24 July 2013
In a speech to the National Consumer Roundtable on Energy, AER Chairman, Andrew Reeves discusses initiatives designed to build consumer confidence in energy markets.
Transcript
Thank you for inviting me to be part of the National Consumer Roundtable on Energy today.
There is no getting away from the fact that rising energy prices are putting a financial strain on households across the country.
This has sparked a debate around whether the market has been functioning efficiently, whether consumers were paying more than necessary for a safe and reliable energy supply, and what more could/should be done to ease the pressure on Australian households. We have all come under the spotlight – government, regulators, and industry.
We may not have a “quick fix”, but the debate is generating results.
For example, jurisdictions are beginning to implement the National Energy Customer Framework (which in itself is a very significant aspect of reform), and, over the last 12 months, there have been reviews across the full spectrum of regulation.
I don’t propose to go into great detail about these reviews, but it is important to say that the overall theme of these reforms is summed up in the title of the Standing Council on Energy and Resources’s report to the Council of Australian Governments –“Putting Consumers First.”
This is a new focus for many of the network businesses. Later today I will be speaking at the Energy Networks Association’s Regulation Seminar. QCOSS’s Linda Parmenter will also be speaking on the role of consumers in regulatory decision making. I think the fact that a consumer representative has been invited to speak at an industry event shows the increasing awareness of the importance of meaningful consumer engagement.
Better Regulation Program
Today I would like to briefly touch on the impact of some of the significant changes we are seeing and share what the AER is doing in the areas of retail energy regulation and consumer engagement to develop an energy sector that is better able to deliver in the long term interests of energy consumers – a sector where consumers feel empowered and are confident to become involved.
This in itself is not the answer to the issue of energy affordability – this is a bigger issue for all governments to tackle. Nevertheless the AER is doing its part to ensure that it fulfils its responsibilities under the Retail Law. These responsibilities include protecting consumers by ensuring retailers implement and maintain hardship policies to assist customers experiencing financial hardship. I will say more about this later.
Confident consumers
We believe that competition provides strong incentives for business to operate efficiently and deliver innovation and prices that benefit consumers. Competition must be effective, and effective competition relies on consumers having, and exercising, their choice.
It sounds simple. However, in practice the retail energy market has not been a place where consumers can confidently compare offers and choose a suitable one. The complexity and structure of retail offers can make it a difficult task for even the most sophisticated energy consumers to choose a service that suits their needs. Consumers can be put off from engaging in the market by lack of information, the complexity of energy offers and the time it takes to search out and understand the range of offers.
The National Energy Retail Law provides a framework to improve consumer confidence and engagement in the energy market.
Of course, we want consumers to know and use their energy rights under the Retail Law.
However, in the complex space of the retail energy market, being a confident consumer means more than knowing your rights. Our vision of a confident consumer is one who can shop around for a good deal and confidently deal with retailers before and after they sign up for a service – including when things go wrong. They understand their usage patterns, and how different factors can influence their bill.
In short, what we are working towards is energy consumers that are ‘Energy literate’. We are working hard to reach as many consumers as possible with this message.
A critical part of work in this area is the AER's energy price comparison website, Energy Made Easy. Launched on 1 July last year, Energy Made Easy provides consumers in those states and territories where the Retail Law has commenced with independent, objective and free comparisons of energy offers to help them work out which is the best energy deal for them – it’s helping consumers compare ‘apples with apples’.
I expect many consumers would be surprised to see just how significant the range between offers can be in any one distribution zone – over the course of a year, there can be a significant difference between the cheapest and the most expensive offer. For any consumer, this is quite significant – in fact similar to the value of an annual energy concession.
For example, the annual costs for a family of four in Ryde, New South Wales, on a single tariff using 7492 kWh per year could range from $1977 to $2624 depending on their choice of contract. This is a difference of $647.
I’d like to be able to give you a Queensland example, but we are not operating here yet.
Energy Made Easy also includes features that can be used by residential energy consumer across the country. For example, the 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.
It also provides consumers with simple information on the energy market, energy efficiency, and consumer rights and obligations.
