Creating an affordable, secure and sustainable energy market

Speakers: 
Ms Delia Rickard, Deputy Chair
Conference: 
Consumer Action Law Centre - Policy Trilemma Energy Workshop
27 June 2013

In the opening address to the Consumer Action Law Centre's energy workshop, Deputy Chair Delia Rickard discusses consumer issues as well as challenges relating to comparability. Ms Rickard also provides an update on some of the key developments which will provide consumers with a voice at the energy regulation table.

Transcript: 

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Introduction

Thank you for the opportunity to speak with you today. It’s a real pleasure to take part in today’s proceedings focussing on the way forward to create an affordable, secure and sustainable energy market. These are goals, as I’m sure I don’t need to tell any of you, which are of very real importance to Australian consumers and, for that matter, to the planet.

The Consumer Action Law Centre Policy Trilemma report is/was (it’s a year old now) an important contribution to the debate on these issues and it’s great to see that the AER is already doing much of what it recommends. As always, Allan Asher, has done a terrific job identifying the issues and, even more importantly, signposting the strengths and weaknesses of potential ways forward, including by drawing upon experiences overseas.

Personally, I found the lessons from the UK of particular relevance and found myself doing follow up reading on the work happening there to simplify tariffs and comparability and the debate occurring between Ofgem and Which?. Indeed, it is but one of many paths in the report that provide us with fertile ground to consider in pursuing the important objectives of affordability, security and sustainability. I am really looking forward to seeing the action which follows from today.

It is also a pleasure to be able to talk with you about the work the ACCC and AER are doing to make to make the energy market work better for consumers in terms of affordability, security and sustainability. And I would add to these three goals that of comparability – though maybe it is just one of the prerequisites for affordability.

Like the rationale behind Allan’s report the ACCC and AER share a focus on the long-term interests of energy consumers. Indeed, with electricity costs increasing significantly over the past five years we’ve been involved in the national debate on whether the market has been functioning efficiently and whether the regulatory framework is working for consumers.

I’m pleased to say the wheels are turning. There are some key developments which will provide consumers with a voice at the energy regulation table. In fact, in the next week (July 1) the Consumer Challenge Panel will be established which is a significant milestone.

When asked to speak about the energy sector, I can’t help but think about how competition has changed things for consumers in the past 20 years. While retail competition and choice have delivered many benefits, unfortunately it is a difficult and complex process for the average consumer to compare and decide on which energy plan suits them best.

As Allan stated in his report ‘at issue is the question of consumer choice’ (page 50). For instance, I’m told that in Victoria at any one time there are more than 1,000 retail plans in operation. Too much choice and information only leads to consumer confusion and as a result the full benefits of a competitive market may not be achieved. This is why, I would go as far to say that comparability is the fourth dilemma facing Australian energy consumers.

Consumer protection is another area where the ACCC and AER share a role. As many of you know, the ACCC has named energy consumer issues as one of our compliance and enforcement priorities. The ACCC Chairman has said unfair sales practices relating to door-to-door selling and promotions which mislead consumers by offering discounts off an uncertain base are the big issues for us. In some jurisdictions, the AER is now enforcing the consumer components of the National Energy Retail Law which gives them an enforcement role as well.

To set the scene for the today’s workshop, I will provide my perspective on four topics:

• First, comparability and the issues I’ve just outlined relating to providing consumers with the tools and information to make decisions based on the facts.
• Secondly, energy affordability and its inter-relationship with a range of other social and financial factors.
• Thirdly, security in terms of both reliability of energy supply as well as consumer participation in the energy market more generally, and
• Finally, sustainability and how energy efficiency needs to be seen as part of the bigger picture in household discussions about their energy bills and the need to combat climate change.

Comparability

From my perspective comparability is a real dilemma for energy consumers. In fact, the market is a classic example of confusopoly – and this conundrum is likely to be exacerbated as we move to time of use charging.The issue is how do we/or can we provide people with the tools and information they need to make decisions based on the facts?

Here, I’m pleased to say that we seem to have learnt from similar conundrums in the financial services and telecommunications sectors and government is on the front foot in terms of providing what are hopefully very workable solutions.

Energy Made Easy, the price comparator website the AER developed as part of its new role under the National Energy Retail Law, provides households with a tool to compare gas and electricity offers. The price comparator is an independent source for consumers looking to shop around and compare the offers and plans available and work out the best deal for them. So far it can help consumers in the ACT, South Australia and Tasmanians and from 1 July consumers from NSW as these are the jurisdictions that have signed up to the retail law. For those from jurisdictions yet to sign up to the energy law the site will direct consumers to other independent calculators that may assist them.

