Consumer matters
Issue date
AER reference
AS 02/23

Speech by Australian Energy Regulator Chair, Clare Savage “Protecting consumers through the energy transition” for Australian Energy Week, 20 June 2023.

Acknowledgement of Country

Good afternoon.

I would first like to acknowledge the traditional custodians of the unceded lands on which we are meeting, specifically the Wurundjeri Woi Wurrung people of the Kulin Nation.

I pay my respects to their Elders past and present and acknowledge their continuing culture and contribution to this great country.

It’s wonderful to be back at Australian Energy Week for another year.

I have been asked to speak today about our role in protecting consumers through the energy transition. A fundamental plank in how we protect consumers is through our compliance and enforcement activities.

Today, I am launching the AER’s compliance and enforcement priorities for 2023–24. For all stakeholders, it is important for us to be transparent about where we see our priorities and how we intend to focus our compliance and enforcement resources.

For energy market participants, we want the release of these priorities to spur proactive efforts to make sure their houses are in order.

For consumers, we want to give them continued confidence that we are regulating for them.

When the AER Board was considering its priorities for the coming year, we were conscious of the energy market context in which we are operating.

There are two broad themes for that context. First, the energy market transition continues apace, creating fresh sets of challenges and opportunities.

Second, cost of living pressures are affecting consumers across the board, making increasing energy prices particularly difficult to accommodate.

The past year has seen unprecedented volatility that’s impacted and continues to impact market participants and consumers.

Last week, I had the privilege of speaking at the ACCC’s annual National Consumer Conference. It was both sobering and deeply affecting to watch and listen to some of the lived experiences of everyday people, struggling to make ends meet.

Equally, I was encouraged to see the wonderful work of the many organisations helping and supporting them during these tough times.

I used my opportunity to discuss the importance of having a consumer voice in the work that we are doing to shape regulatory change and design in the energy sector.

The consumer voice is central to everything we do. It will always have a seat at our table.

In that speech, I shared statistics from the latest Energy Consumers Australia sentiment survey, released earlier this month, which suggests that 52% of households are more concerned about paying their electricity bill than they were a year ago.

It also shows that just 35% of households feel confident that the energy market is working in their long-term interests.

These statistics are also consistent with the ongoing consultation and engagement we have with consumer groups and representatives.

Their message is clear. Australians are doing it tough.

Just last week, research by the University of New South Wales Social Policy Research Centre revealed that a significant number of Australian working families – many earning more than the minimum wage – are at risk of slipping into poverty.

Let me turn now to the role of compliance and enforcement

Energy is an essential service, touching the lives of every Australian. We have high expectations of the businesses that produce, distribute and sell energy.

The laws that govern these activities are designed to make everyone better off by promoting competition and protecting consumers, especially those who are vulnerable due to circumstances like hardship, health issues or domestic violence.

Yet too often we find that consumers have not enjoyed the protections to which they are entitled.

We still see participants in this industry who do not try hard enough – who fail to pay sufficient attention to their obligations or devote sufficient resources to ensuring they meet them.

The AER recognises that compliance can be costly. We work with industry to help it comply and to minimise cost but, as the Hayne Royal Commission said in its Final Report:

“Compliance with the law is not a matter of choice. The law is … coercive and its coercive character can be neither hidden nor ignored. Negotiation and persuasion, without enforcement, all too readily leads to the perception that compliance is voluntary. It is not.”

Now no regulator can right every wrong. But we can create conditions where industry participants understand what is required of them, and we can deter bad behaviour by demonstrating what can happen to those who fail to meet these requirements.

In 2021 the maximum penalties for breaching the laws regulating gas, electricity and retail were substantially increased.

Before then, the highest penalty imposed by a court for a breach of the National Energy Retail Law was $1.5 million.

Since 2021 we have seen the Federal Court impose penalties of up to $17 million.

Across the past two financial years, total penalties across AER issued infringement notices and penalties have been more than $39 million – a significant increase compared with the total penalties of just over $3.5 million issued during the preceding 14 financial years.

Compliance failures in the energy sector can no longer be dismissed as a cost of doing business.

This is the backdrop against which the AER sets its compliance and enforcement priorities.

We do not seek to promote some obligations at the expense of others, but we do aim to focus attention on those areas where the needs of consumers are the most pressing, and where our compliance and enforcement activities can have the greatest impact.

As both an economic and conduct regulator, the AER deploys its full regulatory toolkit to meet the challenges energy consumers face in a transitioning market.

These tools span our compliance and monitoring roles all the way to enforcement action by way of infringement notices and court proceedings.

The AER recognises the importance of specific and general deterrence in its role as conduct regulator for those operating in the energy markets and takes meaningful enforcement action to achieve industry behaviour change as well as respond commensurately to breaches where necessary.

Now to the compliance and enforcement priorities themselves

It is important to note that we have a number of ‘enduring’ priorities.

We will always act where there are serious issues impacting consumers experiencing vulnerability, including life support consumers and consumers affected by family violence.

The AER will also continue to help shape new or emerging markets and to implement new guidance. We will also continue to progress important ongoing work in areas previously identified as priority areas.

