Energy retailers' 'insidious' power pricing charges households based on highest point of use
Retired engineer Steve Gale says demand tariffs are almost impossible to decipher. (ABC Mid North Coast: Wiriya Sati)
Hundreds of thousands of Australian households are being charged electricity prices based on their single biggest point of usage across an entire month, fuelling claims power firms are using sneaky tactics to gouge consumers.
An investigation by the ABC has found that soaring numbers of residential electricity customers with smart meters are being put on to so-called cost-reflective tariffs such as time-of-use and "flexible" rates.
Among these flexible rates are what's known as demand tariffs, under which a customer's single highest point of demand for power from the grid – measured in 30-minute blocks — is used to calculate how much they pay for a whole month.
Observers note that a person could be away from home for all but one day in a month but on the final day return and have heavy power needs, such as using the washing machine, cooking dinner in the oven, running the heater and drying clothes.
This, they say, would form the basis of the demand charge for the entire month.
One householder covered by demand tariffs is Steve Gale, a retired mechanical engineer who lives just outside Port Macquarie on the New South Wales mid-north coast.
Mr Gale says he only found out about the tariff when he noticed changes in the bill from a new retailer.
What's more, he says he was unable to opt out of it.
"It's quite a shock to suddenly see that on the bill," Mr Gale says.
"That wasn't advertised on the website.
"I can see that for a lot of users, particularly families, the peak demand occurs at a time when people are coming home, the house is hot or cold, they need to heat it or cool it, cook dinner, have showers.
"They're really going to get hammered.
"And the rudest thing for them is that they don't even know that they've been shifted onto it.
"They haven't been given any tools whatsoever to manage their peak demand.
"I think it's wrong. It's almost arbitrary. If people have got no control over their peak demand, then they're just going to get slugged.
"It's a penalty, a stick without a carrot."
A hit 'out of nowhere'
Steve Gale is not alone in his experience.
From a system where most households paid a flat rate for their electricity no matter when they bought it from the grid, power bills have become increasingly complex.
Time-of-use rates, which charge consumers more for the power they buy from the grid at peak times, are perhaps the best-known example of cost-reflective tariffs.
But demand tariffs are creeping into bills around the country with many users contacting the ABC to complain about high charges in peak times, usually between 4pm and 8pm.
They are levied on top of consumption and daily service charges.
One customer, from the Sunshine Coast in Queensland, said demand charges were costing him hundreds of dollars extra a year.
The customer noted that, under the tariff, he would be required to pay a demand charge for a whole month even if he was at home for a only single day and – for whatever reason – needed to use a lot of power on that day.
"I'd be happy to pay the additional charge for those few days that I used that aircon," the customer said.
"But I'm not happy to pay for the whole month that I'm not using the aircon.
"It's one of those nasty things that creeps up on you that you're unaware of.
"And insidious being that… there's nothing you can do about it. It's almost like a secretive approach to try and charge more money for the same service that you used to have."
Richard Foxworthy from Bill Hero says consumers are being set up to fail. (ABC News: Darryl Torpy)
Richard Foxworthy, who runs subscription-based power price comparison service Bill Hero, says there's been a sharp acceleration in the number of households on demand tariffs.
Not that he thinks many consumers know about it.
"We've dealt with many subscribers who have found themselves with this mysterious new item on their energy bills saying demand or peak demand," Mr Foxworthy says.
"We've seen bills where it's hundreds of extra dollars on the bill for demand.
"This is above and beyond the more conventional charges that you'd expect to see as an energy consumer.
"You can have this additional chunk of cost in your bill that seemingly comes out of nowhere."
Enabling the shift towards more complex pricing is the mass rollout of smart electricity meters, which regulators want installed on every Australian home by the end of the decade.
The meters can supposedly allow householders to see how much power they are using in "real time" while giving regulators and the industry better oversight of customers' usage.
An analysis of records kept by the Australian Energy Regulator shows soaring numbers of households with smart meters and a corresponding jump in customers on complex tariffs.
