Feb 21 2019

Time out for conditional discounting

Pay-on-time discounting practises in the energy retail sector have become the latest target of the federal government, who claim missed payments can amount to $1000 per household.

Energy Minister, Angus Taylor has announced a rule change submitted to the Australian Energy Market Commission (AEMC) that will see it “cracking down on sneaky late payment fees” for customers who sign up for such discounts but who then fail to meet the repayment conditions.

The Minister has claimed that customers who may only miss one payment due date can, per year, pay anywhere up to $1,000 more in New South Wales, $600 more in South Australia and $500 more in Queensland.

And the rule change itself, submitted to the AEMC this week, said analysis indicates the “cost to an average customer of not meeting a pay-on-time discount could be up to $755 per annum inclusive of GST (or an increase on an annual bill of roughly 50 per cent) which is clearly not representative of the cost to retailers from late payment.”   Whatever the true cost impact, it is clear that customers who have chosen to sign up to a deal with a high pay-on-time discount and fail to meet that condition will be paying more than they need to for their energy.

But how much of an issue is pay on time discounting and how many customers are on such schemes?

The Australian Competition and Consumer Commission’s Retail Electricity Pricing Inquiry found that on average one in four customers failed to meet the conditions to receive a pay-on-time discount and this figure increased to nearly 60 per cent for customers in financial hardship. Yet a significant number of customers – 75 per cent of customers based on the ACCC (up to 1 July 2017) - are able to enjoy the benefit of the discount.

The ACCC also noted its concern for the impact that missing a pay- -on -time discount has on a consumer’s bill, particularly for consumers in financial hardship, “as they are more likely to miss a bill due date and are less able to afford the penalty when this happens. 

Among its 56 recommendations, the ACCC ruled: conditional discounts should be no higher than the reasonable savings that a retailer expects that it will make if a consumer satisfies the conditions attached to the discount. Retailers should bear the onus of substantiating that the conditional discount is reasonable.

However the AEMC’s findings offer a more complex picture and the past 12 months has seen retailers start to change their pricing practises and simplify offers. These measures have included an increase in retailers offering ‘no discount’ plans; the introduction of fixed price plans and fixed bill plans; and a series of payment options including prepayment available in the market. In addition, following a series of meetings with then Prime Minister, Malcolm Turnbull, in September 2017, the largest seven retailers have been voluntarily guaranteeing to apply any pay-on-time discounts for customers experiencing hardship.

It is important to note that a significant percentage of offers available today contain conditional discounts, so it is critical that a thorough process is undertaken by the AEMC to determine if these proposed reforms are in the long-term interests of all consumers, and ensure there are no unintended consequences given a significant percentage of customers do benefit from the discounting. The Australian Energy Council’s position is that as with other retail industries, energy retailers have a number of different offers to suit the varied needs of their customers. Some offers have no discounts, others have guaranteed discounts and some are conditional. And while offers with conditional discounts are the cheapest, it is important for customers to have a look at the offer and make sure it’s right for their circumstances.

The AEC will work with the AEMC and other stakeholders as they progress this rule change, in conjunction with a number of other important reforms proposed by the ACCC.

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