Both the AEMC and the Victorian ESC have introduced new rules constraining pricing and discounting practices able to be undertaken by retailers from 1 July 2020.
These changes will form a further part of a complex web of new and existing prescriptions across the National Electricity Market, connected to offering the default market offer (DMO or VDO depending on the jurisdiction) and marketing and pricing by reference to those prices.
The common change relates to limiting the size of conditional discounts offered by retailers in new market retail contracts on the basis that consumers should be protected from paying a disproportionate fee if they fail to comply with payment conditions (especially paying their bill on time). However, the way that each rule maker has approached it differs meaningfully, as summarised below.
||National Energy Retail Amendment (Regulating conditional discounting) Rule 2020 No. 1
|| Amendments to the energy retail code: reflecting the Final decision of the Victorian ESC of 28 February 2020 entitled “Ensuring energy contracts are clear and fair”
|Who/what is affected
||Small customers, based in NSW, regional QLD, ACT, TAS, SA
||Small customers, based in VIC
|What kind of discounts and fees are captured?
- conditional discounts – discounts offered to small customers conditional on their compliance with a payment condition (e.g. paying on time or e-billing); and
- conditional fees – fees incurred by small customer for failing to comply with a payment condition (e.g. late payment fees).
|Discounts offered to small customers conditional on them paying their bill on time.
|Limitations on conditional discounts and fees
not to exceed a reasonable estimate of the costs that would be incurred by the retailer for the customer’s non-compliance with payment condition.
- conditional discounts; and
- the aggregate effect of a customer losing their conditional discount and/or incurring a conditional fee,
|Imposes a cap, as determined by the Victorian ESC each May, based upon the cost of debt.
Simplicity versus flexibility
The AEMC framework captures a variety of conditional discounts and fees. On the other hand, the Victorian framework is focussed only on conditional discounts associated with paying on time, which is the key policy concern of both bodies.
Since only one type of conditional discount is targeted by the Victorian regime, the simplicity in also providing a specific monetary cap has some appeal. However, it does not allow for individual discrepancies between the costs of different business, which the AEMC framework allows. This could potentially disadvantage certain retailers.
Additional changes in Victoria
The limitation on pay-on-time discounts is but one change arising in the Victorian ESC’s broader quest to “increase price certainty for Victorian customers and therefore increase confidence in the energy market”. It complements a variety of price-related amendments coming into force on 1 July 2020, including:
- requiring pay-on-time discounts to be honoured where customers receive tailored hardship assistance;
- requiring any discount, credit or rebate to be made available for the duration of the contract;
- only allowing retailers to increase prices in their contracts with small customers annually;
- requiring notification on bills of the availability of the VDO; and
- introducing a framework similar to the existing Electricity Retail Code, requiring that a reference price comparison to the VDO be made in all advertising of electricity offers and limiting the way pricing and discounts are communicated.
Note the focus of this memo is on “pricing” and “discounting”. There are also requirements relating to clarity of energy marketing and a replication of the existing prohibitions in the Australian Consumer Law against engaging in misleading or deceptive conduct.
Please contact us if you wish to know more about these regimes and the impending changes.