Our goal is to establish Energy Made Easy as a trusted source of information on available retail energy offers, consumer protections, and the energy market.
We are also looking to strengthen consumer awareness and understanding by publishing a range of educational materials. These materials cover matters such as what to look for if you are thinking about changing contracts and understanding retail energy offers. They also cover consumer protections around cooling-off provisions, door to door and telephone selling and customer hardship. We have just published two new publications. The first, a guide to the Retail Law, is targeted at consumer caseworkers such as financial counsellors. The second arms consumers with key tips to manage their energy service.
Additionally, we recognise that some consumers, particularly disadvantaged and vulnerable customers, are more receptive to messages they receive from a trusted and familiar source. On this front, we are developing a range of strategic partnerships. These include distributing our materials through the Home Energy Savings Scheme-accredited community groups, state governments and financial counsellors.
Consultation with consumer groups so far is assisting us to refine our strategy and identify possible tools to help them understand the energy market and provide advice to their clients. These tools might include training sessions, webinars, online and digital tools and even a comic to reach low literacy groups.
Other work underway includes developing targeted strategies for small businesses and disadvantaged and vulnerable customers and we will consult with you – our consumer stakeholders – to develop materials in accessible formats, to ensure our consumer education initiatives reach a broad cross-section of the community.
Fostering regulatory compliance
We have a new Retail Law, and a high level of industry compliance, particularly by energy retailers, is paramount to building consumer confidence in energy markets – not to mention delivering fair and just outcomes to consumers.
Our general approach is to provide guidance on good industry practice and to work co-operatively with businesses to promote a culture of compliance with effective internal practices. An aspect of this work is to identify the boundaries of unacceptable conduct and clearly communicate our expectations to energy businesses.
Ideally, we would prefer compliance matters to be voluntarily raised by energy businesses and resolved through agreed outcomes, without the need to exercise statutory enforcement powers or seek financial penalties. However targeted and timely enforcement action may be necessary and appropriate in certain circumstances.
Our core approaches include market monitoring, targeted compliance reviews and engagement with other regulators and agencies. The Retail Law and Rules outline a range of information that retailers and distributors are required to publish on their websites. This includes important information such as contracts, energy price fact sheets, complaints and dispute resolution procedures, and payment assistance available for those customers experience hardship and financial difficulty.
We conduct periodic reviews of retailer websites to check that all the required information is published. Our most recent review has coincided with commencement of the Retail Law in New South Wales. Each business remains responsible for regularly reviewing the information and documents on their website to ensure that it meets all of the requirements of the Retail Law. The AER works with energy retailers to ensure that these obligations are met. We seek to improve standards across the industry by identifying and sharing examples of good practice to drive better outcomes for consumers.
Late last year we took our first enforcement action under the Retail Law for conduct that caused life support customers’ energy to be cut-off. This area of the Retail Law remains a priority for the AER. The potential risks to these vulnerable customers is high and we expect businesses to put in place all appropriate measures and take all appropriate steps to comply with these obligations.
Compliance reporting greatly enhances transparency and accountability and provides incentives for businesses to improve performance over time, which contributes to better outcomes for consumers.
More generally, however, we are largely satisfied with the compliance outcomes of the first six months of the Retail Law and Rules. In over 92 per cent of the cases we investigated, we resolved breaches of the Retail Law and Rules without drawing on our statutory enforcement powers. In each case we received commitments from the business to address identified issues in appropriate timeframes.
Public reporting of our compliance monitoring and activities are another means of enhancing transparency and accountability in the market – ultimately to the benefit of the consumer. For example, it allows us to:
- identify areas of weakness in compliance by retailers and distributors
- clarify our expectations regarding compliance, and provide suggestions on how businesses can better manage the risks to their customers and to their business
- promote discussion about the operation of the Retail Law and Rules and their effectiveness in meeting the long term needs of consumers
- help consumer intermediaries to navigate the Retail Law and Rules when advising their customers.
