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Watchdogs wary of energy discount deals

Consumer groups and regulators are warning householders to be wary of discounts being offered by Victoria’s energy retailers because electricity prices can change after they have signed up, undermining some deals.

Words by Derrick Krusche
 

Emma King, the chief executive of the Victorian Council of Social Service, said discount-based offers could be deceptive because they implied a price saving that may not really exist.

“The offers themselves may be good or may be bad. It’s hard to tell, because it’s never clear what the base price is – from which the discount is deducted – nor when, and by how much, the price might go up,” she said. “Nor is it clear how the discount is calculated.” 

The discounts – as much as 30 per cent for customers who source their electricity and gas from the same retailer and pay their bills by the due date – usually run for 12 months. But a closer look at these offers reveals that they usually do not lock in a guaranteed price from which the discount is deducted.

The energy companies counter that prices are set annually in order to protect customers from market volatility.

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“In Victoria, that usually happens in December, with any changes effective early in the New Year,” said a spokesperson for EnergyAustralia. “The tariffs set by each retailer reflect a range of factors including their outlook for prices across the year, market competition and the costs of marketing and running the business.” 

Origin Energy’s external affairs manager, Ryan Auger, said Origin notified its customers of any changes in the base rates of electricity prices. 

“Prices change over time, typically once a year,” he said. “Energy retailers, certainly Origin, will write to customers to tell them that they can expect a change in contract terms and a change in the cents per kilowatt hour, and we tell them exactly what their overall rate was and what their new rate is.”

EnergyAustralia also alerts customers to any price shift, which it advertises in major metropolitan newspapers.

However, Ron Ben-David, who chairs the Essential Services Commission, Victoria’s independent regulator of electricity services, said the fact that a retailer could change the price at any time was a peculiarity of the energy market.

He added that when electricity retailers altered their prices mid-contract, they were still supplying essentially the same power. 

“It’s just a financial adjustment – the product remains exactly the same,” he said. “So, what they are really competing over is how well they manage their financial exposures and how willing they are to shield customers from prices increasing even after a contract has been entered into.”

According to Ms King, most consumers are unaware of the prices they are paying for the gas and electricity when they view discount offers. For example, a customer could be receiving a 10 per cent discount on a base price that is still cheaper than a bigger discount that is applied to a higher base price. Or, Ms King explained, they could be on a higher unit price but pay a lower daily charge, meaning their overall bill would still be lower. 

Janine Rayner, a senior policy officer who specialises in energy at the Consumer Action Law Centre, echoed Ms King’s concerns around the promotion of discounts by energy retailers.

“We have a lot of concern about the disclosure of market rates. If consumers don’t have any idea what their discount is off, then they’re not able to compare or understand if they’re on the best deal for them.” — Janine Rayner, Consumer Action Law Centre

She said it could be very difficult for a customer to determine the underlying price on which a discount was being applied.

“We have a lot of concern about the disclosure of market rates,” she added. “If consumers don’t have any idea what their discount is off, then they’re not able to compare or understand if they’re on the best deal for them. And there’s no transparency in the market around the basic conditions.” 

As well as pay-on-time deals, discounts can also be tied to how much electricity is used and whether customers choose to pay their bills via direct debit. Price freezes can also apply to some contracts.

Victoria’s electricity market is crowded with more than a dozen retailers, although three – AGL, EnergyAustralia and Origin – dominate. Dr Ben-David said the “big three” directly and indirectly (through the ownership of smaller companies) enjoy a market share around 70 per cent. 

The three all include disclaimers in their sales literature, warning customers that the base price could change after signing up to a deal. 

An advertisement for the “AGL Savers” deal, offering up to 28 per cent off usage charges, carried a small disclaimer that stated the contract included “variable rates, which can change at any time with notice to you”. EnergyAustralia’s “Flexi Saver” deal advertised a 21 per cent “pay-on-time” discount, adding that “your rates may change, but your discount percentage won’t change during the benefit term”. Origin Energy’s “Origin Saver” plan stated under its terms and conditions that discounts would apply to new usage charges should prices change.

“Energy retailers, certainly Origin, will write to customers to tell them that they can expect a change in contract terms and a change in the cents per kilowatt hour, and we tell them exactly what their overall rate was and what their new rate is.” — Ryan Auger, Origin Energy

“The problem for you, as a customer, with all of this is that once you’re on a contract and the retailer starts changing the prices you pay, you have no way of verifying whether you’re really still receiving the promised discount,” Dr Ben-David said.

Typically, power providers also inform customers that at the end of the contract period — typically, 12 months — they will be placed on a new plan that could involve different prices.

But Ms Rayner said more often than not the customer was usually not aware of this fine print.