While New South Wales has the highest number of households on cost-reflective rates, the sharpest increases were elsewhere.
In South Australia, there were negligible numbers of affected customers just three years ago.
By the end of 2023, almost 40 per cent of households had some sort of cost-reflective tariff.
It's a similar story in south-east Queensland.
A spokesman said the AER does not break down subcategories of flexible tariffs.
But few customers appear to be aware of the changes thanks to a loophole that allows power companies to pass on tariff overhauls without forewarning them.
Loading...Consumers 'set up to fail'
Mr Foxworthy agrees smart meters notionally offer many advantages, particularly the promise they could help "shave back peak demand" and lower the need for costly investments in poles and wires.
But he says industry, regulators and governments are set to squander this opportunity.
He says they have completely failed to prepare consumers for the arrival of smart meters or the changes they entail.
Even government-run price comparison sites, he claims, are unable to calculate what a typical household would pay in demand charges because of the complexity involved.
"I think it's really, quite an appalling failure of the system to educate energy consumers.
"The practical reality is that energy consumers are being migrated onto these tariffs.
"Every single one of them that we've spoken with doesn't understand what that tariff means, how they got migrated to it, and why."
Balancing the needs of consumers and the grid is a high-wire act. (ABC News: Andrew Seabourne)
More pointedly, Mr Foxworthy says the failure to notify or support consumers means they are being set up for a fall.
And he argues this risks undermining the entire case for tariff reform.
"Our experience has been that energy consumers struggle with their bills at the best of times," he says.
"This is an additional charge component that many people find difficult to understand.
"And even for those who do understand it, in principle, and in theory, it's a charge that is applied retrospectively."
Doing nothing costs more: AEC
Energy companies acknowledge there have been problems with the roll-out of smart meters and the pricing changes they've enabled.
The Australian Energy Council, which represents electricity retailers, also says consumers should be given a choice about whether they go on to a cost-reflective tariff.
Australian Energy Council boss Ben Barnes acknowledges there have been problems. (ABC News: Nico White)
"The challenge has always been how do we balance the efficiency challenges with the customer choice challenges," says Ben Barnes, the acting boss of the AEC.
"I think where we started out in this space about a decade ago, was the expectation that customers would see a price signal and they would act quickly and efficiently.
"I think what we've learned in recent years is that customers are willing to participate in the energy system where it benefits them."
Despite this, Mr Barnes says reform – changing the way we pay for the electricity system – is still required.
He points out that fundamental changes are underway in the generation of electricity as the grid shifts from running on fossil fuels to renewable energy.
As a result, Mr Barnes says it will become increasingly important for consumers to use energy when it is abundant – and therefore cheap – while cutting back their consumption as much as reasonable during periods of scarcity.
"If we were to do nothing, the cost of the grid would be higher," he says.
"We need to make sure that customers are able to see some price signals because what we're seeing in a changing energy grid is even different from where it was a few years ago.
The way Australians pay for electricity is changing as the way it's produced is turned on its head. (Supplied: Project Symphony)
"The balancing act we have between now and 2050 is how do we enable customers to participate in a way that is practical and achievable, while also reducing the need to overbuild the grid.
"But from our perspective, if a tariff is too complex, the tariff has got a problem."
Change, but to what end?
NSW householder Steve Gale says that while demand tariffs, in his case, are an inconvenience, he has the ability to control his power demand and largely minimise the costs.
His retirement to a leafy hobby farm just outside Port Macquarie means he has more control over when he uses energy.
But he worries about those households that can't do likewise, saying demand tariffs in particular seem "punitive".
Longer-term, he questions whether the changes will make the grid more efficient and reduce demand at peak times or merely pad out the profits of energy companies.
"It just hasn't been rolled out or implemented in a way that will achieve anything if people don't have the tools to manage their demand," Mr Gale says.
"Just slugging them for more money merely shifts it into the coffers of the retailers and the distributors rather than reducing demand which is what it's intended to do."
Australia's energy system is rapidly changing from the old to the new. (ABC News: Daniel Mercer)