Energy retailers are set to be banned from using controversial billing practices under a crackdown on so-called discounts that consumer rights advocates say are “exploitative”.
The federal government this week directed the energy regulator to look into unfair electricity and gas pricing by retailers in the form of ‘pay-on-time discounts’, a practice criticised by consumer advocate Choice as “sneaky late payment penalties”.
Despite being marketed as a boon to customers, pay-on-time discounts are effectively “late payment penalties masquerading as discounts”, Consumer Action Law Centre chief executive Gerard Brody said.
“If you pay even one day late [the energy retailer] can end up charging you 30 per cent more,” Mr Brody said.
“Anyone that’s a day late making the payment could see their quarterly energy bill go from $300 to $400, whereas a late payment fee for a telco bill is usually limited to $10,” he said.
It’s simply gouging.”
Customers signed up to pay-on-time discounts who miss one payment deadline per year can pay anywhere up to $1000 more in New South Wales, $750 more in Victoria, $600 more in South Australia, and $500 more in Queensland.
Australia’s energy regulators must now “stand up to the inevitable industry lobbying to water down this change, and develop clear, strong rules that deliver fair and affordable bills for customers”,
Choice chief executive Alan Kirkland said.
‘Discounts’ hit vulnerable customers hardest
An inquiry into retail energy pricing by the consumer watchdog last year found that pay-on-time discounts are “excessive and punitive for those customers who fail to pay bills on time”.
The most disadvantaged people pay the biggest penalties under the current system, the Australian Competition and Consumer Commission found, with ‘hardship customers’ achieving the discounts only 42 per cent of the time, followed by ‘payment plan’ customers at 56 per cent.
“Customers who do not pay on time are, in effect, paying very large late payment penalties, often amounting to hundreds of dollars per year,” the ACCC said.
The “exploitative” practice arose due to the deregulation of Australia’s electricity and natural gas services, Mr Brody said.
The deregulation of pricing came with the promise that competition would benefit consumers, but that’s not the reality.
“Energy is a product you can’t stop consuming, and competition has proven not to be an effective mechanism at protecting consumers from exploitation.”
Customers ‘overcharged’, loyalty ‘punished’
In many cases, customers who receive the purported discounts are still being overcharged, Public Interest Advocacy Centre energy expert Craig Memery said.
“Pay-on-time discounts might look appealing because people are quite drawn to a discount, it’s a natural human tendency. But it’s actually unclear what the discount is from,” Mr Memery said.
A lot of retailers are effectively already over-charging people.”
For people who don’t pay their bill on time, including the disadvantaged and disengaged, the discount “quickly turns into a huge late payment fee”.
“It really penalises the people in our community who need help, not hindrance,” Mr Memery said.
“Pay-on-time discounts completely ignore the fact that energy is an essential service, and people need to be able to rely on having it as an essential resource.”
Under the current system, energy retailers “reward disloyalty and punish loyalty”, Mr Memery said.
“The way the contracts work is that people get the pay-on-time discount for the first year, and then it disappears,” Mr Memery said.
“If the customer doesn’t know that they have to shop around, then they they get charged more.”