ACCC submissions may prove energy price gouging

Andrew Munro 26 July 2017 NEWS

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Ombudsman: There is "mounting evidence" that SMEs are bearing the brunt of high energy prices.

According to the Australian Small Business and Family Enterprise Ombudsman Kate Carnell, submissions to the Australian Competition and Consumer Commission (ACCC) "confirm anecdotal accounts that small businesses are being gouged."

One of the most serious anecdotal accounts came from Printing Industries Association members, many of whom have reported widespread price hikes. One is close to its energy costs tripling from $120,000 to $360,000 p.a. after its current contract expires on 31 December 2017.

This business is not alone, with countless small- to medium-sized enterprises (SMEs) also reporting energy price hikes that threaten their business.

"The energy system is broken and needs to be fixed, but we can’t afford to see businesses close and jobs lost while governments and energy companies get their act together," said Carnell.

Are SMEs taking an unfair hit?

Although prices are rising across the board, the disparity between SME price hikes, and home and large business price hikes, is one of the most damning pieces of evidence behind allegations of deliberate profiteering.

"It’s totally unacceptable that energy-dependent small businesses like manufacturers and rural industries are being slugged more," said the Ombudsman.

Other SMEs have reached the same conclusion by doing their own analysis.

"They gloss over their own charges and dismiss them as being 'beyond their control'," said Melbourne-based Alba Cheese Manufacturing.

"They focus on the energy rate and blame energy suppliers for the cost increases... [but] analysis of electricity charges over the last five years shows that network charges rose by an annual rate of 25.9% over the period whilst energy charges rose 21.3% p.a.."

Submissions to the Ombudsman also expressed concern over complex pricing arrangements that make comparison difficult and make for a lack of retail competition.

Energy efficiency punished with price hikes

Many submissions also regarded disincentives to reduce consumption, with some SMEs reporting especially large price spikes shortly after reducing consumption or installing solar panels. It's an issue that has been raised before, with some saying that increased energy efficiency is actually driving prices higher.

When a home or business reduces their energy bill with solar panels or by cutting back on usage, it generally means their energy retailer is losing out on profits. Some energy retailers might simply raise prices to compensate.

One example of this may have come from the South Australian Wine Industry Association. A larger winery had reduced its energy bill by $120,000 a year by investing in solar panels and other efficiency measures, only to turn around and get slugged by a 160% price spike in its energy bill. This was equivalent to a quarter million dollar increase.

South Australian feed mill JT Johnson and Sons experienced a similar issue. After conducting major energy-efficiency upgrades with a $500,000 grant its energy costs skyrocketed anyway. Peak prices trebled from 6.4c to 19.3c.

Carnell has called for an industry code to provide minimum standards for energy retailers to meet, designed to provide a common basis for comparisons between offers, a minimum length of time to consider retail offers and requirements for greater transparency with billing.

The ombudsman has seen previous success with SME finance changes, and it's looking like those changes might have come just in time. With spiking energy prices now threatening more businesses, more SMEs may have to re-examine their financing to keep their heads above water until the storm blows over.

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