The ESC’s Victorian Energy Market Update: March 2021

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On 31 March 2021, the Essential Services Commission of Victoria published its Victorian Energy Market Update: March 2021. In the update the Essential Services Commission provides a summary of key events in terms of the energy market and its regulatory activities.

Pricing

The ESC reviewed energy retail offers published on 30 June 2020 and 31 January 2021 and found that there were substantial reductions in electricity and gas prices during that period. The ESC found that 7% of electricity market offers are market offers with conditional discounts, compared to a year ago where 33% of market offers had conditional discounts. The ESC welcomed this as a sign of ‘simpler and fairer energy contracts for Victorian consumers,’ following new rules, which were introduced from 1 July 2020, that introduced a cap on pay-on-time discounts.

VDO determination

The ESC noted that the methodology used to determine the Victorian Default Offer (VDO) in November 2020 was largely the same as used when setting the 2020 VDO price. The ESC noted that network in wholesale costs are the largest components of electricity retailers’ costs making up approximately 67% of the total, whereas retail margin and retail costs combined to make up approximately 19% (excluding GST). The ESC noted that from 1 September 2020, the VDO also applied as a maximum price for all households and most small businesses within embedded networks.

The ESC noted that as of December 2020, more than 170,000 residential electricity customers, 6% of the total electricity market, were on the VDO. Of those customers, a percentage had gone on to the VDO as a result of not entering into a contract with their retailer for reasons such as moving into new premises. As of the end of December 2020, more than 42,000 small business electricity customers were on the VDO.

COVID -19 costs in the VDO

As part of the 2020 review, the Essential Services Commission considered the effect of the coronavirus pandemic on retailers’ costs. In doing so, it decided to include an additional amount in the VDO cost stack for bad debts. The additional allowance that was made was $6 and the ESC noted that this amount was temporary and that it will be removed from the VDO cost stack in a future review.

In looking at disconnection for nonpayment, the ESC noted that Victorian Energy customers were kept connected during the pandemic restrictions, but that disconnections have subsequently resumed. During 2021, over 2,000 residential customers were disconnected for nonpayment. At the same time at the end of 2020, 60,686 residential electricity customers were receiving tailored assistance from the retailers to help pay their bills. The ESC noted that this was an increase of 2% compared to the number of customers receiving tailored assistance in July 2020.

Retailer Compliance

When examining retailers’ compliance with the energy rules, ESC reviewed 14 of the largest retailers’ websites to see if COVID-19 payment assistance information was easy to locate. The ESC found that most websites included the details of how retailers could help customers impacted by the global pandemic. The ESC also found that retailers’ family violence policies were easy to locate and that most policies included practical information regarding the assistance available.

When looking at the penalties that were paid for non-compliance, the ESC noted that AGL paid $450,000 in penalties for failing to explain the undercharged amounts to its customers. The ESC issued 30 energy industry penalty notices to AGL, resulting in a total penalty of $450,000 in relation to the recovery of undercharged amounts from more than 6,000 Victorian pensioners and other concession customers as a result of a computer billing error.

AGL had sent letters to affected customers telling them that they had been undercharged but had provided no further explanation. Following those letters, invoices were sent to customers with the additional charges but without explanation of the additional charges. The ESC noted that energy retailers are permitted to recover a undercharged amounts but in doing so must comply with the energy retail code, including by stating the amount to be recovered as a separate item in a special bill or in the next bill together with an explanation of the undercharged amount.

The ESC noted that Alinta paid $1,125,000 in penalties in February 2021. This resulted from 75 penalty notices being issued to Alinta in December 2020, in relation to Alinta’s request that customers seeking assistance were provide financial information before being set up on payment plans. The ESC noted that energy companies are required to help customers who are having payment difficulties without requiring them to disclose personal, financial, or other information.

The ESC noted that four retailers refunded customers $52,113 for failing to include best offer messages on bills. The best offer message is designed to tell customers that they can save money by switching to a cheaper plan with their existing energy retailer.

The ESC noted that five retailers refunded customers $449,178 for raising incorrect additional retail charges. The retailers in question were incorrectly charging fees for standing offer and Victorian Default Offer customers including fees for paper bills, direct or credit card fees, and over-the-counter charges. There were 75,298 customers affected.

Finally, the ESC noted that between July and December 2020, retailers reported that they had wrongfully disconnected 61 customers. As a consequence, those retailers paid a total of $44,629 to customers for wrongful disconnections.

Changes to the Energy Rules

In the report, the ESC explained some of the recent changes to the energy rules. From 1 July 2020, new rules were introduced to ensure that contract periods, practices and variations are ‘clear and fair for customers.’

The new rules provide that retailers will only be allowed to increase their prices once per year. The new rules also provide that customers signing up after 1 July 2020, will receive a discount, credit or rebate for the entire duration of their contract. Further, that customers will easily be able to compare offers in the market, as retailers must advertise electricity prices with reference to the Victorian Default Offer. Further, that customers who miss a bill due date will not face a large increase in costs as pay-on-time discounts on new contracts are kept at a level set by the ESC (currently 3.62%). Further, customers who are receiving tailored assistance can expect their retailer to honor pay-on-time discounts if they miss a bill’s due date. And finally, that customers on fixed-term electricity contracts who do not choose another offer at the end of their contract can expect their retailer to roll them onto the VDO.

In response to the coronavirus pandemic, the ESC introduced targeted reforms to support residential and small business customers with paying their electricity bills. The reforms, coming into effect from 1 October 2020, included residential customers being entitled to assistance from their retailers when completing utility relief grant applications, all residential customers receiving tailored assistance regardless of their ability to afford the ongoing cost of energy, including an expectation that retailers will conduct a tariff check for them to see if they’re on the best energy deal with their retailer, and reasonable assistance for small businesses experiencing financial stress.

Additional reforms were put in place for embedded networks with the application of the VDO as a maximum price for all households and most businesses within embedded networks from 1 September 2020.

From 1 January 2021, retailers are prohibited from back billing for more than four months where a consumer is not at fault. Previously the cap on back billing was nine months unless the customer was at fault.

The ESC has also introduced new rules to improve the customer protection framework relating to planned interruptions and distributor service level payments. From 1 July 2021, customers can expect more efficient communication with the distributor including the ability to choose to receive planned outage notices via text message or email, better information about the reasons for planned interruptions and canceled works, and to be notified if a planned interruption is canceled in a number of circumstances. In addition consumers can expect increased payments for poor service from their distributor such as arising from unplanned interruptions and delayed connections, and more timely payments for poor service with most payments being made quarterly instead of annually.

Finally, the ESC notes that in October 2020, it directed electricity distribution businesses to engage with property developers and their contractors to create me customer service standards. The service standards aim to improve the timeliness of negotiated connections of new residential developments in greenfield areas. Distributors are required to report on their performance in this area.

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