Public Consultation Paper

Competition and Consumer(Industry Code – Electricity Retail) Regulations 2019

February 2019

CONTENTS

Consultation Process...............................................................................................................3

1. Introduction...........................................................................................................................4

1.1 Rationale for Australian Government action......................................................................4

2. Proposed Regulatory Approach..........................................................................................7

2.1 AER determinations...........................................................................................................7

3. Proposed Operation of the Code.........................................................................................8

3.1 Application.........................................................................................................................8

Scope...................................................................................................................................8

Applicable standing offer pricing arrangements..................................................................8

3.2 Capping standing offer prices at the AER-determined price.............................................9

Scope of the price cap.........................................................................................................9

Compliance with the price cap...........................................................................................10

3.3 Requiring retailers’ prices to be compared to a reference price......................................10

Compliance with reference price.......................................................................................11

3.4 Advertising conditional discounts....................................................................................12

3.5 AER functions..................................................................................................................12

3.6 Transitional issues...........................................................................................................14

APPENDIX A: Table of Questions..........................................................................................15

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CONSULTATION PROCESS

The purpose of this paper is to highlight key questions on the implementation of the Competition and Consumer (Industry Code – Electricity Retail) Regulations 2019 (the Code). The Government is seeking stakeholder feedback on the implementation of key elements, specifically:

setting a price cap on standing offer prices in electricity distribution regions where prices are not already subject to price regulation. This will reduce exorbitant costs for standing offer customers;

requiring most retail electricity offers to be compared to the price cap to ensure consumers are able to easily determine the relative value and cost of electricity plans; and,

conferring new functions on the Australian Energy Regulator (AER) to determine the price cap and representative usage in each price-deregulated distribution region.

The outcomes of this consultation will inform the finalised Code, including potential transitional arrangements. Interested parties are invited to submit their responses to the discussion questions in this document.

All stakeholder submissions will be published unless stakeholders have clearly indicated a submission should remain confidential, either in whole or in part. Electronic submissions are preferred.

Please note all submissions, including those that are confidential, will be shared with the Australian Treasury, the Australian Competition and Consumer Commission, the AER and other Government agencies as required for the purposes of this consultation.

Closing date for submissions: 12 March 2019 (12:00pm)

Email electricitycode@environment.gov.au

Mail Energy Division – Electricity Retail Code

Department of the Environment and Energy

GPO Box 787

Canberra ACT 2601

Enquiries Enquiries can be directed to electricitycode@environment.gov.au

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1. INTRODUCTION

On 20 August 2018, the Australian Government announced it would implement a default market offer (DMO) for retail electricity standing offers as recommended by the Australian Competition and Consumer Commission (ACCC) in its Retail Electricity Pricing Inquiry (REPI) final report.1 The Government also announced it would adopt the ACCC’s recommendation to use the new default rate as a reference point in advertising.2

A DMO will protect consumers by serving as a price ceiling on the standing offer prices experienced by the majority of household and small business customers3. In this way it will limit the ‘loyalty tax’ that is levied on disengaged consumers in price de-regulated retail electricity markets.

Requiring retailers to use the DMO as a common reference point for comparing electricity offers will clarify for customers the relative competitiveness of different offers, addressing the current confusion that results from discounts being made off differing base rates, and helping ensure consumers get a better deal. This is referred to as the reference price.

In August 2018, the Government committed to working with the states and territories to introduce these requirements under the National Energy Retail Law (NERL).4 Changes to the NERL to introduce the DMO require the full agreement of all participating state and territory governments. As agreement has not been reached, the Australian Government has decided to introduce the DMO and reference bill via Commonwealth law through regulations made under the Competition and Consumer Act 2010 (CCA).

1.1 Rationale for Australian Government action

The Australian Government commissioned the ACCC to undertake its Retail Electricity Pricing Inquiry to ensure the National Electricity Market (NEM) is a competitive one which delivers the best price outcomes for households and businesses.

The ACCC’s overarching finding was that the NEM is not operating in the best interests of consumers and reform is needed. It recommended a package of reforms to improve, among other things, competition and transparency in the retail sector in order to improve price outcomes for consumers and address barriers to effective consumer engagement.

