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On the Wire

Issue 45, September 2015

In this edition


Complex market? Simple dispute resolution - Our Two Cents

Consumer Advocacy
Market Updates

Our two cents


Complex market? Simple dispute resolution
 

There is a fundamental shift underway in Australia’s energy market. Where consumers used to simply be the end of a long vertical supply chain, recent market reform, changing technology costs and a growing collaborative economy, have put consumers in the driver’s seat, allowing them to pick and choose innovative products and services.

The innovation in the electricity market is attractive to consumers. As other collaborative markets have shown (for example, Uber, Air BnB and Netflix), consumers are becoming more comfortable with throwing out old models to find services that better meet their needs. And as disruptive electricity technologies and services become cheaper and more mainstream, more consumers will find ways of sourcing their supply or managing their demand to get modern utility from an old service.

Take for example the solar power purchase agreement model. Consumers can already get a ‘free’ solar panel (paid for through the price per kilowatt of energy it generates) which is appealing to consumers looking for relief from price rises, or wanting to reduce their reliance on untrusted retailers.[1] If a battery company devised a product that could add a ‘free’ storage device to a ‘free’ solar panel, many consumers who previously may not have been able to afford it, could foreseeably make a decision to go off-grid. Provided this decision was undertaken understanding the risks and costs, this is potentially a great outcome for consumers.

But what happens when things go wrong? What if the equipment fails or disputes arise with complex products that involve a network of commercial relationships, where some companies may be licensed under the National Energy Customer Framework and some may be exempted?

In our recent submission to the Victorian review of the energy licensing and exemptions framework, we argued that as the market gets more complex the need for simple, free and independent dispute resolution grows. Dispute resolution must be consistent, regardless of where a consumer’s energy supply comes from, who it is managed by and whether or not they are licensed or exempt. Ensuring that all suppliers, sellers and distributors of electricity are members of an Ombudsman scheme is a simple and smart step to fostering good outcomes for consumers in a complex market. Truly competitive markets rely on confident and informed consumer participation, so making sure consumers can get good outcomes is paramount. This includes fair outcomes when things go wrong.
 
[1] Currently only 9% of consumers trust their energy retailer (Accenture; 2014)
Image from Michael Coghlan
Got a great energy story? A consumer fighting back? A great new innovation in the market? Let us know!

Consumer Advocacy

 

Consumers make landmark legal challenge to energy price


Oliver Derum, Senior Policy Officer, Public Interest Advocacy Centre

Energy is essential for a dignified life. Without electricity and gas, we cannot heat and light our homes, cook, have hot water, refrigerate food or use mobiles phones and computers. However, as shown in Consumer Action’s recent report, Heat or Eat, the high price of energy means people often face tough choices and endure horrible deprivation in order to afford their bills. A landmark legal challenge to electricity prices in NSW now offers some hope for relief across the National Energy Market.

The cost of energy networks (the poles and wires that transport electricity and the pipes that transport gas) make up at least half of final retail bills. In most states, dramatic increases in network costs were the biggest cause of the doubling of electricity prices in recent years. Much of the increase was used to build infrastructure that is currently under used and arguably wasn’t necessary. Nonetheless, network businesses are not only able to recover all the money they invested, but to earn a profit on every dollar. All through the bills we pay.

In an effort to improve things for consumers, state, territory and national governments agreed to sweeping reforms to the Australian Energy Regulator’s (AER) powers to set network revenue and the laws governing appeals of the AER’s decisions. The AER used its new powers for the first time when it made determinations for four networks in NSW and the ACT on 30 April this year. And no one was happy with their decisions.

The Public Interest Advocacy Centre (PIAC) appealed the AER’s decision, believing the AER had failed to fully use its powers to bring network spending down to efficient levels. PIAC is seeking a cut in average electricity bills of about $200 a year.

PIAC is the first consumer group to have been successful in having such an appeal heard (in the Australian Competition Tribunal). PIAC acknowledges the important contribution of Consumer Action to this achievement, as a key driver or reforms that protect consumer groups from cost risk when taking such actions.

The four NSW/ACT electricity networks also appealed the AER’s decisions, claiming the AER had cut their revenue allowances hugely below required levels. The networks are seeking to increase an average bill in NSW by more than $500 per year.

More importantly, the networks are hoping to destroy the entire legal foundation of the AER’s new powers. Despite having ample opportunities to contribute to the development of the AER’s new methodologies, the networks are seeking to have the new approaches thrown out by the Tribunal and the Federal Court at the first opportunity.
 
