Big late fees and pay-on-time discounts set to be a thing of the past on electricity and gas bills

| 27.02,20. 09:13 PM |

Big late fees and pay-on-time discounts set to be a thing of the past on electricity and gas bills


Photo: Late fees will be capped at the "reasonable costs" incurred by an energy retailer. (ABC News: Natasha Johnson)

New rules will force electricity and gas providers to reduce hefty late fees and stop offering large pay-on-time discounts, but it will only apply to contracts entered into from July 1.
The regulations apply to both late fees and the practice of conditional discounting, where customers are offered a "discount" for paying their bill on time but are hit with higher costs if they miss the deadline.
"Large conditional discounts that we have seen in the past are a big hit for a small consumer under financial pressure," the Australian Energy Market Commission (AEMC)'s acting chief executive Suzanne Falvi said.
"Penalties vary and have reached as much as 40 per cent in the past.
"Depending on how much energy a household uses, this could cost them as much as several hundred dollars a year."
Energy Minister Angus Taylor requested the changes and told News Breakfast some customers had been penalised for paying just a few hours late.
"For a typical family, this might be $185 a year they're being hit up. [For] small businesses, approaching $1,000," he said.
The minister said companies that do not comply with the rules could be penalised up to $100,000.
The AEMC decided against implementing a set cap on late fees across all energy retailers, saying that the range of different conditional discounts and offers made that approach inappropriate, and could lead to retailers increasing prices.
Instead, late fees will be capped at the "reasonable cost" to the retailer when a customer fails to pay on time.
Fewer discount offers but 'more transparent' pricing
Conditional discounts are included in approximately 16 per cent of energy deals currently on offer, however they used to be much more common.
The AEMC observed that about 60 per cent of contracts in the market two years ago had conditional discounts.
Consumer group Choice said energy retailers "went bananas with these types of offers" because it allowed them to profit in two ways.
"They were a fantastic way to lure in new customers to build their customer base with the promise of big discounts and then when some of those customers, over a quarter of those customers on average, missed their bill deadlines, the energy companies then made money through late fees," the group's chief executive Alan Kirkland told ABC News.
A 2018 inquiry by the Australian Competition and Consumer Commission (ACCC) found that 27 per cent of residential customers failed to meet the conditions for the "on time discount", attracting late fees.
That figure rose to 58 per cent of customers who were on hardship provisions due to difficulties paying their bills.
Mr Kirkland said it was not only people in financial difficulty who missed bills and were slugged with higher costs.
"It's very easy to miss a bill deadline," he said.
"It might just be you've had a busy week and you missed that email in your inbox, it might be that you just needed an extra day to pull together the money … a common problem that people have is when their credit card changes [and they forget to update direct debit details]."
Mr Kirkland said it will leave consumers better off overall, even though some customers who always pay on time may see their bills rise slightly.
"The AEMC has said that discounting practices have already started to come down and that's because the ACCC and the AEMC have been talking about a change to the rules on this issue for several years," Mr Kirkland said.
"Now that does mean there'll be less discount offers on the market but the trade-off is that pricing is more transparent."
Existing contracts not covered by new protections
However, there is a potential trap for existing electricity and gas customers, with the updated rules only applying to new contracts entered into from 1 July this year.
Choice said it puts an onus on customers to find out what deal they are currently on and potentially switch.
"Have a close look at your bill, if it's got a discount on it then that's a trigger to ring your retailer and see if your contract is up and you can switch to one of the newer contracts that would be fairer," Mr Kirkland said.
The AEMC's ruling details the regulator's rationale for not applying the measures to existing contracts or forcing retailers to make changes when a contract expires, rather than allowing it to roll over.
It said the request from the Minister's office did not address what should be done with existing contracts.
The Australian Energy Council, which represents the major electricity and gas wholesalers and retailers, argued that changing existing contracts might create "significant implementation issues" and lead to higher costs for those who were currently getting a discount.
However, independent policy organisation the Public Interest Advocacy Centre said any contracts including the conditional discounts should be rolled over at the end of the existing period.
Alan Kirkland agrees.
"We are worried that some disadvantaged people may remain on these trickier, older contracts for some time," he said.
"We would have preferred to see these types of practices phased out over time.
"So, we'd like to see the AEMC very closely monitor how many customers remain on these old types of contracts over the next 12-18 months and, if we're still seeing lots of customers on those contracts, I think it'll be time to have a look at whether there needs to be a further rule change to get rid of these practices once and for all."
A draft from the AEMC had applied the new rules to existing contracts from their end date, however its final determination only applies to new contracts.
"The commission considers that consumers with ongoing experience with conditional discounts are in a better position to assess their suitability for these types of offers when compared with new consumers," the AEMC said.

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