Energy retailers are exploiting a legal ‘loophole’ to change energy prices without warning

When Dion Sternberg and his wife decided to buy their first home in Adelaide last year, energy prices were, oddly enough, one of their biggest concerns.

They had recently moved from Queensland back to their home country of South Australia, and were concerned that relatively high energy costs would take their toll.

“We knew one of the things we had to do was try to get our electric and gas bill down as much as possible,” Sternberg said.

“That’s when I started doing a little research.”

That research led the 34-year-old toward solar energy — specifically, upgrading an existing 1.5-kilowatt installation to a larger system in an effort to keep costs down.

But instead of the fixed price for electricity he expected to be charged – and on which he had made all his assumptions – Sternberg got a nasty surprise.

It was switched to a time-of-use tariff which was much higher during the evening and morning peak periods.

Worse still, Mr. Sternberg said he wouldn’t know anything about it until his next bill arrived.

“There was no ‘would you like to change?’” he said.

“It was very frustrating.

“As you can imagine, this was two months after purchasing our first home and the power calculations we had made had changed.

“We were trying to cope with our electric bill and now it’s much higher, and obviously we’ve had to make some changes around our budget.”

In his view, imposing a time-of-use tariff on a father of three young children was bad enough.

Exploiting fine print

But he said the fact that this happened without his consent or prior knowledge made it more difficult to swallow.

The subtle change was made possible thanks to a loophole that consumer advocates say allows electricity retailers to evade their obligations to warn consumers early about changes in the way they are charged for energy.

Across the country, large numbers of customers are switching to energy prices that can vary depending on the time of day, but many report not knowing about the changes until well after they happen.

Consumer groups and charities say the failure to give advance warning to homeowners stems from a little-known technicality in national energy retail rules.

Under the rules, retailers do not have to provide advance notice to consumers about changes to their tariffs if the base rates charged by the pole and wire company to the retailer are changed first.

In such circumstances, retailers only have to tell consumers “as soon as possible, and in any event no later than the customer’s next invoice” – a process that can take three months or more.

Critics call the provision a loophole and say it allows energy companies to evade any requirement to obtain prior informed consent from households for fundamental changes in the way they pay for electricity.

It comes amid growing complaints about retailer behavior which have been covered by the ABC and recently prompted the Australian Energy Regulator to “remind them of their obligations”.

No warning, no support

Gavin Dufty, director of policy and research at the St Vincent de Paul charity, accused retailers of being lazy and failing consumers in using this loophole.

Mr. Doughty, although this may be legal, it is unethical.

“The rules say, ‘You have three months,’” Mr. Doty said.

“That doesn’t mean they can’t do it three months before, or three months before the change happens.

“I think blaming the rules…provides insight into retailers who are adhering to the rules and adhering to them.

“There’s nothing in the rules that says they can’t do the right thing by consumers. So it’s kind of a contradiction.”

“Again, retailers need to think about the consumer, the customer, the community and start thinking ‘Okay, what do they want?’ And they don’t want that three months later. And that just sucks.”

“Blaming the regulatory framework for poor retailer results is a bit disingenuous.”

Mr Sternberg said neither his retailer at the time – AGL – nor the pole and wire company serving his home – SA Power Networks – were willing or able to give him a clear answer about his circumstances or rights.

He said the lack of notice about such a drastic change in the way electricity fees are collected, coupled with the lack of support to help him deal with the matter, seemed unfair and wrong.

“I don’t think you’ll really find that in any other industries where they can force you into something without at least notifying you (in advance).”

“It’s very frustrating on the consumer side, where they think we’re committed to something and we have plans… and they use a loophole to get out of it without having to tell us anything until we call them.

“It doesn’t seem like the right way to do it.”

Reform was ‘difficult’

Underlying the shift toward time-of-use and other “cost-reflective” tariffs is smart meters that are enabling more sophisticated and complex pricing schemes.

While about 40 per cent of Australian homes currently have smart meters, regulators including the Australian Energy Market Commission want one installed in every property by the end of the decade.

In response to concerns about a notification loophole in national rules, the AEMC proposed changes that would require a retailer to “issue notice at least 30 business days before any tariff change takes effect.”

It also wants retailers to give customers an estimate of their bill under a new tariff compared to the current rate based on historical account information, along with more customer support.

The Australian Energy Council, which represents electricity retailers, admitted the rollout of smart meters, and the tariff reforms they enabled, had not been handled particularly well.

“I would say that implementing these reforms is a challenge,” Acting President Ben Barnes said.

“Retailers have had to make a shift in how they interact with network tariffs.

“And I agree that in making some of these changes between deciding what kind of tariff they were going to charge the customer…it didn’t go as well as it could have gone.

Energy bill literacy is a concern

Barnes said the lobby group supports cost-reflective tariffs and the smart meters behind them, but he had some concerns as well.

The most important of these was the complexity of the many definitions that reflect cost.

But he also said the forced switch – or “mandatory customization” – of customers to time-of-use tariffs was a concern.

“I think the optimal outcome is for consumers to be able to choose to enter into tariffs,” he said.

“In circumstances where there has been a mandatory reset, I think it’s really important that industry, governments and other participants in this space, provide customers with enough information that they will be able to act and understand what the new tariffs will mean for them.

“We really need to make sure that the tariffs themselves, especially those where these tariffs are imposed on customers mandatorily, are simple enough that they are able to make easy, actionable choices within their homes and businesses to reduce their cost.”

To that end, Mr Dufty of St Vincent de Paul takes a dim view of retailers’ actions so far.

Mr Dufty, who has been a leading advocate of tariff reform to ensure electricity tariffs are charged on a more equitable basis, said the “poor” handling of the changes so far threatened to undermine the whole effort.