Gerard Brody, Consumer Action Law Centre CEO
Prime Minister Malcolm Turnbull summoned the chief executives of the nation’s largest power companies to Canberra today, insisting they provide relief from high energy prices for Australian households.
It is clear that the retail energy market is not working. Disparities between the best and worst available deal for the same amount of power can be as much as $1,000 a year. The penalty for paying a bill just one day late can be over one hundred dollars. If you go to the effort of finding the best deal, the fine print allows the retailer to up the price at will. This is a disgraceful situation.
By calling the energy retailers in, the PM has pre-empted an inquiry being undertaken by the Australian Competition & Consumer Commission, declaring that the community should not have to wait another twelve months for the ACCC to finalise its recommendations about how to make the energy marker work for consumers. For those thousands of Aussies with ever increasing energy bills, this is very welcome.
While the chief executives have committed to make some changes, the PM and his Minister for Energy Josh Frydenberg should talk not just to the companies, but to the everyday families and individuals struggling to pay their energy bills, and the services that advocate for them.
In my view, there are three actions the energy retailers should take now.
First, they should abolish late payment penalties which masquerade as pay-on-time ‘discounts’. Most energy retailers offer so-called discounts of between 10 and 30 percent conditional on on-time payment. ‘Discounts’ are the primary way energy retailers market their deals. Sometimes they apply to the full bill, but more often just to the consumption charges.
In reality, these are penalties imposed on those that can’t always pay their bill by the due date. And these hefty penalties can impact any of us. If an unexpected cost means that we can’t quite manage the electricity bill this month, even if we usually do pay on time, there will be no acknowledgement of this. Instead, we’ll find a massive late payment fee is applied in the form of a lost “discount.”
The retailers have committed to not apply these penalties to those that are part of their energy retailer’s hardship program. This is very welcome, and will benefit those in severe financial difficulty. However, less than 2 percent of customers are on formal hardship arrangements. These late payment penalties are fundamentally unfair, and should be removed for all customers.
Second, retailers should do more to fix the unfair ‘loyalty tax’. Most contracts offered by the big retailers are ongoing, that is, they do not have a fixed period. But they do have ‘fixed benefit periods’.
‘Fixed benefit periods’ are a tricky way of charging the most loyal customers more. At the end of the period, usually one or two years after you sign-up, any tariff benefits expire. This means that you can find yourself on one of the highest tariffs available. This is the ‘loyalty tax’—stick with your retailer and you’ll pay more for your loyalty.
The Australian Energy Market Commission recently found that around half of us haven’t switched energy retailer for five years. This is another way of saying that half of us have remained loyal. Instead of charging a loyalty tax, the retailers should reward their loyal customers with the best deal they offer.
As part of today’s commitment, the retailers have promised to write to all customers whose benefits have expired and tell them about the availability of other plans, and the cost impact of not switching. Again, this is welcome. However, this still places the burden on the customer to shop around. We should be expecting the retailers to compete by offering all their customers the best deal they can.
Third, retailers should commit to not changing prices and terms at will, and instead offer us certainty. The primary role of an energy retailer is to manage the risk of wholesale prices on behalf of their customers—prices in the wholesale market vary significantly to manage demand. Contractual fine print that allows retailers to increase prices as the wholesale prices increase means they are not even performing this fundamental duty.
In the last week, the media has reported that the big three retailers have stopped offering fixed-rate plans. This is a breach of trust—households should expect that retailers are offering them certainty in their electricity and gas prices, especially at a time when underlying costs are rising.
While the outcomes achieved from the meeting between the PM and retailers today are a positive start, there is much more that needs to be done to make energy pricing simpler and fair. After all, energy is an essential service—unlike other goods and services offered in the market, you can’t choose not to consume it. It’s for this reason that we should expect more from this privileged industry.
This piece is available for republishing.