Even more complex energy deals to be hawked door-to-door

We’ve long argued that consumers can have difficulty making purchasing decisions in high pressure environments like door-to-door sales.  We’re now concerned that things are about to get worse, following the Victorian Government announcement that flexible pricing for electricity will be more widely available from July 2013.

While consumers will maintain the right to stay on flat tariffs (that is, existing types of tariffs), we’re likely to see increased marketing of more complex energy deals from retailers. There are pros and cons to these new tariff offerings, but we think everyone should agree that flexible pricing energy deals are too complex to be marketed door-to-door.

If you choose a flexible pricing offer, different rates will apply at different times throughout the day.  The higher rates will be during peak times (e.g. 3pm to 9pm)  and the lower rates will be during shoulder (e.g. mornings, or weekends) and off-peak times (e.g. over night). You can pay less for your electricity by using power outside of the peak hours.

The point of these new deals is to encourage consumers to move consumption away from peak times, thereby reducing the need for expensive network upgrades and new generating plants. This makes some sense, however there will be many who many not easily be able to move their consumption and these deals might not be appropriate for them. For example, older people, the ill and infirmed, or single parents with children may have difficulty using energy at different times of day.

For others, human behaviour is likely to mean that consumers will seek immediate comfort from the service energy provides (heating, cooling), rather than thinking about the cost which will come later with the bill—humans do not always rationally respond to price signals.

Importantly, the Government has stated that flexible pricing will be voluntary. However, we need to unpack what that means.

Most energy sales are made through door-to-door marketing. And most door-to-door sales pitches involve significant pressure at best, and outright misleading claims at worst. Research has confirmed that the door-to-door sales industry’s reliance on commission-based remuneration schemes drives aggressive sales behaviour and encourages salespeople to adopt tactics that are not fully compliant in order to secure more sales.

As energy deals offering flexible pricing becomes increasingly available, there is a real policy question as to whether a consumer can effectively engage with the deal at their door. In our view, consumers cannot. Even the savviest consumers could not easily work out whether a flexible pricing deal will be suitable for them without considering their energy consumption patterns, their lifestyle, and looking at a range of offers that might be available.  This is next to impossible to do when a salesperson is putting on the hard pitch.

There are a couple of consumer protections in place or proposed. Cooling off periods is an obvious one—consumers always have the opportunity to cancel a door-to-door sale within 10 business days. There is increasing evidence, however, that cooling off protections are based on a misconception of how consumers behave—behavioural experiments demonstrate that consumers are unlikely to back out of agreements due to a range of behavioural biases. Moreover, a consumer is only likely to realise that a flexible pricing arrangement is a bad deal when the first bill comes, some months after the cooling off period expires.

The Victorian Government is also proposing a “safe try” period: until March 2015, households will be able to move to a new flexible price offer with their current retailer and later switch back to their previous tariff without penalty if they are uncomfortable with the change. Disappointingly, however, this protection will not apply to consumers who switch retailers as part of a deal that offers flexible pricing.

In Victoria, over a quarter of all customers switch retailers annually, largely in response to door-to-door marketing. We think that most consumers who move to a new flexible pricing deal will do so when switching, in response to marketing from a new retailer. This might mean for many, the “safe try” period won’t provide protection.

It is clear that governments and the energy industry want us to move to a world of more complex flexible energy pricing is available. If this is to occur, Consumer Action thinks these new offers should not be allowed to be hawked door-to-door.

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