The premise of a competitive energy market is simple: companies compete for your business, prices fall, and consumers win. That is the theory, at any rate. The practice, according to exclusive data reported by 7News, looks considerably messier.
Australia's three dominant energy retailers, AGL, Origin Energy, and EnergyAustralia, have collectively pocketed billions in profit even as households across the country confront some of the steepest power bills in living memory. The issue is not whether these companies are entitled to earn a return on their investment. Of course they are. The issue is whether the market structure enabling those returns is actually working for ordinary Australians.
The Loyalty Tax, Explained
At the centre of the 7News investigation is what consumer advocates have long called the loyalty tax: the premium customers pay simply by staying with their existing provider rather than switching. In a well-functioning market, loyalty should be rewarded. In Australia's energy sector, the data suggests it is punished.
The mechanism is not complicated. Energy retailers routinely offer sharp discounts and incentives to attract new customers, then allow those rates to drift upward once a customer is settled in. Switching is possible but requires effort, and many households, particularly older Australians or those without reliable internet access, simply do not get around to it. The companies know this, and their pricing reflects it.
From a free-market perspective, there is something genuinely troubling about that arrangement. Competition is supposed to discipline pricing. When it consistently fails to do so, either the market structure is flawed or the regulatory settings are inadequate. In Australia's energy sector, there is a reasonable case that both are true simultaneously.
The Sector's Defence
The energy companies are not without arguments in their favour. The transition away from coal-fired generation toward renewable sources requires enormous capital investment, and shareholders expect a return. AGL, Origin, and EnergyAustralia have all committed to substantial infrastructure projects in recent years, and those projects cost money. High profits in good years, they would argue, fund the investment that keeps the lights on in future ones.
There is also the matter of wholesale market volatility. Energy retailers buy power at fluctuating wholesale prices and sell it at retail rates, and the gap between those two figures is not always comfortable. Several smaller retailers exited the market entirely in 2022 during a period of extreme wholesale price spikes, leaving customers stranded and requiring government intervention to ensure continuity of supply.
Critics argue this only reinforces the case for stronger oversight. If the market is unstable enough that retailers can fail overnight, and profitable enough that the survivors are booking record results, something in the settings needs serious attention.
What Regulators Are Doing, and What They Are Not
The Australian Energy Regulator sets a default market offer, a price cap intended to protect consumers who do not actively shop around. The existence of that cap is itself an acknowledgment that the market, left entirely to itself, will not always deliver fair outcomes for passive consumers.
Consumer groups have argued the default offer is set too high, functioning more like a floor than a ceiling. The Albanese government has taken steps to address energy affordability through rebate programmes, but critics from across the political spectrum have questioned whether rebates address the symptom rather than the underlying structural problem.
The real question for policymakers is whether the current market design, inherited from 1990s privatisation decisions, is fit for a 21st-century energy system that is being rebuilt from the ground up. That is a harder question than any single rebate can answer.
What You Can Do Right Now
In the absence of structural reform, the most effective action available to consumers remains switching providers. The federal government's Energy Made Easy comparison website allows Australians to compare offers in their state. Consumer advocacy group CHOICE recommends reviewing your energy plan at least once a year, particularly if you have been with the same retailer for more than two years.
It should not require this level of active vigilance to get a fair price for an essential service. But until the regulatory settings catch up with the market realities that this investigation has brought into sharp relief, the loyalty tax will keep being collected, quietly, from the customers who never thought to ask why their bill keeps rising. Originally reported by 7News.