The challenge for us all therefore is to tackle the stickiness and low engagement of consumers and make them aware of, and comfortable using, the energy made easy calculator so that they can have confidence in their choice of provider and aren’t left in the hands of commission remunerated sales people.

There are also new requirements under the retail law relating to energy price fact sheets. Retailers are required to present offers in a standardised form, helping consumers to compare apples with apples.

My hope is that these tools, along potentially with things such as collective switching initiatives that don’t mislead, will allow consumers to optimally access the benefits of competition in this sector.

Compliance and enforcement

For consumers to have confidence in the energy market it is vital that they are not only armed with clear and accurate information, but also to know that where businesses are not upholding their end of the deal, or are engaging inappropriately, they will be subject to penalties under the law.

The ACCC and the AER, as the bodies responsible for enforcing the Australian Consumer Law and the National Energy Retail Law, have a shared responsibility for protecting consumers.

We both have a strong culture of working with businesses to promote compliance with the law. But where there is a market failing, a business that is not willing to comply, or issues arise that cause, or have the potential to cause, considerable consumer detriment, we will take strong action to ensure consumer interests are protected and businesses are reminded of their obligations and the consequences.

The AER is exercising its new enforcement powers and has already issued infringement notices of $20,000 each in relation to unexpected disruption of supply to customers registered as requiring life support equipment – a consumer issue that the AER is particularly concerned about.

The ACCC has taken action on a number of fronts, starting with price comparisons websites.

Price comparison websites

The ACCC has raised concerns with a number of traders operating online energy price comparison services following court proceedings last year against Energy Watch Pty Ltd and its CEO.

The Federal Court found that from January and September 2011, Energy Watch misled consumers about its energy price comparison service and the savings that could be achieved using the service.

As a result of these findings, the ACCC was concerned that other online energy price comparison traders were engaging in similar conduct. I’m pleased to say after extensive consultation these traders have now removed representations of concern – though it is an issue that we are still actively looking at.

I know that CUAC is concerned to see a code of conduct established to govern these calculators. I agree that standards are needed here – though query whether you have sector specific standards or more general ones. I know that this is an issue ASIC is looking at in the financial services area and Australian Consumer Law regulators are also looking at this more generally.

(Of course, once all jurisdictions sign up to the Retail Law, ideally everyone will know about and use the Energy Made Easy calculator which will include all players in the market and its results won’t be influenced by conflicts of interest so that consumers can have confidence its results).

Unfair sales practices and door to door selling

The ACCC has used both education and enforcement to tackle what has been, in our view, reprehensible treatment of consumers by many involved in door to door energy sales.

Complaints about door to door practices have flooded into the ACCC, the AER, the energy ombudsman schemes and consumer legal centres such as CALC. Customers have been raising complaints about, amongst other things, misleading marketing, pressure sales, transfer of accounts between retailers without customer consent and breaches of the unsolicited sales provisions of the Australian Consumer Law. The ACCC is particularly concerned with alleged misrepresentations made by energy retailers to disadvantaged and vulnerable consumers in their own homes.

In the most recent of the ACCC actions in this area, on 7 March this year proceedings were instituted in the Federal Court Melbourne concerning alleged breaches of the ACL ‘at the door’ by EnergyAustralia and some of its previous marketing companies. These proceedings also involve an alleged breach of section 75 of the ACL involving attendance despite the presence of a ‘do not knock’ sticker. These proceedings are continuing.

In May this year, the Federal Court ordered AGL to pay $1.5 million for illegal door-to-door sales practices. AGL’s marketing company, CPM Australia, was ordered to pay $200,000. This followed earlier resolution with Neighborhood Energy and its marketing company, Australian Green Credits in which the companies consented to court imposed penalties of $850,000 and $150,000 respectively.

We are still, as I am sure many of you are, keenly awaiting the judgment on the only contested aspect of our recent hearing against AGL. That is the question of whether a ‘do not knock’ sticker constitutes a request to leave under the Australian Consumer Law.  And I should acknowledge the simple genius of CALC, and in particular Gerard Brody, for coming up with the idea of the sticker.

Last year we also launched our ‘Knock! Knock! Who’s there?' awareness campaign. The focus was to put the word out to consumers about their rights and ability to refuse door-to-door sales.

We have backed this up with an Indigenous education film and outreach activities as well as a series of short videos which show how consumers can put their door-to-door sales rights into action. The catch cry for empowering consumers to say no to door to door sales people is “thanks but no thanks”.

