Australian Energy Regulator admits to serious concerns over time-of-use tariffs

Backers say time-of-use power prices can make the grid more efficient, but others aren’t so sure. (ABC News: Daniel Mercer)

Australia’s top energy watchdog has acknowledged there are problems with the roll-out of complex power pricing schemes that charge consumers more for their electricity at peak times.

Lynne Gallagher, a director of the Australian Energy Regulator, said “it’s very concerning” that some households appear to have been unwittingly switched to so-called time-of-use tariffs.

The tariffs charge customers significantly more for power during peak periods and less in the middle of the day, when solar output is typically highest.

They are designed to make the grid more efficient by encouraging consumers to use more power in periods of abundance and less in the evening, when more expensive generators are required.

Time-of-use tariffs are different to prevailing flat rates, under which consumers pay the same for a unit of electricity no matter when they buy it from the grid.

Ms Gallagher said she was worried by reports some households were being forced on to variable tariffs or signing up without fully understanding the risks they faced.

Risks of consumer harm ‘real’

She said it was imperative that consumers be given a choice about whether to move on to time-of-use rates and that retailers properly explain the pros and cons involved.

The acknowledgement comes after consumers unwittingly caught out by the changes spoke to the ABC.

“We want customers to know what kind of tariff they’re on, how it benefits them, how they need to manage it,” Ms Gallagher said.

“If they’ve chosen to be on a time of use tariff, if you’ve got an electric vehicle and you’re charging during the day, it can be highly beneficial.

“You can actually save quite a lot of money.

“Whereas if you’re going to be charged peak rates for your air conditioners, and you don’t know that’s how you’re being charged, that has risk of consumer harm.

“So yes, it’s very concerning.”

[Power problems – GRAPH]

Enabling the rise of more complicated power prices have been smart meters, which the Australian Energy Market Commission wants fitted to every home in the country by 2030.

According to Ms Gallagher, the push towards “cost-reflective” electricity prices such as time-of-use rates made sense on many levels.

As an example, she pointed to “the experience of air conditioners”, the spread of which had been helped by flat electricity prices which did not reflect how much pressure the appliances put on the grid when used at once.

She said the uptake of electric vehicles would put similar – arguably much greater – pressure on the grid if owners tried to charge their cars at the time.

Informed consent vital: AER

In such circumstances, she said it was important to be able to send price signals to consumers, but only so long as they had choice and were properly informed.

“You don’t want to repeat the experience of air conditioners with electric vehicles,” she said.

“In other words, there’s no indication of when it’s more expensive to use energy or when it’s cheaper to use energy. So the policy makes sense.

“The real issue comes down to what the experience of customers are when they’re choosing or when they’re faced with a retail tariff.

“What choice do they have? And can they benefit from it?

“If they can’t benefit from it, they should have the option to have a flat rate tariff.”

The comments come on the heels of criticism levelled at pricing reforms by consumer advocates and a former long-serving energy watchdog.

Ron Ben-Davd, who ran Victoria’s Essential Services Commission for over a decade until 2019, said regulators and parts of the industry were being driven by ideology in their pursuit of the changes.

And he was particularly critical of claims by the AER that the tariffs were more equitable than flat rates, saying “it’s not up to regulators to decide what is fair”.

“My question to them is ‘how do you know, how have you tested your own thinking so that you know that what you’re working towards is actually the right outcome’,” Dr Ben-David said.

“Or are you just doing it in some blind faith based on some sort of economic principles that were put in place 30 years ago?”

Energy Consumers Australia expressed similar concerns, saying “not every person on the street is an economist who’s going to respond to price signals”.

“Our worry is that not everyone can respond to these price signals,” said Jacqueline Crawshaw, a policy director at the lobby group.

“It’s not easy for everyone to change their behaviour to make the most of the new prices.”

Energy retailers on notice

Ms Gallagher agreed there was a fine line between sending consumers price signals and punishing them with costly tariffs they could not avoid.

She also said that time-of-use tariffs did not need to be charged to every customer to reduce costs in the electricity system and provide widespread benefits.

To that end, she noted electricity poles-and-wires companies were already able to charge retailers time-of-use tariffs that reflected the higher costs incurred by the network at busy times of the day.

It was up to retailers whether they passed on those variable rates to household customers, she said, adding that retailers were required to inform consumers and allow them to opt out in such circumstances.

She said the AER would be watching closely to make sure retailers upheld their obligations.

“In the best of all possible worlds, what you get is people who can benefit,” she said.

“That will be a proportion, some proportion, of households or small business can go ‘great, I’ve got an electric vehicle… I can use controlled load hot water, that gives me a benefit’.

“And everybody else doesn’t have to opt into that.

“Everybody else can just go about their life doing things the way they’ve always done them, paying a flat rate tariff.

“So you can actually make this work.”

But Ms Gallagher agreed that failing to adequately implement cost-reflective tariffs such as time-of-use rates risked undermining confidence in the broader energy system.

“That erodes everybody’s trust again, further,” she said.

“So I think we probably got some thoughtful work to do.”