Billing review
Where we think that consumers do not understand their rights, or that the market is not working well, we will use a targeted compliance approach to pinpoint the issues and rectify any systemic problems.
For example, we understand that energy bills are notoriously confusing for customers. Complete and accurate information is important, but so is clarity and simplicity.
We currently have a review of the billing provisions of the Retail Rules underway. Participation by retailers is voluntary, but we are encouraging retailers to participate as it presents them with an opportunity to review their own practices for compliance with the Law and Rules and look at ways of optimising their practices.
The Law sets out that certain information must be presented on bills. We’ll be looking at how that information is presented, with a view to not only ensuring that the necessary information is there, but also to compare how its presented in ways that make it easier for customers to understand.
We’ll also be looking at areas of concern around billing including accuracy and timeliness that we’ve become aware of through reports from ombudsman schemes, our Customer Consultative Group and complaints we have received.
Our aim is to build a common understanding between the AER and industry as to what the obligations under the Law mean in practice.
We will share the results of the review, so as to promote good practice.
Hardship review
Over the next six months, we will also be conducting a review of retailers’ approved hardship policies. We have reviewed and approved hardship policies to ensure that they comply with the minimum necessary obligations under the law. In some cases, we have also suggested improvements, which have been taken up. However, this review will help us to determine how retailers use their customer hardship policies to identify and assist customers experiencing payment difficulties.
As a first step, we have approached our consumer stakeholders inviting them to comment on their understanding of customers’ experiences with retailers’ hardship policies and propose their priorities for the review. Our intention is to develop a terms of reference for our review through this process and to then engage with retailers in a series of face-to-face and group forums to discuss the overarching matters relating to their hardship policies.
I would strongly encourage you to actively contribute your experiences to this review.
Performance reporting
As many of you are aware, we also report regularly on hardship indicators in our retail market performance reports.
Performance reporting on energy businesses greatly enhances transparency and accountability. It provides incentives for businesses to improve both their performance over time and their performance relative to other energy businesses, which contributes to better outcomes for consumers.
Since the Retail Law commenced last year, we have published three quarterly retail performance reports. The reports, which are available on our website, provide an overview of the energy market and analysis of retailers’ activities, including a number of indicators that show how they handle customers experiencing payment difficulties.
These indicators—including the number of customers with an energy bill debt (and the size of that debt), the number of customers on a payment plan, the number of customers on a hardship program, and the number of disconnections due to non-payment—provide useful information about the different practices of energy retailers in assisting customers experiencing financial hardship and payment difficulties.
Our annual retail performance report, which we will publish for the first time later this year, will include a wider range of indicators and a report on energy affordability which I will come back to in a moment.
The indicators also serve to signal to us the potential areas of concern regarding retailers’ performance in relation to fulfilling their obligations to assist customers with payment difficulties. If retailers submit data to us that raises concern, we question that data and ask for an explanation. And if those concerns become systemic or indicative of a trend that we are not comfortable with, we will investigate.
In the short time that we have been collecting this data, we’ve noticed what seems to be a great deal of variation between retailers in how they deal with customers experiencing payment difficulties. While it’s still too early to comment on this, as our reporting extends across more jurisdictions and more retailers, our ability to draw inferences will become stronger. There are, for example, significant differences in the average level of debt of customers on different retailers’ hardship programs.
We expect that information gathered from our hardship review and growing set of performance indicators, will enable us not only to highlight and address any areas of concern, but also to identify and share examples of good practice and innovation in the financial hardship space. It presents a great opportunity for retailers and the regulator to work together with consumer representatives to raise standards across the industry to better help those who need it most.
Energy affordability report
I mentioned previously that our annual performance report will include a report on energy affordability.
The Retail Law and Rules require us to prepare this report, but are not prescriptive regarding its parameters. We have therefore sought to define a scope that will enable us to provide analysis in this area that adds value to, but does not duplicate, the contribution to energy affordability reporting offered by other government, industry and community stakeholders.
