A major change came to the Australian energy market from October 1st with consumers now able to switch electricity retailers within two days instead of waiting up to three months.
A new rule titled Reducing Customers' Switching Times implemented by the Australian Energy Market Commission (AEMC) came into effect on 1 October and addresses a key problem in the switching process for retail energy consumers.
TIME TO SWITCH
Previously,retailers would wait for the next scheduled meter reading to action a switch.
About 73% of households in Australia have manual meters, which typically have a quarterly read cycle, so consumers who decide to switch would have to wait for up to 95 days until the next meter reading was complete and the switch could be completed.
Under the rule change, this time period is reduced to only 48 hours, so consumers will now gain benefit from their switch decisions much more quickly.
REDUCE THE CONFUSION
Under the old regime, it was common that the losing retailer would take advantage of switch delays by offering 'win back' deals to customers who had decided to switch.
This has been a key cause of confusion for consumers, who often are not sure who their retailer is, and what prices they are paying through the transition period.
IMPROVE THE INCENTIVES
The lengthy switching window and opportunity to run win-back or save campaigning under the old regime undermines retailers’ incentive to maintain competitive pricing for existing customers.
It's very common in energy retailing that better prices are offered to new customers than are made available to existing customers. The Loyalty Tax is alive and well.
Although not prohibited, the new regime makes it impractical for retailers to conduct win-back and saves operations, which is expected to improve incentive for them to keep existing customers on more competitive rates.
THE NEW RULES
To switch retailers,it's necessary to determine a final meter read on on the day of switch so the old retailer can issue a final bill and close the account, and the new retailer can start charging.
Although not expressly required under the old rules, the market practice has been for retailers to wait until the net scheduled meter read before completing theswitch.
A key element of the rule change is to specifically enable alternative meter reading scenarios to support a switch. Options include:
- Remote meter read (applicable for 'Type 4' smart meters only)
- Last billable meter read
- Special read (where an out-of-cycle actual meter reading is conducted)
- Estimate read (also known as 'substitute' read)made under AEMO metering guidelines, or based on a customer self-read of the meter.
WHAT HASN'T CHANGED
Although switching time is now dramatically reduced for electricity customers, there is still a mandatory 10 business day cooling-off period where a consumer can withdraw from an energy supply contract before it comes into effect.
The effective end-to-end time to complete a switch is now about 18 days:
- 2 days for a new retailer to issue a Welcome Pack including all the detailed contractual terms for the energy plan
- 10 business days (ie 2 weeks, or 14 days elapsed time) mandatory cooling-off period
- 2 days switching window
There is further consultation underway which may result in changes to the cooling-off regime, including potential for cooling-off and switching window to proceed in parallel, or for customers to voluntarily opt-out of the cooling-off period and complete the switch more quickly.
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