Speech to ACCC electricity supply & prices inquiry public forum

Jonathon Hunyor, CEO, Public Interest Advocacy Centre.

Sydney, 14 August 2017.

Thank you to the ACCC for the invitation to speak this evening. We are grateful for the opportunity and commend the inclusive and rigorous approach that the Commission has taken to this important review.

PIAC’s Energy and Water Consumer Advocacy Program is the voice of NSW households on matters of electricity, gas and water. But of course, many of the issues we see that touch NSW households impact all energy users, across the country.

This review is certainly timely.

Energy bills have long been unacceptably high, and increasingly unaffordable. For many households, winter energy bills are the highest of the year, and after the price increases of up to 20% from July 2017, the next electricity bill for many will be, by far, their highest yet.

The development of each element of Australian energy markets is predicated on a common objective: to promote the long-term interests of consumers.

In PIAC’s view, for this objective to be achieved, people must have access to energy services that are sustainable, at the lowest possible cost.

In this light, it’s hard to view spiraling energy prices created by the energy retail reforms of the last two decades as anything other than a failure.

As Rod Sims pointed out in this year at the ACCC AER conference, there is no single cause of this – underpinning high energy prices are a number of inefficient outcomes in both regulated and competitive parts of our electricity and gas systems

PIAC is of the view that the all-time high prices consumers are facing can – and must –  be turned around, while still delivering the clean, reliable energy that people need.

To get there we must shift the public conversation away from accepting that ever-increasing electricity prices are the norm, to one which expects bills to come back down over the next decade.

We think this can be achieved by focus in 6 priority areas.

1. We need better targeted and resourced supporting frameworks for people who are doing it tough. This includes concessions, rebates and hardship programs which provide adequate, assistance for those who need it, when they need it.
2. We need reforms to deliver effective competition in the wholesale energy market, while making the transition to cleaner energy sources. An example here is allowing for greater demand-side management.
3. Energy networks must be managed efficiently, underpinned by transparent decision making, and effective regulation which ensures acceptable reliability at minimum cost to consumers. We have particular concern that consumers are not getting a real say in how much they are actually prepared to pay for reliability and whether, for example, people would be prepared to trade off some degree of reliability for lower costs.
4. All consumers must have access to distributed energy resources and demand side options, such as batteries and rooftop solar, and not be disadvantaged by factors such as their income level or housing tenure.
5. We need complementary non-energy specific policies in place which support, or at least don’t inhibit, affordable, sustainable energy supply and consumption. Things like building energy efficiency standards have an important role to play here.
6. And finally, there must be effective competition in energy retail markets, so all consumers have access to real choice between a range of options for energy services, while at the same time recognising that energy is an essential service and people should not have to be a maths professor just work out how to get a fair price.

So who is the retail market working for today?

Unfortunately, not the majority of consumers.

There is a small cohort of highly engaged consumers who have the time, money and energy literacy to be able to shop around, pay every bill on time, and renew their contract every year or two to stay on the best deal.

But too many people are not on the cheapest deal with their retailer. Or are on a deal that looks good if they can pay on time and get a discount, but their circumstances mean they either can’t pay on time or can only do so if they go without other essentials.

And, of course, the savings that are being had by the switched-on consumers are borne by the less-engaged customers, along with the ‘lazy tax’ that goes straight to retailer profits.

PIAC has made 15 recommendations to the ACCC as part of this review. There are two fairly simple issues that I would to highlight as matters of the highest priority:

1. We need to put an end to pay-on-time discounts.

The practice of providing discounts only when bills are paid by the due date is, essentially, an excessively high late payment fee in disguise. And it is something that has the effect of pushing higher prices on to those low-income and vulnerable consumers who often having trouble meeting their bills.

2. We need to stop reverting people to high rates when their market contracts end.

The practice of defaulting customers onto expensive standing offers at the end of one- or two-year market contracts, defies conventional wisdom that customer loyalty will be rewarded with a good deal. In fact it’s the opposite – retailers offer more in discounts to new customers than to existing customers who have not attempted to seek out a better retail deal because they are loyal or less engaged.

Last week’s meeting between energy retailers and the Prime Minister has made important but only small steps towards addressing these issues. Merely providing more information or targeting only consumers on retailer hardship plans will not go far enough.

Both of these have also been raised as considerable concerns in the recent Independent Review into the Electricity and Gas Markets in Victoria.

After the bill increases of July 2017, consumers who have not previously identified as ‘hardship customers’ will experience payment difficulty for the first time. They will include families on middle incomes, people experiencing mortgage stress, and self-funded retirees: people often unaware of their entitlement to retailer hardship support and disinclined to seek help, due to the stigma associated with it, until the problem is exacerbated by accumulated debt and/or forgone expenditure on other essential products and services.

In PIAC’s view, there are some hard decisions to be made – including the prospect of price regulation if retailers don’t deliver the best deals they can for all consumers soon.

PIAC looks forward to continuing to work with the ACCC, energy market institutions and the energy sector to bring about a genuinely competitive retail market in which consumers pay no more than they need for essential energy services.

Check against delivery.