Electricity retailer selling plans with ‘discounts’ on artificially inflated prices

The Guardian/18 August 2017

An electricity retailer is selling plans with “discounts” on prices that have been arbitrarily inflated, resulting in some customers paying hundreds of dollars more per year on their electricity bills.

The practice highlights a weakness in the recently announced agreement between energy retailers and the government. The prime minister, Malcolm Turnbull, said the companies agreed they would alert customers to the impact on their bills when they come off discounted plans but said nothing about misleading discounts.

Click Energy has retail market offers in Queensland and other states with “discounts” ranging from around 7% to 27%.

But, in the fine print, Click Energy reveals those discounts are not applied to any rate that any customer could actually pay but are instead applied to a made-up rate, apparently in order to make the discount appear large.

Those discounts also only apply if the customer pays the bill within five days of it being issued by Click Energy – after which time they revert to the inflated rate, and are also charged a $12 late payment fee.

The five-day period to achieve the pay-on-time discount, and avoid the late payment fee, is the shortest period the Guardian has seen in retail offers.

Most retailers offer discounts from either their regulated “standing offer” or from another offer that is actually available to customers.

One of Click Energy’s offers in Queensland called “Click Connect” tells customers they are receiving a 7% discount. But, in the fine print, the company reveals that the 7% discount is applied to rates that are 16% higher than the standing offer, meaning the customer is paying a rate significantly higher than the default regulated offer.

In that case, a household that used 8,000 kWh of electricity a year – roughly what a typical Brisbane household uses – would end up paying about $230 more a year on the “discounted” plan than they would on the non-discounted standing offer.

When asked about that plan, the chief executive of Click Energy, Dominic Drenen, said the deal rolled the “new connection fee” into the plan and was marketed to customers who are moving house, and only offered through On the Move – a company that helps people connect utilities to new houses.

Drenen said the connection fee was between $35 and $150 and customers didn’t have to pay that on this plan.

All of Click Energy’s other offers examined by the Guardian also state customers will not be charged the standard connection fee and note the standard connection fee is about $11. The Guardian understands expedited connections could cost more and those appear to be waived in the Click Connect offer.

Click Energy offers a range of other plans, each with stated discounts, but which are discounted from seemingly arbitrary rates. Their Click Opal offer for customers in south-east Queensland is advertised as giving an 18% pay-on-time discount – but in the fine print they say that is applied to a rate that 8.5% above their regulated standing offer.

The Click Topaz offer in the same region is advertised as giving a 22% pay on time discount but the underlying rate is inflated 8.9%.

Drenen said the discount rate wasn’t the whole story, since customers on those plans were offered other bonuses too like food vouchers and movie tickets.

One Big Switch, a company that gathers customers together and helps them switch retailers, is offering a unique Click Energy plan, which claims to have a 27% pay on time discount but, again, the underlying rate is increased by 8.9%.

When asked about the practice of discounting arbitrarily increased prices, Drenen said very few Click Energy customers were on the standing offer, so he didn’t think it was relevant to express the discounts compared to that rate. He did not answer further questions over email about what the rational was for stating the discount percentages that way.

“All Click customers are on discount products, our standing product is for occupiers only (customers in a property that we have been unable to identify),” Drenen said over email.

When the Guardian called Click Energy’s sales team, they said they were able to move customers on to the standing offer and offered to do so over the phone.

In other regions, Click Energy’s offers are sometimes discounted from the standing offer, a practice that appears to be standard in the industry. In 2015, the federal court found Origin Energy was required to pay a $325,000 penalty after the Australian Competition and Consumer Commission found they were offering misleading discounts.

The ACCC explains on its website: “The court held that the representations were false or misleading because the rates used to calculate usage charges under a DailySaver energy plan, to which the discount would then be applied, were higher than the rates under the subsidiaries standard retail contracts. As a result, consumers who entered into a DailySaver energy plan in early to mid-2013 effectively received a reduced discount.

The ACCC chairman, Rod Sims, said at the time: “Origin misled consumers about the level of discount they would achieve under a DailySaver energy plan – the key feature that would have attracted consumers to the plan.”

The ACCC said it could not comment on the specific issues regarding the Click Energy offers but a spokesman said that businesses “must be clear and upfront to consumers about the discounts they are advertising”.

“It is often not enough to have explanations about how discounts work in fine print as these disclaimers are often difficult for consumers to find or easily missed,” he said.

The CEO of the social enterprise retailer EnergyLocals, Adrian Merrick, said: “It’s just making up numbers to confuse people.”

He said Click Energy’s offers were a more blatant example of a problem that is common in the industry – since deregulation occurred everywhere but the ACT, retailers are able to change their standing offers, meaning a discount percentage can mean very little since the underlying rate can move.

May Mauseth, an energy consultant at Alviss Consulting, said Click’s Click Connect offer in Queensland is the sort of offer customers should avoid.

“The rates are higher than the standing offer rates, the discount only applies if bills are paid on time, the offer includes a $12 late payment fee that the standing offer does not have and Click only gives customers five days to pay their bills,” Mauseth said. “That is a lot less time than what retailers usually give customers.

“Unfortunately, Click is not the only retailer with confusing market offers but this is among the worst I’ve seen.”

The ACCC is currently conducting an inquiry into Australia’s electricity retail market, which includes an examination of any “lack of transparent information”.

In its discussion paper on the topic, the ACCC said: “The complexity of offers themselves and the marketing of offers, in particular the use of discounts, may make it difficult for customers to understand which offer will best suit their needs.”

In submissions to the inquiry, a number of groups including the Public Interest Advocacy Centre (Piac) said pay-on-time discounts were a way of camouflaging late-payment fees.

Piac used its submission to recommend the ACCC review the practice of pay on time discounting and whether the practice is unfairly pushing the cost of hardship programs on to low-income and vulnerable consumers.

When the Guardian asked Drenen what the discounted plans were discounted from, he responded: “Discounts from a range of product constructs that incorporate features that are valuable to that particular channel or market segment (eg moving customers, channel partners, good food promotions etc.).”

When asked how the offers differed from those of Origin that were ruled misleading by the federal court in 2015, he responded: “Each product is unique and tailored to a market segment, not a generic single market offer.”

When the Guardian put it to Drenan that underlying rates appeared to be arbitrarily inflated to make the discounts appear larger, he responded: “Each product is unique and tailored to a market segment, not a generic single market offer.”

In response to the Merrick’s allegation that the offers were confusing, Drenen said every customer that has joined Click Energy has “chosen to do so for the benefits we offer over our competitors”.

He listed monthly smooth billing, email bills, discount on total bill, digital customer service portal and local service centre. “These all have a value ascribed to them that will be different for each customer.”

Joel Gibson from One Big Switch said the discount was important but “only half the story”.

“We always tell consumers that you have to look at the combination of the discount and the underlying rates to assess if it’s a good offer,” he said. “That’s what we do when we analyse offers and select winners for our campaigns.”

News Source: The Guardian