Finance Your Budget Electricity providers warned to slash prices as ‘financial contagion’ concerns rise

Electricity providers warned to slash prices as ‘financial contagion’ concerns rise

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Australia’s energy providers have been told to slash prices and extend hardship measures for customers struggling to pay their bills.

Only days after the federal government announced cuts to stimulus payments from September, the market regulator cautioned retailers to consider their “broader social obligations” in the crisis.

Australian Energy Regulator (AER) chair Clare Savage pressured energy providers to continue offering hardship measures for an additional three months beyond the existing August 1 deadline.

Announced in March, those measures include a disconnection freeze for customers on hardship plans, payment extensions, and a ban on debt collectors pressuring households to stump up payments.

Recognising their actions in the early stages of the pandemic, Ms Savage said retailers should extend payment plans and hardship arrangements to all struggling customers.

“Any customer who is in contact with their retailer should not be disconnected,” Ms Savage said.

According to AER monitoring, 20,000 households and small businesses entered hardship payment plans between December and March, and roughly 39,500 financially affected customers who deferred payments have now accrued $35.3 million in debt.

In response to the regulator’s instructions, the Australian Energy Council (AEC), which represents retailers who supply more than 10 million homes and businesses, said it would continue to provide “long-term support”.

But doing so would consign even more debt to retailers and increase the “risk of future financial contagion”, unless government and regulators prop up the sector.

“We can expect to see increasing bad debt levels, increased financial stress on retailers and a greater risk of retailer failures,” AEC chief executive Sarah McNamara said.

But in the eyes of Canstar Blue editor-in-chief Simon Downes, that response reflects a continuation of retailers’ “tokenistic” approach to the pandemic.

Mr Downes said retailers had largely neglected one of the simplest forms of assistance: Cheaper prices.

“There are some exceptions to that rule, but ultimately, if a household is paying a high price for energy, it’s still doing so regardless if it opts into a payment plan or not,” Mr Downes told The New Daily. 

“Some companies have taken the opportunity to become competitive and reduce their prices, but the problem in a lot of cases is only new customers benefit, and existing customers don’t see that reduction.”

Electricity providers have been told to slash their prices amid rising household debt. Photo: Getty

Energy Minister Angus Taylor warned providers on Tuesday to better reflect the state of wholesale prices (the price retailers pay for electricity to supply their customers), which currently sit at a five-year low after the introduction of the Morrison government’s “big stick” legislation.

His warning comes after annual pricing adjustments across NSW, the ACT, South Australia and Queensland on July 1 saw most retailers discount their prices by single digits.

The marginal drops were in stark contrast to the massive fall in wholesale prices over the past 12 months, which the Australian Energy Market Operator put at 48 to 64 per cent.

Mr Taylor said he would potentially instruct the Australian Competition and Consumer Commission to clamp down on retailers that do not push down prices far enough.

“While other government policies, such as the default market offer, have delivered price reductions for Australians, it is the responsibility of all large energy companies to pass on savings,” Mr Taylor told the Australian Financial Review.

Despite the government’s call for additional savings, Canstar Blue’s Mr Downes said the onus is on consumers to find a better deal.

He said some parts of the country, particularly Queensland and New South Wales, are witnessing unparalleled pricing competition with upwards of 30 retailers competing for the same customers.

“It’s cliche, but right now has never been a better time to get engaged in the energy market,” Mr Downes said.

“It’s a lot harder for the AGLs and Origins of the world to pass on the wholesale cuts, but smaller businesses with fewer overheads are very flexible and offered discounts in July of up to 10 per cent or more.”