In our analysis, we do not define the point or level at which energy is or becomes ‘affordable’ or ‘not affordable’. Rather, we consider the following main areas of analysis for each state and territory:
- the estimated average annual energy bills for a range of consumption levels;
- the proportion of household income that these bills would comprise across a range of income levels and considering the energy rebates or concessions available; and
- the pricing diversity of generally available energy offers in each electricity distribution and gas pricing zone.
This approach provides us with the opportunity to discuss key differences between the states in terms of demographics, climate, availability of natural gas, and other factors that can influence the size of customers’ energy bills.
Our first report will include data collected in the 12 months to June 2013, when we had commenced our reporting role. As we collect more data over time, we anticipate greater scope for analysis and comparison, and to demonstrate changes or trends more clearly.
Our report will be published in November this year, and your feedback will be valuable in shaping the direction of future reports. Our intension is to make these reports a useful resource for policy makers.
Increased consumer participation and engagement in regulatory processes
A key area of focus for recent energy market reforms has been on increased consumer participation and engagement in regulatory processes. Before I conclude, I would also like to briefly touch on this.
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. I believe that 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 network business’s proposal will deliver the services that consumers want, if consumers don’t have a real opportunity to affect that proposal.
From our perspective, there is work on a number of fronts designed to give consumers a greater voice and empowerment in the regulatory process.
Most significantly, the new rules framework requires network businesses to consult with their consumers in the development of their regulatory proposal and the AER is now required to take this consultation into account when considering the proposal.
The AER has implemented a number of strategies to better engage with consumers. A number of you are currently involved in these initiatives and your participation has been extremely valuable.
Most recently, we established a Consumer Challenge Panel. Simply put, the objective of the Panel is to assist the AER make better regulatory determinations, by providing expert advice on issues that are important to consumers. It is designed to ensure that consumers’ views, particularly those of residential and small business consumers, are properly considered by the AER throughout these technical and complex regulatory processes.
The Panel - which will sit within the AER - is made up of 13 individuals. Panel members possess vast local and international expertise, spanning a range of fields including regulation, energy networks and consumer representation. For example, Mark Henley and Jo De Silva have strong consumer advocacy backgrounds, while Hugh Grant and Robyn Robinson, two members from Queensland, have experience in the energy sector and the not for profit sustainability and aged services sectors. Bev Hughson who presented yesterday and Bruce Mountain, who is taking part in the next session, are also members of the CCP.
We are not obliged to act on the views expressed by the Panel members, but we have undertaken to give due weight and consideration to that advice and importantly to provide a clear rationale for the decisions and feedback to Panel members as to how their views have been considered and addressed.
This is something of a departure from the traditional model of regulatory engagement. Panel members will use their expertise and perspectives to challenge how we approach issues, to identify any gaps in our consideration and analysis, and to ensure the issues that really matter for consumers are given proper attention in regulatory determinations.
As many of you are aware, in addition to the Challenge Panel, we have established a Customer Reference Group, to make it easier for consumer representative groups to have input into the Better Regulation reform program. We also have the Customer Consultative Group (CCG) which advises the AER on issues affecting energy consumers in participating jurisdictions.
There are also a range of reforms to regulatory process and practice designed to make it easier for consumers to be involved. There is now more time allowed in the regulatory process for stakeholders to prepare submissions and put their views forward. There is also more emphasis on consumer-focused written documents, including AER issues papers, and requirements on the businesses to include overview papers with a consumer focus.
And we are developing benchmarking reports, so consumers can assess how their network business is performing in comparison to others.
I also note that the Standing Council on Energy and Resources – made up of Ministers from all Australian governments – agreed in principal to establish a national energy consumer advocacy body, the Australian Energy Consumers Organisation, with initial set up from 1 July 2014. The establishment of such a body would ensure that the views of all customer segments can be represented effectively in the new regulatory environment and the impacts upon consumer groups could be appropriately considered and reflected in decision making.
We believe there is a compelling case for such a body and look forward to developments in this space.
Conclusion
Better energy regulation, better investment decisions and better consumer engagement will result in a more efficient energy sector – a sector that will give consumers greater protection, greater choice, and greater control over their energy costs.