They are being joined in these efforts by five networks from Victoria, one from South Australia and one from Queensland, which have intervened in the cases. While not in lock step with the NSW networks on every issue, all the businesses will spare no expense to try and prevent an end to massive revenue allowances and super profits. 

At the time of writing, the Tribunal was about to commence three weeks of hearings for the cases. The outcome will be watched across the country, from boardrooms to kitchen tables.

Heat or Eat – the true cost disconnection


Janine Rayner, Senior Policy Officer, Consumer Action Law Centre

In August 2015, Consumer Action Law Centre released its report into disconnections in Victoria, Heat or Eat, in response to the significant rise in disconnections over the past few years.

Disconnections in Victoria increased from 9,598 electricity disconnections in 2008-09 to 34,448 in 2013-14, an increase of 359%. For gas, disconnections had an increase of 239% from 10,077 in 2008-09 to 24,178 in 2013-2014.[1] The growth in disconnections highlights systemic failures in the energy market for many consumers, with alarming ramifications.

The report describes the various issues that contribute to disconnection, how access to energy and financial difficulty interrelate and the chain of events that result in disconnection. Fundamentally, it describes the additional avoidable costs incurred—economic, social and emotional—when someone is disconnected. In addition to attempting to calculate those costs, the report provides detailed case studies of six Victorians who have been disconnected in the past 12 months.

Consumer Action appointed researchers from the Beyond Behaviour Change (BBC) Research Program at RMIT University's Centre for Urban Research to conduct confidential in-depth interviews with people who had been disconnected.[2] The findings of that research exposes the impact that the disconnection has on individuals and their households, and how it exacerbates existing financial, emotional or social stress. The report also draws upon the understanding and expertise of Consumer Action’s legal and financial counselling services. These services speak to over 20,000 Victorians experiencing financial difficulty each year.

Many Victorians are increasingly unable to cover the cost of their energy use.  This can be due to income insufficiency, or a range of issues that combine to result in inability to pay.

While it is accepted that energy retailers aren't responsible for income insufficiency, they do play a significant role when it comes to disconnections. The report finds that poor customer service, badly targeted marketing and an unsophisticated approach by some retailers to handling customers with financial difficulties can make a difficult situation much worse. For example, court-based collection strategies including bankruptcy can put family homes at risk.

Findings from the report contributed to the current inquiry into best practice financial hardship programs of energy retailers, being undertaken by the Victorian Essential Services Commission (ESC). The inquiry was announced in February 2015 and a draft report was published in September 2015.[3] Our report provides further evidence to the ESC of the harms caused by current practices associated with energy hardship and disconnection. It suggests some significant reforms that the ESC could consider as part of its inquiry to better protect vulnerable Victorians, as well as a recommendation to the Victorian Government to further enhance its support for energy efficiency measures.

While we know that income insufficiency is a significant contributor to many who are experiencing financial hardship and subsequent disconnection from energy, this issue is beyond the scope of our work and that of the ESC. We chose to focus on sensible and practical measures to guide retailers at various points of the sales and collection cycle to help their customers maintain connection to their energy supply and for the Victorian Government to help Victorian households achieve energy efficiency and affordability.

The report makes recommendations that, if embraced, would assist consumers to remain connected at an affordable level of supply, with increased accountability on retailers for the impact of disconnections. The recommendations are:
  1. To cap the maximum amount of fortnightly income that a retailer can request from a consumer in receipt of government allowances for gas, electricity and water.
  2. For the Victorian Government to initiate a home energy audit program for low income households that is deliverable by retailers as a condition of the Energy Retail Code.
  3. That the decision for retailers to disconnect account holders be made by an independent panel or arbiter.
Society has a greater role to play in addressing the problems of access to energy as an essential service.  We need to consider the value that we place on households being able to participate fairly and equally, including fair and safe access to energy. Households should not be forced to decide whether they heat or eat.
 
[1] Essential Services Commission 2014 Energy Retailers Comparative Performance Report –Customer Service, 2013-14, December 2014. The figures for 2014-15 have yet to be released.
[2] Strempel, A. Nicholls, L. Strengers, Y. (2015) Disconnection Case Studies: Understanding the household experience, Centre for Urban Research, RMIT University

Tariff reform -  a step closer


Martin Jones, Research and Policy Advocate, Consumer Utilities Advocacy Centre

Electricity network tariff reform is a step closer, with four of the five Victorian distributors submitting Tariff Structure Statements to the AER on 26 September. (AusNet Services have received an extension to 26 October.) All distributors are proposing that residential customers face a new monthly charge based on the highest level of demand reached in that month between 3pm and 9pm on business days. Higher rates will apply to demand from December to March. Simultaneously, distributors will decrease their fixed and/or energy (usage) charges.

