1 I will obviously talk about Energex or Ergons proposed network - - PDF document

Good morning and thank you to the Commissioner and the AER for the opportunity to speak today. My name is Rose McGrath and I am from the Essential Services Team at the Queensland Council of Social Service. Firstly like to acknowledge the First Peoples of the land we are meeting today – the Jaggera and Turbull peoples of the Brisbane area. For those that may not be familiar with what we do we are the peak body for the community services sector in Queensland – and our members include non-government organisations large and small from the St Vincent de Paul Society and UnitingCare, through to small local neighbourhood centres delivering vital services in local communities across the state. Our role is not only to SUPPORT and provide a voice for those service providers and the people who work and volunteer in those organisations – but also to give a voice to the people they serve. People who are experiencing some other form of disadvantage and vulnerability in their lives – whether that is low income, disability, etc. Our organisation has engaged with the consultation process to determine the network pricing rules firstly by the AEMC in the development of the rules and then by Energex and Ergon in the development of their TSSs. We have made a submission to both Energex and Ergon and have participated on the workshops which both companies. These submissions are on the QCOSS website and on the websites of both distributors. Just for the record we are also on the Ergon Customer Council now for a few years and have recently been engaging with Energex on their Vulnerable Customers project. I would like to also acknowledge and thank the staff of both companies working on TSS process for their efforts to explain and include consumer and community representatives. Secondly, I would like to acknowledge the other consumer and community organisations that have also engaged with the TSS process here in Queensland. I hope that it has improved the process and got better outcomes for consumers. .

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I will obviously talk about Energex or Ergon’s proposed network tariffs but today as there is a wider audience, I want to take the opportunity to canvass the value proposition that we all have a role to play to ensure that cost reflective tariffs work for all people. This is not just about Ergon and Energex and how they comply with the rules. I will talk you through:

• Why is this process important for people on a low income or at risk in some way

due to a vulnerability.

• The barriers to getting the benefits of network tariff reform (also referred to as

cost reflective tariffs in this presentation) especially for low income and vulnerable people;

• The enabling factors that will we purport will help; and
• Some issues/concerns we have going forward

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The network tariff reform is a big deal and game changer for the electricity sector. From what we are told, we are all to benefit in the long term as the demand tariffs will reduce peak demand and we can stop the augmentation of the RABs – which we know by 2019-20 in Qld is projected to be in excess of $27 Billion. In the long term the RABs will be much reduced and stable and we will be in energy utopia and we will be all driving around in the autonomous, electric vehicles with

• ur (very cheap and accessible) batteries and solar. And everyone is a winner!

However in the shorter term with any tariff reform there will be winners and losers. We want to ensure that vulnerable people are not worse off because:

• as electricity is an essential service; and most importantly,
• they cannot afford the bill shock

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So that is the first key message I want to make today – people cannot afford the bill shock during what will be a period of transition from the current tariffs to the new regime.

This is because in Queensland the experience of low income vulnerable customers in recent years has not been a good one. We all know that electricity prices have increased significantly over the last ten years. The community sector is seeing this impact and they tell us that……READ OUT 4

Here we have selected a comment from an ER volunteer who states… READ QUOTE 5

But I hear you say but prices are stabilizing and I know that Ergon and Energex are finding efficiencies etc. And I have borrowed this chart from the QPC draft report to illustrate the point that retail prices are stabilising. However this is all very well but these prices are stabilising at a very high relative level if you are a low income… 6

…….and we can see this in a very simple example of a single person on the newstart allowance and essentially price stablising means that you will be paying about 15%

• f your after-housing income in energy and this is assuming you very frugal and living

in one of the cheapest rental areas in Brisbane. Obviously if you were in a higher rental area then the proportion of after-housing income paid in energy would be much higher. Also like to use this example to point out that Queensland has not have a well targeted social policy to assist people on certain concessions such as newstart. There is not rebate for single people and couples without children. 7

For those who cannot manage the 15% of their income then chances are they will end up on the hardship programs which in Qld the number of customers accessing hardship has been steadily rising. In the June quarter of 2014-15, over 15,000 Queenslanders were on a hardship program with their retailer – which is the highest number ever. This graph shows the hardship program participation is growing as a proportion of the overall customer base – so we can see that there is growing demand for hardship support and a growing proportion of customers needing assistance. 8

Or even worst they end up getting disconnected for non payment of their bill. This has been increasing in Qld in recent years as we can see in this chart. Just under 30,000 households disconnected during 2014-15. 9

Now the second key message today is that we must walk before we can run with tariff reform.

