Power retailers raise fixed charges to recoup costs after spot market records

Natalie, from Tweed Heads in northern New South Wales, has reduced her electricity use to a bare minimum.

“I don’t run a heater, I cover…I don’t have a TV and I’m very careful to close all the curtains,” she said.

“I do pretty much everything I can to reduce my electricity.”

Natalie is on a disability pension, so money is tight.

Natalie is wearing two sweaters instead of turning on her heater(ABC News: Steve Keen)

Like many people, she was recently notified that her electricity bill was going to increase.

The usage component of its bill only increases by a few cents, but the fixed rate portion – the daily provisioning fee – increases by 43%.

“I understand that everyone benefits from a price increase,” she said, “but it seems a bit unfair that they put so much on the daily rate.

“I cannot reduce my electricity consumption to reduce the daily rate.”

New South Wales energy and water ombudsman Janine Young said every customer would see price increases.

“Some energy retailers say [it will be] up to 20-30% more,” she observed.

A woman with dark hair and dark glasses looks off camera.
NSW Energy and Water Ombudsman Janine Young said all customers would face a price hike.(ABC News: John Gunn)

Wholesale prices are at record highs, tripling in the three months to June, compared to the same period last year.

Australia’s Energy Market Operator (AEMO) said it was because of high commodity prices, coal power outages and a cold winter on the east coast.

However, Ms Young argued, these increases should be passed on to the usage fee – the cents per kilowatt on a customer’s bill – instead of the fixed daily supply fee.

“Retailers can charge an additional amount in this fixed part of your bill. And it’s not capped [in NSW]“, Ms. Young explained.

“It could be that some retailers are increasing this item to compensate for the wholesale price increases they carry.”

Different states and territories regulate energy prices differently, observed the Australia Institute’s climate and energy director, Richie Merzian.

A large power plant blowing smoke with green hills in the foreground.
Coal-fired power still accounts for a large portion of Australia’s total electricity generation.(ABC News: Freya Michie)

“The regulated daily supply charge is in Western Australia, the Northern Territory and the Queensland region. For Victoria, New South Wales and the Australian Capital Territory, this price may float and continue to increase,” Merzian said.

Energy market ‘struggling with its own resilience’

The supreme body representing power companies, the Australian Energy Council (AEC), has defended the price hikes.

“We are seeing a lot of reform in the energy market, a lot of pressure on retailers and they have to recoup their costs through bills,” said AEC chief executive Sarah McNamara.

For much of the East Coast, the energy regulator sets a Default Market Offering (DMO), which acts as a fallback plan for customers who have not actively chosen a retailer.

Retailers are required to include this price on the customer’s invoice.

The DMO usually acts as a price cap and retailers compete for customers by offering deals cheaper than that.

However, some electricity retailers are now offering more expensive packages than the market default offer.

“We are seeing competition,” Ms. McNamara said.

“But this is a market struggling with its own resilience in an environment of rising costs and shrinking margins.”

In a remarkable move, a number of smaller power companies have told their customers to go elsewhere, or face a huge rise in their power bills.

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It is not profitable for some to continue serving customers and four small businesses have already collapsed.

“What we are already seeing is that there is more concentration in the market,” Merzian said.

“That means there are fewer opportunities to shop around and find cheaper electricity prices.”

The competition watchdog is monitoring retailer prices and will provide an update to energy ministers later this month.

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