Pay-on-time energy discounts on the chopping block


Government acts to end a confusing and costly flimflam.

Energy 'discounts' that can really cost you


So-called pay-on-time discounts on energy bills can really pack a sting for those of us who don't always manage to meet the conditions.

In many cases, the discounts have amounted to excessive penalties, not to mention making it impossible to compare deals across the market.

By the federal government's calculations, customers signed up to pay-on-time discounts who miss one payment deadline per year can pay anywhere up to:

  • $1000 more in New South Wales (than they would if they hadn't missed the deadline)
  • $750 more in Victoria
  • $600 more in South Australia
  • $500 more in Queensland

Not really much of a discount after all, especially when you add in the late fee.

And it's far from an uncommon occurrence.  About one-in-four customers on these tricky energy deals miss a payment and face the consequences.

For customers dealing with financial hardship, the figure rises to around 60%.

But now there's potentially good news. Through a rule change submitted to the Australian Energy Market Commission (AEMC), the government is proposing to put an end to this predatory pricing practice, a move CHOICE strongly endorses.

Now it's a question of whether the inevitable energy industry lobbying manages to water down the new rules before they take effect. 

The rule change

Under the government's proposed changes, energy retailers will have to keep any rate increase for a customer who misses a payment on a conditional discount plan to the 'reasonable' costs that the retailer faces due to the missed payment.

And, crucially, retailers won't be able to hit customers with a late payment fee in addition to this cost.

What 'reasonable' means remains to be seen, but it seems certain the costs won't be anywhere near the amounts late payers are currently being forced to pay. 

In this article:

Why pay-on-time discounts can be so bad – a case study

CHOICE members Yvonne and Eric from Doncaster East in Melbourne had their electricity account with EnergyAustralia for years. But when they took up a new offer with the same company with a pay-on-time discount of 42%, they were penalised a hefty $213.13 for not paying the first bill by the due date.

Yvonne tells CHOICE: "The problem was, for years and years on our previous plan, we had received a paper bill from Energy Australia – so we were waiting on that in the mail. When it didn't come my husband phoned them, but it was too late and we missed the discount."

In reality, Yvonne didn't 'miss a discount'. She and her husband copped a stinging late payment fee that increased her total bill by 60% from $354.33 to $567.46.

(EnergyAustralia's 'discount' only applied to the usage component of the bill, not the supply charges.)


What Yvonne and Eric would have paid with a pay-on-time discount of 42% (on usage only) if they paid by the due date.

$354.33

What Yvonne and Eric had to pay when they missed the due date

$567.46

The amount by which the bill increased

$213.13 or 60%

When is a discount really a penalty?

As Yvonne and Eric found out, if a discount has conditions attached to it then it becomes a stick rather than a carrot. The energy industry has found a number of ways to apply penalties dressed up as conditional discounts to influence how customers are billed and reduce the costs to the company.

Some of these include 'discounts' for direct debits, paperless billing and signing up online.

For instance, in NSW energy companies are not allowed to charge fees to those of us who want paper bills sent via the mail, or if we want to pay our bills at the post office. Yet Origin's Maximiser plan won't give you an 18% discount unless you pay by direct debit and opt for paperless billing.

Out of the 5940 gas and electricity retail market offers available in March 2018, 80% used 'discounts' to entice customers and 57% had at least one conditional offering, according to the AEMC in its 2018 review of the market. It found that the use of discounts increases customer confusion and dissatisfaction with the industry.

The most widespread of these conditional discounts are the pay-on-time 'discounts'.

'Pay-on-time discounts' rise as late payment fees are curbed

So called pay-on-time discounts have been the predominant form of competition among energy retailers, but it wasn't always that way.

In 2010 less than 60% of retailers in Victoria offered deals with pay-on-time 'discounts', and the highest of these was 12%. By 2017, however, 90% of Victorian retailers offered pay-on-time discounts – and the highest was 40%.

