Power bills could be cut by up to $730 a year under proposed laws

Electricity and gas companies would be forced to give customers stuck on expensive contracts better deals under new rules which the Essential Services Commission says would save Victorians an average of $225 a year.

The state’s water and power regulator has proposed new laws that would require power retailers to put households struggling to pay their bills onto their cheapest plan.

Electricity companies would have to give customers better deals under the proposed changes.Credit: Luis Enrique Ascui

This would apply to any customer who has asked for help with their bills or with unpaid debts more than three months overdue or above $1000.

The commission estimates this would benefit 75,000 electricity and 60,000 gas customers almost immediately, saving them up to $16.8 million. In the most extreme cases, these people could save $730 a year on their bills.

But the rules would also kick in for households stuck on older, expensive contracts who have not shopped around for cheaper offers – a phenomenon the commission calls a “loyalty tax” by which customers are punished for not moving.

Victorians on contracts that are four years old would be automatically moved to more affordable plans.

The second reform is estimated to benefit between 27,000 and 53,000 customers, saving between $10.1 million and $12.2 million in total.

In the last financial year, more than 60 per cent of electricity and gas customers were not on their retailer’s best offer, the commission calculated.

The commission estimated these rules would save customers an average of about $225 on electricity and $182 on their gas each year.

In a regulatory impact statement discussing the changes, the commission said some retailers were making money out of customers who weren’t paying close attention.

“At the extreme, some retailers may leverage customers’ disengagement to extract more money from these customers, who end up paying a ‘loyalty penalty’,” the document said.

“The proposed rules will require all retailers to compete more fairly.”

Essential Services Commission chair Gerard Brody said it was a contradiction to offer customers hardship plans but then charge them higher tariffs than were necessary.

“We know there are barriers that stop people shopping around in the complex energy market, but
we don’t want those barriers to result in Victorians paying unnecessarily or unreasonably high
rates,” he said.

Other rule changes proposed by the commission are also designed to help Victorians reduce their power bills.

Power companies would be banned from limiting access to cheaper plans by requiring customers to pay by direct debt or electronic billing to access them. They would also be forced to make it easier to use websites and phone lines to switch to cheaper contracts, and the minimum debt to trigger a disconnection would be $500, up from $300.

Both measures are likely to frustrate electricity and gas retailers, which will not only have to offer cheaper deals but also invest in new technology to make sure affected customers are rolled over to cheaper systems.

In the same regulatory documents, the commission acknowledged companies will need to make “major changes” to their IT systems to enable this, which would create more costs for them.

Consultation on the changes has opened and will remain open until June 26.

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