Regulation

A faster process for customers switching retailers

A range of new procedures were recently finalised by the Australian Energy Market Operator (AEMO) which support faster switching for customers who have chosen a new retailer.

Here we set out:
• Why there was a need for change;
• How the transfer process works on a technical level;
• The changes which speed up the process;
• Whether, overall, the changes are a good thing for consumers.

Why the need for change?

In 2018, Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC) finished a far-ranging inquiry into competition in the retail electricity market and released Restoring electricity affordability and Australia’s competitive advantage Retail Electricity Pricing Inquiry—Final Report. This report has been extremely influential on regulators and has led to a range of changes over the past 18 months including:

• the Default Market Offer (‘DMO’) which sets a limit on electricity prices for some electricity customers;
• new requirements for assisting customers in financial hardship, and;
• new requirements for the advertising of ‘discounts’  to use a common base rate.

One problem that was identified in that inquiry, but has yet to be rectified, is the significant time delay in transfer for customers who have signed up to a new retailer. As the transfer is only effective from the date that the meter is finally read (to allow for the final bill to be issued to the new retailer), customers have sometimes had to wait up to 90 days or longer for that reading to take place, in order to transfer. There are three problems with this situation:

(1) It can take customers months to receive the benefits of their new (usually cheaper) electricity offer;

(2) It leads to a confusing period for customers as they are not sure who their retailer is for a significant period of time;

(3) It allows for ‘saving behaviour’ from the customer’s existing retailer (the ‘losing’ retailer). The losing retailer can make a counter-offer, under-cutting the competition, in order to keep their existing customer.  This move is seen by the ACCC as detrimental to a competitive retail electricity market: It provides a competitive edge to incumbent retailers who don’t need to spend money on marketing and acquisition for those customers.

How are customer transfers between retailers actually carried out?

The supply of electricity over the National Electricity Market grid (covering the eastern and south-eastern states) is managed by an IT system called ‘Market Settlements and Transfer Solutions’ or ‘MSATS’, operated by AEMO.

AEMO develops and enforces procedures for the operation of MSATS which all participants, including retailers must follow when transferring customers between each other. The process for a customer transfer is:

• A customer notifies their new retailer that they want to switch;

• That new retailer initiates a step on MSATS, a ‘change request’, to give them responsibility for the customer and sets a date for the meter to be read. Other participants, such as the losing retailer, have the ability to ‘object’, for specified reasons.

• Simultaneously a request is sent to the Meter Data Provider (the person who actually reads the meters), for a final read. After carrying out the read they send a historical data file to the losing retailer.

• The losing retailer ‘validates’ that data and sends out a final bill to the customer.

For more information on this process see the Australian Energy Market Commission’s final determination, p44.

The sticking point in the current process is the third step, the requirement for a final read to be carried out.

The changes

The changes, recently confirmed by AEMO, allow transfers to happen within two business days by altering a range of procedures and rules:

• streamlining the objection process so that fewer objections can be made from other parties during the transfer process;

• to no longer require that a meter reading be taken immediately prior to transfer. Readings taken up to 65 days prior to transfer are permitted. In short, this means that the transfer can be applied ‘retrospectively’, so that the customer can receive the benefits of their new retail offering much sooner and there is no need to wait for a new read.

An additional change is the removal of ‘loss notification’ to the losing retailer. This means that the losing retailer no longer gets a ‘heads up’ that they are going to lose a customer, to enable the losing retailer to win them back.

Are the changes a good thing for consumers?

The changes mean that once a consumer has chosen their new retailer, they will be able to switch much more quickly, and be able to enjoy the benefits of your new contract. However, it may mean that they lose out on an even cheaper option that may have been offered by the losing retailer as a counter-offer.

However, as these changes will benefit smaller and new entrant retailers, they are likely to result in a more competitive electricity market and cheaper prices, in the long run.

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