Electricity retailers break up with customers

At least ten electricity retailers have told their customers that a huge price increase is on the way. It’s so big that many of these retailers have advised customers to find a cheaper deal elsewhere. It’s one more example of how severe the looming energy price surge is.

As of 16th June 2023, the retailers telling their existing customers to leave to avoid future high prices or have customers transferred away (to a Retailer of Last Resort) includes:

1. Discover Energy
2. Electricity in a Box – rate increases of ~90%
3. Elysian Energy (customers transferred to Retailer of Last Resort)
4. Enova Energy (customers transferred to Retailer of Last Resort)
5. Future X Power
6. Glow Power – rate increases of up to 400%
7. Locality Planning Energy – rate increases of up to 150%
8. Mojo Power (customers transferred to Retailer of Last Resort)
9. People Energy (customers transferred to Retailer of Last Resort)
10. Pooled Energy (customers transferred to Retailer of Last Resort)
11. QEnergy (customers transferred to Retailer of Last Resort)
12. Powerclub (customers transferred to Retailer of Last Resort)
13. Powerdirect (customers to be transferred to AGL from 15th October 2022)
14. ReAmped Energy – rates “could even double”
15. Social Energy (customers transferred to Retailer of Last Resort)

It’s not you. It’s me.

The issue lies with the retailers’ ability to deal with the unprecedented market situation. Retailers were left exposed if they hadn’t bought sufficient forward energy contracts to cover the coming 12-months BEFORE the price exploded. Now, the only contracts available are astronomically expensive – which leaves customers likely to pay potentially double their current electricity rate.

So why are electricity retailers asking for customers to leave?

In recent weeks ReAmped Energy, Discover Energy, Locality Planning Energy and Electricity in a Box have advised customers to shop around for a better deal, because their pricing is about to dramatically increase. It wouldn’t surprise us if more retailers do this in the coming weeks in the face of massive price increases.

There are three reasons why electricity retailers are breaking up with customers. 

First, if customers remained, the retailer would be obliged to purchase forward energy contracts to cover their usage. It is very likely many customers would leave within a month or two of getting high bills. As a result, the energy retailer would be stranded with contracts without enough customers to buy the electricity.

The second reason is the expectations created in the relationship between the customer and the retailer. They recognise that customers choose these retailers because they offer low-cost energy. Customers expected they would continue to receive low-cost energy. Of course, things can change unexpectedly. These retailers have decided that being honest about what will happen is the fairest thing. So suggesting it’s in customers’ best interest to go elsewhere gives them a chance to move on before the good deals evaporate. As at 6th June, twenty-seven retailers have pulled up the drawbridge and withdrawn their market offers. Fixed-rate deals are disappearing fast because only a few retailers can bring on new customers at guaranteed future pricing. As we get closer to July, there will be even fewer options and higher prices.

The third reason is that these retailers may be unable to supply electricity at the Default market Offer / Victorian Default Offer in 2022-23 without incurring significant losses. Any of their existing customers can request to be moved to these offers at any time and the retailer is obligated to support that request. The DMO/VDO acts as a limit on what customers can pay but only if they are already on it, or are aware of and ask to be moved to it by their retailer.

It was good while it lasted.

Undoubtedly, many Australians have benefited from these low-cost electricity providers over the last couple of years.

ReAmped in particular, had been a champion of cheap power rates. Every time they launched into a market, they consistently topped the cheapest list of energy deals. Customers made considerable savings. And that’s a good thing. But the course of a good relationship does not always run smoothly.

What happened behind the scenes.

Several ‘Robin Hood’ retailers benefited from falling electricity prices, passing on very low prices direct to customers. They were betting on low-cost renewable energy, consistently bringing down the cost of electricity. This trend has been the case for the last four years. For these retailers to provide customers with the very lowest prices, they bought the cheapest electricity in the short-term and spot markets. In contrast, most other retailers were hedging for longer-term stability, which comes at a higher price. Ultimately, customers of retailers with more stable pricing end up paying more.

This strategy works when the market is falling. But there’s a big problem when electricity market prices increase – particularly if it happens too fast to shift the strategy.

Are small retailers a riskier choice?

The answer is no. Any retailer can choose to adequately hedge to provide stable pricing into the future for their customers. Small retailers can do this too. As a customer, it makes sense to benefit from lower prices and better offers in the market. Importantly, you are free to move to another retailer if things change from what you expected – so there’s no risk to you.