The goal of network tariff reform is to introduce more cost reflective prices, i.e. prices for electricity usage that more closely reflect the costs of that usage. For a network, costs are driven by the highest levels of usage reached at once – the ‘peak demand’ – rather than the total usage over time.

Charges on total usage, as in current tariffs, lead to people with low demand and high usage subsidising people with high demand and low usage. For example, the Productivity Commission has estimated that households with air conditioners (which increase demand much more than they increase usage) receive a cross-subsidy of around $350 per year from houses without air conditioners. The network infrastructure built to support air conditioners running in summer is being paid for by people who don’t use it.

The cost reflective tariffs proposed by the distributors go some way toward unwinding those cross-subsidies, which should lead to fairer bills. By showing consumers the true costs of their electricity usage, consumers can also decide to change their behaviour in a way that avoids network investment. This reduces costs for everyone. Those who are happy to pay for their demand need not change their behaviour.

The distributors are not allowed to collect any more revenue as a result of these changes, but they will lead to some consumers paying more, and some less for their electricity. The analysis conducted by each distributor consistently shows that there is no single demographic that is systematically worse off under cost reflective prices; customer effects depend much more strongly on whether a household’s demand is relatively higher or lower than its usage.

Most consumers will not face great changes to network charges over a year – perhaps $50 more or less for the majority. Where a distributor combines the change in network tariffs with an overall price cut – as some are doing – it’s possible for over 99% of consumers to face lower network charges in 2020 than in 2015.

However, under demand charges, bills could become more variable from month to month. A “$50 average increase” could mean a $200 increase in January and $50 lower bills in June, July, and August. (Hypothetical numbers only.) Electricity distributors are very cognisant of the customer impacts of their new tariffs, and many have engaged strongly with consumers and other stakeholders on this front to seek solutions.

A concerted push by consumer groups led to all Victorian distributors exempting weekends and public holidays from demand charges, ensuring people wouldn’t get caught out for family gatherings or celebrations. And while the submitted Tariff Structure Statements set out the shape of the tariffs, there is still some flexibility on the prices.

Next steps

New tariffs will be introduced from 2017 (2018 for AusNet Services). Communicating the change to consumers is important and an area of current work. As the change is significant and quite complex, a sustained and coordinated communication strategy is necessary. But as distributors plan to phase in the tariffs over time (e.g. introduce a demand charge in 2017 that is only 20% of the final charge), a large campaign focused on changing behaviour may cause consumers to expend a great deal of effort for modest savings, prompting resentment.

While a great deal of focus has been on distributors, the manner in which retailers will respond to new tariffs is as yet uncertain. Many will likely pass the new tariffs through, but more adventurous ones may seek competitive advantage by offering ‘quota’ plans (“First 10 kW free!”) or full hedging products (“$200/month, do what you like”). This will replace cross-subsidisation at the distribution level with cross-subsidisation the retail level – but is this such a bad thing?

Finally, identifying households who will be vulnerable to network tariff reform is a critically important, yet far from simple task. The corollary of “no single group is the losers” is “lots of different groups will need help”; not all groups currently vulnerable to energy prices will be vulnerable to demand tariffs, and not all groups vulnerable to demand tariffs are currently vulnerable.

But we can take heart: the further we progress, the fewer moving pieces there are. Until 2020, at least.Network tariff reform is explained and explored in more detail in CUAC’s June 2015 report, Cost Reflective Pricing: Engaging with Network Tariff Reform in Victoria.
 

Changing the DNA of Network Regulatory Process


Mark Henley, Manager Advocacy and Communications, UnitingCommunities

On Friday 18th September 2015, the Australian Financial Review included an article Electricity giants invest $90 million, 100,000 pages in battle boon for lawyers” about NSW electricity networks appeal against the AER’s determination of their allowed revenue 2015-20. The article included:

To date, the electricity companies are rumoured to have spent a cool $90 million on the tribunal round alone, and more than double that on efforts before the regulator leading up to it. In that round, they filed more than 40,000 pages of material…. Early estimates put the total number of pages that will flood into the arbiter at a terrifying 100,000”

That’s about a quarter of a billion dollars spent in one jurisdiction under the current network regulation process. It is not unreasonable to extrapolate that across the 6 NEM jurisdictions and considering transmission as well as distribution, over $1 billion is spent in one round of electricity network price regulation – and all apparently in the “long term interest of consumers.”

There has to be a better way!

