Power bills are gradually swallowing up more and more of the household budget.
The NSW energy industry has been deregulated since July 2014, with the Independent Pricing and Regulatory Tribunal (IPART) hoping the move would ease the pressure on electricity prices.
But three years on, NSW customers are still feeling the sting.
In December last year, the Australian Energy Market Commission delivered the bad news that energy costs for consumers are only going to get higher in the year ahead, with the average electricity bill expected to go up by about $78.
So does deregulation really lead to lower costs for consumers?
The answer, according to the Grattan Institute, appears to be “it’s highly unlikely”.
The think tank recently released a report showing that electricity prices in Victoria are still costing consumers a small fortune – despite the fact that the state’s energy industry was deregulated in 2009.
The report found that while consumers are paying more for electricity, the state’s energy companies are, in fact, profiting more. In 2013, before the NSW industry was regulated, IPART determined that a “fair” profit margin for NSW electricity companies was 5.7%.
In comparison, the Grattan Institute estimates the current profit margin for Victorian energy companies at around 13% – more than double the original margin. Admittedly, it’s not a good look for energy companies.
So why do energy costs continue to rise?
The institute identified three major issues for energy companies: higher gas prices; the shutdown of older coal-fired generators, such as the Hazelwood power station in Victoria; and the slow shift away from coal to renewable energy.
Another thing to consider is the higher marketing costs that come with increased competition.
However, the institute notes that the financial impact of “green” government policies has shrunk, and there have been no major investments in poles and wires in Victoria as there have been in other states, casting further doubt over the industry’s high profit margins.
Thankfully, there is something you can do to reduce your electricity bills.
There are two types of offers that are available to consumers: standing and market.
If you’re on a standing offer, you’re on a legacy tariff that existed before the market was deregulated. So if you’ve never changed your electricity deal, or haven’t changed for a couple of years, you’re probably paying more than you should.
The institute estimates that if you switch from a standing or outdated market offer to the lowest available offer in your zone, you could save between $94 and $164 a year.
The institute recommends a few changes to reduce the cost of electricity in future.
It believes retailers should provide more information to consumers about what happens when their fixed period ends, and enable the pay-on-time discount to be an evergreen reward.
And if that doesn’t work, the final recommendation is to once again regulate the industry by setting a “vanilla” standing offer that retailers could work with.
This is likely to be expensive and highly contentious.