Energy Action Group

 

What’s in an offer? – What makes you an attractive or unattractive customer!

Buyer Beware!

 

(This section is still under construction – last updated 14 January 2002)

 

The first key issue is to understand the ‘offer’ being made. The offer is different from the ‘contract’. You must ensure that the offer is correctly represented in the contract when it arrives. You must also understand the terms and conditions that are outlined in the contract.

 

Direct debit – if you agree to direct debit and there is insufficient funds in your bank account when the retailer debits your account, you will liable for bank charges. Bank charges are commonly between $20 and $50! Remember, if you pay the bill quarterly there are 4 times a year in which you could be caught short with not enough money in your bank account – even getting caught once could wipe out any benefits in doing direct debit. For those people on low fixed incomes like pensions and Newstart allowances there is both a greater risk of incurring bank charges, and losing the discretion in when you actually pay the account. For example, if you need to buy medication unexpectantly, the money may have already gone from your account to the electricity retailer leaving you short and unable to buy the medicine or because you’ve taken money out to pay the chemist, the direct debit may ‘bounce’.

 

Find out what is going to be printed on the bill. You, as the customer need to know the break down of charges especially the underlying distribution costs. The distribution costs differ between regions and may account for differences in offers. You also want to see on every bill the distinction between distribution and energy costs, between kilowatt per hour charges and standing charges. It is not advisable to accept a contract that minimises this type of information. Retailers argue that each extra piece of information on the bill costs them money to put it on. The real reason is to keep customers ignorant.

 

How long do you wanted to be contracted for?

 

Penalties may apply if you want to end the contract prior to the agreed expiry date.

 

Before trading away things like the consumption graph (retailers are very keen to see it go because they want customers to consumer more not less) think about how the graph helps you understand how much you use (and the environmental implications), but also how it helps you budget.

 

 

What are the retailers interested in?

  1. If it is your current retailer they want you to stay with them. They are likely to offer you a little something to stay but not a lot (eg movie tickets). They don’t want to spend on customers they already have because the reality is most people will probably not bother changing suppliers (this is the experience of telephones and internationally in electricity).
  2. They will make better offers to other retailers customers – but only to those customers who they know will realise them good profits – customers that use a lot, may be willing to buy non-energy products, and are reliable payers (preferably direct debit)
  3. Retailers like direct debit because it comes close to guaranteeing them payment. It also shortens their cash flow cycle which saves them money (in effect retailer are extending their customers credit because they give us the electricity before we pay for it). The ultimate goal of electricity companies is to have customer pay before they use. This is one reason why they are always trying to get ‘pre-payment meters’ introduced. The other reasons they like pre-payment meter is because it saves them sending out accounts and doing the meter reading. One of the most traditional reasons is because people on pre-payment meters have to disconnect themselves if they cannot afford to pay and the utility no longer has to be seen as having any responsibility. Moreover, as people disconnect themselves and the problem of poverty is hidden, government and communities are denied the knowledge of the problem. In EAG’s view electricity and gas are essential services and should be available to all – pre-payment meters do not deliver electricity to all and hence should be opposed.
  4. Retailers like direct debit because then they do not have to pay for a network of agencies at which customers can pay (remember the old days when you could talk to a customer service centre face to face?). At the present time retailers are required to maintain places at which people can pay in person. Mostly this is being able to pay at post offices. However, the retailers claim that this is expensive. In effect people are paying a fee to pay over the counter (this is discriminatory towards those unable or unwilling – like the elderly - to have direct debit arrangements). Over time it is likely only a small number of people will pay at the post office, and that an ‘official’ fee will be introduced. One of the problems is that as a smaller number of people are being serviced this way the cost per person rises. We call this being caught in a ‘residual market’.
  5. The aim of retailers is to shorten the ‘collection cycle’ as much as possible. That is, have you pay as soon as possible. The less the number of meter reads and bill issues the higher the profit for them. As the market develops it is possible that customers will be offered deals in which they are directly directed each fortnight but only have their meter read once a year and are sent only one bill each year. This happens to also be a good way for customers to lose any notion of how much they are consuming and hence tend towards consuming more rather than less.

 

 

 

 

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