Issue date
AER reference
NR 37/21

With household energy debt on the rise, the Australian Energy Regulator (AER) has raised concerns about the decrease in customers getting support from their retailers through hardship programs, and the effectiveness of these programs in tackling debt.

The AER has released its Annual retail markets report 2020–21 which shows that, even with falling energy prices, average household energy debt, for gas and electricity combined, has increased 12% from $897 in 2019–20 to $1,000 in 2020–21, while the average electricity debt for a customer upon entry into their retailer’s hardship program grew 21% over the same period from $1,304 to $1,584.

The AER was quick to act during the pandemic releasing a Statement of Expectations to retailers on protecting customers from disconnections and supporting struggling customers with their bills.

As a result, residential electricity disconnections dropped by more than 26,000 during 2020–21 keeping customers connected to the power system while they were stuck in their homes.

The data reveals 182,665 households are paying off energy debt, an increase of 8,444 from the previous year, a trend that also reflects the impact of the COVID-19 pandemic.

But this doesn’t include customers classified by their retailer as hardship customers, which fell from 72,882 to 65,855 in 2020–21, with around half of those customers still unable to keep up with their ongoing usage costs.

Every energy retailer is required by law to have a hardship policy in place that identifies and supports residential customers to overcome spiralling debt including payment arrangements that take into consideration a customers’ capacity to pay.

Hardship programs can also provide more tailored and face-to-face support, such as financial counselling and energy efficiency audits, which is more comprehensive than just a payment plan where customers chip away at their debt by paying agreed regular instalments.

AER Chair Clare Savage said with retailers having an obligation to identify whether a customer is experiencing hardship and payment difficulties, the drop in hardship program participation during the pandemic, and their effectiveness in reducing debt, was concerning.

“It’s not surprising that energy debt rose due to the effects of the COVID-19 pandemic, and not surprising to see an increase in people on payment plans to manage their bills.

“But we are not out of the COVID woods yet, and with our data showing more than 262,000 people now paying off some form of energy debt, it does raise questions as to why there is a drop in the number of customers entering hardship programs.

“Residential electricity customers on hardship programs have $500 more average debt, compared to other residential customers with debt,” she said.

“Really effective retail hardship policies and customer access to tailored, structured hardship programs are now more crucial than ever as people work their way out of vulnerable situations that this pandemic has put them in, whether that be financially, mentally or physically.

“The key challenge for retailers right now is identifying those customers who are facing more severe challenges and offer support that is right for their circumstances.

“Our compliance and enforcement priorities for 2021–22 include a focus on reducing customer debt. In particular, we will be monitoring retailers to ensure they are identifying residential consumers in financial difficulty and offering them payment plans that have regard to their capacity to pay where relevant,” Ms Savage said.

“Retailers are required to ensure consumers in financial difficulty are given the full suite of protections in the Retail Law and Retail Rules, including protections outlined in their hardship policies.”

Ms Savage said the latest retail data underpins why new thinking is needed from all corners of the energy sector to tackle the issue of energy hardship.

“As COVID-19 has shown us, we can all suddenly find ourselves in vulnerable circumstances,” Ms Savage said.

“Being able to switch the lights on or heat up the kettle is something everyone should be able to do, but unpaid electricity bills piling up can quickly become a very difficult situation for an individual or family to turn around.”

“For the past 20 years we’ve tried different tactics to manage the issues and barriers to consumers participating in the energy market,” Ms Savage said.

“Hardship programs will always be needed, but now is the time for the energy sector to ask what else we could do to support consumers who find themselves in vulnerable situations, especially when they least expect it.”

Note to editors

The AER’s Annual Retail Report 2020-21 covers jurisdictions that have adopted the National Energy Customer Framework (NECF) and are covered by the Retail Law and the Retail Rules – NSW, Queensland, South Australia, Tasmania, and the ACT. Although not part of the NECF, Victoria is also included in some sections of the report.