Electricity Prices: Don't Trust The Percentages

If someone tells you that you can save 16 per cent off your electricity bill, you'd almost certainly be tempted. But don't let laziness make you sign on the dotted line just because you hear that figure. It's almost impossible to make blanket claims about power prices, and the only way to be sure is to do the hard work on the calculation yourself.

Picture by Justin Russell

Last night's episode of Media Watch on the ABC performed a detailed analysis on the Big Switch campaign which has run recently on Channel Nine and in a stack of News Limited papers. In simple terms, the campaign promised that if enough people signed up to use the One Big Switch comparison site, the company behind the site would be able to negotiate significant discounts from electricity providers.

After signing up more than 200,000 customers, One Big Switch claimed that the service would be able to offer discounts of 12 per cent on Queensland, 15.5 per cent in South Australia, 16.5 per cent in New South Wales, and 18.5 per cent in Victoria. (As we've noted before, electricity pricing varies widely between states because of the history of power generation in this country, while Western Australia and the Northern Territory don't have the option to switch power providers in most instances.)

Media Watch fully analysed the TRUenergy plans offered by One Big Switch for NSW — more specifically, for Western Sydney — and noted several elements of the plan which the breathless hype of the campaign tended to ignore:

  • The discounts on the plans don't apply if you're late paying the bill.
  • While you sign up to a contract, the rates aren't fixed throughout that contract.
  • The per kilowatt rate charged by TRUnergy is higher than the "regulated market rate", meaning that its savings comparisons are exaggerated compared to many of its rivals.
  • If you use off-peak electricity (a common option for water heaters), the TRUenergy plans are much more expensive.
  • Despite claiming in a headline that NSW consumers could save 16.5 per cent, the Daily Telegraph told Media Watch the saving for consumers in many scenarios would be 14.5 per cent. The shows' own calculations suggest 11 per cent for some users, and no savings at all for others.
  • One Big Switch receives a commission of between $60 and $135 per account that switches. That alone should make you want to double-check its calculations; its main motivator is to sign you up, not to help you.

Check the Media Watch site (linked below) for the full analysis. While the specific details of the plans would differ in other states, that last vital point — One Big Switch receives a commission — remains true throughout.

None of that means that switching electricity providers is a bad idea. In a competitive market, staying with the provider you have out of habit will often prove expensive, as we've seen with mobile phone plans and internet service providers. But just as you shouldn't jump to a phone plan that costs $49 a month without working out if you'll actually use the value in that plan, you shouldn't change power providers just because an analysis suggests you "could" save a large percentage of your bill. Claims about electricity pricing often have a secondary motivation, whether that's to score political points or to persuade you to switch providers.

Unfortunately, we don't have an equivalent to the forthcoming Telecommunications Consumer Protection Code for mobile phone pricing in the electricity market, so you'll have to analyse your bills and usage patterns yourself. It's obviously tempting to ignore all that and let a comparison service do the "work" for you, but without knowing what you already use, it's effectively impossible to calculate if you'll be better off.

Always read the fine print [Media Watch]

Lifehacker's weekly Loaded column looks at better ways to manage (and stop worrying about) your money.


Comments

    Switching plans would be great if the area you lived in had more than one provider, we just have to suck it up, we're screwed.

      This is awesome! Thanks for highlighting it, I didn't see it on Media Watch last night but will watch it now.

      Back in the day, I worked with a major electricity retailer on their pricing strategy. The problem is that every meter type within every zone within every state has a different tariff (potentially several tariffs, in fact, for each stage of the day). % Discounts apply off those tariffs, but sometimes only to certain components of the tariff. It's near impossible to compare. Your best bet is using the government funded tools, since you know you aren't being squeezed for commission:
      http://www.yourchoice.vic.gov.au/
      http://www.qca.org.au/comparator/index2.cfm?mode=start

      Commissions suck. I'm trying to build trustworthy, reliable comparison at Prosple that is both free and commercially viable. I'm landing on an advertisement model, where all products are compared fairly, but advertisers have an opportunity to highlight their search result for a fixed monthly cost (ie no commission). Do you think that is more transparent, Angus? Or would you prefer to pay for quality, reliable, independent comparison? It's a tough one.

      Cheers,
      Rob
      Prosple.com.au

    I considered a price reduction, but I forget who with. Main thing is that you agree to a three year plan and pay your bill on time. Now, I was thinking that I might be unemployed in that time and I sometimes string out my utility bills to next week or whenever I can pay so I'd be screwed in a plan.

    I had my electricity plan with lumo energy compared over the phone and with 15% discount on the whole bill they could not find a better offer for me in S.A. A lot of these comparison sites only suggest what is beset for them.

    I've seen a few billboards advertising 2-year fixed rates from different power companies, does this mean they're expecting to see prices fall (possibly due to new regulation) in the next year or so, and want to lock us in to current rates?

    Don't use energy Australia bad customer service. My previous bill was $89 my recent one was a wopping $714!!! No Internet used heating for only 2wks 2 hrs every night and put away as it was warmer I couldn't cook for a good two months due to stove beig broken and before that I hardly cook anyways. Just me and my baby at home. Tried to get them to help but can't dispute it as its what the meter reads. I'm I feel so helpless as I know it's impossible for me to get it this high. Took it to EWON as they refused to cooperate with me to solve this matter. Any advice would be apreciated thanks

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