In the retail electricity market there are generally two types of offers customers can receive, a market offer and a standing offer. In price-deregulated markets, the retailer determines the prices for both their standing and market offers.

The standing offer includes mandated additional consumer protections and is generally the highest priced offer in the market.5 The ACCC found the price differential between standing and market offers was unjustifiably high, with the rate of standing offer price increases

1 ACCC, Restoring electricity affordability and Australia’s competitive advantage: Retail Electricity Pricing Inquiry—Final Report, June 2018, see Recommendation 30 p252 and Recommendation 49 p341.2 ACCC,—Final Report, June 2018, p266 see Recommendation 32 p252 and Recommendation 50 p341.3 As per the ACCC recommendation the DMO is aimed to apply to flat rate and controlled load standing offers in network regions where the standing offer rate is not already regulated under a state or territory law.4 The National Energy Retail Law 2012 (NERL) applies in most states across the National Electricity Market and includes the ACT, NSW, Queensland, South Australia and Tasmania. The NERL does not apply in Victoria, Western Australia or the Northern Territory.5 ACCC (2018), REPI, p.241

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outstripping those of market offers. It found price dispersion between the median standing offer and best market offer of between $273 and $832 depending on the network region.6

The high cost of standing offers was found to far exceed the additional costs involved in providing the mandated additional protections required for standing offer customers.7 The ACCC concluded excessive standing offer prices have largely been driven by retailers seeking to:

use high standing offers as an inflated ‘base rate’ for market offers, to which significant, and largely conditional, discounts are then applied, effectively misleading and confusing consumers by creating a false sense of benefit; and,

cross subsidise the costs of customers on discounts or with low usage (solar).

High standing offer prices have a significant cost impact on families and small businesses – particularly vulnerable customers who find the electricity market difficult to navigate. The Government shares the ACCC’s concerns and agrees timely action must be taken to put downward pressure on exorbitant retail prices.

Introducing a standing offer price cap set by the AER, as recommended by the ACCC8, will protect around 750,000 residential customers in price-deregulated regions (South East Queensland, New South Wales and South Australia9) on standing offers – approximately 14 per cent of all residential customers10 – and help prevent retailers taking advantage of consumer disengagement.

The introduction of the standing offer price ceiling will not, by itself, address the customer confusion resulting from the lack of comparability of electricity offers, particularly those with discounts. This is because retailers will able to set different market offer base prices (albeit beneath the AER-determined price cap) from which they can discount.

The ACCC found for a medium household in Adelaide, Brisbane and Sydney there was a difference of over $500 between the lowest and highest priced standing offers. This means the size of a discount, based on these very variable underlying prices, is not a reliable indicator of the actual cost benefit to a consumer.11

While action has been undertaken by both Commonwealth and State governments to address information asymmetries12, advertising market offers on the basis of the size of the discount rather than the true cost of the plan needs to be addressed if consumers are going to regain trust in the sector and invest time and effort in shopping around.

The ACCC REPI raised concerns that13:

6 ACCC (2018), REPI, p 2417 ibid. p.2428 Refer recommendations 30 and 49 of the ACCC’s REPI final report, July 2018.9 Victoria has announced it will be introducing its own default offer from 1 July. Legislation was introduced into the Victorian Parliament on 19 February 2019 to achieve this. If implemented, the proposed Commonwealth DMO will not apply in Victoria.10 Departmental analysis based on customers numbers on Annual report on compliance and performance of the retail energy market. 11 ACCC (2018), REPI, p 26412 Development of both national and state-specific comparator websites; communication campaigns, including the Commonwealth’s Powering Forward campaign; and, the introduction of the Retail Pricing Information Guidelines under the NERL ensuring a consistent approach to the presentation of retail electricity offers.13 REPI, pp259-260

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the current approach to discounting electricity offers is likely to give consumers a false impression about the best offer on the market; and,

without intervention, the retail sector will otherwise continue to rely on discounting as its primary method of competition.

This ‘discount off what?’ issue is not a new problem within the retail electricity market.14 But despite recent efforts, an industry-led solution remains to be implemented. Considering the difference between retailers, a regulated approach will not only be in the best interest of consumers but smaller retailers as well.

