Consumers, retailers and government stakeholders have made submissions to an AEMC draft rule that limits the level of conditional discounts in energy retail contracts.

The draft rule, made on 17 November 2019, is designed to protect consumers, who can face penalties if they miss pay-on-time conditions in their contracts. Some contracts with large conditional discounts can result in consumers facing a considerable financial burden. 

The draft rule prevents retailers from recovering excessive costs from customers who fail to comply with certain payment conditions. Instead, it caps the level of conditional discounts and conditional fees to a “reasonable cost”. 

We received 12 submissions on our draft determination. These will help us understand stakeholder views as we prepare a final determination, due for publication on 27 February 2020.

Stakeholder feedback focuses on five key areas: 

  • whether the principle of restricting conditional discounts is appropriate
  • whether a rule is needed
  • allocating risk between retailers and consumers
  • types of conditional discounts captured by the rule
  • how the rule is applied to existing contracts.

Appropriateness of a principles-based restriction to conditional discounts

Most stakeholders supported our proposed approach to limit conditional discounts to “reasonable costs” without prescriptively defining the term itself, the method for determining these costs, or mandating a fixed cap on costs.   

Retailers supported the approach on the basis that it enabled different energy businesses to account for costs differently and that this would be the least costly method of applying the rule. 

Need for the rule

Consumer groups and the Australian Energy Regulator supported our rationale for making the rule. These stakeholders argued that conditional discounts remain a material issue for consumers. They also said the rule would likely address shortcomings of Australian Consumer Law and common law restrictions. And they said regulation was still needed, even though conditional discounts were becoming less common. 

Most retailers and the South Australian Government disagreed with our rationale for making the rule. They said there was less need for regulating conditional discounts because the Default Market Offer and Electricity Retail Code advertising restrictions had decreased the magnitude and number of conditional discount offers in the retail market. They also said it was unlikely the retail market would move again towards offering large conditional discounts. 

Risk allocation between retailers and consumers

Retailers did not think that risk allocation concerns related to conditional discounts would be addressed by regulating the dollar value of conditional discounts. Instead, they said increasing retailer explanation of tariffs to consumers might be a more suitable solution. Consumer groups said increased transparency as a result of recent advertising restrictions introduced by the Australian Government would not provide sufficient protection. They argued that many consumers would continue to overestimate their ability to meet conditional discounts.

Types of conditional discounts and conditional fees captured by the rule

Most stakeholders supported our decision to capture conditional contract terms related to payment timing or method within the draft rule. Some retailers requested we clarify the rule to help them ascertain the types of conditional fees it would apply to.

Application of the rule to existing contracts at the end of the benefit period

Retailers and consumer groups expressed different views about applying the rule to existing contracts at the end of a benefit period. Consumer groups supported the application of the rule to existing contracts at the end of a benefit period and retailers said this measure could lead to higher bills.

Media: Kellie Bisset, Media and Content Manager, 0438 490 041 or (02) 8296 7813