“Power Of Choice” Pushes Costs Onto Electricity Consumers

Last week I wrote about the “Power of Choice” reforms that put electricity retailers in charge of electricity meters.

Today I’m writing how Power of Choice reforms harm the consumer by stealing the most valuable thing you possess: your time on this Earth.

The bureaucrats claim that giving you even more choice about how you pay for electricity empowers you. But by making your life more complex, they reduce the amount of time and energy you have to do things you either want or need to do and so decrease your power.

This is a problem because if the body that makes the rules about electricity, the Australian Energy Market Commission or AEMC, thinks it is helping people when it is actually harming them, then it is incapable of doing its job: providing for the long term benefit of consumers.

The goal of the Power of Choice reforms is to introduce new methods of paying for electricity that encourage people to consume less when electricity demand is high, reducing stress on the grid.  This has the potential to lower the cost of grid electricity for everyone and, when done right, could be worthwhile.  But the people in charge should not lie to either the Australian people or themselves and pretend that:

• there’s no cost to consumer and
• they are somehow doing people a favor by making their lives more difficult.

The language used by the AEMC to promote their Power of Choice reforms reminds me of another reform in the past that did not turn out well for Australians, which was the introduction of electricity retailing.  Back then choice was also presented as being of benefit to consumers rather than a burden.

Before Electricity Retailing

I am so incredibly old I can remember the days before we had electricity retailers.

If you live on-grid in New South Wales, Victoria, South Australia, or South East Queensland; electricity retailers are now a part of life.  They’re a burden 19.5 million out of 25 million Australians have to bear.

Before they existed, residential electricity was simple.  In the 1990s you might pay $50 to get connected and electricity was about 10 cents a kilowatt-hour.  That’s not adjusted for inflation so it’s not quite as good as it seems and in my part of Queensland, blackouts were more common than where I live today in moderately reliable Adelaide.  But in Queensland a good chunk of that 10 cents went into the state’s general revenue as the electricity sector was a cash cow milked to keep other taxes low.

It was very a very different situation from recent years where electricity prices have been sky high and states such as Queensland and Western Australia have spent fortunes subsidising grid electricity to protect consumers from its full cost.

Back in those simple days when we were living our simple lives not once did we stop to think:

“This MC Hammer is great and all, but do you know what would really make our lives in the 90s complete?  If instead of just having a single way of paying for electricity, it would be wonderful if we instead had to select between a vast array of different plans, intentionally designed to be confusing, and ended up paying more as a result.  That would be so radical, dude.  Cowabunga.”

What People Want

Back then all we wanted from electricity was for it to be there when we flicked on a switch and to be as cheap as possible.  Also, while it wasn’t given as much thought back then as today, everyone except sociopaths would have preferred it come from sources that don’t wreck the climate or ruin people’s health through pollution.

These days people want exactly the same thing, except they are even more aware of environmental issues — or alternatively more practiced at pretending they don’t exist.

What Electricity Retailing Is

Electricity retailing is only about providing bills and customer service.  It has nothing to do with the electricity your home actually receives.  Changing retailers will have no effect on the reliability of your electricity supply or its quality.  What it does change is the logo on your electricity bill and who you get on the phone when you ring them up.  I hope you enjoy the freedom to choose between logos and call centers because, depending on where you live, over 10% of the average electricity bill can go towards paying for it¹.

What Electricity Retailing Gave Us

The electricity retailing we had foisted on us was not capable of lowering costs.  It was only capable of increasing them.  This would have been obvious to anyone at the time who took the trouble of examining the reforms and had some basic understanding of how humans work.  But despite this, it was sold as an innovation that would lower costs for consumers and the need to choose between a huge number of different electricity plans was presented as being a benefit instead of a drain on people’s time and energy.

When there is a change from having one electricity plan to many competing electricity retailers, each with multiple plans, it is going to create a lot of confusion.  The competition is going to result in people ringing up to change retailers and the confusion is going to cause people to ring retailers because they don’t understand their electricity bills.  Money to cover all this extra “customer service” has to come from somewhere and it comes from increases in what you pay for electricity.

In Victoria last year, the average household had around $465 added to their electricity bills to pay for electricity retailing.  In Tasmania, a state without electricity retailers, it was around half that much.  Victorians have the highest percentage of their electricity bills go to retail of all the states.  This isn’t because they are stupid, but because their high penetration of domestic gas means Victorian households use the least electricity on average².

Power Of Choice Versus Electricity Retailing

To me it’s clear electricity retailing was introduced not to benefit consumers but to transfer money from consumers to companies involved in electricity retailing.  While these companies are technically owned by us they are not owned by us in general but mostly owned by those of us who have a lot of money, so it’s not exactly fair.

While electricity retailing was never going to save consumers money, the Power of Choice reforms may reduce electricity costs.  Unfortunately, it will unavoidably involve making electricity bills even more complex.  But there is no sign of any recognition by the AEMC that this is a trade off and the cost of this extra complexity for consumers has to be deducted from whatever savings are expected from the reforms to determine if there is any net benefit.  Instead they seem to think the added complexity is a feature rather than a burden.  Or they know it’s a burden and are just lying.  But I’ll sleep better at night if I assume they are incompetent rather than maleficent.

