RIESGOS DE SEGUROS

We sought respondents‘ views about the extent to which NSW electricity and gas customers are aware of their ability to choose retailers and switch from standard to market contracts. We asked retailers about their experience in approaching NSW customers and the willingness of customers to switch. In addition, we asked retailers their views on what are the drivers of, and barriers to, customers switching.

To gain insights into the evolving nature of the NSW retail energy markets, we sought views as to whether there have been any changes in switching trends during the time they have been active in NSW.

An important issue for this AEMC review is making recommendations about appropriate regulatory options. With this in mind, we asked retailers whether there are any types of customers that may have less access to market offers or are viewed as being less desirable customers by retailers.

5.1 Customer awareness in electricity

5.1.1 Awareness about ability to switch

The general view of respondents is that NSW customers have a reasonable to high level of awareness about their ability to switch electricity retailers and contracts. Although awareness is considered to be reasonable, nine respondents did say that customer awareness in NSW has some way to go and could be improved. Some of the small retailers said that they did encounter customers who are not aware of their ability to switch retailers and some who did not know the name of their retailer. These retailers said that some customers seem to ―bundle‖ up all the retail brands together because they all seemed the same.

A common view held by respondents is that customer awareness in NSW has increased significantly in the past two years.

The key reason given for this increased awareness is that the large increases in electricity prices experienced by customers in NSW has resulted in greater media and political attention. Many of the respondents commented that recent traditional and social media attention, and policy reforms have increased awareness about retail competition. Several respondents noted that the privatisation of the NSW State-owned retailers has increased customers awareness levels. In particular, news that the NSW Government no longer owns the electricity retailers raised consumer awareness about being able to shop around to get a better deal.

The One Big Switch campaign was cited by several respondents to have helped raise the public profile of competition and of the potential savings by entering the market. As one respondent commented:

...the constant messaging from governments, regulators and also campaigns like One Big Switch pushed by News Limited...probably have raised that [consumer] awareness. The media played a good role [in raising awareness].

Another similar view expressed was:

…One Big Switch, that whole campaign. If anyone wasn‟t aware of it before then, they were aware of it after it...that‟s gone a long way to educate customers about their options and their ability to choose a retailer.

Another retailer said that the Federal Government‘s increased focus on electricity prices and the introduction of a carbon price has prompted increased customer awareness. In

particular, the carbon price has encouraged people to search for information on the internet and has led them to find electricity price offers from retailers.

Quite a few respondents consider that the increase in activities of retailers using direct marketing channels such as telephone sales (‗telesales‘) and door knocking has also been very effective at raising awareness. The view was that these direct forms of marketing stimulate a conversation with a customer which leads to the customer thinking about their current energy supply. In particular, several respondents said that the recent increased door

knocking activity of the big retailers has particularly raised awareness of retail competition in NSW.

During the interviews respondents often referred to the increased intensity of the door knocking activities of retailers in NSW. We were told that:

There wouldn‟t be many customers in NSW that wouldn‟t have been door knocked probably a dozen times in the last 12 months.

Several retailers commented that awareness in regional areas has improved in recent years. This increase was attributed to increased door knocking as well as well as the privatisation of the State-owned electricity retailers.

In was generally considered that consumer awareness in NSW lags behind Victoria. It was suggested by several retailers that a key reason for the greater awareness in Victoria is because all sectors of the Victorian electricity industry have been privatised for a

considerable length of time (15 years) and the idea of competition is well entrenched in the minds of Victorian customers where there has been active retail competition for 10 years.

5.1.2 Willingness of customers to switch

Retailers are of the view that NSW customers are at least willing to have a conversation when they are approached by a retailer. Customers are willing to switch if the offer being made is attractive to them. One retailer made the point that the willingness to switch is very high once customers understood there is no risk in switching. That is, once they have overcome an ‗initial hesitancy‘.

Another retailer made the point that customers have experienced significant electricity bills in recent years - with some experiencing a doubling of electricity bills over a short period of time. Therefore, there is a perception by customers that electricity is becoming expensive. This perception is making customers more open to switching retailers.

Several retailers referred to the recent rise in churn rates during the past 18 months as evidence of an increased willingness of NSW consumers to switch retailers. We were informed that as at December 2011, 50 percent of NSW customers were on market contracts. This was up from 30 per cent the year before.

We were told by several retailers that the business sector was particularly willing to switch and looking for ways to reduce their energy bills. As evidence of this willingness, one retailer that was not active in NSW said that it was receiving calls from businesses in regional NSW that are keen to get better deals. This was occurring through word of mouth from one business to another business.

We asked whether there are any differences in customer willingness to switch on the basis of location (urban, regional or rural) or customer type (residential or business). From the responses given, there is does not appear to be any discernible difference in the view of the retailers. Similarly, when asked about differences between customer segments the common view was that there is not a significant difference.

A typical view as stated by one retailer:

Not significantly different, domestic versus small business. ..Small business are very cost conscious…small businesses are absolutely just as competitive and switching rates are very similar to residential customers.

The view was presented that electricity has traditionally been a ―low involvement‖ and ―low engagement‖ product for consumers. Consequently, the ―push‖ activities of door knocking and telesales are heavily adopted in the industry.

However, quite a few retailers said they are seeing an increasing trend in customer

researching and switching online. This trend is an indication that customers are becoming somewhat more engaged than in previous years.