A Guide to AER’s Minimum Disconnection Threshold

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In this article, we provide a detailed overview of the Australian Energy Regulator’s (AER) 2017 decision on the minimum disconnection amount for energy customers.

Background and Context

On March 17, 2017, the AER released its final decision on the minimum disconnection amount applicable to small customers within the jurisdictions of the Australian Capital Territory, New South Wales, South Australia, Queensland, and Tasmania. The decision aimed to balance the protection of vulnerable consumers with the need to maintain the efficient operation of energy services.

The Final Decision

In its final decision, the AER determined that the minimum disconnection amount for small customers should be set at $300 for both electricity and gas services. This amount was an increase from the previous threshold of $200, which had been in place since 2006. The decision considered changes in the cost of living and the evolving landscape of the energy sector.

The AER’s decision to increase the minimum disconnection amount to $300 aimed to provide a stronger incentive for authorised retailers to engage with customers experiencing payment difficulties and explore alternative payment arrangements before resorting to disconnection. By setting a higher threshold, the AER sought to encourage authorised retailers to take a more proactive approach in addressing payment issues and finding mutually beneficial solutions.

In determining the new minimum disconnection amount, the AER applied the Australian Bureau of Statistics (ABS) Consumer Price Index (CPI) to adjust the existing threshold of $200 from 2006. By using the ABS CPI, the AER arrived at a rounded figure of $300, which was deemed an appropriate and balanced threshold for both the protection of vulnerable consumers and the efficient operation of energy services.

Review Process

While the AER does not have a schedule for reviewing the minimum disconnection amount, it actively monitors the energy market and engages with stakeholders to ensure that consumer interests are protected, and energy services remain efficient and reliable. Authorised retailers should stay abreast of any updates or changes to the threshold as part of their ongoing monitoring of regulatory requirements.

Impact for authorised retailers

Authorised retailers operating within the specified jurisdictions must adhere to the minimum disconnection amount of $300 for small customers. Ensuring compliance with this requirement will help authorised retailers maintain responsible practices, engage with customers experiencing payment difficulties, and contribute to the efficient operation of energy services.

Non-compliance with this obligation may result in some or all of the following impacts:

1. Regulatory compliance

Adhering to this requirement ensures that energy businesses are in line with the AER’s regulations. Non-compliance may result in regulatory action, penalties, and potential fines, impacting the company’s financial standing and overall operations.

2. Reputation and trust

Compliance with the minimum disconnection amount demonstrates a commitment to consumer protection and responsible practices. This can enhance the company’s reputation, foster trust among customers and stakeholders, and potentially lead to increased customer loyalty and market share.

3. Customer engagement

The threshold incentivises energy businesses to proactively engage with customers facing payment difficulties, offering alternative payment arrangements and support before resorting to disconnection. This can improve customer relationships and potentially reduce the number of disconnections and associated costs.

4. Operational efficiency

By adhering to the minimum disconnection amount, energy businesses can optimise their operations by focusing on customer engagement, payment support, and efficient debt recovery strategies. This may result in reduced costs related to disconnections, reconnections, and bad debt write-offs.

5. Social responsibility

Compliance with the minimum disconnection amount reflects the energy business’s social responsibility, highlighting their efforts to protect vulnerable customers from undue hardship due to disconnection. This can contribute to the company’s corporate social responsibility (CSR) initiatives and enhance its public image.

Preventative Measures for Energy Businesses to Ensure Compliance

To manage compliance with the minimum disconnection threshold we recommend implementing the following preventative measures:

1. Develop clear policies and procedures

Establish comprehensive policies and procedures addressing the minimum disconnection amount, outlining the steps to be followed for customer engagement, payment arrangements, and disconnection processes.

2. Regular staff training

Provide ongoing training to employees, ensuring they understand the regulatory requirements and their responsibilities in adhering to the minimum disconnection amount. This includes customer service representatives, billing specialists, and other relevant personnel.

3. Implement monitoring systems

Develop and integrate monitoring systems within the billing and customer management platforms to flag accounts that approach the minimum disconnection amount. This will enable timely intervention and engagement with customers.

4. Proactive customer communication

Initiate early communication with customers who may be struggling with bill payments, offering support, and exploring alternative payment arrangements before the outstanding balance reaches the disconnection threshold.

5. Offer flexible payment options

Provide customers with a range of payment options, such as payment plans, direct debit arrangements, access to Centrepay and financial hardship programs, to help them manage their energy bills more effectively.

6. Establish a dedicated compliance team

Create a dedicated compliance team responsible for ensuring adherence to the minimum disconnection amount and other regulatory requirements. This team should regularly review processes and update policies as needed.

7. Conduct internal audits

Periodically perform internal audits to assess compliance with the minimum disconnection amount and other relevant obligations. Identify potential gaps or areas of improvement and implement necessary corrective actions.

8. Collaborate with external partners

Engage with external partners, such as community organisations and financial counsellors, to support customers experiencing payment difficulties and identify proactive solutions.

9. Stay informed about regulatory updates

Keep abreast of any changes to the minimum disconnection amount or other relevant regulations and update internal policies and procedures accordingly.

Summary

In conclusion, with the cost-of-living rising obligations such as the minimum disconnection amount for energy customers remains a critical regulatory requirement therefore, authorised retailers must ensure they have processes and systems in place to ensure compliance with this obligation.

Should you require assistance in evaluating your current processes and systems, please do not hesitate to contact us for a consultation.

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