Are pay-on-time energy discounts just brutal late payment fees?


Pay-on-time discounts in energy deals can result in massive bill increases

The dark side of energy discounts


We all love a bargain, but so-called 'discounts' on our energy bills can be very costly for those of us who don't always manage to meet the conditions.

Understanding your energy bill and comparing it with other offers to find a better deal is trickier than trying to pick a winner at the horse races. We're calling out energy retailers for their confusing pricing plans and their excessive penalties that are framed as 'discounts' that make it virtually impossible to compare deals across the market.

Can you save on energy? Transformer is our new energy switching service. Send us your latest energy bill for a free analysis. Visit canisaveonenergy.com.au.

In this article:

Fees for the late payment of bills, marketed as 'pay-on-time discounts', have proliferated in energy offers. And while many of us see a 'discount' as something attractive, the truth is the higher the discount, the higher the penalty if you don't pay on time.

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%

Join our campaign to ban sneaky late fees at campaigns.choice.com.au/late-fees.

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% use 'discounts' to entice customers and 57% had at least one conditional offering, according to the Australian Energy Market Commission (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 are now 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 can help you find the best energy deal

If you'd rather leave the complicated number crunching to someone else, our new energy comparison and switching service Transformer checks every available offer in the market and does the switching for you. For $99 a year we also continue to compare the market to keep you on the best available deal. This allows you to take advantage of discounts without the risk of them expiring and leaving you stuck with a dud plan.

Read more about customers who have found hundreds of dollars of savings with CHOICE's unique energy finding and switching service Transformer.

We need fairer energy pricing

CHOICE is campaigning to stop retailers from charging unreasonable late payment fees disguised as pay-on-time 'discounts'. We're calling 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.

Help us ban costly late payment fees. Visit campaigns.choice.com.au/late-fees to add your name to our campaign.

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?

  • Join our campaign to ban sneaky late fees: campaigns.choice.com.au/late-fees.
  • 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.
  • Let us find you the best electricity deal at canisaveonenergy.com.au.


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