Why a discount is not always a discount when it comes to energy

Graham Cooke 29 June 2018 NEWS

Plus... how to spot misleading deals

It’s no secret that energy prices have increased significantly over the last few years, and as a result, many Australians are finding themselves unable to cope with the cost of their bills. In fact, finder.com.au research shows that one in seven Australians often struggle to pay their energy bills.

These exorbitant energy bills have meant more Aussies are looking to take steps to try and reduce their energy bill, and energy providers have been keen to jump in and provide plans with what appear to offer very deep discounts off the normal price. However - actually comparing energy plans is no easy task, and it’s in the best interest of some retailers to keep it that way.

The use of the word "discount" can be both confusing and misleading. While it seems obvious that a 15% discount is better than a 10% one, this is not always the case. Energy retailers can quote their cut in relation to different base rates – with the discount often coming off an artificially high rate which nobody, in reality, pays. This artificially inflated rate, often called the “base rate”, can allow retailers to beef up apparent discounts.

Additionally, discounts are only applied if a consumer meets specific requirements. A lot of time-dependent discounts can appear as a saving, when in actuality they’re a late payment in disguise. Currently, on some plans, you could be forking out hundreds a year for not meeting a pay-on-time condition. As well as needing to meet these conditions, discounts are sometimes only offered for a set benefit period, with plans later rolling back to the original price indefinitely, which can really bump up the price of your energy bill.

To avoid all the confusion, some energy retailers are now following in the steps of Australian supermarkets and offering a lower flat fee rather than constant discounting. You’ll often see this with smaller providers, like Energy Locals, Momentum Energy and Tango Energy, which can end up costing less than the bigger players.

Recently, industry regulators have announced a new rule that states that retailers are unable to intentionally confuse consumers, meaning the savings need to be more explicit. This new rule also restricts retailers from offering big discount plans based on higher rates than their standard.

Some energy retailers have already acted in response to public backlash against misleading discounts and introduced flat plans, but this could be perceived by a cynic as a marketing tactic to win consumers’ trust back and again might not give you the best deal. Although industry regulators are working hard to make things easier for consumers, in a space where nothing is as simple as it might first appear, it’s important for consumers to stay educated and wary when it comes to their energy plan and retailer.

If you’re shopping for a new provider, make sure you understand the energy rate from which any discount applies. Calculate the discounted price and compare that to the flat rate or discounted price of the other retailers. Once you find a suitable rate, have a look at the criteria required to get that discount. Some retailers offer a discount simply for paying by direct debit. As long as you have funds in your account, this can be a relatively hassle-free way to get a cheaper price.

In the end, the old phrase “buyer beware” applies here. With a little bit of homework, you can make sure you’re not being led down the garden path. Comparison sites are also a good resource to turn to for help. Time will tell whether the industry regulator’s ruling will make comparing energy plans and providers an easier task for everyday Australians.

Graham Cooke's Insights Blog examines issues affecting the Australian consumer. It appears regularly on finder.com.au.

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