In response to “Andrews Government accused of killing $1.6b benefit of tariff changes” (3/2/2016) in the Australian Financial Review:
Claims that the Victorian Andrews Government’s ‘backing away’ from cost-reflective or flexible electricity pricing will hurt the poor needs to be tested against evidence and experience. It is clear that cross-subsidies exist in electricity pricing – for example, it’s reported that those without air conditioning pay around $150 per year towards the grid costs of those with air conditioning. However, assuming that forcing significant pricing changes on consumers is both the fairest and most effective way to deal with this is incorrect.
Pricing economists that work in our national electricity markets regularly make significant assumptions about the likely consumer response to price signals. In contrast, research from the CSIRO confirms that energy consumers are not automatons that respond directly to price, but make decisions about energy consumption in a broader context of their need for the services and amenity that electricity provides. Moreover, CSIRO’s research found that households need help to effectively respond to pricing signals – social marketing initiatives, as well as technology, is likely to be beneficial.
In adopting an opt-in model to flexible pricing, the Victorian Government remembers the consumer backlash that occurred when smart meters were forced on the community. The additional cost imposed, without any explanation of countervailing benefit, resulting in a significant resistance in the community. No-one should want a repeat of that. Let’s hope the opt-in model the Government is now adopting provides the incentive to our energy suppliers to better communicate the benefits of tariff changes to the community.