In terms of our new specific priorities:

Our first priority is to improve outcomes for customers experiencing vulnerability, including by improving access to retailer hardship and payment plan protections.

In June of last year, the Federal Court handed down penalties of $17 million for Origin’s failure to comply with its obligations to protect customers experiencing hardship and payment difficulties - the largest penalty ever imposed for breaches of the National Energy Retail Law and Rules.

The conduct was first brought to our attention by the South Australian and New South Wales Ombudsman schemes, and more than 90,000 customers were affected across New South Wales, the ACT, Queensland and South Australia.

In October 2021, an investigation by the AER into alleged breaches of hardship provisions by Alinta Energy, resulted in Alinta substantially improving its systems and waiving more that $1 million in energy debt owed by more than 400 customers.

The AER had been concerned that during the period September 2019 to March 2020, Alinta Energy may have required vulnerable customers to make upfront payments or seek financial counselling, in circumstances where it should have offered customers access to payment plans or assistance to join Alinta’s hardship program.

In some cases, Alinta allegedly wrongfully disconnected customers for non-payment of their energy bills. This conduct was also brought to the AER’s attention by complaints to various state Energy Ombudsman offices.

With the considerable challenges facing the east-coast energy market, an increasing number of customers with energy debt, and the cost-of- living crisis, we expect to see a significant increase in the number of consumers experiencing financial distress this year.

Our most recent retail performance data, as at the end of March, also provides some useful insights about payment plans and hardship programs.

Compared to the same time last year, we’ve seen an 8% increase in the number of customers participating in payment plans, and a 19% increase in customers in hardship programs.

While we’d prefer that customers were not facing payment difficulties, we would rather see these figures growing than have customers battling growing debt in silence and without assistance.

We know that identifying customers experiencing financial difficulties earlier, and getting them support sooner, can take the pressure off and help them get back on their feet.

The average debt on entry to a hardship program has fallen by 27.9% and all jurisdictions now have a lower average debt on entry to hardship programs than they did the year prior.

This sends an encouraging signal to us that retailers are increasingly identifying these customers experiencing vulnerability and ensuring they access available support earlier.

It is critical that retailers continue this important work and that this trend continues, particularly as data sources outside the AER indicate that the number of Australians experiencing significant challenges paying their bills is much greater than indicated by the number of consumers on hardship or payment plans.

Our focus will be on using our regulatory toolkit to ensure that all eligible customers are able to access the protections to which they are entitled, including ready access to hardship programs and payment plans that reflect their capacity to pay.

In light of our data and recent cases, including Origin and Alinta, we also consider that many retailer hardship policies could be improved.

Concerning metrics about hardship programs in our March retail data include:

  • The average debt of customers while in a hardship program has increased almost 8% to $1,871, and
  • Nearly 41% of electricity hardship customers are not meeting their usage costs, indicating that many are becoming worse off while in a hardship program.

We will work with retailers to review their hardship policies accordingly with a view to improving customer outcomes.

These are important consumer protections that are even more critical to safeguarding energy consumers in the current economic climate.

In October last year we also launched our first consumer vulnerability strategy; Towards Energy Equity: a strategy for an inclusive energy market.

It’s an ambitious, forward-thinking strategy informed by consumers experiencing vulnerability and hardship.

An overarching action that will help to achieve our Towards Energy Equity objectives, and break down systemic barriers, is our call for sector-wide, game-changer reforms.

Since the start of 2022, we've brought together more than 50 energy sector leaders to take part in leadership group workshops to discuss not only what we can do better, but what we can do differently.

This includes how to support better sharing of cost and risk across the sector and to improve outcomes for consumers.

Our second priority is to make it easier for consumers to understand their plan and engage in the market by focusing on compliance with billing and pricing information obligations, including the Better Bills Guideline.

Right now, consumers across the country are receiving messages from their retailers with the unwelcome news that prices will be increasing from 1 July.

It is more important than ever before that consumers have the information they need to ensure they can make informed decisions about whether they’re on the best deal, or if they should be shopping around.

This compliance priority will focus on billing and pricing information obligations, including the Better Bills Guideline, which was introduced by the AER in March last year.

The Better Bills Guideline outlines how retailers must prepare and format their bills to customers and comes into effect on 30 September 2023.

An important part of the Guideline is the requirement for retailers to include a ‘better offer’ statement on the first page of the bill, telling the customer if they can offer a better deal, including the retailer’s standing offer.

Billing related issues affect more customers than other breaches reported to the AER by retailers, and make up approximately half of the referrals to the AER from Ombudsman schemes and consumer groups.

Recognising this, the complexity of the energy system, and the current cost of living pressures on consumers, the AER will also focus on related billing issues where there is significant customer harm.

This includes overcharging, estimated reads, billing delays, failures to notify of price and tariff changes and failures to comply with standing offer obligations.

During the past year, around 200,000 customers were affected by breaches related to billing that were self-reported by retailers to the AER.

More than 133,000 customers were affected by issues with delayed billing, more than 47,000 had problems with the contents of their bills, more than 3,000 were subjected to overcharging, and more than 5,000 experienced issues with estimated reads.

