they can so they can keep people on offers that are higher than they need to be," Mr Sims said.
"I can easily show you products where you'll pay more on the 30 per cent discount than you will on the 10 per cent rate.
"We are looking at taking some enforcement action, but we've done it before and it hasn't seemed to change behaviour, so we think something more is required.”
Mr Merrick believed the ACCC’s investigation will make an impact.
“We’re pretty excited about the upcoming ACCC review into discounting as it can provoke change.”