The Australian Government agrees with the ACCC that government-led regulation is required to improve transparency in the market and address customer confusion about the comparative value of retail electricity plans.

Requiring retailers to advertise their standing and market offers in comparison to a common reference point (the AER-determined price), consistent with the recommendation of the ACCC15, will introduce much-needed transparency in the retail market and ensure customers are more able to compare electricity offers.

The Government has taken into consideration the comprehensive policy analysis and consultation process from the ACCC REPI process, which included an issues paper, preliminary report and final report, and was informed by over 200 submissions. The REPI process included consideration of the concerns around pricing outcomes and price transparency. The Government has concluded on the weight of the substantive evidence and analysis provided by the REPI Final Report that policy action is warranted.

This consultation paper therefore seeks stakeholder advice on how best to implement the policy objectives put forward by the REPI report under Commonwealth Law and specifically seeks advice on implementation and compliance issues related to the introduction of the Code.

14 Grattan (2017), Price shock: Is the retail electricity market failing consumers?15 Refer Recommendations 32 and 50 of the ACCC’s REPI final report, July 2018

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2. PROPOSED REGULATORY APPROACH

The proposed Competition and Consumer (Industry Code – Electricity Retail) Regulations 2019 (the Code) at Appendix B gives effect to a default offer and reference price obligations.

Under the draft Code, and for the purposes of paragraph 44AH(b) of the CCA, the AER is conferred the functions of both:

determining a reasonable total annual price for residential customers, residential customers on a controlled load tariff, and small business customers; and,

making a model annual usage determination in respect of those customer types.

A mandatory industry code is also prescribed for the purposes of Part IVB of the CCA, which sets two obligations against the AER’s price and usage determinations:

Firstly, electricity retailers must not set their standing offer prices in excess of the AER’s determined annual price. This sets a price ceiling for most standing offers.

Secondly, electricity retailers must clearly communicate or advertise the difference between their retail offers and the AER-determined annual price. This ensures customers are provided with clear information about the relative value of an electricity offer.

In addition, to improve transparency and clarity around discounts, the draft Code prevents advertising a conditional discount as a ‘headline’ discount and requires retailers to clearly and prominently advertise the terms of any conditional discount that forms part of an offer.

In recent years we have seen technological and market changes across the retail electricity sector and supporting industries including distributed generation. Therefore the Code has also been designed to allow for amendments that will expand the range of customer types and tariff types, as:

new tariff types or technologies emerge;

the necessary data and information becomes available to the AER for all affected network regions – including potentially information gathered under appropriate powers; and,

customers take up those offer types and technologies.

The consulation paper discusses the exclusions in greater detail below.

2.1 AER determinations

In October 2018, the Australian Government asked the AER to commence work on determining a DMO price and reference price in each price-deregulated jurisdiction in the NEM. As Victoria is moving to introduce its own regulated default offer from 1 July 2019, with legislation introduced in the Victorian Parliament on 19 February 2019, the Government subsequently advised the AER it is currently not necessary for it to undertake work to determine default market offer prices for Victorian network prices.

The AER released a position paper on its proposed approach to the determinations in November 2018.16 The AER is expected to release its draft price determination on 23 February 2019 and it should be read in conjunction with the draft Code. The AER’s final price and usage determinations are expected in late April 2019.

16 AER (2018), AER Position paper – Default market offer prices7

3. PROPOSED OPERATION OF THE CODE

3.1 Application

Scope

The draft Code, as a Commonwealth instrument, will be in force across Australia in all states and territories. But in order to avoid the risks associated with regulatory overlap and uncertainty, the AER will only be required to make a determination in network distribution regions where standing offer prices are not regulated under a law of a state or territory.

Price-regulated regions generally have a dominant incumbent retailer, low levels or no competition, and no (or marginal) price dispersion between standing offer prices and market offer prices. In most cases, the regulated standing offer price is also subsidised by the state or territory concerned, often to address the higher cost of supply to certain regions within that state or territory.

