AGL recently responded to the Essential Services Commission Victoria’s (ESC) draft decision on clear and fair contracts. The draft decision includes 18 individual draft decisions for the implementation of recommendations 4A-4E and 3A of the Independent Review of Electricity and Gas Retail Markets Victoria (Thwaites review), as well as additional matters relating to back-billing and VDO messaging on bills. Further information on the Thwaites review is available with our Issues Paper response in July 2019.
When the Thwaites report on the Victorian energy sector was released in August 2017, AGL acknowledged that the sector had to do better in presenting information to consumers in a more transparent and clearer way. At the time, AGL played a key role in promoting a reference price be established to allow consumers to make a simple and consistent comparison of energy products on offer. Apart from advocating for a reference price, we also simplified our product suite and introduced a simple no-discount rate based product, AGL Essentials. The Victorian energy market has undergone and is still undergoing significant change in response to the Thwaites review findings and consumer preference changes. This change has been acknowledged by the ESC in their Draft Decision as well as their most recent Energy Market Report which stated “energy offers are becoming clearer”.
In our response to the Draft Decision we recommended the ESC take a more holistic approach to assessing the package of these draft decisions, in conjunction with existing obligations that took effect from July 2019 and new market conduct and performance. Specifically, we encourage the ESC to undertake a more robust cost-benefit analysis that takes into consideration those matters raised in s8A of the ESC Act 2001, to fully identify and mitigate unintended consequences for consumers. Importantly, we anticipate that the practical impacts to customers and their experience with a retailer have not fully been considered and are likely to lead consumer disengagement and reduced competition.
The draft decision introduces new requirements on retailers that have not previously been considered or discussed, for example:
- A new approach to implementing 4A, where prices can only change on the Victorian Default Offer (VDO) change day (currently 1 January). This will effectively prevent retailers from offering current fixed-price products such as AGL Essentials.
- Auto-roll of gas customers on to the best-offer (without a clear path to achieve this through amendments to the Gas Industry Act). This approach will effectively curtail retail competition, prevent retailers from offering lower priced products for engaged customers and effectively eliminate price dispersion to the detriment of Victorian customers.
- Retrospective application of the evergreen discount requirement will create confusion for consumers who seek to engage in the market that now offers only capped discounts (an illusion that their higher discount is better) and will increase costs to retailers.
- Proposed mirroring of Australian Consumer Law (ACL) obligations into the Energy Retail Code (ERC) and advertising guide (which is not captured as a draft decision in itself). This is contrary to best practice regulation, the Victorian Guide to Regulation as well as the Intergovernmental Agreement signed by Victoria to not duplicate existing obligations.
- Changes to the back-billing obligations being brought forward from the Energy Fairness Package slated for 2021. These changes will unfairly penalise retailers as the relevant obligations on distributors are not being amended and the additional cost because of this change will ultimately be borne by customers through increased prices.
We believe as a draft package of reforms with a focus on high-policy level measures they do not currently promote competition and market innovation, and is likely to result in a poorer market and experience for consumers. This will include the potential for increased prices (as referenced by the ESC in the draft decision), confusing communications, and retaining high evergreen pay on time discounts with changing underlying rates. We describe these in more detail in our submission.
When the ESC was first tasked to implement recommendations 4A-4E and 3A it informed the industry that it will make a final decision in December 2019 so as to allow industry a full six months to implement any necessary changes to systems and processes, being July 2020. The ESC has taken longer to finalise the decision and we encourage the ESC to request an extension from the Victorian Government to ensure that the end decision is proportionate and continues to allow retailers 6 months implementation once the final decision is made.
You can read our full submission here.