A former long-serving energy watchdog boss has raised concerns about moves by the industry and regulators to shift people onto complex tariffs, warning they will punish vulnerable households and fuel inequality.

It emerged last week that big numbers of residential electricity customers were being switched to so-called time-of-use tariffs that charged them significantly more for power at peak times.

The trend has been pushed by regulators, including the Australian Energy Market Commission (AEMC), which say such "cost-reflective" tariffs will make the grid more efficient.

They also claim the tariffs are fairer than flat electricity rates, which charge people the same price for power no matter when they buy it from the grid.

But Ron Ben-David, who ran Victoria's Essential Services Commission for over a decade until 2019, said the regulators and parts of the industry were being driven by ideology in their pursuit of the changes.

And he was particularly critical of claims the tariffs were more equitable, saying: "It's not up to regulators to decide what is fair."

"My question to them is, 'How do you know, how have you tested your own thinking so that you know that what you're working towards is actually the right outcome?'" Dr Ben-David said.

"Or are you just doing it in some blind faith based on some sort of economic principles that were put in place 30 years ago with the micro-economic reform agenda of the 1990s?"

Market becoming 'incomprehensible'

The remarks came as Energy Consumers Australia — the peak body representing small- and medium-sized users — also sounded the alarm on the widespread shift towards complex pricing.

Jacqueline Crawshaw, a policy director at the group, said there might be a case for the wider implementation of time-of-use tariffs but it was being damaged by the way in which the reform was being handled.

Ms Crawshaw said there were "worrying" reports of people being moved onto the tariffs without proper warning or them understanding the costs and effects involved.

What was more, she said, there appeared to be a disconnect between regulators' assumptions and the reality of people's lives.

"Our worry is that not everyone can respond to these price signals," Ms Crawshaw said.

"It's not easy for everyone to change their behaviour to make the most of the new prices."

Dr Ben-David said there was little evidence to show that most people could change their behaviour and use more power during the middle of the day when prices were lower under time-of-use tariffs.

He said that while some people would have the ability and the willingness to change — such as those working from home or those with batteries and solar panels — many others would not have a choice.

Such customers could quickly find themselves much worse off, he said.

Worse still, he said the variation in time-of-use tariffs was part of a worrying trend towards ever more complicated contracts in the energy market.

He warned the market was at risk of becoming incomprehensible to many consumers, who he said were at high risk of losing out in such circumstances.

"We don't go shopping for products that make our lives more complicated. We go and buy things that make our lives simpler.

"So the problem we face is that as contracts become more complicated, as engaging with the energy market becomes ever more complicated, it might actually become beyond human comprehensibility to work out what's the best contract on offer for you."

Smart meters, dumb outcomes?

Underlying the shift to more complicated pricing has been the rollout of smart meters across Australia.

The Australian Energy Regulator (AER) has noted that almost 60 per cent of households in the national electricity market, which covers much of the eastern seaboard, has metering "capable of supporting" such tariffs.

Meanwhile, the AEMC wants smart meters installed at every home in Australia by 2030.

Figures provided by the Australian Competition and Consumer Commission (ACCC) showed the share of households on time-of-use pricing rose from 12.3 per cent in 2019-20 to almost 16 per cent in 2021-22.

This was driven to a large extent by a sharp rise in the proportion of households on the tariffs in South Australia and south-east Queensland.

Anna Collyer, who heads the AEMC, acknowledged the concerns about the effects of time-of-use tariffs on some households, especially vulnerable ones.

To address these, she said the commission had proposed new rules that would better protect consumers.

Among them is a requirement that retailers give at least 30 days' notice before changing a customer's tariff, provide an "estimate" of their historical bill under the new tariff and offer more support "on how to understand, monitor and manage" usage.

But Ms Collyer also extolled the benefits of smart meters, saying they were allowing consumers to reduce their power bills and making the system more efficient.

She also argued smart meters — and the changes they enabled — were a key part of efforts to decarbonise the grid.

"A number of Australians are already using smart meters to cut power bills, from those who have resources such as rooftop solar, to customers without solar who may be using smart meters to access cheaper tariffs," Ms Collyer said.

A spokesman for the AER said any consumers wanting to find out whether they were on a time-of-use contract should check the bill from their retailer.

Dr Ben-David questioned how many of the customers shifted onto time-of-use tariffs properly understood the risks inherent in variable pricing.

Under time-of-use tariffs, prices can vary wildly throughout the day – ranging from as little as 15 cents a kilowatt hour during off-peak times in the middle of the day when solar output is highest.

By contrast, prices can soar during peak hours in the afternoon and evening to 55 cents/kWh or more when solar production falls away.

According to Dr Ben-David, "there's nothing in principle wrong with time-of-use contracts", while smart meters promised to be a useful tool for better managing the grid.

But he said consumers should never be forced, cajoled or tricked onto time-of-use tariffs without retailers first ensuring those customers fully understood the risks and gave their consent.

"Regulators are certainly very keen on time of use tariffs," said Dr Ben-David, now a professorial fellow at Monash University.

"I'm not sure the evidence has been gathered, or the case has been made, that consumers will respond in the way that these time-of-use tariffs are designed to promote.

Energy equality 'on the line'

He said there was a real risk that in their pursuit of a move to "cost-reflective" retail rates, regulators risked making energy inequality much worse.

"We need to think very, very carefully [to be sure] that we don't create a two-speed energy market where there are some people who receive potentially very significant benefit out of the market while others are left holding the can," he said.

"Because, in the end, there is still going to be a very large energy system that needs to be paid for."

Ms Crawshaw from Energy Consumers Australia echoed the comments.

She said households under financial pressure were already much less likely to know the details of their power bills and would have the most difficulty responding to variable prices.

Of significant concern, she said, was the lack of transparency about the tariffs.

She noted that some households were not being notified about changes to their tariffs and the application of time-of-use rates for up to three months.

"I don't think people are going to be happy about that," Ms Crawshaw said.

"I wouldn't be happy if that was my household and suddenly I find out two months later that my price has changed."

Most importantly, Ms Crawshaw said no households should ever be forced onto time-of-use tariffs without a choice.

"Not every person on the street is an economist who's going to respond to these economic signals," Ms Crawshaw said.

"It's not how we live our lives.