The energy trap you need to avoid

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There are lots of things wrong with the Australian energy market right now, but arguably the biggest issue is around confusing pricing. The facts will be right there in front of your eyes, but unless you know what you’re looking at, you could end up paying way more than you need to.

We’re talking specifically about market offer energy plans with standing offer prices. Or even prices much higher than the retailer’s standing offer. Not used correctly, these plans can be a costly trap.

Energy price factsheets

OK, let’s back-up a bit and explain. When it comes to comparing energy offers, you absolutely must review the energy price factsheets published by the retailers. They are required by law to make these factsheets accessible, though some are easier to find than others. When you find a plan you’re interested in, take a very close look at the corresponding price factsheet and review the full details behind it. These factsheets must provide all the information relating to that plan, from tariff pricing to conditional discounts and fees and charges. They hold all the secrets to the retailer’s intentions.

Comparing usage and supply charges is the best way to determine just how cheap or expensive an energy plan truly is. The problem is that electricity plans in particular have been made overly complicated by conditional discounts. These discounts are used as a marketing tool by retailers to attract new customers to certain plans. Depending on your state, you will find discounts vary from as low as 1% all the way up to 40%.

What’s the problem?

The problem is that these discounts could simply mask extremely high base rates. Not always, but quite often – some retailers are more transparent about their costs than others. You could sign up to a plan with a huge discount offer, but still end up paying more than someone with a very modest discount on their plan.

In many cases, the base rates applied to these big discount energy plans will be higher than the retailer’s standing offer rates. Even some plans with fairly modest discounts will have very high base rates. Canstar Blue constantly reviews electricity price factsheets and has found examples of base rates on market offers being 10% higher than the retailer’s standing offer prices. There are likely even more shocking examples. Some retailers clearly declare this, but others don’t.

Standing offers are default energy contracts that retailers must provide wherever they operate. They have no contract period or exit fees, but do not provide any opportunities to save through conditional discounts or other incentives. In most cases they will work out more expensive than market offers, which often come with cheaper rates and discounts. In many cases, big discounts will simply be off the retailer’s standing offer prices, which is fairly reasonable. But you will also find examples where usage and supply charges are higher than standing offer rates, before any discounts are applied.

The danger of retailers having extremely high base rates on market offers is that, if you fail to stick to the conditions of the discount, you will be left paying the full, non-discounted rates. In addition, some big discount offers only last for 12 months, after which you will start paying full prices.

The ultimate trap is that you sign up to a huge discount offer and revert back to the full rates when the benefit period ends. The energy companies surely bank on customers doing this. If not, wouldn’t they just provide cheaper base rates to begin with and take away the confusion of discounts? To be fair, some do.

What can you do?

Not all big discount energy offers are a trap, which only adds to the confusion. Some plans with big discounts genuinely will result in cheap overall costs. To make sure you don’t end up paying more than you need to, be sure to compare market offer prices alongside the retailer’s standing offer charges. If the market offer prices are higher than the standing offer rates and there is not a huge discount to offset the difference, you’re probably not going to be getting a very good deal. Even if there is a big discount, you should still think very carefully about whether it’s the right offer for you, especially if you’re prone to paying bills late, which could mean you fail to meet the conditions of the discount.

Energy plans that offer both competitive rates (i.e. cheaper than the retailer’s standing offer prices, or at the very least the same) and also bring a good discount are likely to result in the cheapest overall deals.

The take home message is that getting to know energy price factsheets and usage and supply charges is the key to getting a better energy deal. Once you get to grips with these, you stand to save.

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