The End of Retailers Discounting the Truth?

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This week saw the commencement of the AEMC’s rule change ‘putting a stop to pseudo-discount deals that leave consumers worse off.’ Could this be the end of retailers discounting the truth? We take a look.

Retailers Discounting on a table of pennies

By Connor James, Compliance Quarter.

Background

Electricity price rises make the news and are constantly a source of political angst for the government of the day. Electricity pricing is made up of a number of components including wholesale costs, network, and environmental charges. The easiest political target in this mix is the ‘retail margin’ meaning the amount made by the retailer for providing the electricity retailing service.

On 18 December 2017, Josh Frydenberg MP, Minister for the Environment and Energy submitted a rule change request to the AEMC under the National Energy Retail Law (NERL) seeking to address ‘confusing retailer discounting practices where retailers apply discounts to rates that significantly exceed the rates of the retailer’s standing offer.’

What the Rule does

A standing offer is a default rate that is available to any customer who is supplied by a retailer but is not on a negotiated rate. Typically, standing offers are higher as they effectively incentivise a customer to enter into a fixed term market contract. Customers end up on standing offers when they either go ‘off contract’ or occupy premises already energised by a retailer. Such a customer would still have an obligation to pay for their energy usage under the terms of the standing offer. The standing offer terms are a schedule to the National Energy Retail Rules (NERR) applicable in the eastern states other than Victoria.

Retailers are heavily regulated in almost everything that they do including in the contents of their bills, the way they present rates, and how they manage customers. They are much less regulated in the amount that they charge and how they market those charges. Consequently, it is common to see advertised rates of 30 or 45 percent discount. In reality those discounts are ‘off’ an arbitrary price and in some cases those discounted rates can actually be higher than the retailer’s standing offer prices.

The effect of the rule change is to prohibit electricity retailers from ‘including discounts in market retail contracts where customers would definitely be worse off under the undiscounted market offer than under the standing offer.’

Does it go far enough?

If the objective of the rule change is to reduce electricity pricing, then no. There are larger forces at work in the market particularly when you factor in vertical integration, the concentration of power in the top three retailers and wholesale market complexities.

The next report of the rank is the ACCC’s Electricity supply & prices inquiry report that was due to the Treasurer on 30 June 2018. If the submission is anything to go by, it is going to be an important one – so stay tuned!

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