AEMC calls for submissions on new rules for clearer energy contracts
31 July 2014
The Australian Energy Market Commission (AEMC) has made a draft rule to improve the information given to consumers when entering retail energy contracts.
AEMC Chairman, John Pierce, said consumers would be able to shop more confidently for electricity and gas deals if they had access to clearer information on energy contract options.
Research that informed the draft rule was also released by the AEMC today and indicates that some consumers may be entering contracts unaware that prices may change. The research also indicates that people want a range of contract and price options to meet the specific needs of their household or business – with both fixed and variable prices to choose from.
“The survey results showed a mix of preferences with almost half of residential (45 per cent) and small business (47 per cent) consumers preferring a variable price while a third (31 per cent) of residential consumers and a quarter (25 per cent) of small business consumers prefer a fixed rate,” Mr Pierce said.
“Previous AEMC analysis has shown that consumers can save between five and sixteen per cent on their annual electricity bill by shopping around for the best deal and switching away from regulated standing offer contracts. To do that, consumers need to have different types of contracts explained to them very clearly.
“We have released a draft rule that clarifies that energy retailers must tell consumers if prices can change during the term of their retail contracts; and provide clear product disclosure details on when they will notify customers about price changes,” Mr Pierce said.
“We have also called on the Australian Energy Regulator to review the effectiveness of their energy price comparator website, Energy Made Easy, and its guidelines on how retailers market their energy offers to consumers.
“Improved information enables consumers to engage more confidently in retail energy markets and make decisions that better meet their needs. This in turn is likely to enhance competition in retail energy markets,” Mr Pierce said.
The Commission’s draft rule was made in response to a rule change request submitted by Victorian consumer groups, the Consumer Action Law Centre and the Consumer Utilities Advocacy Centre. Their request sought to prohibit retailers from changing their prices during energy contracts that have a defined period of time or a benefit that is offered for a specific period.
The AEMC has called for public submissions on its draft determination (Retailer Price Variations in Market Retail Contracts) which are due by 11 September 2014.
Other key points
The research undertaken for the AEMC shows consumers are primarily concerned about broader energy education issues such as; ensuring consumers are better informed about energy contract options; providing easier ways to compare different energy options; and wider promotion of independent price comparison websites like the Australian Energy Regulator’s Energy Made Easy website.
The research suggests that many consumers were not aware of the type of energy contract they were currently on. Just over half of residential consumers and small business consumers surveyed said they recalled previously signing up for a contract for a specific period of time, such as a one, two or three year contract.
Where a surveyed consumer had noticed their prices had changed, around a third of residential and small business consumers said they did nothing and paid their account and less than ten per cent changed their energy company.
The research indicates that there are differences in consumers’ understanding of energy contracts. Some residential consumers expected that the rate they would pay per unit of energy would not change. Other residential consumers and many small business owners were more likely to expect that it is not realistic for energy companies to fix their prices.
Under the current rules, there are no regulatory limitations on how often and by how much retailers can change their prices during market retail contracts that have a defined period of time or a benefit that is offered for a specific period.
The draft rule, if made, enhances existing consumer protections under the National Energy Retail Law and the retail rules. It would apply to electricity and gas market retail contracts in South Australia, New South Wales, the Australian Capital Territory, and Tasmania. These are the jurisdictions where the retail rules currently apply.
About the Research
To inform the Retailer Price Variations in Market Retail Contracts Draft Determination, Newgate Research conducted focus groups with 162 participants and a survey of 2,213 residential and small business consumers across NSW, ACT, SA, VIC, and Queensland. For more details and to access the full report go to our project page.
For more information
AEMC Chairman, John Pierce (02) 8296 7800
Media Contact: Prudence Anderson, Communications Manager (0404) 821 935 or (02) 8296 7817
About the AEMC
The Australian Energy Market Commission is the independent body responsible since 2005 for providing policy advice to Australian governments on the electricity and gas sector. It makes energy market rules which are applied and enforced by the Australian Energy Regulator.