Before leaving door to door it would be remiss of my not to mention that the combined action of so many of us has seen the three biggest energy retailers exit door to door sales (and hand out do not knock stickers to their customers – no doubt in an effort to prevent them being churned to newer smaller retail providers). With this withdrawal we’ve seen an increase in telemarketing and it is worth noting that the ACCC will be equally concerned about false or misleading representations made via this channel.

Misleading discount claims

The third area and next area of our compliance and enforcement focus is misleading discount claims. The ACCC is increasingly concerned about possible misleading conduct by energy retailers in their promotion of energy plans. These concerns relate to the promotion of discounts and savings off energy use and/or supply charges under those plans.

Within the Commission we refer to this new focus of our energy work as “discounts off what???”. It is an issue that our Chairman, Rod Sims feels particularly strongly about – as does the rest of the Commission.

To commence this stream of work the ACCC will be writing to energy retailers to put them on notice about our concerns. No one should be surprised that the ACCC will take a firm approach where it forms the view that saving representations are likely to mislead consumers.

Affordability

In any consideration of the issues facing energy customers, the topic of affordability – complex as it is – will inevitably arise. One of the challenges when it comes to addressing this issue is the inter-relationship between energy affordability and a range of other social and financial factors.

There have been a range of reasons for the price increases we have observed over recent years, but the rising costs of the electricity poles and wires that transport energy to customers have been the main contributor to those increases in all states. The factors driving these increased network costs include the need to replace ageing equipment and meet peak demand and, at the time the determinations were made, higher cost of finance in the post-GFC environment.

My colleagues in the AER had long held serious concerns about the framework within which they regulate prices, believing the rules led to price increases beyond what has been necessary for a safe and reliable supply. In 2011, those concerns led the AER to submit proposals to the AEMC to address issues with the regulatory framework, particularly around ways to improve how the rate of return was set, how forecasts of capital and operating expenditure were set and the incentives for network businesses to manage their expenditure and strive for efficiency.

Another real focus was on improving the regulatory process itself, to ensure greater consumer involvement. The complexity of the energy market and the regulatory processes that make up much of the AER’s work have made it difficult for consumers, or even their representatives, to participate meaningfully. This has led to reduced consumer confidence in the energy market, its regulation and the outcomes it has delivered. It is difficult for the regulator to be confident that a business’s proposal will deliver the services that consumers want, if consumers don’t have a real opportunity to affect that proposal.

As you would all be aware, last year the AEMC responded to the AER’s proposal and made a number of changes to the rules. The AER itself is also making changes to its processes as part of making the energy market work better for consumers. Many of these focus on promoting a more interactive regulatory process in which consumers, the AER and network businesses each contribute to ensuring the services most valued by consumers are provided by the businesses.

Consumer engagement in energy network regulatory processes has been considered limited to date for a number of key reasons. The regulatory framework, which is complex and highly technical, presents challenges for consumers and their representatives in contributing to processes. The other main challenge for these groups, as you would be all too aware, is the limited resources available to them to cover the broad range of consumer advocacy needs.

The AER’s Better Regulation project includes a number of new strategies to engage with consumers, including the establishment of the consumer reference group to help ensure consumers are better able to engage in complex guideline development processes. In particular, the consumer reference group will make it easier for consumer representative groups to have input into the Better Regulation Reform Program without necessarily writing formal submissions.

This work, along with the establishment of the AER’s Consumer Challenge Panel, which I will talk a little more about shortly, will complement other initiatives such as the establishment of a funded national consumer energy advocacy body and help ensure that the consumer voice is more easily heard within the network regulation process.

Of course, energy affordability cannot be considered in isolation from the range of challenges many householders face in meeting their financial obligations. While the AER has no role in regulating retail energy prices, the National Energy Retail Law includes a range of protections for energy customers. These include provision for payment plans and requirements for retailers to create – and more importantly implement - hardship policies to assist customers in financial difficulty.

The Retail Law also includes rules around when customers can be disconnected. In March, the AER announced that the way retailers are engaging with their hardship customers and the effectiveness of their hardship programs will be one of its compliance focuses this year.

While the policies must be approved by the AER, in reality it is the way these policies work in practice – ensuring that customers are identified early as requiring assistance and then having access to the range of measures identified in the policies – that will determine their effectiveness.

Security

In my mind, there are two aspects to the issue of ‘security’ for energy consumers.

The first of these is perhaps the more traditional perspective; that is looking at security in terms of reliability of energy supply.

The second, which may be reflecting my regulatory perspective, is security for consumers in their dealings with the companies responsible for their energy supply and in their participation in the energy market more generally.

On the first of these, and as I noted earlier, recent energy market reforms have focused heavily on increased consumer participation and engagement.