The concerns identified by the ACCC concerning standing offers are specifically related to those regions where retailers set standing offer prices. The issues concerning the underlying costs driving retail prices in regulated states and territories in the NEM are considered in the wholesale and network sections of the ACCC REPI and are not a focus of this draft Code or its consultation process.

The majority of customers are supplied in electricity distribution networks with more than 100,000 customers. Smaller distribution regions, where customers can often be supplied under bespoke arrangements, have been excluded to reduce regulatory burden.

Applicable standing offer pricing arrangements

While ‘standing offer’ is the prevailing terminology in jurisdictions which have adopted the NERL, the concept of ‘standing offer prices’ is intended to capture similar standardised arrangements in all jurisdictions, and apply to the prices for supplying electricity to residential and small business customers using less than 100 MWh of electricity a year where:

the retailer is required under state or territory law to offer to supply the electricity (for example, because the retailer is the ‘designated retailer’ for the customer within the meaning of the NERL); or,

the electricity is not supplied under a contract (for example, where a customer moves into a house and starts to use electricity before contacting a retailer, continues to use electricity after an electricity supply contract terminates, or is transferred to another retailer under a retailer of last resort scheme).

The draft Code is currently designed to apply to the most common supply arrangements and tariff types. This includes offers for supply to all small customers within the meaning of the definition at section ^6 of the draft Code – residential customers and small business customers supplied under arrangements which do not include a controlled load tariff. However, it is currently proposed the Code not include niche arrangements, or arrangements where price and usage outcomes can be highly variable between customers or difficult to quantify. For this reason, demand tariffs, prepayment meters, embedded networks and solar customers are not currently included in the definition of small customer at this time.

That said, the Government recognises that innovation in the retail electricity sector and distributed energy services necessitate the inclusion of these supply arrangements as soon as

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the data and market information permits the AER to make a reasonable determination. This will ensure the maximum number of households and small businesses are able to benefit from the Code.

From 1 July 2020 the Government intends to expand the Code to cover customers with solar specific offers to ensure they get access to a meaningful reference price. There is currently no data available to determine the number of customers with solar PV systems that are on standing offers, however, it is expected that nearly all of these solar PV customers would be on market offers.

The AER has limited access to the information necessary to make determinations with respect to solar customers. The Government remains committed to provide the AER with information gathering powers for the purposes of setting default prices and model usage profiles.

Questions

1. Is the intended scope of the Code appropriately reflected in the definitions, particularly those definitions for ‘standing offer prices’17 and ‘small customers’18?

2. Do you agree that solar customers, which are currently excluded through the definition of small customers at section ^6 should be excluded? If not, how could the current data gaps be addressed to enable the AER to make uniform and equitable price and usage detrminations for these customers?

3. Is the scope of the instrument at Division 3, which applies to these standard supply arrangements for customers in Australia’s main electricity distribution zones, appropriate? Are there any risks associated with limiting application of the instrument to those distribution regions with 100,000 or more consumers?

3.2 Capping standing offer prices at the AER-determined price

Scope of the price cap

As outlined above, the draft Code requires retailers to ensure their ‘standing offer prices’, where not regulated under state or territory law, do not exceed the price determined by the AER for that region and type of small customer.

While the definition of small customer at section ^6 indicates three broad customer types, the draft Code at section ^10(1)(b) also provides that the price cap specifically will not apply to standing offer prices that include a flexible tariff.

This means within a particular distribution region, ‘flat rate’ standing offers prices will be capped at the AER-determined total annual price for residential customers without a controlled load, residential customers with a controlled load and small business customers.

As described above, the Code is designed to apply to the most common supply arrangements and tariff types. While flexible tariff customers are covered by the reference pricing provisions, described below, the small number of flexible tariff customers on standing offers are not currently covered by the DMO price cap. It is estimated that only a small number of customers (both residential and small business) are on flexible tariffs and a neglible proportion of those customers would be on standing offers, making a determination for this customer group

17 Section ^5 18 Section ^6

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complex (due to a lack of necessary usage information). Therefore the Government recognises the limited benefit of a determination at this stage.