Existing processes, UnitingCare Australia argues, have not delivered the best outcomes for consumers, notwithstanding considerable improvements over the recent years and admirable efforts by the AER. Still, we are proposing a significant ‘cultural’ and process shift from current arrangements for network regulatory determinations. Under the current model, networks put a price and revenue proposal to the regulator, and then defend that proposal during the Australian Energy Regulator's deliberations. This ‘propose and defend (and appeal)’ approach entrenches the network's position from the start, and automatically relegates consumers to a reactive and frequently marginal role. The reality that an appeal of the regulator’s decision has been all but automatic over many years has also added to the marginalisation of consumer perspective.

Instead of the “propose, defend, appeal” approach we propose an approach that changes the very dna of network regulation in Australia to one of deliberation, negotiation, and agreement (DNA). This proposal places two innovations at the centre of network regulation decision-making:
  1. The use of deliberative democratic techniques[1] to develop fundamental understandings of community views and preferences; and
  2. The use of direct negotiation between networks and consumer groups as an alternative vehicle for debate and compromise to the current system where the regulator has to make a judgement about all network proposals.
We are convinced that incorporating direct and ongoing consumer focussed engagement in network regulatory processes is the priority for lasting reform.

Definition of the terms ‘deliberation’, ‘negotiation’ and ‘agreement’ are critical in describing each of these processes and their implementation. This is what we mean for each of the key terms:

Deliberation
Deliberation is any process of public engagement and participation in decision making that focuses on gathering representative views from the community and encouraging their reflection and debate, leading to recommendations for action. The central participants are not part of organised interests, but people from the community affected by the decision under consideration and debate the issue(s) away from the presence of any parties with major interests in the issue

Negotiation
Negotiation is engagement by two or more of the most affected stakeholders with each other in a process focussed on seeking agreement. Negotiation will be directly informed by, and occur within the context set by, deliberation processes.

Agreement
An Agreement records the outcomes of negotiation, to the satisfaction of the negotiating parties, on behalf of key stakeholders.

Further thoughts about how this process could be applied are in the discussion paper.

This “DNA proposal” is put forward for discussion with consumer organisations and other key interest groups – there are substantial implications for everyone. However, we welcome suggestions on any aspect of the key ideas in this thinking.

MarkH@unitingcommunities.org
 
[1] See the UnitingCare discussion paper on deliberative democracy for a full explanation of deliberative democracy and deliberative engagement. http://www.unitingcare.org.au/images/stories/publications/2014/140912_pub_dis_deliberative_democracy_discussion_paper.pdf

Market Update



COAG Energy Council Review of Governance Arrangements


The expert panel appointed to undertake the Review of Governance Arrangements is on the verge of delivering its final report to the COAG Energy Council.

The review has focused on assessing the broad energy market institutional structures and the legislative framework that establishes and assigns functions to institutions. The expert panel’s draft report was released at the end of July 2015.  Responses to the draft report included approximately 40 submissions. The final recommendations are due to be made public in October.

The COAG Energy Council will provide its response at its meeting in December 2015.
More information: http://www.scer.gov.au/workstreams/energy-market-reform/review-of-governance-arrangements/
 

AEMC Rule Change: Multiple Trading Relationships


The AEMC commenced consultation on a rule change request from the Australian Energy Market Operator (AEMO) in July 2015. The goal of the rule change is to encourage new and innovative energy services and to drive more competition in retail electricity markets, by making it easier for customers to enter into multiple trading relationships with different electricity retailers at a premises.

A second connection to the network is currently needed to enter into these kinds of arrangements, the rule change request aims to remove this requirement, allowing customers to enter into relationships with multiple retailers at one premises.
The deadline for submissions on a consultation paper was 10 September 2015.

Approximately 20 submissions were received, including two from consumer groups.

More information:  http://www.aemc.gov.au/Rule-Changes/Multiple-Trading-Relationships
 

AEMC Rule Change: Expanded competition in metering and related services


Following the release of a draft rule made on 26 March 2015, the AEMC made a decision to extend the period of time for publication of the final rule to 26 November 2015.

Some of the key features of the draft rule include:
  • removing existing exclusivity arrangements and allowing any registered party to provide metering services;
  • specifying the minimum services that all new meters installed at a small customer’s premises must be capable of providing;
  • putting in place new arrangements so that the security of, and access to, advanced meters and the services they provide are appropriately managed; and
  • clarifying the entitlement of parties to access energy data and metering data.
On 17 September 2015, the AEMC published a paper for additional consultation on specific issues on the Competition in Metering rule change. The issues for consultation relate to those on which the AEMC seeks further stakeholder input due to potential material changes to the draft rule.

Submissions on the paper are due by 1 October 2015.

