Fair for who? Victoria's Energy Fairness Plan

Victoria's Energy Fairness Plan was introduced via press release just days before the 2018 state election. The headline was an attention grabbing one.

While the Energy Fairness Plan was an election commitment, the Victorian Government has not made the case for the alleged benefit the parcel of these reforms will bring energy consumers as it introduces the legislation to the Victorian parliament.

In 2018, the recommendations from the Thwaites Review had not yet been implemented, prices in Victoria were unregulated, and there was concern about a number of practices in the industry which are no longer relevant to the retail market of 2021.

Significant reforms and focus on customers have been implemented in the years since these commitments were made. Indeed, the energy industry’s focus on supporting customers during the pandemic has outperformed others.

The Energy Fairness Plan is likely to cost industry jobs and keep customers on offers that are more expensive than what is available. This is not good value for consumers.

So what does it do?

Banning door-to-door sales and cold-calling by energy retailers

This will result in fewer people engaging in the energy market, as fewer customers will be proactively made aware of the many cheaper energy deals available.

Research conducted by Energy Consumers Australia highlighted that 19 per cent of customers who considered switching energy companies in Victoria did so because they were approached proactively. This represented the fourth largest driver of customer switching.

The natural consequence of lower engagement is that fewer customers will switch to cheaper offers, and more customers will drift towards prices that are closer to the Victorian Default Offer (VDO).

Given the cheapest market offers are at least $281 cheaper than the VDO[i], this represents a potential significant financial loss to many Victorian energy consumers.

The Victorian Government hasn’t explained how it will encourage this affected cohort to continue to engage with the market and seek out cheaper energy deals.

Implementing this reform

The Government maintains its intention is to put an end to “door-to-door sales and cold calling telemarketers harassing Victorian families” and stopping customers being “signed up for what turns out to be a more expensive electricity offer”.

Given the reforms implemented since the election, the latter point is no longer relevant – retailers now must comply with the Clear Advice Entitlement that ensures customers are made aware if the offer they are seeking to sign up to is not suitable for them, and termination fees are no longer a feature of the market.

Effectively, even if a customer is dissatisfied with a sales interaction, they can cancel the offer immediately for no cost.

Noting the Government’s concern about customers being ‘harassed’ by energy providers, all unsolicited contact should be prohibited, but sales activity that results from the customer requesting contact, or opts into being contacted, should continue.

Retailers will be prohibited from calling on the domestic customer at the customer's ordinary place of residence for the purposes of negotiating a contract or another contract of a kind that is prescribed; or telephoning a domestic customer for the purpose of negotiating a contract or another contract of a kind that is prescribed.

The only exception to the prohibition is if a customer expressly invites the retailer itself to make contact.

Take, for example, a customer who opts into using a connection service when they move to a new house, which many people use to make the stressful situation of moving properties easier and minimise the risk of a connection being overlooked.

A customer will typically opt into being contacted by a connection service through their real estate agent. This connection service will commonly be requested to connect water, energy, internet, pay television, and telephone services in advance of the customer moving into their new property.

This connection service would be unable to connect energy services in Victoria, as the customer has not expressly invited the retailer to make contact (they have instead requested an agent of the retailer to make contact regarding a number of services, including energy). The service will be prohibited from calling the customer and setting up an energy account on their behalf.

Banning win-back and save offers

Given the broad ban on telephone sales, win-backs and saves are unlikely to be practicable, so even without specific regulation, the Government’s stated intent is likely to be met.

There are many unintended consequences that might come from unnecessary over-regulation.

In practice, the Energy Fairness Plan suggests an old retailer will be able to telephone a lost customer for a number of purposes, including administrative issues and seeking payment for outstanding bills and charges.

However, the retailer is not allowed to raise the prospect of the customer switching back to the previous retailer unless the suggestion is offered by the customer first. Without this invitation, and unless the transfer was in error, the old retailer will be prohibited from initiating a return transfer for a six-month period.

How practical is this approach? The intent of the commitment was to prohibit retailers calling a lost customer and enticing their return in return for a cheaper offer. This practice has been said to have been impeding the ability of new retailers, in particular smaller challenger brands, from gaining a foothold in the market.

When calling a customer with the intent of making a sale is prohibited, the Government’s intent has already been met. And given the implementation of the Clear Advice Entitlement, reforms around discounts and benefit periods, and the best offer notice on bills, these concerns have largely been resolved.

“We’re putting energy companies on notice – If you have wrongfully disconnected households you will pay a penalty of up to $1 million.”  Victorian Minister for Energy, Environment and Climate Change Lily D’Ambrosio 25 May 2021

New criminal penalties

Reckless or systemic wrongful disconnections are wrong. But the industry has genuine concerns about the proposed strict liability offence in the Energy Fairness Plan. This was not included in the original election commitment made by the Victorian Government in 2018, which focused solely on penalising retailers who systematically and wilfully wrongfully disconnected customers.

Safeguards need to be put in place to ensure that disconnections that occur due to circumstances outside a retailers’ control are not subject to the new penalty.

Retailers have raised concerns with the Australian Energy Market Operator (AEMO) about the increased risk of customers being disconnected due to the new switching rules limiting the ability of retailers to cancel disconnections currently underway as they no longer receive notifications in advance of an impending switch.

Deterrence must be proportionate to the wrong it is seeking to prevent.

The inclusion of the new $1 million penalty will further increase the deterrence for more serious breaches from a retailer. This strict liability offence removes the requirement to establish fault; in other words, retailers who disconnect a customer due to human error could face a penalty of up to $100,000.

The Essential Services Commission's (ESC) current approach to wrongful disconnections is extremely technical, with retailers found to have breached their obligations for seemingly minor breaches of the Energy Retail Code.

For example, a retailer could be found to have wrongfully disconnected a customer if their bill failed to provide one extra day in the regulated 13-day payment cycle to allow for a public holiday. This circumstance does not warrant an additional strict liability offence.

With respect to the increased penalties for providing false or misleading information, it is unclear how the ESC will establish knowledge with respect to the point: ‘omits any matter or thing without which the information is misleading’.

In other words, is it only a criminal offence if the licensee knowingly omits something? It is also unclear what factors the regulator will have regard to when determining if a criminal or civil enforcement pathway is appropriate, and in what circumstances the ESC is likely to pursue action against a natural person.

There is an old adage, if you are presented with the choice of a conspiracy or a stuff up, a stuff up is 99 times out of 100 the right call. The Energy Fairness Plan assumes conspiracy is the order of the day for energy retailers. People can sometimes get wrongfully disconnected, which no one wants to see. But mistakes can happen. To go after an energy retailer for a mistake, is not good government. Retailers are employers. The punishments and changes required to salesforces for small, medium and big businesses that will result from legislation like this is likely to cost jobs at a time when the state of Victoria can least afford it.

[i] Essential Services Commission, 2020 Victorian Energy Market Report