The price is right: electricity price caps and no headline discounts under the ACCC's Electricity Retail Code of Conduct

The Electricity Retail Code of Conduct, which applies as a mandatory industry code to electricity retailers under Part 2 of the Competition and Consumer (Industry Code – Electricity Retail) Regulations 2019 (Cth), gives the Australian Energy Regulator (AER) the power to set maximum standard offer prices for small electricity customers and imposes new requirements for how retailers advertise their electricity prices.

Currently, if a residential or small business customer does not accept a retailer's market retail offer, then, under the National Energy Retail Law (NERL), the retailer must offer to provide customer retail services under a standard retail contract which adopts model terms and conditions set out in the National Energy Retail Rules.  This is known as a "standing offer" and the "standing offer" price is set by the retailer.

From 1 July 2019, under the Code, an electricity retailer must ensure that its standing offer prices do not exceed the default market offer price (DMO Price) set by the AER for that year.  Under Part 3 of the Regulations, the AER is required to determine an annual DMO Price and a "model annual usage amount of electricity figure" for each affected distribution zone.

The AER published its final determination setting the DMO Prices for the 2019-20 financial year on 30 April 2019, and these price caps will take effect from 1 July. In determining the DMO Price for a region, the AER chose a mid-point (50th percentile) in a range of prices which took into account unique market offers and median standing offers along with forecasts for wholesale costs, network costs and environmental costs for each region.

The introduction of a DMO Price follows the recommendations made by the ACCC its 2017-2018 Retail Electricity Pricing Inquiry. It recommended the introduction of a DMO Price to effectively cap prices on electricity retailers' standing offers. The DMO Price is intended to serve as a safety net for disengaged consumers and address the disproportionate profitability of standing offer customers.

A price cap to apply to retailers' standing offer prices

Residential and small business customers currently on standing offers (with a tariff type covered by the DMO Price) in distribution zones where there is not currently price regulation, (ie. New South Wales, South Australia and South-East Queensland) will be covered by the DMO Price. 

Specifically, a retailer will need to ensure its standing offer does not exceed the DMO Price for:

• residential customers on a flat rate usage tariff;
• residential customers on a flat rate usage tariff with controlled load; and
• small business customers (who use less than 100 MWh per annum) on a flat rate usage tariff.

A flat rate charge includes a fixed daily supply charge and a variable charge reflecting the volume of electricity used (in kWh). A controlled load charge refers to an additional charge for a separately metered part of a customer's load (usually for appliances such as electric hot water storage systems). These charges are usually at a lower rate because they relate to off-peak usage.

Customers not affected by the Code will include customers outside the affected distribution zones in regions which are currently subject to electricity price regulation and customers on market offers.  Victorian customers will not be affected; however, the Victorian Government is implementing a separate default offer, referred to as the "Victorian Default Offer", from 1 July 2019.

Other customers not affected by the changes will include customers in distribution regions with less than 100,000 customers and other types of supply arrangements, such as embedded networks and "time of use" customers.

New requirements imposed on retailers' electricity price advertising

The Code also requires retailers to clearly and conspicuously include the following in any advertisement, publication or offer to a customer from 1 July 2019:

• the difference between the retailer's offered unconditional price^[1] and the DMO Price (or "reference price"), expressed as a rounded whole percentage of the reference price;
• for each conditional discount that a retailer offers, the difference between the retailer's unconditional price and its conditional price,^[2] expressed as a rounded whole percentage of the reference price; and
• the lowest possible offer price (inclusive of all conditional discounts), or the total amount the electricity retailer estimates the customer would be charged for the supply of electricity in the region in the year (assuming all conditional discounts apply).

The advertisement, publication or offer must state the distribution region and the type of small customer to which the offer relates. The Code also prohibits retailers from making conditional headline discounts, and requires that any conditional discounts must not be the most conspicuously advertised item and that the conditions of the discount must be stated clearly and conspicuously.

In its "Guide to the Electricity Retail Code", published June 2019, the ACCC states that the Code does not limit retailers from advertising, publishing or offering additional details relating to price and discounts, provided that retailers comply with the Code requirements. The ACCC also expects retailers to notify customers if their standing offer price is varied as a result of the DMO Price cap (thereby ensuring that retailers comply with the advertising requirements of the Code).

Compliance and enforcement

Compliance with the industry code will be monitored and enforced by the ACCC. A maximum civil penalty of 300 penalty units (which is $63,000 at the time this article was published) applies for each day and occurrence of non-compliance with the Code.

The Code also permits the ACCC to pursue other enforcement actions including, but not limited to, seeking an injunction to prevent non-compliant conduct and compensatory orders.

What's next for the DMO price cap?

The DMO Price cap will be extended to include solar customers (ie. residential customers on standing offers who receive feed-in tariffs for rooftop solar electricity systems).  This will be implemented within two years of the commencement of the Regulations, on a date to be fixed by the Minister.

The AER also will use publicly available information to monitor changes in market retail prices to understand if the DMO Price is achieving its objectives, and to assist with informing future DMO Price determinations.  In addition, a post-implementation review of the Regulations will take place after two years.

What should electricity retailers be doing?

Electricity retailers should ensure they have measures to comply with the Code's requirements from 1 July 2019, which include ensuring that:

• standard offer prices for residential and small business customers in the affected distribution zones do not exceed the AER's DMO Price cap; and
• all advertising, publications or offers made to customers meet the new requirements set out in the Code.

^[1]The unconditional price refers to the total amount that a customer would be charged for electricity in the financial year at the offered prices, disregarding any conditional discounts.^{Back to article}

^[2]The conditional price referred to means the total amount that a customer would be charged for electricity in the financial year at the offered prices, assuming that the conditions on the discount were met and disregarding any other conditional discounts.^{Back to article}