She was also critical of “pay-on-time” discounts, claiming they could amount to a de facto “late fee” for some customers unable to meet the payment deadline.

In Victoria, electricity companies are forbidden from charging fees for late payment of electricity bills. 

“Consumers make decisions thinking they can change their behaviour to receive an offered benefit, when in reality . . . they can’t commit to paying their bills on time,” she said.

“We consider this an issue particularly for our low income and vulnerable clients . . .  The majority of energy customers can experience a period of vulnerability, for example, an illness, a job loss, or a relationship breakdown, and this can impact on their ability to pay a bill on time.”

Origin’s Mr Auger said that the price deals being offered were a way that retailers could differentiate themselves in the market, but was Origin’s quality of service that ultimately allowed it to retain customers.

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“One measure of competition is the rate at which customers change providers, or churn,” he said. “The last [Australian Energy Market Commission] report that I saw suggested that about one-in-four customers will change their electricity retailer every single year. So, that’s a fairly high rate of churn and it’s one of the indicators of a fairly competitive marketplace.”

The spokesperson for EnergyAustralia also cited Victoria’s energy market as “one of the most competitive in the world.”

But Dr Ben-David disagreed that churn rates were necessarily a measure of competition.

“This claim is a fanciful myth perpetuated by the industry,” he said. “Good companies providing good services with genuine discounts to their customers should be driving switching rates down, not up.”

Dr Ben-David added that discounts were becoming increasingly conditional.

“Not only do you have to sign up, you have to sign up and pay on time or use direct debit, and so on. If you’re someone with a steady job, that’s no problem. But if you aren’t able to pay on time, you’ll lose your discount,” he said. 

According to Dr Ben-David, although the retail electricity market showed outward signs of competition, it was not necessarily improving outcomes for consumers. Unlike other markets, consumers did not have the option of walking away by no longer using electricity.

“Once you’re trapped in the market, you know you’re trapped – but so do the retailers. Therefore, they’ve immediately got an advantage over you as a customer. And every retailer knows that every other retailer has that same advantage. So, yes, they do compete – but the normal forces of competition aren’t anywhere near as strong as in other markets.”  

As a result, Dr Ben-David argued, electricity retailers had little incentive to improve their services. “You’ve got a situation where, rather than companies competing to be the best, they compete not to be the worst.” 

Regulating advertising to make energy deals more transparent for consumers presented a challenge for authorities, according to Ms Rayner, with the energy companies, rather than consumer advocacy groups, getting most complaints or feedback. 

“Not only do you have to sign up, you have to sign up and pay on time or use direct debit, and so on. If you’re someone with a steady job, that’s no problem. But if you aren’t able to pay on time, you’ll lose your discount.” — Ron Ben-David, Essential Services Commission chairman

When advertising, electricity companies are bound by guidelines developed by the Energy Retail Code, which in turn relies on retail pricing information guidelines established by the Australian Energy Regulator. New guidelines were implemented on February 1, requiring companies to provide consistent language across all products such as bills, advertising material and contracts. 

The State Government claims to have added further protections for consumers in The Energy Legislation Amendment Consumer Protection Act 2015, which bans the use of exit fees if any key term varies in a contract, including on discounts and tariffs. This means that — should prices actually rise — consumers can walk away from a deal.

Ms King welcomed the amendment but added: “People still need to know that they should periodically check their energy price to see whether it has changed”. 

The Australian Competition and Consumer Commission has also been monitoring advertising by energy retailers. Last year, Origin and AGL South Australia were fined after the Federal Court found Origin advertised misleading discounts and AGL failed to inform customers about a price change.

The Victorian Government has also established a website to better inform consumers, Victorian Energy Compare, which rebranded itself in November from Switched On.

Ms King said it was the only site she was aware of that listed all available offers and gave genuine comparisons. 

“People just need to be aware that prices can, and do, go up from time to time,” she said. 

Despite concerns about price rises, the EnergyAustralia spokesperson said that this year the company’s customers would pay about four per cent less for their power, an average annual saving around $77.

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“Origin and AGL announced similar messages – their electricity prices also decreased by 1 per cent and 4.5 per cent respectively,” the spokesperson said.

Apart from comparison websites, a New Zealand-based company is in the final stages of developing an app aimed at helping power users determine the best electricity deal based on their actual history of consumption. 

Tim Rudkin, the chief executive of Saveawatt, said the app, named Frank, would be able to consider when and for how long consumers were absent from their homes or using high-energy appliance such as air-conditioners. 

“Frank will learn how your house has used power and will learn how your house continues to use power,” he said. “A comparison website is based on you, as a consumer, constantly checking to see if your deal is still right, whereas Frank does that for you on an ongoing basis.”

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