Energy retailers will have to scale back the large financial penalties they currently charge consumers who pay late bills under new rules announced today by the Australian Energy Market Commission (AEMC).
The rules, which regulate the practice of ‘conditional discounting’, are designed to protect consumers with ‘pay-on-time’ conditions in their energy contracts.
This has been a common feature of the energy market offers available to customers.
Currently, these conditions can lead to excessive charges and financial hardship for those who can least afford to pay.
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Acting Commission chief executive Suzanne Falvi said the AEMC thinks this rule balances protecting consumers from excessive fees with retailers’ need to recover reasonable costs when people don’t pay on time.
“Large conditional discounts that we have seen in the past are a big hit for a small consumer under financial pressure,” Ms Falvi said.
“Penalties vary and have reached as much as 40 per cent in the past. So, depending on how much energy a household uses, this could cost them as much as several hundred dollars a year.”
The new rules will tighten up gas and electricity contracts signed from July 1 this year so consumers don’t have to change their existing contracts and can keep discounts they have already signed up for with retailers if they choose to.
The rules will cap the level of conditional discounts and fees to a ‘reasonable cost’.
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The changes were proposed by Australian Government Minister for Energy and Emissions Reduction Angus Taylor and received support from consumer groups.
The groups said that despite new advertising restrictions, many consumers would continue to overestimate their ability to meet conditional discounts.
In 2018, the ACCC found more than one in four residential electricity customers failed to realise their pay-on-time discount.
Most retailers disagreed with our rationale for making the rule for reasons including that the number of retail offers with a conditional discount has declined.
However, they supported our decision not to introduce a fixed cap on conditional discounts, because this would allow different energy businesses to account for costs differently – and this would be the least costly way to apply the new rules.
“These new rules are in line with the Commission’s role in protecting consumers and getting the right combination of cost, reliability and security in the energy market,” Ms Falvi said.