A new rule passed by the Australian Energy Market Commission (AEMC) will prevent energy retailers from charging new tariffs to customers who had smart meters installed as part of the mandatory national rollout, currently underway.  

But until the new rule takes effect, energy customers may continue to be taken by surprise when their bills go up, often due to the addition of 'demand charges'.

From 1 December 2025, energy retailers will not be allowed to apply new charges – including demand charges – without the customer's consent, for two years following the installation of an energy meter. After the two year grace period, retailers will have to provide customers with clear information about how any tariff changes will affect their bills as compared to what they were previously paying. 

But the more than 7 million properties around Australia that had already been connected to a smart meter when the AEMC announced the corrective measure, along with any additional properties hooked up before 1 December 2025, will have no such protections.

What are 'demand charges'

Demand charges are based on the highest amount of electricity used for one 30-minute block or similar timeframe during peak usage times over the monthly billing cycle. 

This level of usage then determines how much customers pay in the demand period set by the retailer for the entire billing cycle. In other words, you'll be charged for the highest amount of electricity you used in a single peak period for every peak period of the billing cycle, even if your usage in this time slot on other days is comparatively minimal. It's hard not to see demand charges as anything but a raw deal for household customers. 

It's hard not to see demand charges as anything but a raw deal for household customers

According to a report released by the Australian Competition and Consumer Commission in December last year, over half the customers on plans that include demand charges are paying more than the government safety net price, also known as a Default Market Offer. That means that many customers who ostensibly tried to get the best deal from their energy provider – which often includes time-of-use pricing such as demand charges – are paying more than customers who simply accepted the default offer. 

When we asked the AEMC about the fairness of demand charges late last year, AEMC chair Anna Collyer told us that the agency is "examining the broader pricing landscape to ensure the tariffs customers see align with their preferences and needs".

"Through our consultation, we heard consumers' concerns about complex tariff structures. That's why we've put in place strong safeguards requiring retailers to give customers clear information about any proposed tariff changes, including detailed bill comparisons using their actual usage data," Collyer said. "The message is simple – no one should get an unexpected change to their bill after getting a smart meter."

So far only Queensland offereing flat-rate options

Along with the two-year grace period, the AEMC decreed late last year that energy retailers should take it upon themselves to offer customers with smart meters a flat-rate option without demand charges or other new tariffs. 

This would give the many millions of customers who have had or will have a smart meter installed before December 2025 a way out of demand tariffs.

But there was a catch – states and territories that comprise the National Energy Market (Queensland, New South Wales, the ACT, Victoria, South Australia and Tasmania) would have to implement this on their own. So far, only Queensland has done so.

In September last year, the Queensland government ruled that customers on smart meters who had been moved to a demand or time-of-use tariff must be allowed to switch to a flat-rate tariff with no demand charge or other form of dynamic pricing. The ruling caught retailers off guard and they expressed their concerns to the Australian Energy Regulator (AER). 

In September last year, the Queensland government ruled that customers on smart meters who had been moved to a demand tariff must be allowed to switch to a flat-rate tariff

On 19 December last year, the AER acknowledged in a letter to Queensland retailers that coming up with a flat-rate offer doesn't happen overnight. The regulator urged retailers to "prioritise implementation activities" and "self-report any non-compliance" by 28 February. 

Two out of five major retailers now in compliance in Queensland

In early January, CHOICE contacted five of the biggest energy retailers operating in Queensland – Red Energy, EnergyAustralia, Origin, Alinta and AGL – and asked if they had rolled out their flat-rate options in line with the September ruling.  

Energy Australia told us that flat-rate tariffs are currently available in Queensland, saying the retailer "works closely with the Australian Energy Regulator to ensure our customer offerings reflect the latest guidance". Origin Energy also says it has a flat-rate option available in Queensland. According to the company, it doesn't offer a plan with demand tariffs.

AGL tells CHOICE it aims to have a flat-rate offer available in Queensland by the end of January. Red Energy told us it will provide a flat-rate option to Queensland customers with smart meters from late February. Alinta Energy didn't respond to our questions.

Many energy customers who have had smart meters installed as part of the national rollout have been suprised by new tariffs.

Consumers want simple pricing 

Dr Brendan French, CEO of the advocacy group Energy Consumers Australia (ECA), tells CHOICE that a recent survey of 4000 households conducted by the organisation revealed that over half (54%) "want a basic energy account with simple pricing". 

ECA says it supports the accelerated rollout of smart meters as they will provide real-time data on energy use and give households the means to better manage their electricity bills. But that doesn't mean retailers should use the rollout as an opportunity to impose new tariffs.

"We're opposed to consumers being automatically put on time-of-use and demand tariffs, particularly without their informed consent or proper notice – and certainly not until sufficient support mechanisms are in place to protect those whose costs will go up because they can't move their consumption outside peak times," French says. 

We're opposed to consumers being automatically put on time-of-use and demand tariffs, particularly without their informed consent or proper notice

Energy Consumers Australia CEO Dr Brendan French

Research by ECA has found that dynamic pricing such as demand and time-of-use tariffs has not had a major impact on reducing household energy bills. That's because relatively few customers adjust their energy usage to avoid peak charges. 

"This shows that dynamic pricing structures are yet to incentivise the kinds of consumer behaviour that the market hopes to see," French says. 

Whether customers take advantage of the data that smart meters provide to lower their energy costs will depend on their circumstances. For many, using power at off-peak times won't be an option. Others may be willing to engage with complicated pricing options and work out how to shift their consumption habits.

Whatever the case, the customer should be in the driver's seat, says French. "Consumers need a pricing option that works for them and provides them with autonomy over their energy choices."

Stock images: Getty, unless otherwise stated.

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