Electricity watchouts you need to know

Electricity watchouts sharks sighted

Founder of WATTever David Hiley, puts a spotlight on the darker side of retailer behaviour and the practices that are giving the industry a bad name. This is the first in a series of articles about opportunities we see to “fix electricity” in the contestable electricity markets in Australia.

In following posts, we’ll look at what can be done better by the electricity network businesses, generators, comparators, regulators, politicians and even consumers.

There will always be tension in any essential industry between generating a profit and affordability. However, like any market, there are rules and standards both written and unwritten about how consumers and retailers should behave. It’s not going well for energy retailers. The recently released Retail Electricity Competition Review by the Australian Energy Market Commission (AEMC) is scathing. It found satisfaction with value for money in energy is lower than banking, water, broadband and mobile sectors. It’s not simply runaway electricity prices that have gotten Australian’s backs up. Trust in the energy sector has dropped from 50 per cent to 39 per cent in the last 12 months.

We’d suggest that it’s the practices of some retailers across the industry that people don’t see as fair. Many don’t discover these ‘traps’ until they get hit with a nasty bill. Others are simply blissfully unaware and continue to overpay. The sooner these practices stop or are reduced, the better. Here’s our list of electricity watch-outs to look for.

Look out for these bad practices

Electricity Watchouts Warning Sign

Large Pay On Time discounts. We’ve written at length about pay on time discounts. Recently a Retailer offered up to a 47% reduction off usage charges. These are a double edged sword and effectively a massive late penalty. Miss paying by a day and your usage fees almost double in the case of a 47% pay on time discount. This late fee is out of all proportion to the actual cost to the retailer of a consumer paying days or weeks late. While we think that percentage based discounting is becoming ludicrous and in most cases meaningless, it is possible to separate out discounts so they are don’t become an exorbitant late fee. Some retailers already offer no discount plans and guaranteed discount plans. This is a lot fairer on those who struggle to pay their bills. We expect the ACCC to call this out in their forthcoming report to released in July 2018. Many consumer advocates would hope that the AEMC will regulate pay on time discounts away if retailers don’t do it themselves.

Lower effective discounts for solar and concession holders. A small number of retailers calculate usage and supply charge discounts after solar feed-in credits have been applied. In effect applying discounts to a fraction of the consumer’s usage and supply charges. This effectively reduces the value of the solar feed-in credits and/or concessions paid by the Government. This practice needs to be stamped out. If I was a State Government, I wouldn’t want to see the value of any concessions provided reduced because of an accounting trick by certain retailers.

Notifying consumers of price changes after they have happened. This is a long established retailer practice and one we think needs to go. Many plans have a clause stating “energy rates may be varied at any time by giving you written notice (which may consist of a statement on your next bill after the change)“. To our mind this is akin to walking into a cafe, ordering a meal at one price and then after you’ve eaten your meal, being told that the price has changed. Since these price changes are usually increases we have consumers consuming electricity unaware that they are paying more than they signed up for or shown on their last bill. In this day of super low-cost communications, we see no valid reason why retailers shouldn’t be contacting every customer whose plan will be impacted by price changes, before that change comes into effect. It’s common courtesy, transparent and an area that we expect will come under the spotlight of the ACCC and other regulatory bodies very soon.

Removal of discounts on final bills. Some retailers do not provide discounts on your final bill. So when you leave a retailer, for whatever reason, you won’t receive a discount on your usage and/or supply charges on that final bill. We think that’s poor form and effectively an exit fee that is payable regardless of how long you’ve been with the retailer. Like late payment fees, various regulators have tried to limit exit fees. It seems that some retailers just can’t resist the temptation to get back at departing customers by hitting them where it hurts when they leave. Does it really cost potentially hundreds of dollars when a customer leaves a retailer’s service – we think not.

Exit fees based on average monthly bill. This practice is limited to one or two retailers for small business plans. The exit fee is the value of an average monthly bill. For a $12,000 annual bill that’s a $1,000 exit fee! Again we question how much does it actually cost when a customer leaves? Charging them a fortune on the way out is a sure fire way to never see them again and receive poor customer reviews.

Benefit periods for discounts. These are the primary method retailers use to win new customers. Offer them a honeymoon rate for the first 12 or 24 months and then hope that when they’re not looking you offer an average plan. We understand the need to win customers but why leave them high and dry on a standard offer costing hundreds more per year after the benefit period ends. Sure lazy or busy consumers might not notice as they join millions of others sleepers who allow retailers to loss lead to win new customers as they try to stop “waking sleepers” and savvy customers who realise they’re not getting a good deal and are leaving. Rather than having a class system where there is a very wide disparity in rates being paid by between shoppers and sleepers, consider other enticements to bring on customers that reduce the risk of them all departing in months 13-25. Upfront credits, energy-related products (Google Home anyone?), time and energy saving services are all ways to buy/entice customers to join a retailer without there being a sting in the tail that will test their loyalty in 12-24 months time.

