After a busy Saturday morning, the Turners are home and powering up.

The heating is on, there’s washing to be done, and there are children to feed and entertain.

This family of five uses a lot of power.

So when their retailer AGL said their electricity bills were about to almost double, it was a huge shock.

“I thought to myself, you know, we’re in a cost-of-living crisis,” Mr Turner said.

Will Turner was told he was being moved onto a regulated default electricity price offer.

On that same day, he read AGL was expecting to double its profits, so he took to social media to vent his frustrations.

“I just felt there was a real lack of balance to what I was observing — a whopping huge price increase on the one hand, and then AGL telling its shareholders, you know, ‘It’s going to be a great year ahead, we’re going to make hay while the sun shines,'” Mr Turner said.

“And I’m like, well, the sun’s not shining on us. I just couldn’t believe it.”

So-called default electricity price offers are set by the regulators each year. They are supposed to act as a safety net for customers and as a benchmark price.

The increases are calculated based on what it costs retailers to provide us with electricity.

Households on the east coast and in South Australia are reeling after the biggest increase to default offers since they were introduced in 2019, up an average of 20 to 25 per cent.

Mr Turner’s bill increase was set to be much bigger, about 80 per cent, because he had come off a much cheaper electricity market offer from two years ago.

“The main thing they said was, ‘We don’t have a better deal for you than that.'”

‘They’re paying more than they need to’

Default offers are also supposed to drive competition because about 90 per cent of customers are on unregulated market offers.

Market offers are often cheaper but retailers can also charge more.

The Australian Competition and Consumer Commission (ACCC) has found the gap between those benchmark prices and market offers has been shrinking.

A new analysis of electricity bills by the ACCC has found millions of Australian households are paying more than they should.

“There are millions of customers who are paying at or above the government-set safety net price,” ACCC commissioner Anna Brakey said.

“[Of those], there are more than a million customers paying more than the safety net price. That means they’re paying more than they need to.

“It’s important that they ring their retailer because they have a right to that government-set safety net price. They need to pay that at a maximum.”

Sarah McNamara, the chief executive of the Australian Energy Council, which is the peak body for electricity retailers, said the ACCC’s analysis of electricity bills was not evidence of price gouging.

“I think it’s evidence that retailers are struggling to maintain really cheap market deals everywhere all the time at the moment,” she said.

“There’s a very tough economic environment for retailers to operate in.”

Former energy regulator speaks out

The man who was once in charge of Victoria’s energy regulator for a decade, Ron Ben-David, said the regulation of electricity prices was failing consumers.

He said the default offers were never supposed to be the best electricity deals available.

“The rules of the market that we’ve created allow retailers to set whatever prices they want,” Mr Ben-David said.

“It’s a free market, but the way it’s been set up is the onus has been placed on the customer to shop around.

“And why should customers have to shop around for an essential service just to avoid being ripped off? It seems very unfair.”

Mr Ben-David said the problem started with the way regulators calculated default offers.

The former chair of the Victorian Essential Services Commission called out regulators for not acting in the interests of consumers.

He also said there was not enough transparency about the information used to determine the price increases.

“It’s very difficult to estimate a default offer because there just isn’t enough information available to the regulators,” Mr Ben-David said.

“Now, of course the regulators will do their best, they’ll use their models.

“But no regulator wants to put an energy company out of business by setting the default offer too low.

“So there’s a natural bias within the way the regulators set these default prices to the high side, in other words, favouring the retailer rather than the customer.”

Confidential and public data used to determine prices

The regulators did not make themselves available for an interview, but in a statement the Australian Energy Regulator said they relied on a “mix of confidential and public data” to determine the prices and had “sought to protect consumers from unjustifiably high prices”.

The Victorian Essential Services Commission (ESC) said it compulsorily acquired operating cost data information from retailers.

“The 2023-24 Victorian Default Offer reflects the Essential Services Commission’s careful assessment of all the costs involved in supplying electricity to consumers in an environment of higher wholesale energy prices. The commission has considered all stakeholder submissions in reviewing the 2023-24 Victorian Default Offer,” the ESC said in a statement.

Retailers insist cost hikes are justified

The peak body for electricity retailers, the Australian Energy Council, insists the steep price rises are necessary because of last year’s energy crisis which was driven by local coal-fired power station outages and soaring global energy prices that were prompted by Russia’s invasion of Ukraine and passed on to energy users here.

“Retailers need to be able to recover the costs of doing business or running their businesses from their customers. That’s just a fact of life,” Australian Energy Council chief executive Ms McNamara said.

However, Mr Ben-David, who set Victoria’s first default electricity offer in 2019, believes not all the costs regulators are passing on to consumers are reasonable.

For example, default offers also allow retailers to make a profit margin of 5 per cent in Victoria and 9 per cent in New South Wales, South-East Queensland and South Australia.

“If it is set as a percentage, if wholesale costs go up, for example, then the retailer makes a bigger profit,” Mr Ben-David said.

“Whereas if it’s set in dollar terms, then whether the wholesale market moves or not, the retailer’s profit margin is fixed in dollar terms.

“And that was hotly contested, but the regulators stuck with the percentage-based approach contrary to what the consumer groups were arguing.”

Default offers also include allowances for retail operating costs and customer-acquisition and retention work such as marketing.

Mr Ben-David said it was not reasonable that all those costs were passed on to consumers.

“If retailers want to market themselves, that should be funded out of shareholder funds because if they do a good job in marketing themselves, they will attract customers, and that’s how they recover their costs.”

Retailers have fought hard to stop the retail allowance from being reduced by regulators.

The Australian Energy Regulators’ most recent decision notes retailers warned that if the default market offer price was too low because of how the allowance and retail costs were calculated, this would negatively impact competition by leading customers to think they did not need to shop around for a better offer.

Powershop, which is owned by Shell, said there might not be enough funds for industry to invest in the innovation required to adapt to the current energy transition.

Retailers are also concerned some retailers might leave certain markets after several energy providers went bust last year.

Other retailers are doing much better. AGL, which is also a power generator, announced its annual profit would more than double in 2024, blitzing analyst forecasts, as it benefited from surging wholesale prices and fewer outages, sending its shares soaring.