The Australian Energy Market Commission today called for submissions on a rule change request to amend the National Energy Retail Rules. This request seeks to stop retailers from including terms in their contracts that allow them to change prices during fixed period energy market retail contracts for small customers.

The rule request, Retailer Price Variations in Market Retail Contracts, has been made by the Consumer Utilities Advocacy Centre and the Consumer Action Law Centre.

It is the first request to amend the National Energy Retail Rules since they commenced on 1 July 2012. The rules are part of the National Energy Customer Framework, one of the Council of Australian Government’s recent energy market reforms. The framework governs, among other things, customer contracts, energy-specific consumer protections and obligations to supply energy to households and small business consumers.

The consideration of this request will address the importance of informed choices for consumers and the management of risks by energy retailers.

A competitive retail energy market promotes efficiency when consumers actively participate in the market by making informed choices. On one hand a lack of consumer awareness or understanding about the nature of a product (e.g. the extent to which a retailer can vary prices on a contract) could cause consumers to lose confidence and fail to engage with the market. On the other hand if retailers can’t raise prices during fixed period contracts, they might build a risk premium into the prices for such contracts with an overall rise in prices.

The AEMC’s consultation paper identifies some key issues for discussion with stakeholders to help inform our thinking on the request. These include:

•         Do the current rules regarding price changes in fixed period contracts affect the application of consumer protections?

•         Do price changes in fixed period contracts, together with exit fees and other transaction costs, hinder consumers from engaging in retail energy markets?

•         Will prohibiting price changes during fixed period contracts affect contract prices, the choices available to consumers, and competition levels in retail energy markets?

•         Are retailers passing on risks to consumers in fixed period contracts rather than managing the risks efficiently?

The consultation paper released today outlines the timeline for the public consultation process. This timeline has been extended to give stakeholders more time to address the complexity of issues raised by the request in this new area of our rule-making responsibilities (including both electricity and gas markets). We have also extended timeframes so that we can undertake additional consultation.

Consultation paper submissions are due on 27 March 2014.

Further consultation with stakeholders will take place before the draft rule determination is published in August 2014 and before the final determination late in the year.