Save or Win-back offers. “We didn’t try hard enough to keep you as a customer but now we know you’re going, here’s an offer to kiss and makeup”. This is a very common practice in the industry helped by the 10 day cooling off period when consumers switch retailers. It’s also quite successful. Amazingly customers will ignore the fact that they have been charged hundreds or thousands of dollars more over months and years – responding positively to a win-back offer on their way out. Given that there was a degree of apathy/laziness that led to this situation, retailers may be banking on these consumers taking the win-back offer as “better the devil you know.” Accepting win-back offers to our mind exacerbates the problem of those retailers that treat their loyal (aka sleeping) customers with contempt by charging them significantly more than those who complain or who have just joined. Retailers will continue to under-serve loyal customers, if they know that many can be won back if they ever try to leave for another retailer.

Solar feed-in tariff conditions. There is an increasing proliferation of conditions relating to solar feed-in tariffs. These conditions are generally on plans offering higher solar feed-in tariffs. These conditions often are not effectively linked to the risk faced by the retailer of losing money on paying solar feed-in credits. Feed-in tariff conditions include – limits on system size (regardless of actual solar export), daily or yearly caps on solar feed-in tariffs at the maximum rate, having to purchase a solar PV system from the retailer to qualify for a higher rate and feed-in tariffs being reduced beyond a nominated benefit period. It’s clear from these practices that retailers are offering feed-in tariffs at a rate higher than the actual value to them of the exported electricity. Under this scenario, big solar exporters have the potential to become customers that retailers lose money on. Considering one consumer exporting 5,000kWh per year will be providing the same value to the retailer (through their solar export) as 10 customers exporting 500kWh per year, we wonder why feed-in tariffs can’t be set to avoid winners and losers. What about a household with a 10kWh PV system with small exports. They will effectively be unable to access a high feed-in tariff plan – not because they export too much electricity (which should be the retailer’s concern) but because they bought a larger system due to their higher energy demands.

Retailers rarely charge different rates whether you consume a little or a lot of electricity, why can’t that practice be the same for solar feed-in tariffs. Many of these conditions risk consumers not receiving consistent value for their solar exports and risks retailers having their feed-in tariff structures acquire consumers who will get greater value but lower margin for the retailer.

Remaining credits not paid out. Some retailers have conditions that if you have an account credit due to solar feed-in tariffs on your final bill that credit will not be refunded. We think this is unconscionable behaviour. Solar owners have rightly earned these credits through exporting solar electricity which the retailer was able to sell to its other customers. It’s another nasty grab on the way out for exiting customers.

Legacy plans not publicly available. We often have customers using our service who are on plans that are no longer available. These plans may have been either publicly available or be one of a variety of behind the counter offers like win-backs, offer matching etc. The difficulty for consumers is that it can be challenging to compare these plans with what is available in the market. While consumers using WATTever’s comparison service can compare the bill in their hands with all publicly-listed plans for the same period, it’s not easy to do this over a longer period such as one year due to changing rates, needing to add up total usage and solar export etc. We hope that in the future all retailer plans with active customers would have unique codes whereby consumers and other services like ours could readily access a fact sheet equivalent of their current plan to ensure the consumer can accurately compare their current plan with others in the market. We may be hoping for too much – if plans were hidden from the public initially, we doubt those retailers would want that information to be available to other consumers, retailers or comparators.

Getting to a good place

While we’re not advocating regulating the industry to the detriment of innovation or competition it seems to us that many of the practices above are confusing, frustrating, misdirecting and ultimately costing consumers. One reason we started WATTever was to provide absolute transparency. We wanted to empower Australian’s to make better informed decisions about energy by highlighting unfair conditions and helping people avoid the pitfalls. Ultimately what we most want to do is to take Australians beyond this stuff and help them achieve bigger savings. The distraction of the current market with unfair and arguably unethical practices, means many people are wasting time and money. Even worse they are giving up and disengaging. Unfortunately, this plays to the benefit of those who apply some of the practices discussed above.

Ultimately, we hope that, like other commodity products such as petrol, consumers can better understand electricity pricing in the same way they know whether 139.9c per litre is worth stopping to fill up. With that knowledge, they can ignore the noise and be confident that they’re on a good deal. Back that up with regulations that prevent unfair conditions buried in the fine print of the terms and conditions and we have a pathway to consumers improving their view of retailers. With a better relationship, customers will be more open to taking up other products and services through those retailers be it solar, storage, home automation, energy monitoring etc. If the electricity market players can’t do that, expect an increasing number of businesses coming in to take those customers to a happier place.

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