In its 2018 Retail Electricity Pricing Inquiry, the ACCC found that pay-on-time 'discounts' have emerged in response to attempts by government regulations to constrain late payment fees.

Late payment fees have been banned in Victoria and capped in most states.

In NSW, to protect vulnerable customers, late payment fees are banned for those who receive low-income rebates or are seeking payment assistance, or if they've entered into a payment plan. But none of these protections are in place for people who miss a payment on a deal with a pay-on-time 'discount'.

Late payment fees are usually around $12 , a fraction of the excessive financial cost of a lost 'discount' that often amounts to hundreds of dollars.

The AEMC found that pay-on-time 'discounts' result in an effective 'late payment fee' for customers, despite late payment fees being banned in several jurisdictions.

Are so-called 'pay-on-time discounts' fair?

The ACCC report reveals that residential bill payers miss the payment deadline 27% of the time. That's a big windfall for the energy companies who design these pay structures, and a big hit to us, the bill payers.

If you missed a payment on your mobile phone bill, would it be fair if the company whacked another 10–40% on top of the bill? Or if you were in financial difficulty and unable to pay your water bill by the due date, should you be penalised?

The price-conscious energy users among us are often attracted to the heavily promoted 'discounts', and this includes groups that may not always be able to make the payment by the due date.

The ACCC found that people on an energy payment plan only met the conditions to get the 'discount' 56% of the time. That means 44% of the time they had to pay more on their bill, often amounting to hundreds of dollars.

Worse still, hardship customers only managed to get the benefit 42% of the time. Meaning more often than not, they were charged hundreds of dollars via a late payment penalty.

'Discounts' make it really hard to compare energy deals

Discounts create confusion for customers, because it's not always clear what price the discount applies to. Every retailer sets its discounts against whatever set of prices it chooses, often their standing offer.

Standing offers are a default option for consumers who are not actively watching their bills and looking for better deals. These offers have some protections built in for consumers who have problems paying their bills.

Yet the ACCC found that retailers are now pricing these standing offers excessively high.

And these rates are not consistent between the retailers. 'Discount' percentages are sometimes applied to the supply charge as well as the electricity usage charge. Other times it's just the usage.

Many discounts have a benefit period (e.g. 12 months or two years). The ACCC reviewed internal documents produced by retailers and these showed that a number of the retailers baited customers with competitive deals, only to move them to a higher priced offer after the benefit period was up.

The ACCC found that customers would be better off taking up plans with lower discounts tied to lower underlying tariffs.

Example bills for a consumer with 5000kWh of usage each year showing how hard it is to compare discounts

Offer A

Offer B

Offer C

Tariff (c/kWh)

20

25

30

Daily charge (c)

60

55

50

Pay on time discount

15% off usage

20% off entire bill

30% off usage

Total bill

$1069.00

$1160.60

$1232.50

Source: ACCC analysis, based on hypothetical offers.

We need fairer energy pricing

CHOICE has been campaigning to stop retailers from charging unreasonable late payment fees disguised as pay-on-time 'discounts'. We've called for strong guidelines to prevent misleading marketing of discounts, and better low-price energy offers.

We support the ACCC's recommendations from the 2018 Retail Pricing Inquiry to:

  • abolish the standing offer and replace it with a lower priced default offer which can be priced no higher than a level determined by the Australian Energy Regulator
  • require any advertising of discounts by retailers to be unconditional and referenced to the default offer rate
  • restrict conditional discounts to be no more than the reasonable savings to the retailer from the condition being met.
  • Questions to ask your energy retailer when seeking a better deal:

  • What kind of incentives or deal can you offer me to stay with your company?
  • Is the incentive or discount conditional?
  • Is the incentive for the life of the contract?
  • Does the discount incentive cover the whole bill?
  • Which plan has the lowest tariff and usage rates?
  • What should you do now?

  • Only take a deal with a 'pay on time' discount if you know you'll pay by the due date. Otherwise, take up a plan with lower underlying tariffs.
  • Want to talk about your views on energy price increases? Join the conversation at CHOICE Community


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