More information: http://www.aemc.gov.au/Rule-Changes/Expanding-competition-in-metering-and-related-serv#

AEMC Rule Change: Common definitions of distribution reliability measures


The COAG Energy Council initiated a rule change request to give the Australian Energy Regulator responsibility for the production and maintenance of a guideline focused on common definitions for distribution reliability measures.

The AEMC made the decision to expedite the rule change request as ‘non-controversial’, and released a consultation paper on the 17 September 2015, with submissions due 15 October 2015.

More information: http://www.aemc.gov.au/Rule-Changes/Common-definitions-of-distribution-reliability-mea#

AEMC Market Review: Strategic Priorities for Energy Market Development 2015


On the 10 September 2015 the AEMC released a discussion paper outlining the AEMC’s preliminary views on the priority areas for energy market development. This process occurs every two years, where the AEMC considers the strategic priorities for Australia’s electricity and natural gas markets.

The AEMC are holding a public forum in Sydney on the morning of 30 September 2015, the deadline on submissions to the Discussion Paper close on 9 October 2015.

More information: http://www.aemc.gov.au/Markets-Reviews-Advice/Strategic-Priorities-for-Energy-Market-Develop-%282%29#
 

AER Consultation on revisions to the Retail Pricing Information Guideline


On 31 August 2015 the AER released its final Retail Pricing Information Guideline, as required under the National Energy Retail Law. The aim of the Guideline is to assist customers in readily comparing standing offer prices and market offer prices offered by retailers. The Guidelines are also provide direction to energy retailers about the provision of data and information to the AER for Energy Made Easy.

More information: http://www.aer.gov.au/retail-markets/retail-guidelines/retail-pricing-information-guidelines-2015
 

AER Infringement: Notices to Endeavour Energy, Ausgrid and TasNetworks and AGL


Between May and August 2015 the AER has issued infringement notices to both distribution and retail businesses operating under the National Energy Customer Framework.

Endeavour Energy has paid a penalty of $20 000 following the issue of an infringement notice by the AER in relation to an incident where a customer known to require life support equipment unexpectedly lost electricity supply.

Ausgrid and TasNetworks paid penalties totalling $60 000 in relation to three incidents where customers known to require life support equipment unexpectedly lost electricity supply.

This follows infringement notice issued to AGL in May 2015 where AGL South Australia Pty Limited and AGL Sales Pty Limited have paid penalties of $20 000 each, in relation to incidents in which nine hardship customers or customers on payment plans were disconnected from their electricity supply. 

More information: http://www.aer.gov.au/retail-markets/compliance/enforcement-matters/infringement-notices-issued-to-ausgrid-and-tasnetworks-regarding-life-support-obligations
 

Essential Services Commission: Inquiry into the Financial Hardship Arrangements of Energy Retailers


On 1 September the Essential Services Commission released a draft report - Supporting Customers, Avoiding Labels - outlining the preliminary findings of the inquiry. The draft report is the result of extensive consultation with energy retailers and consumer groups on the financial hardship arrangements of energy retailers.
Submissions to the draft report are due 5 October 2015.

More information: http://www.esc.vic.gov.au/Energy/Energy-Hardship-Review

Essential Services Commission: Energy Licence Framework Review


Victoria’s Essential Services Commission is reviewing the efficiency and effectiveness of Victoria’s licensing framework, proposing to implement a single flexible license for all licensed entities in Victoria. Submissions to the consultation paper have now closed.
 
This review is being undertaken concurrently with a review of Victoria’s General Exemptions Order which provides exemptions from the need to hold an electricity licence for certain activities. This review is being undertaken by the Department of Economic Development, Jobs, Transport and Resources. Submissions on the consultation paper have also now closed

More information on the review of the Energy Licence Framework: http://www.esc.vic.gov.au/Energy/Modernising-Victoria-s-Energy-Licence-Framework

Essential Services Commission: Inquiry into the True Value of Distributed Generation to Victorian Consumers


Terms of Reference have been released for a review of the value that distributed generation provides in Victoria. The inquiry will seek to ascertain the true value of distributed generation, including determining what value distributed generation provides to the electricity market and the network. The ESC has been asked to also consider the environmental and social value of distributed generation.

More information: http://www.esc.vic.gov.au/getattachment/0a3f1608-ac62-43a1-83e4-7123262a9851/Terms-of-Reference.pdf
 

Energy Consumers Australia


Energy Consumers Australia has initiated a process to review its grants program principles, policies and procedures.  An Issues paper has been released, with an outline of the principles and features of the grant program eligibility criteria and structure. ECA are seeking comment on its proposed approach. Submission are due 30 October 2015.

More information: http://www.energyconsumersaustralia.com.au
 
Copyright © 2015 Consumer Action Law Centre, All rights reserved.


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