Making switching easier

Hey Reader, welcome to The Energy's weekly data newsletter. This week we explore why switching is not where competition regulators would like to see it.

What's your better offer?

Tomorrow, the Australian Energy Market Commission (AEMC) will hand down its final determination on a switching rule proposed by Energy Minister Chris Bowen.

The change is fairly straightforward and under the draft would require retailers to better share the ‘better offer’ messages they’re currently required to provide.

Messages informing customers whether there is a better offer available would also have to be included in cover emails and bill summaries, reaching the many people who don’t open their full bill.

Retailers AGL, Alinta and ENGIE are against it.

The Australian Competition and Consumer Commission (ACCC) says customers who don’t switch regularly are typically paying hundreds of dollars more a year than those who do, and are also more likely to be on prices at or above the default offers.

It cites Victoria as an example of what switching prompts on bills can do. Its retailers have been required to include better offer messages since 2019, versus September 2023 for retailers in other states. In 2024, a higher proportion of customers in Victoria were on their retailer’s best offer than other regions combined.

*Only 19% of residential customers were on their retailer’s best offer across all regions from 1 January to 10 August 2024. . Source: ACCC analysis of retailer data*

A flawed measure of competition

Customer switching rates are one of the metrics by which the AEMC measures the effectiveness of retail competition.

But working out how much real switching is going on and why is somewhat tricky.

Some switching numbers include people who are forced or choose to transfer providers when they move house. At other times in the past, switching has spiked after market reforms, such as the introduction of smart meters and consumers responding to changes in off-peak or feed-in tariffs.

In 2024, Energy Consumers Australia found 58% of surveyed customers review their electricity offer and investigate whether there are better options at least once per year, but actual switching rates are far below this.

Why people don’t switch

The same survey explored why people don’t switch after considering it and found 25% said it was too complicated, 27% said it was too confusing and 25% said it was too time consuming.

*Why didn't you switch? Source: CHOICE from Energy Consumers Australia*

How easy?

At the heart of debate between consumer groups and energy retailers is a difference of views on how easy switching should be.

Energy lobby the Australian Energy Council says the switching process is “already fairly easy”. But the Justice & Equity Centre says many customers find the final stage of switching difficult.

“We are aware of cases of highly-engaged consumers (working in the energy sector) who have 1) chosen a plan, 2) contacted the retailer 3) been told they are ineligible for that plan 4) found another plan 5) contacted the retailer and so on until either concluding the process was impossible, or finally finding an appropriate offer they were eligible for.

If highly-engaged consumers find the process difficult or impossible, the ‘average’ consumer – let alone those facing disadvantage – have little hope of successfully doing so.”

Justice and Equity Centre submission to the AEMC

Can an AI give explicit informed consent?

Some have suggested customers should be automatically switched to their retailer’s best offer without having to go through the process, especially given going through that process doesn’t always result in a cheaper energy bill.

And there’s evidence an increasing number of consumers would be comfortable with an AI switching them to the best plan available, if it was possible.

But for now, the energy rules require “explicit informed consent” (EIC), which is designed to protect consumers by ensuring they understand the new contract they’re entering into.

EIC has support in some parts of the industry and opposition in others, who argue it’s a barrier to making switching easier.

The Department of Climate Change, Energy, the Environment and Water (DCEEW) is reviewing explicit informed consent and information provision requirements as part of its current review of energy customer experiences.

Meanwhile, Victoria’s Essential Services Commission is reviewing the Energy Retail Code of Practice including measures to help customers switch to their retailer’s best offer.

This would see retailers forced to switch customers experiencing payment difficulty onto their best offer. It would also require retailers’ websites to have clear and simple instructions on how to switch plans, and the ability for a customer to compare their current plan to their retailer's best offer.

The energy lobby is against the latter proposal, arguing there should be more government promotion of existing comparison tools like Victoria Energy Compare and Energy Made Easy.