One Big Switch or One Big Con?

As a mother of five children in a family with one breadwinner, I am a huge fan of people banding together to get a better deal. I’ve enjoyed the benefits of group buying through organisations like Scoopon, so I thought it was fantastic when I saw that thousands of people were getting cheaper gas and electricity prices by banding together as part of One Big Switch. 

I’d recently signed up on a pretty good deal with Red Energy, but decided I’d be a fool not to check out One Big Switch to see if I could get an even better deal. When I received the rates they were offering me, I pulled out a couple of old gas and electricity bills and calculated what each bill would have cost me through Red Energy and then through One Big Switch. I’m sorry to say that the deal I got through One Big Switch was no better. One Big Switch was $20 cheaper on the gas bill, but Red Energy was $20 cheaper on the electricity bill.

This amazed me. Surely thousands of customers banding together should get a better price than what I can on my own. Apparently not! I was also told by an acquaintance who used another power company that they called their power company and told them about the deal One Big Switch was offering, and it was matched without a problem.

Don’t get me wrong, I think One Big Switch is great for people that couldn’t be bothered shopping around for the best deal, but they’re not giving any better deals than what I secured on my own. If you read their ‘About Us’ page you’ll see that they are a ‘for profit business’.

Where do they make their profit? Do they receive commission or a fee from the retailer for each new account that they sign up?

I found an interesting document on the Reserve Bank of Australia Freedom of Information website about how electricity prices are set in Australia.

As per the document, ‘Electricity retailers are those businesses that sell electricity directly to the general public. The prices they can charge households and small businesses are limited by price controls imposed by state regulators (except in Victoria, which removed its retail price controls in 2009). The prices are set so that electricity retailers can recover what the state regulator deems to be the costs an ‘efficient’ retailer would expect to incur in the period for which the cap applies. Each electricity retailer must submit an application to the state regulator outlining its expected costs for the period ahead. The regulator has the discretion to amend the proposed costs if it does not believe they accurately reflect future costs or they have not been calculated correctly. As well as recovering these costs, retailers are allowed to make a ‘reasonable’ margin – ranging from 3 to 10 per cent, depending on the state.’

This explains why Victorians pay so much more than other states – there are no retail price controls. I have no doubt that the person that made that decision wasn’t struggling to live on a pension or feed a family on a low to middle range income.

As for the other states, assuming the electricity retailers all have similar costs and the state regulators are familiar with what their expected costs should be, the retailers are only going to drop their profit margin so far in the price war to get your business. They’re not going to lose all of their 3–10% profit to gain your business – it wouldn’t be worth it!

I don’t want to detract from the good that people power can achieve. There should be more of it, especially if it results in the reduction of corruption or greed, or it help others get a fair go.

But just because something is spruiked on Today Tonight as a great deal, doesn’t mean it’s the best deal for everyone. If you recently entered a two or three-year contract with an energy retailer and One Big Switch is offering you better prices, check what the penalties are for breaking your current contract. Do the savings outweigh the penalty fees?

Better still, call your current power supplier and ask if they’ll match the deal that One Big Switch is offering.

A ‘Sale’ sign doesn’t always mean you’re getting a better price.

A pine furniture store I bought some drawers from had a closing down sale. The same drawers we’d bought a few months earlier for $450 were being sold in the ‘clearance’ sale for $460. Our local shoe shop has had the same ‘sale’ sign in their shop window for the last five years.

And many power companies are offering you the same cheap rates. It’s just well hidden in the way they offer different rates for service to property, mj and kwh usage, and then different levels of discount for prompt payment. Ten minutes of homework by applying the offered rates and discounts to an old bill can help you see what you’re really being offered and it might save you some unnecessary penalty fees. If they're still not giving you a better deal, ask for it!