Why 'Fixed Price' Electricity Contracts Are Not Worth Signing Up For

Think that by signing a fixed-price contract for electricity or gas you'll know what the rate is for the life of the contract? Think again. The market regulator has confirmed that power companies have the right to change the rates charged on a fixed-price contract whenever they like — even before the deal begins. What a ridiculous joke.

Electricity picture from Shutterstock

The Australian Energy Market Commission (AEMC) yesterday rejected a proposal that would have banned power companies from changing the rates charged during a fixed-term contract. Instead, it said that companies must make it clearer that it's possible that the rates might change.

The end result? Something can still be described as a "fixed rate" contract, even though the rate isn't actually fixed. And power providers still aren't obliged to tell you the rate has changed until after they send you a bill featuring the new rates — which you're already stuck with paying. The entire system advantages the power resellers, and the consumer is left to foot an unpredictable bill.

On this point, we agree entirely with the Consumer Action Law Centre, which was one of the groups pushing for the change. "Australians think a contract actually stands for something — that the price you sign up for is the price you should pay. But energy companies think it's OK to change the terms of the contract as they wish, and it seems the national rule maker agrees with them," Gerard Brody from the centre commented.

The fact this is allowed makes a nonsense of the notion of a fixed-price contract and of market regulation. The lesson here? As with mobile phones, contract deals are bad news. And competition between electricity providers has not always resulted in better deals for consumers — something to bear in mind the next time you hear that moving services to the private sector to enable competition is the only way to go.


Comments

    I believe I saw on the news recently "Australia is a mecca for corporate crooks", or words to that effect. I guess the evidence is in then..? :)

    Last edited 24/10/14 8:47 am

      It sure is. I believe you were referring to this report :
      http://www.abc.net.au/news/2014-10-22/australia-a-paradise-for-corporate-crooks-says-regulator/5832538

      This is no surprise really. The punishment for white collar crimes in Australia is a JOKE! In the US for example, Madoff got sentenced to 150 YEARS in jail!
      If his case happened in Australia, he would probably get 5 or so (if he doesn't get off with community work and a fine) and be out on parole in 18 months.

      Australia is a very wealthy country with plenty of money floating around to steal and a lax judicial system (and no death penalty). If I wanted to become a white collar criminal, Australia would be my FIRST choice!

    Contracts are something I avoid religiously.

    Basically I just assume the energy/phone company is trying to screw me, so if they like having me on a contract it's good for them and bad for me.

      I have exactly the same attitude.
      Wish more aussies were like us. Consumer affairs in this country would have looked very different if that was the case.
      http://spendinghacker.com.au/loyalty-is-dead

    So what does the ACCC think of this new definition of "Fixed Price"?

    "Unlimited" Internet and "Freshly Baked" at least had some semblance of arguable legitimacy.
    (Unlimited they throttled, but never cut off your service, Freshly Baked was at least put in an oven quite recently).
    Defining "Fixed Price" to mean the price can be adjusted has no arguable legitimacy that I can see.

    I understand that energy companies are the only companies that are allowed to alter the prices within fixed contracts.

    Stop bitching and moaning everyone and running to 'mummy' the regulator to protect you from the big bad power companies screwing you over.

    The solution is simple: NEVER EVER EVER sign up to a lock-in contract that ties you in with a provider of ANY kind and always make sure you can 'jump ship' at ANY time and face providers against each others.

    I like to have companies go at each other's throat and 'spill blood' so to speak in order to secure MY business before I get any product or service. I suggest you all adopt a similar attitude.

    If you want some help, we prepared a guide that will teach you in 3 easy steps how to find the ABSOLUTE BEST deal on electricity where you live (provided you have a choice of retailer in your area). The guide is free with no strings attached and the whole process it outlines shouldn't take more than 30 minutes.
    I suggest you conduct a review of your electricity provider regularly (at least annually) following this simple process. It is a much better and more efficient use of your time.

    http://spendinghacker.com.au/best-electricity-plans-in-australia/

    With regards to the debate on whether or not power generation, distribution and sale should be privatised or not, it is interesting to observe the WA example.
    The electricity market in WA is FULLY owned by the state government with it owning the power generators, the two distribution companies (a.k.a "the poles and wires") and the retail business which sells electricity to households (SMEs or companies that consume above a certain threshold per annum get a choice of retailer).
    The WA government runs all these business at a loss on purpose in order to keep electricity prices for Western Australians lower than the national average.
    http://www.horizonpower.com.au/residential_electricity_prices.html

    Problem is, there are no free lunches. Because all these businesses are losing money hand over fist, the state government (and hence the WA taxpayer) need to keep providing subsidies (a.k.a handouts/bailouts) to keep them afloat.
    Recently, the WA government is coming more and more to the realisation that this is not sustainable and is looking at increasing prices and also introducing a "supply charge" which already exists in most eastern states and is a fixed daily charge for having your premises connected to the grid:
    https://au.news.yahoo.com/thewest/a/23344552/review-may-raise-electricity-bills/

    So people who say that the government should own and operate all aspects of the electricity market in order to keep prices low, might not have a good understanding of the bigger picture.

    My personal opinion is that the people (through their government) should own the distribution network (i.e. the poles and wires) and potentially have its maintenance put out to tender and given to the most competitive bidder.

    As far as electricity generation and the electricity retailers, this should be fully deregulated and legislation introduced to make sure a healthy (read 'ruthless') competition is maintained, including from small generators and renewable. The last thing we need is another private MONOPOLY like Telstra.

    But that's just my opinion... :)

    Last edited 24/10/14 1:22 pm

    ABC's "The Checkout" did a story on this recently.

    https://www.youtube.com/watch?v=8ieFPi8tIo0

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