AEC Analysis: Retail Market Performance Indicators

With rising prices comes greater scrutiny, and the retail energy market is no exception. Governments, regulators and consumer advocates are taking more interest than ever in monitoring the market, and everyone has a view on what is working and what is going wrong. In this climate, the release of both the Australian Energy Regulator (AER) and the Victorian Essential Services Commission’s (ESC) market performance indicators for the third quarter of 2023 provides a useful datapoint to assess how retailers are tracking, and how customers are managing their energy bills during a broader cost of living crisis. In this EnergyInsider we take a deep dive into the numbers, and provide some context on their drivers.

The third quarter (Q3) data covers January to March each year. While often a quiet period for the retail market, the events of December raised tensions throughout summer, leading to significantly more noise in the media than normal. In the last sitting week of 2022, the Federal Government passed its Energy Price Relief Plan legislation through the Parliament, which saw the upstream gas price capped at $12 a MJ. The Plan also saw coal prices capped by the Queensland and NSW Governments at $125 a tonne. While the coal caps predominantly affected the relationship between coal fired power stations and their suppliers, the gas caps had a material impact on the Commercial and Industrial market for gas, with retailers struggling to source contracts as producers came to terms with their changed obligations.

For small customers, concerns were circulating about Treasurer Jim Chalmers’ announcements of an expected 56 per cent electricity increase across 2022 and 2023. While the AER’s data showed a slight increase in the number of customers in debt, interestingly, average debts decreased. The ESC reports a slightly different metric, but they too saw an increase in the number of customers receiving Tailored Assistance (the equivalent of both payment plans and hardship programs under the AER’s framework). While the ESC highlight in their report an increase in both numbers of customers, and average arrears, this is reported year on year. Upon deeper examination into the data, the ESC like the AER finds that average debts are down from the second quarter of 2023.

Given the rhetoric about rising prices leading to rising debts, a decline in average debts across the board is a positive outcome, but illustrates a challenge in explaining the relationship between high wholesale prices and the retail market, and providing confidence to consumers that the market is working as it should.

In mid-2022 when the energy system was in crisis and the wholesale price reached its peaks, small retail customers were largely insulated from the volatility by their retailers. Retailers purchase contracts in advance to provide price stability to their customers, and as such, the high prices seen in the first quarter of FY23 hadn’t yet flowed through. However, issues circulating in the media were certainly raising angst amongst customers. The high wholesale prices of 2022 are now beginning to flow through to the retail market, with price increases flagged by the regulators in setting default offers and retailers in setting their market offers. For many customers, these increases represent the first material increase since the events of 2022 – yet concerns about compounding energy prices have reached fever pitch.

Given the commentary, it may be surprising to note that retail market offer prices actually reduced in Q3 2022 in the AER’s dataset, with prices available to customers who were shopping around dropping between 1 to 5 per cent, depending on jurisdiction. It is an important reminder of the benefits of engaging with the market – particularly so during a period of high volatility. In a challenging market, there are no doubt going to be retailers who make gains against their competitors, and others who fall back from the pack. In that environment, we are likely to see significant opportunities for customers who engage with the market by speaking with their retailer or by seeking out a cheaper deal by checking Energy Made Easy or Victorian Energy Compare.

One thing is becoming clear - the most vulnerable customers on retailer hardship programs are doing it tough, with average debts increasing in the AER’s metrics. Q3 2023 saw an 8 per cent increase in average debts for hardship customers, a 9 per cent increase in customers removed from programs for failing to meet their payment plan agreements, and a 29 per cent decrease in the number of customers successfully completing programs. These factors clearly indicate a cohort in distress – with hardship customers facing broader high cost of living pressure, the data is showing that their decreasing capacity to pay overall is having an impact on meeting their energy debts. 

Despite slightly lower debts for this cohort in Victoria, the ESC’s data found an increase in the number of customers who cannot afford to pay for their ongoing energy consumption – a useful indicator when assessing whether a customer is likely to reach a position where they have repaid their debts. More customers in this category is indicative of a worsening economic situation.

On a more positive note, the AER found that retailers are doing a better job in supporting those in need, with retailers increasingly getting customers into their hardship programs with lower debts, and an increasing number of customers within hardship programs being supported to reduce their electricity consumption to a level they can afford to pay.

Disconnections reduced from this time last year in both jurisdictions, continuing a trend which commenced at the start of 2022. This is a positive outcome for consumers, but also retailers, who are often forced to seek to disconnect their customer as a means of encouraging engagement. Coupled with higher numbers of customers entering payment plans and hardship programs, these indicators suggests that retailers are more effectively reaching their customers before the need to seek disconnections, and importantly, that customers are seeking support earlier, with lower outstanding debts.

The 2023-24 financial year will no doubt be a challenging one for energy consumers, with regulated energy prices rising by around 25%, at a time when the broader cost of living crisis is reaching its peak. Monitoring these indicators, and considering where extra support might be needed will be a critical role for both regulators and Governments alike. Similarly, there will be pressure on retailers to ensure their support programs are targeted and effective – reaching new cohorts that have never presented with payment difficulties before.