The Power Of Choice – What’s In A Name

I don’t know about you, but just looking at the name of the reforms — Power of Choice — fills my heart with foreboding.  The title seems to make it clear the AEMC regards making people’s lives more difficult as a good thing rather than a pain in the neck or possibly even a location at the other end of the spinal column.

An optimist might say:

“It’s just a name.  Someone probably thought it sounded good and they got stuck with it.  The AEMC would be well aware of the debacle electricity retailing turned out to be and would never in a million years repeat the same mistake of treating added complexity as a benefit rather than a regrettable necessity.”

Unfortunately, the trouble with optimists is they are way too optimistic.  Sure, their sunny dispositions may allow them to live longer, but only because paranoid pessimists keep preventing them from getting themselves killed.

The Power Of Choice In The AEMC’s Own Words

This page gives the AEMC’s spiel on their Power of Choice reforms.  It starts with:

“This ground-breaking review put consumers in the driving seat.”

Okay, is this driving seat in a DeLorean so I can travel back to 1990?

It then goes on to say:

“Power of Choice is all about opportunities for consumers to make informed choices about how they use energy…”

The trouble with this is there are 19.5 million Australians in 7.5 million households who are currently can’t make informed choices about which retail electricity plan to use because they are quite intentionally too confusing to easily compare thanks to varying discounts, supply charges, and feed-in tariffs.  If they want people to make informed decisions they should get to work cleaning up that mess first.

A More Honest Way To Explain Power Of Choice

You know what?  I have a better idea for how this document should begin.  Something along the lines of:

The AEMC is introducing new methods of paying for electricity.  These are designed to encourage households to consume less during periods of high electricity use and lower the cost of grid electricity for all Australians.  This will make selecting an electricity plan more complex than it already is and we apologize for this.  We regret placing this additional burden on Australian consumers and are only doing so because we are confident the reduction in electricity costs will make it worthwhile for the majority of Australians…

They Expect Consumers To “Identify” And “Implement”

The AEMC page states:

”Consumers need a range of information so they can identify and implement efficient demand options.”

I can’t see my father identifying and implementing efficient demand options.  My mother would find it difficult too.  My sister couldn’t do it and my brother is so lazy he would invent zero point energy before trying.  Out of my entire extended family I am probably the only one who could pull it off and that’s only because I am really weird.

The AEMC says they have a goal of:

“improving customer access to information about their energy consumption”

I see no recognition that providing this information to consumers will only do any good if they spend time studying it and understand it.  There is also no indication the AEMC understands the time and effort spent absorbing this information is a cost to consumers that needs to be taken into account.

I can tell you now, a lot of people aren’t going to pay any attention to the additional information.  Around 40% of our species does not understand that 18% interest on a credit card is not a good deal and the AEMC appears to expect average consumers to calculate which demand management plan will save them a few dollars on their electricity bills.  This is not going to happen.

A Radical Three Step Suggestion

Rather than expect people to become electricity plan experts, I instead propose a radical three step process that would apply to everyone who has a smart meter installed³:

1. If people would be better off on a demand side participation plan, tell them. Each time they get a bill it can say how much money they would have saved if they had been on a different plan.
2. If people could benefit from being on a different plan with modest changes in consumption, bribe them.  For example, if they change to a new plan for 3 months, no matter what happens, they get $50 off their next bill.  To be fair this bribe should be available to everyone.
3. For people who clearly won’t benefit from being on a new plan, leave them the hell alone.  No attempt should be made to trick them into changing for anyone else’s benefit because that would be wrong.

Or Give People Energy Monitoring Systems

Another option is to simply install energy monitoring systems in people’s homes for free or subsidise them.  These can automatically manage people’s energy use and are falling in price.  Once the AMEC takes the cost of added complexity to consumers into account, this could turn out to be a cheaper option than trying to “educate” people to understand intentionally confusing retail plans.

First They Should Make Retail Plans Simpler

The very first step the AEMC should take is to make retail electricity plans simpler to understand.  Discounts should be eliminated as they make it harder for people to work out what they are actually paying.  Also, at the very least, supply charges should be fixed and identical on every single electricity plan available to a household so they can be more easily compared⁴.

Fingers Crossed

I hope electricity plans will be simplified or, even better, electricity retailing in the current wasteful form experienced by most Australians will be eliminated.  I also hope the AEMC will fully account for the costs their Power of Choice reforms are pushing onto consumers.  But I’m not 100% convinced the AEMC will get behind these ideas.  This is because while they say their goal is to protect the long term interests of consumers, I find it difficult to believe we would be in the situation we are now if that was 100% true.

Unless of course they define “long term interests” as reducing consumer wealth and attachment to material goods so they’ll find it easier to get into heaven when they die.