People need to understand what they are signing up – can’t rush them – otherwise risk community backlash and people on low incomes will get bill shock which will lead to falling behind in payments, growing debt and ultimately disconnection for non payment of bills. We are expecting people to make fundamental shift in the way people think and use electricity. People will need to know how to work out the cost of running their appliances and what it means for them to put on a few different appliances at the same time. They will need to know about the implications of “appliance stacking” and if necessary spread that out over and outside the half hours the charging window. 10

There are some real barriers to achieving this outcomes for some people. When we asked the community organizations in our annual survey which word best described their clients – we got this response. Please note that as we allowed multiple responses the percentages do not add up to 100%. But the vast majority selected ‘in crisis’ and ‘vulnerable’ with a few saying they were also ‘confused’. There is a long way to go to shift these consumers to becoming informed, confident and empowered consumers that can navigate tariff reform effectively. They will need to understand them, understand the energy costs of the fixed and non fixed appliances in their properties, and then decide how to change their behavior (if they can). 11

For starters there are some real barriers about information and communication. We asked this question last year (2015) in our survey of community organisations and put the response in pictogram form. As you can see it is – overwhelmingly

• LITERACY. LACK OF UNDERSTANDING, INTERNET ACCESS, LANGUAGE, CONFIDENCE,

ETC. 12

Many people in the community have literacy and numeracy barriers. An especially vulnerable group will be refugees. From our Bright Actions (LIEEP) program we know that for recently arrived refugees that about 24% (415 people) have effectively no education out of sample of 1,712 people and about 45% have either no or just primary school education. 13

Another big barrier for low income people is the type of housing they find themselves living in. In the first pie chart we see a snapshot of the housing tenure in Qld as at 2011. About 30% of people rent – in either private rental or public housing = the blue and red

• sections. The rest own their home – either with a mortgage or without.

If we look at the housing tenure of the customers who successfully applied to Home Energy Emergency Assistance Scheme (HEEAS) – the blue and red sections have grown significantly. 73% are tenants in private rental housing and 16% are in public housing. This indicates that people who are are struggling financially and seeking emergency assistance to prevent disconnection are much more likely to be living in a tenanted property. This indicates that there may be structural barriers to achieving energy affordability for

• tenants. QCOSS is currently undertaking a research project (with financial support from

Energy Consumers Australia) to look into these structural barriers and to understand them

• better. However we know that some are exogenous factors such as condition of housing

and fixed appliances leading to poor energy efficiency outcomes; lack of access to load control and cheaper tariffs as landlord makes these decisions; lack of ceiling fans and even the type of window covering. Tenants are not in a position to easily change such exogenous factors as they would need their landlord/agents permission. For a number of reasons they may be reluctant to raise these with their landlord/agent.

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So even if you do not have these above barriers there still remains the question can people respond to the time and price signals in the new tariffs? There will be some people in the community who cannot respond or will find it difficult to respond given their busy lifestyle and other demands on time. This is an area where there is more research needed to understand the in-home behaviours around energy use of different households. There is one important research project on this issue - the RMIT study on families with young children which logged people behaviour on energy use. This study found that it was very difficult to move some activities especially around small children routines of homework, dinner, bathtime and bed, all before 8pm. This report is called “Feral o'clock: why families struggle to shift their energy use”, by researchers at RMIT in Melbourne. 15

Given these barriers how can we get more people to move to the tariffs without harm? This is the challenge we all have and not just Ergon and Energex. For this to happen (and for tariff reform to be effective) it will be vital that households:

• Can understand the new tariffs and

respond to them

• Can access the tariffs and any

supporting technology

• And that there are adequate

customers protections

This will especially be the case during the transitionary phase where the concepts of bill stability and simplicity should be key features of the tariffs and this may well be at the expense of cost reflectivity. This is critical in getting acceptance of the tariffs in the first few years and before any tariffs become

• mandatory. The AER assessment should place a higher weight on these features especially in the first

TSS. It is not enough that the customer impact statement (as set out by the AEMC rule change and assessed by the AER) says that customers impact needs to be identified and that customers must understood the tariffs. This needs to be taken further as distributors like Ergon and Energex have a social licence to design a tariff reform framework that does not result in harm to customers and especially vulnerable customers.

