Is your discount choice costing you more?

Posted by Adrian Merrick on 22/04/2019 5:09:21 PM
Adrian Merrick
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We all love a bargain, and especially on dull expenses such as energy bills.

Energy companies know this, which is why Pay on Time Discounts became so popular in recent years. 

But how did this come about? Well, the Victorian energy regulator — the ESC — took a decision some time ago to ban late payment fees. That probably felt like a good idea at the time but energy companies simply turned them on their heads and charged everyone more, and then gave some of it back for payment on time. 

A $700 per year late payment fee

Instead of a relatively low and fixed late payment fee — which could add up to perhaps $50-120 over the course of a year at the most, the difference between what you could pay rose to a staggering $700 or more

A completely ridiculous pay on time discount

An offer listed on the Government's Energy Made Easy website. The culprit retailer shall remain anonymous...for now.

It became a game of who could launch the most insane offer. The total percentage discounts topped off just under 50% of usage as no energy company appeared to be dumb enough to hit the 50% milestone. 

Discount off what?

It's also been hard for customers to find out what these discounts were off. In the vast majority of cases they were off usage — i.e. the per-kWh charge for each unit of energy you use.

To help pay for these discounts, we've observed energy retailers putting more of their margin into the fixed daily charge in recent years. This preserves the portion of their profit which will be untouched by a pay on time discount. 

In the face of public criticism from the ACCC and others, some big energy companies launched 'guaranteed discount' products, but persisted in offering the same incredulous pay on time offers at the same time. 

Should everyone pay more? 

We believe it's fair that reasonable costs can be added to the accounts of customers who are able to pay but fail to do so. The alternative is that everyone pays a bit more, and that's not really fair when you're doing the right thing. 

Rule changes on the way

The regulators are onto this and in the coming months we'll see rules brought in that require electricity retailers to not only promote unconditional discounts first, but to limit discounts to the cost that a retailer will save by the discount condition (such as paying on time) being met. 

When we first launched Energy Locals we wanted to offer a transparent service that avoided these silly industry games. Our member products are a set price for everyone, with a small surcharge of 10 cents per day where a customer doesn't provide a payment method. We know that our risk and workload dramatically increase when payment methods are withheld. 

But one of the most common questions from customers has been "what pay on time discount do I get?". This was often despite the customer saving money with our guaranteed prices. 

We've just released a new product that doesn't require a payment method, but instead offers a $165 Free Power Bonus each year when an account is kept up to date. This has been welcomed by some of our customers who refuse to use direct debit in any of their financial dealings. Rather than a percentage discount off a made up number, we reckon a fixed amount that's calculated daily is fairer, more transparent and easier for customers to calculate. 

We hope that other power retailers will start doing the right thing before the regulator tells them they have to. 

Posted by Adrian Merrick

Founder @ Energy Locals

Topics: how to choose energy provider

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