Regulators crack down on “dodgy” energy discounts

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Big energy discounts could be about to get a little less confusing, with industry regulators introducing a new rule that will see providers banned from offering discount deals based on higher rates than their standard pricing.

Under the new rule, introduced by the Australian Energy Market Commission (AEMC), retailers could be fined up to $20,000 if they are found to be offering customers discounted deals that are not as beneficial as they seem.

Currently, most electricity retailers provide some form of conditional discount applied to their standard pricing. However, some retailers have been applying their biggest discounts to plans with usage rates even higher than their normal pricing, meaning customers are often left paying more than expected.

In addition to the new rule, the AEMC has also recommended strengthening the Australian Energy Regulator’s (AER) ability to enforce exactly how power retailers present their offers to consumers.

AEMC chairman John Pierce said the rule would now prevent retailers from inflating the base rate from which they applied the discount, which made discounts appear bigger than they were.

“Discounting can work to benefit consumers as long as the details are properly disclosed,” Mr Pierce told Fairfax Media.

“But dodgy discounts deliberately designed to confuse consumers are not acceptable. Confusion around retail price offerings also means most consumers don’t grasp the opportunities on offer.

“That’s why it’s important to have rule requests like these – so competition in the retail market delivers for consumers.”

The rule will apply in New South Wales, South Australia, Queensland and the ACT, but won’t apply in Victoria as the state has a separate energy retail code from the rest of the National Electricity Market.

The rule change was flagged by the federal government in late December and will take effect from July 1. It follows a major electricity pricing report by the Australian Competition and Consumer Commission (ACCC), which revealed many of the industry’s discounting processes were problematic and confusing.

Federal Environment and Energy Minister Josh Frydenberg welcomed the reform, saying: “Big discounts on an energy offer can seem very attractive, but if the discount is only available because the price of energy is artificially inflated, the consumer can end up worse off.

“The new rule will prevent retailers from attempting to confuse consumers, providing them with the confidence that a discount is exactly that – a discount.”

Mr Frydenberg also pointed to other measures taken by the government to crack down on dodgy retailer behavior, including a rule change that requires retailers to notify their customers when their discounts are about to finish or change.

Could the move backfire?

While the new rule to prevent energy retailers from offering discounts on plans with rates higher than their standard prices has been welcomed by many in the industry – including some retailers – others have raised concerns about the move backfiring on overall costs to consumers.

Melbourne-based electricity retailer Powershop says some companies may simply drive up their standard rates as a result.

“Standing offers are often treated as a base rate for the purpose of applying discounts to market offers, but Powershop’s view is that introducing the concept of a ‘cap’ could lead to adverse outcomes for customers,” Powershop said in a submission to the AEMC.

“Powershop’s concern is that further regulating offers could lead retailers to increase their standing offer as a risk mitigation strategy to ensure that they do not breach the proposed rule.

“The impact of this risk mitigation could result in vulnerable customers on standing offers paying more for the electricity than they do today.”

In some parts of the country, as many as one in four households remain on standard electricity plans, including around 735,000 customers in NSW.

While many retailers market themselves based on big conditional discounts, such as paying on time or by direct debit, a growing number of providers are now marketing energy plans with no discounts.

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