This is a new focus – for the first time, there is a regulatory requirement for network businesses to consult with their consumers in the development of their regulatory proposal and the AER is now required to take into account this consultation when considering the proposal.

This is an important tool in increasing the accountability of network businesses to the community they serve. It is completely appropriate that businesses be accountable to their customers, and at a minimum they owe their customers an explanation of the reason for expenditure and the reliability outcomes they intend to achieve. In future, customers may have greater input into the proposals and greater involvement in the regulatory process that determines prices and outcomes.

What this means in practice is that consumers will have an opportunity to express their views on whether they are willing to pay for the high levels of reliability of supply Australians have experienced over recent years or whether they may in fact accept a lesser level of reliability in favour of lower cost.

Consumer Challenge Panel

This dialogue, and discussions on many other issues, is something which is expected to benefit from the development of the AER’s Consumer Challenge Panel, which is due to commence operation on 1 July this year – just a week or so from now.

The Consumer Challenge Panel is another of the measures arising out of last year’s COAG announcement and is informed, as noted in the CALC report, by work undertaken successfully by regulators in Great Britain, including Ofgem (energy regulator) and Ofwat (water regulator for England and Wales).

Ofgem and Ofwat have each employed consumer challenge groups to assist their determinations and to enable them to get consumer input into some of the more complex and technical issues they face.

Simply put, the objective of the Consumer Challenge Panel is to assist the AER make better regulatory determinations, by providing advice on issues that are important to consumers.
It is a panel of experts—each appointed in their individual capacity—to advise, inform and improve the AER’s regulatory determination decisions.

The AER is not obliged to act on the views expressed by panel members, but has undertaken to give due weight and consideration to that advice and, importantly, to provide a clear rationale for its decisions and feedback to panel members as to how their views have been considered and addressed.

This is something of a departure from traditional models of regulatory engagement – panel members will use their expertise and perspectives to challenge how the regulator approaches issues; to identify any gaps in its consideration and analysis; and to ensure the issues that really matter to consumers are given proper attention in regulatory determinations.

Of course, while the panel will be reflecting and promoting consumer perspectives at a high level, the fact remains that on a daily basis consumers are required – and encouraged - to engage with their energy providers and in the market more generally.

Sustainability

While price is generally the most talked-about issue when it comes to energy, usage and usage patterns can be another key contributor to energy bills.
As such, energy usage and the related topics of sustainability and energy efficiency need to be seen as part of the ‘bigger picture’ in household discussions about the cost of energy and their bills.

There is a lot of work going on in this space at the moment, perhaps best captured by the range of recommendations made by the AEMC in its ‘Power of choice review’, which aim to support more efficient demand-side participation through a range of measures, including:

  • consumer awareness
  • information
  • education and engagement
  • technological advancements such as the roll-out of smart meters nationally
  • more efficient and flexible pricing, and
  • the improved coordination of energy efficiency regulatory schemes.

I am pleased to say that industry has also picked up on this and is playing an important role in promoting this message, particularly in increasing the information available to customers about their energy usage and how that can impact their energy bills.

I expect, some of you may already be using the online portals offered by a number of energy retailers to look more carefully at how your household is using energy and what that means for what you pay.

These portals include features like savings targets – both in terms of dollars and kilowatts, up-to-date bill estimates (based on usage), energy efficiency tips and a range of other information.

Even at their most basic application, the range of information available and the idea of encouraging people to think about what has traditionally been a fairly low engagement product – something ignored until the bill arrives every three months or so – is a positive step forward.

My colleagues at the AER are also looking to highlight energy consumption as a contributor to bills and increase awareness of energy efficiency measures.

The Energy Made Easy website includes a function that allows consumers to see the average electricity usage for a household of a similar size in a similar location and to use that information to assess where they might improve their own consumption.

Energy Made Easy also provides consumers with simple information on energy efficiency and ways to save energy in their own home.

One of the other challenges in this area is the complexity of the issues and concepts associated with sustainability and environmental claims. These have been a focus of the ACCC’s work in recent years, in particular ensuring that the claims businesses make are accurate, clear and do not mislead consumers.

Similarly, on the competition side of the ACCC’s work, particularly our authorisation work, we’ve been working to ensure that schemes purporting to deliver environmental benefits do in deed lead to such important public benefits that outweigh any anti-competitive detriment.

Conclusion

As the Policy Trilemma Report recognises, the energy sector is on a journey and there is clearly more work to do to create an affordable, comparable, secure and sustainable energy market. That we need to do that work is though, I hope beyond dispute. Forums such as today’s play an important role in advancing the debate and generating the initiatives needed to hasten that journey. Like everyone here, I look forward to seeing the actions that arise from it.

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