Exploitative gas pricing is causing debt and distress for many Australian households
The treasurer, Jim Chalmers, is set to intervene in the gas market to push down high bills, likely through capping wholesale gas prices and also the price of coal. Various regulators and energy bodies will be providing advice about the best measures to take. But governments also needs to listen to those that are doing it tough paying their energy bills.
In the last three months, the Consumer Action Law Centre has received more than 150 calls from people who are struggling with their energy bills. The average debt accrued among these people is more than $2,000. Our financial counsellors and lawyers regularly hear from people who are struggling to heat and cool their home, or to pay for the power bills that ensure household amenity.
One woman contacted us after losing her job nine months ago due to an injury. Her husband was forced to take time off to care for her and their three children. When she contacted our financial counsellors, her power bill had reached an eye-watering $20,000. She complained about being offered minimal support from her electricity retailer.
One of the most heartbreaking issues is seeing people experiencing vulnerability being charged way more for their basic gas service compared with other customers. Dealing with this issue needs to be part of any response from energy ministers.
To put it another way: to ensure any regulatory intervention benefits all in the community, including the most vulnerable already indebted on their power bills, equity measures need to be central to intervention and fairer pricing.
The federal budget confirmed gas prices have gone up six-fold since March 2021, and retail gas prices are set to increase up to 20% in 2022–23 and 2023–24.
But a hidden problem is that some people pay much more than others for the same amount of gas. Those who don’t regularly switch retailers will commonly be pushed to very high
“standing” prices – way above the odds of a competitive price. This occurs because gas retailers have the power to set prices themselves, and the regulators lack the power to intervene.
Research from St Vincent de Paul demonstrated that Victorians who do not or cannot switch are being exploited through high standing gas prices. Its most recent market analysis found that a typical household could save $2,300 to $2,400 on their annual gas bill if they switched from the worst standing offer to the best available market offer.
The essential services commission, Victoria’s essential services pricing regulator, confirmed this in a recent market report, finding “large differences between the cheapest and most expensive gas market offers”.
With the onus on customers to shop around for a better deal, exploitative pricing practices are causing harm to households. It is simply not fair for people to be paying such wildly varied prices for the same level of consumption.
There have been significant price reductions in electricity standing prices since the introduction of default offers, which are set by a regulator. In 2019, there were some standing prices which equated to an average annual bill of more than $2,000 a year. Today, the Victorian default offer equates to an average annual bill of $1,400 to $1,600 depending on the customer’s location. And the good part is that retailers continue to discount from the default offer, with Victorians able to save between $290 and $450 a year if they switched to the best market offer depending on their area. The Australian Energy Regulator’s default market offer, which operates in other states and territories, has also addressed exploitative pricing.
Along with prices going down, Victorians’ sentiment towards electricity suppliers has gone up. In December 2021, Energy Consumers Australia reported that 81% of surveyed Victorians were positively disposed towards their electricity supplier. Compare this with data from 2017, before the Victorian default offer, when only 50% of Victorians were satisfied with their electricity supply.
Default offer pricing in electricity has been a policy success. However, it unfortunately does not apply to gas. And unfair tactics in gas prices remain, affecting the community’s confidence in the market and the important forthcoming transition.
Unfair gas pricing practices contribute to debt and distress for many households, including those who are calling the Consumer Action Law Centre for assistance. Gas is an essential service, particularly for Victorians, where households use more gas than any other Australian state or territory for heating, cooking and hot water. We need measures to equalise retail pricing for gas, like default pricing which already applies to electricity, so consumers aren’t penalised thousands of dollars simply for not shopping around for gas.
Gerard Brody is the chief executive of Consumer Action Law Centre