However, in addition to expanding the entirety of the Code to solar customers, the Government considers it important to expand the DMO provisions to cover customers on flexible tariffs from 1 July 2020. The intention of this expansion is to ensure the maximum number of consumers will have access to the full benefits of the Code.

Compliance with the price cap

In assessing whether standing offer prices are compliant with the price cap, the retailer’s offer will be calculated as an annual bill in accordance with the AER-determined model annual usage for that customer type. If a retailer’s proposed standing offer prices are equal to, or lower than, the AER-determined price, the standing offer prices are compliant.

For example, if the AER-determined model annual usage is 5000 kWh a year for a residential customer without a controlled load tariff, then a retailer’s compliance would be assessed by:

multiplying the retailer’s daily supply charge by 365 (the number of days in the financial year);

adding the retailer’s usage charge (which is generally expressed as a number of cents per kWh) multiplied by 5000 (the number of kWhs determined by the AER as the model annual usage); and,

comparing the result with the relevant AER-determined total annual price.

Questions

4. Is the application of the price cap at section ^10, adequately described?

5. Do the proposed price capping provisions give rise to any unintended consequences that need to be addressed? Is the process for determining compliance sufficiently clear?

6. Considering the different systems retailers employ, are there any issues with compliance, particularly for smaller retailers?

7. Do you agree that the tariffs as listed in section ^10 and section ^6 should be explicitly excluded at this time? If not, how could the AER address data gaps that would allow for uniform and equitable determinations across network regions, including for solar customers and those customers on flexible tariffs?

3.3 Requiring retailers’ prices to be compared to a reference price

The draft Code will require retailers to publish how their prices for supplying electricity compare with the AER-determined total annual price for that region and type of small customer. This will include when the retailer advertises or publishes its prices or offers, and circumstances where the offer is made face-to-face or over the phone. The Code will ensure most electricity offers on the market in price-deregulated jurisdictions will be able to be easily compared, and that this information will be clearly conveyed to the customer.

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Compliance with reference price

The draft Code requires the advertisement, publication or offer to prominently state:

how much the customer would be charged under the offer if it consumed electricity in accordance with the model annual usage determination made by the AER;

the difference (expressed as a percentage) between that amount and the AER-determined total annual price (rounded to the nearest whole number); and,

to which distribution region and type of customer the prices relate.

Similar to assessing compliance with the price cap, described above, the retailer’s offer will be calculated as an annual bill in accordance with the AER-determined model annual usage for that customer type.

For example, if the model annual usage determination for a residential customer without a controlled load tariff in the Ausgrid region is 5000 kWh, the retailer’s annualised price for that type of customer and region is $1500, and the AER-determined price for that type of customer and region is $2000, the advertisement would need to state the total annual amount a residential customer without a controlled load in the Ausgrid distribution region would pay under the offer, assuming it consumed 5000 kWh in the year, is $1500, and that this is 25 per cent less than the AER-determined total annual price for that type of customer and region. Refer to Figure 1 for some examples of how this may be advertised:

Figure 1

For residential offers that include a flexible tariff, this calculation will also need to correspond to the timing or pattern of supply determined by the AER as a part of the model annual usage determination for each type of small customer within the meaning of section ^6.

Questions

8. Do the reference price provisions at section ^11 adequately cover all circumstances in which consumers may be presented with details of a retail electricity offer?

9. In expressing the difference between the reference bill and the retail electricity offer (refer section ^11(4)), should this difference be expressed in dollar terms or as a percentage? Which approach would be more useful for consumers?

10. What compliance issues could retailers potentially encounter through the introduction of the reference price (section ^11)?

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Retailer A23% Guaranteed discount from reference bill

2% Conditional Pay-on-time discount

$1500 annual bill

Retailer B25% less than the reference bill

$1500 annual bill

3.4 Advertising conditional discounts

The ACCC highlighted concerns with the impact of deep conditional discounts. The ACCC found that conditional discounts could have a detrimental impact on competition and consumers, as they can confuse consumers when choosing offers, as well as imposing unreasonable late payment fees on those consumers that cannot meet the payment terms of the offer. The ACCC recommended improving transparency as it related to the operation of discounts.