At the core of this priority is our belief that it shouldn’t be hard for consumers to understand their energy bill, and our desire for them to be active and fully informed participants where they can be that feel empowered to find and stay on the best energy plan for their individual circumstances.

Our third priority is to support power system security and an efficient wholesale electricity market.

In June last year we witnessed extraordinary conditions in our electricity market which led to the market being suspended for the first time by AEMO.

While our investigation found that generators communicated frequently with AEMO, it also highlighted the importance of ensuring that generators submit accurate information about their availability and follow the dispatch instructions they receive, as well as complying with rules about rebidding and record keeping.

The AER has and will continue to investigate conduct that contributes to major market events, such as making false or misleading offers, bids or rebids.

By way of example, last year, Hornsdale Power Reserve in South- Australia’s mid-north was ordered by the Federal Court to pay a

$900,000 penalty for breaches of the National Electricity Rules.

Hornsdale made offers to AEMO to provide contingency frequency control ancillary services but admitted it would have been unable to comply with its offers and provide these critical services if called on.

The AER is committed to taking action to ensure these services are provided reliably and intends to file proceedings against another provider of contingency services later this month.

We will be using our audit powers to ensure that generators maintain the compliance programs required by the rules, and to identify areas where all generators can improve.

Our fourth priority is to improve market participants’ compliance with performance standards and standards for critical infrastructure.

In addition to complying with the market rules, the security of our power system relies on market participants meeting their performance standards and maintaining real-time communications with the market operator.

Not meeting performance standards can cause or exacerbate market events and contribute to blackouts.

It’s also important that Network Service Providers comply with their obligations under the National Electricity Rules and/or their connection agreements.

We will continue to investigate non-compliance with performance standards that contribute to major market events, or hinder AEMO’s ability to safely and securely operate the network.

Earlier this month, we announced that Stanwell Corporation had paid six infringement notices issued by the AER totalling more than $263,000.

We issued these notices to Stanwell for allegedly applying an unapproved detection setting to three of its generating units at Stanwell Power Station, and for failing to ensure those units met the required generator performance standard for voltage disturbances.

These alleged breaches were detected by the AER during its investigation into the May 2021 power system incident at Callide Power Station.

This incident caused the interruption of multiple generators - including Stanwell Power Station - and high voltage transmission lines in Queensland.

We’re continuing our investigations into this incident.

My colleague and fellow AER Board Member Justin Oliver summarised it well when we announced the payment of these infringement notices by Stanwell Corporation:

“As Australia transitions to new forms of electricity generation with different technical characteristics, it is more important than ever that all generators comply with the rules.”

This includes complying with the rules requiring provision of Supervisory Control and Data Acquisition infrastructure – also known as SCADA.

SCADA infrastructure is the communications backbone of the National Energy Market, and AEMO’s line of sight on the condition of power systems.

Non-compliance with SCADA obligations can and has, at times, hindered AEMO’s ability to manage the power system.

Compliance with performance standards is the responsibility of all market participants.

We can’t risk the operation of critical infrastructure as the number and complexity of connections rises through the energy transition.

Our fifth and final priority is to clarify obligations and monitor compliance with reporting requirements under the new Gas Market Transparency Measures.

Over the last two years the AER has focused its compliance and enforcement work on ensuring timely and accurate gas auction reporting and demand forecasting in downstream wholesale gas markets by market participants.

Last month we filed civil penalty proceedings against Jemena for alleged large-scale breaches of its auction quantity limits obligations.

We also expect to announce the payment of infringement notices by other participants in relation to alleged breaches of demand forecasting obligations, later this month.

Considering the significant compliance and enforcement work the AER has undertaken, it has been pleasing to see improvements in compliance in relation to these obligations.

While we will maintain surveillance in these areas, the AER’s focus has now shifted to the new Gas Market Transparency measures.

Reporting under these measures commenced in March 2023. Given their recent introduction, the AER has been working closely with AEMO and industry to make sure all participants are registered for reporting.

The next important step in implementing these measures is to ensure industry participants understand and are able to comply with their obligations.

This is a large body of work, with reporting extending across the supply chain, including gas reserves and resources estimates, LNG exports and large user demand reporting, and short-term domestic and LNG sales information.

This information will drive better pricing transparency, improve the efficiency of gas markets, support the facilitation of investment decisions, and inform government policy.

The AER will also focus particularly on Part 27 of the new measures – known as the East Coast Gas System Reforms.

Stage 1 of these reforms begins on 4 July and aims to ensure adequate market supply through further reporting of gas supply conditions.

This data is critical for AEMO to evaluate and intervene in the market if necessary.

It’s a challenging time and there’s a lot of work to be done. The energy landscape is transforming, and our compliance and enforcement priorities are changing with it.

Our priorities for 2023–24 cover the full spectrum of the sector, including wholesale and retail behaviours across gas and electricity.

Each priority, however, is built on the foundation of our goal to deliver a secure system and an efficient market that delivers outcomes for consumers now and in the future.

As always, we remain committed to working with industry to help them understand and meet their compliance obligations as we all deliver positive outcomes for consumers through change.

Thank you.