Navigating Energy Consumer Reforms: What is the impact?

Both the Essential Services Commission (ESC) and Australian Energy Market Commission (AEMC) have recently unveiled consultation papers outlining reforms intended to alleviate the financial burden on energy consumers and further strengthen customer protections. These proposals range from bill crediting mechanisms, additional protections for customers on legacy contracts to the removal of additional fees and charges.

We take a closer look at the reforms currently under consultation, examining how they might work in practice and the potential impact on consumers.  

Background 

Over the past few years, a great deal of policy attention has been directed towards enhancing customer protections and mitigating hardship amid the cost-of-living crisis. Governments and regulatory bodies have brought about a range of initiatives from changes to regulations around payment difficulty, the establishment of a financial counselling industry funding model, and direct energy bill relief to support all Australian energy consumers.  

At the same time, energy retailers have been working closely with the government to ensure energy bill relief measures are rolled out swiftly to customers. Retailers have worked hard to meet their regulatory obligations to provide short-term payment arrangements and longer-term hardship agreements that ensure vulnerable consumers receive the support they need. Recognising their role as providers of essential services, retailers are not only meeting regulatory expectations but also going beyond them. As we have outlined in previous articles, many have introduced additional support programs, with initiatives such as Engie’s “Here to Help” program and AGL’s Customer Support Package. 

In July last year, the Energy and Climate Change Ministerial Council (ECMC) agreed to progress a further package of consumer reforms that aimed to ‘help households access cheaper energy deals, increase support for people experiencing hardship, and deliver more protections for consumers. These Energy Consumer Reforms, constituting seven rule changes, are intended to add to the initiatives already underway and largely build off the Australian Energy Regulators (AER) Towards energy equity strategy.  

As detailed in a previous article, consumer protections in Australia’s National Electricity Market (NEM) are covered by two separate frameworks. The National Energy Customer Framework (NECF) has been in effect for all eastern states aside from Victoria since February 2013. Victoria did not adopt the NECF and instead has its own Payment Difficult Framework (PDF) designed to protect customers facing energy hardship under an Energy Retail Code of Practice.  

This means that the seven rule changes will go through two separate consultation processes: one for Victoria, managed by the ESC, and another for the other NEM states, handled by the AEMC. We provide a broad summary below:  

The Energy Consumer Reforms 

Ensuring energy plan benefits last the length of the contract  

Under this rule change sought by the AEMC, fixed-term contracts would automatically end when their discount or benefit period is over, while ongoing contracts would keep the discount without interruption. In other words, this change would bring the rules in line with what’s already happening in Victoria.  

Preventing price increases for a fixed period under market retail contracts  

Only being progressed by the AEMC, this rule change proposes several options to improve the clarity of retail pricing strategies and address possible instances of bait advertising. The options include:  

• Preventing price increases for 100 days, so consumers would not have price increases until after their first bill. 
• Allowing price increases only once a year, similar to arrangements that already exist in Victoria 
• Empower the AER to collect data from energy retailers on the number of price changes made to market retail contracts, and the level of those price changes, as part of its regular performance reporting. 

Removing fees and charges  

This rule change is likewise only being progressed through the AEMC and seeks to eliminate or reduce additional charges that energy retailers may have for customers (e.g. credit card payment fees, over the counter fees at Australia post, special meter read fees etc). The possible removal of these fees aims to enhance pricing transparency, ensuring consumers are not burdened with additional ‘hidden’ charges, making it easier for households to understand their bills.  

Removing unreasonable conditional discounts  

Both the ESC and AEMC are considering options to improve protections for customers on legacy contracts with conditional fees and discounts entered prior to 1 July 2020. These contracts may lead to large costs in the form of high fees or underlying energy prices if the conditions for the fee or discount are not met. 

Assisting hardship customers  

A longstanding challenge in helping hardship customers is ensuring they benefit from the ‘deemed better offer’ - the lower-cost energy plan available under the Better Bills Guideline. Here, the AEMC here has sought a rule change request that proposes retailers provide customers on hardship arrangements with a credit on their bill that matches what they would pay if they were on the best offer, while maintaining any of the benefits of the contract they were on.  

The ESC has taken a different path, presenting this crediting mechanism alongside a range of other options. These include:  

• Reducing Tariffs to match the best offer, where retailers would be required to lower tariffs of an existing customer's energy plan to match the tariffs of the retailers deemed best offer. 
• Automated switching to the best offer, where retailers are required to automatically place customers in hardship programs to the best offer. 

Improving the ability to switch to a better offer  

The latest ACCC inquiry into the NEM report outlined that despite existing measures between January 2024 and August 2024, a total of 81% of customers could have saved by switching to a better offer. The rule changes pursued by both the ESC and AEMC consider a range of approaches to see how retailers could improve the process for switching to the best offer.  

Improving the application of concessions to bills.   

Here, both the ESC and the AEMC have taken a similar tack in introducing additional requirements for retailers to proactively seek information about customers eligibility for concessions.  These aim to ‘close the gap’ between energy concession eligibility and concessions received.  

How do these proposals stack up? 

With the arrival of these reforms, there are many opportunities to ensure there are better outcomes for customers. However, while the industry is broadly supportive of the policy ambition behind these proposals, it is worth noting there might be more practical means to achieve more effective results.  

Take the example of the rule change around Assisting Hardship Customers. Here, both the AEMC and ESC, as mentioned, have taken different pathways with the Victorian consultation incorporating a range of additional options. There is the obvious danger of both jurisdictions picking different approaches, leading to uncertainty and inconsistent outcomes. However, there are likewise issues with the crediting mechanism from a customer perspective. While well-meaning, the fact it would only apply for the duration of time a customer is in hardship may paradoxically perpetuate the cycle of payment difficulties in only providing temporary relief. There would be greater benefit if these customers were able to switch to the lowest priced energy plan beyond their time on the hardship program. 

Indeed, retailers currently have a requirement to communicate with customers about being on the right plan. Through this form of engagement, retailers work hard with customers to identify an offer that is suited to a customer's particular circumstances. While it is possible a customer may not take up a cheaper offer, it is important to continue to provide consumers with choice and to recognise its value to customers. It might, therefore, be more helpful to work out what can be done to aid this process.   

Likewise, regarding the potential rule change around improving the application of concessions to bills, it should be noted retailers work hard to ensure eligible customers receive these. Concessions reduce the risk of customers with bad debt and minimise associated operational costs.  

Retailers generally capture a significant portion of their customer base when it comes to concessions, but do not know all who are eligible. In contrast, Services Australia knows the customers who are eligible, but not who their retailer is. It is this informational asymmetry that is at the heart of concession issues. Unfortunately, comprehensive solutions to improve the flow of information between these two entities are out of scope in both consultation processes.  

It is evident these reforms still have a long road ahead, with further rule change consultations still ongoing. Indeed, the AEMC has recently published further consultations papers based on the remaining two ECMC rule change requests aimed at enhancing both the ability to switch to the best offer and the application of concessions to bills. The AEC, along with industry, will continue to engage with regulators on these.  

While the final outcome of these reforms has yet to be determined, it is still hoped they will provide much needed support and assistance to customers in vulnerable situations and strengthen protections for all. In the interim, however, retailers will continue to fulfill their critical role as essential service providers and ensure consumers continue to receive ongoing support. 

You can find the AEC submissions to the Energy Consumer Reforms on our website here.