The conditional discounts section of the draft Code (section ^12) will prohibit retailers from advertising offers if the most prominent discount is a conditional discount – for example, conditional payment on time, direct debit or online sign up discounts. Retailers will still be able to clearly advertise a conditional discount, as long as that discount is not the ‘headline’ discount. As part of improving the transparency arrangements around discounting, the Code will also require retailers to clearly and prominently state the terms of a conditional discount.

These obligations around the reference price and discounting will require retailers to contemplate how they are currently advertising offers and the quality and level of information that is provided to consumers. That said, the Government considers it important that the Code provides sufficient flexibility to allow retail businesses to continue to rigorously compete and innovate. As retail businesses announced in December 2019 they would introduce a reference price19, the Government is seeking retailer advice on how the industry approach compares to the regulated reference price and any compliance issues.

Questions

11. The ACCC raised strong concerns over the prevalence of conditional discounts in advertised ‘headline offers’. Does the requirement to prominently display the term of conditional discount balance the risks to consumers and protecting retailer innovation?

12. Should the section on conditional discounting apply in all network regions in Australia, considering conditional discounts are not unique to price-deregulated network regions?

3.5 AER functions

The draft Code requires the AER to make an annual price determination in respect of each distribution region and customer type. This requires the AER to also make a representative annual usage determination in respect of each distribution region and customer type.

Different determinations are required for different regions due to the variance in costs and customer usage.

Accordingly, in relation to a financial year, there will be:

one region-specific model annual usage determination and one total annual price determination for residential customers with a controlled load tariff;

one region-specific model annual usage determination and one total annual price determination for residential customers without a controlled load tariff; and,

19 Australian Energy Council, Energy Comparison Rate Fast Tracked by Retailers, media release 14 December 2018.

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one region-specific model annual usage determination and one total annual price determination for small business customers without a controlled load tariff or a flexible (time of use) tariff.

There will be no specific price determinations for residential customers with a flexible tariff. As the price capping provisions at section ^10 do not apply to prices that include a flexible tariff, a retailer’s standing offer prices for flexible tariffs will not be capped by reference to the AER-determined total annual price. However, retailers will still need to compare its flexible tariff offers with the AER-determined total annual price for residential customers.

The AER’s model annual usage determination will specify:

how much electricity the AER considers a broadly-representative small customer of a particular type in the region would consume in a year (for example, 5000 KWh); and,

except in the case of small business customers, the pattern of that consumption (for example, with a certain percentage of the total amount consumed between particular hours of each day or during particular times of the year). As described above this will enable retailers’ flexible tariff offers to be compared on a consistent basis to the AER-determined total annual price in that region.

Each total annual price determination will specify what the AER considers would be a reasonable total annual price for supplying electricity (in accordance with the model annual usage determination) to small customers of each type in the region. When assessing what is reasonable for these purposes, the AER must have regard to the matters referred to in section ^14(4), including:

wholesale and retail prices in the region;

network costs in the region;

costs of complying with relevant laws;

costs of acquiring and retaining small customers;

costs of serving those customers; and,

the principle that retailers should be able to make a reasonable profit.

This approach is intended to ensure both market factors and cost components are considered as part of a pricing determination, and provides flexibility for the AER so it can consider pre-existing market conditions (for instance, what the market indicates is an appropriate standing offer rate) as well as retailer’s costs when setting annual prices.

The first price determination process undertaken by the AER, to apply from 1 July 2019, will rely on information publicly sourced by the AER. The Government intends to provide the AER with specific information gathering powers for the purposes of setting default prices and model usage profiles in future years in order to support the introduction of solar customers and flexible (time of use) tariff types by 2020.

Questions

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13. In determining a reasonable annual price for supplying electricity in a region to a small customer at section ^14(4), are there other matters to which the AER should have regard? Does this approach appropriately balance regulatory certainty and clarity with flexibility?

14. Does the AER require mandatorily acquired retailer information to inform its determination process in future determination processes? What are the issues with basing prices on retailer costs?