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So what is our view on Energex and Ergon’s proposed new tariffs in their first TSS? Energex network tariff is the same tariff and structure the year around, has a shorter window so households can shift load out of this period, has a bill protection mechanism if only for one year, and importantly does not operate on weekends and public holidays. This is important in today’s society where so many people are working outside the home and tend to undertake multiple household tasks and most of their in-home entertainment over the weekends or on public holidays. An important feature of Energex’s new suite of tariffs is the smart control tariff which is relatively cheap and can be used effectively during the day. These features of the new tariffs will help people to understand and possibly change behaviour and therefore ameliorate the risk of bill shock. However Energex has chosen a demand measure based on maximum demand in the month – one monthly peak – over a previously canvassed option (in its earlier workshops and consultation paper) of the average of four monthly peaks. QCOSS in its earlier submission to Energex in October 2015 pointed out that it was too early to introduce such a sharp price signal which could have a higher probability of bill shock. This is Energex’s first TSS and this is an example of “trying to run before you can walk”. Households need time to get to understand the new tariffs and change their behaviour accordingly. It may well be the case in a future TSS that Energex will be able to introduce a sharper price signal however at this stage – effectively in its infancy – if retailers pass on this tariff structure, there is a higher risk of bill shock (and debt and disconnection) and consumer disquiet and anger. Ergon’s network tariff is more complex for households to understand given its averaging of half hour periods and a different summer to non summer tariff and structure (noting that Ergon did respond to customer feedback on an earlier version where the summer and non summer demand measures were different). Even if households are able to understand it, it would be very difficult to shift load as the demand window goes over 6.5 hours and operates every day. The complex averaging is likely to result in a lower KW demand (as opposed to maximum demand single peak) however given that summer demand tariff will be significantly higher than the non summer

• ne, there is still a strong likelihood that the summer bills will be much larger than the non summer ones. This is especially the case in tropical north Queensland. QCOSS

is especially concerned with this aspect of the tariff structure as it could lead to a higher incidence of build up of debt and possibly disconnections. As we saw earlier Queensland already has a highest ever disconnections last year and over 44 % of these were in regional Queensland. Ergon has indicated in its subsequent webinar (11th May 2016) that it is working on a monthly retail tariff with a demand component. QCOSS is keen to understand this retail tariff as this will be the key to understanding the customer impact. QCOSS suggests that this retail tariff should be simpler than the network tariff to understand and that it be consistent throughout the year. It would be preferable (at least for the first TSS) that public holidays and weekends are exempt. Another feature could be a smart control tariff and it is understood that Ergon are developing such a tariff too. Both Ergon and Energex and their network pricing teams have been very proactive in engaging and reacting to customer and community organisations. They are both to he commended for this positive and constructive relationship. It is important though that they both continue to engage and consult on tariff reform as there needs to be a lot of more effort put into understanding the customer impact and what are the enabling factors to ensure that households are not disadvantaged. QCOSS has put forward the following enabling factors in its submissions to both Ergon and Energex and we look at these now…….. So my third message is that going forward there are number of enabling factors to help ensure effective tariff reform…

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Firstly, there needs to be a lot of more effort put into understanding the customer

• impact. I understand at the moment that both Energex and Ergon are doing trials of

families and friends of employees. This is not good enough and need to do a proper trial and sign people up with advanced meters. Ergon in its recent webinar (11th May) has indicated that it will be doing a major trial with up to 1,000 participants on their STOUD by 1 July 2017. Ergon at a QCOSS forum in Cairns on 27th April indicated that would welcome community group and their clients to sign up to this

