Fixed term energy contracts do not guarantee fixed prices

CUAC: Current arrangements heavily skewed towards interests of retailers

The Consumer Utilities Advocacy Centre, along with other consumer groups, has long been concerned about regulations in Victoria that allow energy retailers to vary a customer’s electricity or gas prices during the term of a fixed term contract. Under current provisions, retailers may vary prices even though a customer has signed up for a long term contract and can be confronted with exit fees if they wish to leave the contract. Under such arrangements, consumer gains from switching supplier can be quickly eroded as the supplier increases prices. The consumer is penalised if they then wish to find a more suitable offer.

The current arrangements are heavily skewed towards the interests of retailers and away from those of consumers. Retailers have the certainty of locking in a customer for a fixed period of time with compensation if the customer leaves. Customers, on the other hand, have little certainty, and face only the prospect of increased costs or penalties.

CUAC proposes a change to existing regulations to ensure that fixed term contracts provide a fixed price for the entire duration of the contract. This would promote a more competitive and flexible market that genuinely meets the diverse needs of consumers.

Under our proposal, consumers that value certainty can select a fixed term contract and know the ongoing price that they will pay for energy over the duration of the contract. Customers who prefer flexibility may select a contract without a fixed term that allows them to shop around at any time. As some market offers providing price certainty for consumers are already available, CUAC believes that the reform is one that retailers could realistically implement.

As part of its effort to advance the proposed reform, CUAC conducted a survey of Victorian energy consumers to gauge their views on the current operation of fixed term contracts in the energy industry. Our survey of 507 Victorian energy consumers revealed strong views on the need for change. In fact, 86 per cent of respondents indicated that they felt that current regulatory arrangements were unfair. An even greater proportion—94 per cent—said that they would support a change to regulations along the lines recommended by CUAC.

CUAC’s earlier research has highlighted the need to provide market frameworks that facilitate effective consumer choice and promote consumer confidence. If adopted, our current reform proposal will support this objective and, consequently, will strengthen the retail market. It is grounded in good policy principles and seems to enjoy remarkable support from energy consumers. The reform would mean that consumers who go to the effort of switching can be more certain of benefitting from it, which can only encourage continued engagement in the market.

CUAC has produced two advocacy documents to support our case for reform: Fixing up fixed term contracts for energy customers: Your questions answered , and Fixing up fixed term contracts for energy customers: What consumers are saying.

Download the documents at