Under the draft Code, determinations for a particular financial year must be made between 1 July and 15 May of the previous year. However, determinations can be remade after 15 May of the previous year in certain limited circumstances, including if the determinations are found to be invalid or are disallowed, or to correct technical errors. The draft Code provides that determinations must not take effect within six weeks of being registered. This is to give retailers time to prepare for the effect of the new determination.

The AER must publish draft determinations at least six weeks before making its final determinations. Accordingly, it is expected the AER would publish draft determinations by 1 April each year and (after considering any submissions received in respect of the drafts) make the final determinations by 15 May, with the determinations taking effect on 1 July.

Questions

15. Is a six week period between the AER’s determination of a total annual price and a model annual usage by 15 May each year (refer section ^15(2)) and commencement of that determination on 1 July sufficient notice for retailers to finalise electricity pricing and offer information?

Both the total annual price determination and the model annual usage determination for each region and customer type are currently characterised as disallowable legislative instruments and will be registered on the Federal Register of Legislation. In 2019, the Government intends to introduce legislative amendments to allow the Code to incorporate any non-disallowable legislative instruments made by the AER as in force or existing from time to time.

Questions

16. Would enabling the Code to incorporate any AER price or usage determinations made as non-disallowable legislative instruments as in force or existing from time to time give rise to any unintended consequences?

3.6 Transitional issues

The Australian Government is aware there may be some instances where the operation of the draft Code may affect existing contracts between retailers and customers for the supply of electricity. The Government seeks advice on any issues that may need to be addressed in finalising the Code.

Questions

17. How will the proposed price cap and comparison obligations affect pre-existing retail electricity contracts?

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APPENDIX A: TABLE OF QUESTIONS

1 Is the intended scope of the Code appropriately reflected in the definitions, particularly the definitions for ‘standing offer prices’ and ‘small customers’?

2 Do you agree that solar customers, which are currently excluded through the definition of small customers at section ^6 should be excluded? If not, how could the current data gaps be addressed to enable the AER to make uniform and equitable price and usage determinations for these customers

3 Is the scope of the instrument at Division 3, which applies to these standard supply arrangements for customers in Australia’s main electricity distribution zones, appropriate? Are there any risks associated with limiting application of the instrument to those distribution regions with 100,000 or more consumers?

4 Is the application of the price cap at section ^10, adequately described?

5 Do the proposed price capping provisions give rise to any unintended consequences that need to be addressed? Is the process for determining compliance sufficiently clear?

6 Considering the different systems retailers do employ are there any issues with compliance particularly for smaller retailers?

7 Do you agree the tariffs as listed in section ^10 and section ^6 should be explicitly excluded at this time? If not, how could the AER address data gaps that would allow for uniform and equitable determinations across network regions, including for solar customers and those customers on flexible tariffs?

8 Do the reference price provisions at section 11 adequately cover all circumstances in which consumers may be presented with details of a retail electricity offer?

9 In expressing the difference between the reference bill and the retail electricity offer (refer section ^11(4)), should this difference be expressed in dollar terms or as a percentage? Which approach would be more useful for consumers?

10 What compliance issues could retailers potentially encounter through the introduction of the reference price (section ^11)

11 The ACCC raised strong concerns over the prevalence of conditional discounts in advertised ‘headline offers’. Does the requirement to prominently display the term of conditional discount balance the risks to consumers and protecting retailer innovation?

12 Should the section on conditional discounting apply in all network regions in Australia, considering conditional discounts are not unique to price-deregulated network regions?

13 In determining a reasonable annual price for supply electricity in a region to a small customer at section ^14(4), are there other matters to which the AER should have regard? Does this approach appropriately balance regulatory certainty and clarity with flexibility?

14 Does the AER require mandatorily acquired retailer information to inform its

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determination process in future determination processes? What are the issues with basing prices on retailer costs?

15 Is a six week period between the AER’s determination of a total annual price and a model annual usage by 15 May each year (refer section ^15(2)) and commencement of that determination on 1 July provide sufficient notice for retailers to finalise electricity pricing and offer information?

16 Would enabling the Code to incorporate any AER price or usage determinations made as non-disallowable legislative instruments as in force or existing from time to time give rise to any unintended consequences

17 How will the proposed price cap and comparison obligations affect pre-existing retail electricity contracts?

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