• trial. Ergon has said that participants would not be adversely impacted as any

adverse impacts would be compensated. It is expected that Energex will also conducted a similar trial . I would like to commend Energex for undertaking their vulnerable customer project which will help them better understand the barriers of people on a low income and how to respond to them. It is encouraging that both Ergon and Energex are looking to understand the impacts

• f their proposed tariffs on the customers. QCOSS is especially interesting in

ensuring that low income and people in vulnerable situations are also included. This must also include tenants and public housing tenants. The Queensland Government is the largest landlord in Queensland and has a social licence to these tenants to understand better the impact on them of the new tariffs. Energex and Ergon have a social licence to ensure that households are not adversely impacted by tariff reform. At the very least they should investigate the impact and find out who is worse off. 18

Secondly, the next enabling factor is communication and consumer education. This has to be a lot more than just a TV marketing/PR campaign and “one size” does not fit all. We know that the logic of tariff reform and cost reflective prices need to be explained firstly to bring people on board on the overall reform and understand why this is necessary - who will lead this conversation?. However before people are convinced to go on the new tariffs they need to know if they are better off? Where is the incentive to move onto the new demand tariffs? This was a key issue raised in the two workshops we held with community groups in September 2015. To understand people will need to know what appliances they have, what their wattage is, when they are using them, and how much they cost to use under the new demand tariffs. This will require calculators, in-home display devices, apps and text alerts, and for some households struggling with the barriers I have mentioned earlier

• ne to one home visits from community organisations with specially trained energy

literacy/energy efficiency community workers. This is all intuitive and not difficult to work out but who takes the responsibility of leading the communication and consumer education and who pays? QCOSS view is that this is part of understanding the customer impacts and ensuring that customers understand the new tariffs and then can make up their own minds how they respond to them. Therefore, the AER’s assessment of the TSS should cover off on to what extent the distributors are making efforts to assist customers to understand the new tariffs and should comment on what outcomes should be achieved. 19

The third enabling factor is reform on concessions and consumer protections. It is too risky to allow tariff reform to continue in Qld without the required reform to the social policy to support people on low incomes and vulnerable customers. There is a lot of scope to do this in Queensland and we have put forward our recommendation in our recent submission to the QPC. I do not want to go into detail here but just mention the following:

Well-targeted concessions

Healthcare card holders Proportional concession seasonal concessions in Ergon area

Better resourcing:

financial counselling Energy advisory service In home visits Energy efficiency Utilities literacy program

One thing I would like to say however is that Ergon and Energex should I hope be advocating for this wider reform too as it is in your own best interests to ensure that there is an adequate safety net given the risks of bill shock and community back lash to tariff reform.

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The next enabling factor is that everyone has a fair access to technology and especially concerned to address those structural exogenous barriers I discussed earlier in the context of private and public renters. A key concern is how do such groups access the advanced meters? If they cannot access these meters then they cannot get all the benefits of cost reflective tariffs and go on the new smart control tariffs which are clearly a good idea and help households with their bills. There need to be associated strategy to assist people on low incomes to access the technologies required to understand and move onto the new tariffs. Will the new rules on metering competition achieve this? This is a conversation we need to be having also as part of the tariff reform and we need answers on this so we can make a proper assessment on the reforms. Also just like to mention that quite a few people at the workshops said that demand tariffs would incentivise them to get batteries so that they avoid the peak pricing period – and that is good thing and will help moderate any further build up of the regulatory asset bases – but how can we ensure that we all have the same equal access to these batteries? 21

Going forward there are lots of questions still in Queensland and I am sure else where too. How will retailers react and pass on the network tariffs? We recognise that we need price signal for tariff reform to work. How stable will the tariffs be and will they be changing every year? Will the long run marginal costs reduce over time and what about the residual costs? – will we end up with very small long run marginal cost and large residual costs, so potentially higher fixed charges? And fundamentally who is taking the risks with tariff reform? For distributors and retailers there is a reduced revenue/financial risk with these demand tariffs (especially as not all households will have access to batteries) and for especially distributors as they have a given revenue cap. And finally, what will happen to the households who stay on the default tariffs? How will the AER’s assessment take these into account? These are the group that we in QCOSS are especially concerned about……... 22

Thank you for listening to me today. 23