Observations from the Vinnies Tariff-Tracking Project

Transcription

1 The NEM Observations from the Vinnies Tariff-Tracking Project Gavin Dufty, St Vincent de Paul Society May Mauseth Johnston, Alviss Consulting September 2014

2 TheNationalEnergyMarket Wrongway,Goback? Disclaimer Theenergyoffers,tariffsandbillcalculationspresentedinthispaperandassociated workbooks should be used as a general guide only and should not be relied upon. The workbooks are not an appropriate substitute for obtaining an offer from an energyretailer.theinformationpresentedinthispaperandtheworkbooksisnot providedasfinancialadvice.whilewehavetakengreatcaretoensureaccuracyof theinformationprovidedinthispaperandtheworkbooks,theyaresuitableforuse onlyasaresearchandadvocacytool.wedonotacceptanylegalresponsibilityfor errorsorinaccuracies.thestvincentdepaulsocietyandalvissconsultingptyltddo not accept liability for any action taken based on the information provided in this paperortheassociatedworkbooksorforanyloss,economicorotherwise,suffered as a result of reliance on the information presented. If you would like to obtain informationaboutenergyoffersavailabletoyouasacustomer,gototherelevant regulator swebsiteorcontacttheenergyretailersdirectly. TheNationalEnergyMarket WrongWay,GoBack? ObservationsfromtheVinnies TariffETrackingProject GavinDufty,StVincentdePaulSociety,Victoria MayMausethJohnston,AlvissConsulting Melbourne,September2014 StVincentdePaulSociety AlvissConsultingPtyLtd StVincentdePaulSocietyandAlvissConsultingPtyLtd Thisworkiscopyright.ApartfromanyusepermittedundertheCopyrightAct1968 (Ctw),nopartsmaybeadapted,reproduced,copied,stored,distributed,published orputtocommercialusewithoutpriorwrittenpermissionfromthestvincentde PaulSociety.! 1!

3 TheNationalEnergyMarket Wrongway,Goback? Acknowledgements This project was funded by grant from the Consumer Advocacy Panel ( as part of its grants process for consumer advocacy projectsandresearchprojectsforthebenefitofconsumersofelectricityandnatural gas. Theviewsexpressedinthisdocumentdonotnecessarilyreflecttheviewsofthe ConsumerAdvocacyPanelortheAustralianEnergyMarketCommission. Amendmenton2October2014 Charts3and4havebeenamendedsincetheinitialreportreleasedon30September 2014.Intheinitialreport,thesechartscontainedanerrorinrelationtotheEnergex figures.! 2!

4 TheNationalEnergyMarket Wrongway,Goback? TableofContents Background:TheTariffPTrackingProject Electricitybills:Wheredoesthemoneygo? Wrongway Goback? Recognisethatstandingoffersareimportant Distinguishbetweenpositiveproductdifferentiationandunnecessaryconfusion Standardisepresentationsofcostandchargesonbillsandoffers Clearlydistinguishbetweenregulatedmonopoliesandcompetitiveretailers Conclusion Summaryofrecommendations... 31!!!!!!!!! 3!

5 TheNationalEnergyMarket Wrongway,Goback? Background:TheTariffPTrackingProject The St Vincent de Paul Society, in conjunction with Alviss Consulting, hasbeen tracking changes to residential energy tariffs and reporting on household impacts since Initially the TariffETracking project only covered Victoria but has since expandedtoincludenewsouthwales,queensland,southaustralia,tasmaniaand theaustraliancapitalterritory. Therationalefortrackingchangestodomesticenergypriceshasbeentodocument price increases, analyse market developments and inform the broader community aboutbillimpactsandpotentialsavingstobemade. Inourview,thereisstillalimitedknowledgeandunderstandinginthecommunityof thevariousenergytariffsavailable,howtheyarechanging,andhowtariffchanges impactonhouseholds energybillsandenergyaffordabilitymorebroadly. Only by improving this awareness and understanding can we ensure that the regulatoryframework(forexample,inrelationtopriceinformationanddisclosure)is adequate, and promote a competitive retail market. Furthermore, this increased knowledgewillallowforclosemonitoringoftheimpactpriceandtariffchangeshave onhouseholds bills,andtheaffordabilityofthisessentialservice. In addition, a key aim of this project has been to document and analyse price and product developments arising from government policies and industry innovations, includingthederegulationofretailprices, greenpolicies,smartmeterrolloutsand transitionstowardsothersmartgriddevelopments. To date we have developed four workbooks for each of the National Electricity Market(NEM)jurisdictions. 1 Theworkbooksallowtheusertoenterconsumption levelsandanalysehouseholdbillsforstandingorregulatedgasandelectricityoffers, aswellaspublishedelectricityandgasmarketoffers. 2 Theworkbooks,aswellasassociatedreports,canbeaccessedattheStVincentde PaulSociety swebsite: This paper is the result of a comparison of the state by statee based analyses undertakenaspartofthetariffetrackingproject,aswellasreflectionsonthepublic debateonenergymarketdevelopmentsandreasonsforpriceincreasesoverthelast year. 1 AsTasmaniadoesnothaveregulated/standingoffersforgas,onlythreeworkbookshavebeen producedforthisjurisdiction. 2 TheVictorianworkbookscontainregulated/standingoffersfromJuly2008toJuly2014andmarket offersfromjuly2010tojuly2014.thenswworkbookscontainregulatedoffersfromjuly2009to July2014andmarketoffersfrom2011and2014.TheQueenslandandSouthAustralianworkbooks containregulated/standingoffersfromjuly2009tojuly2014andmarketoffersfromjuly2012to July2014.TheACTworkbookscontainregulated/standingoffersfromJuly2009toJuly2014and marketoffersfromjuly2013tojuly2014.thetasmanianworkbookscontainregulatedelectricity offersfromjuly2009tojuly2014,market(payasyougo)electricityoffersfromjuly2009tojuly 2014andgasmarketoffersfromJuly2013toJuly2014.!!! 4!

6 TheNationalEnergyMarket Wrongway,Goback? 1.Electricitybills:Wheredoesthemoneygo? ItiswellknownthathouseholdsacrossAustraliahavebeenexperiencingsignificant increasestotheirenergybills.chart1showspriceincreasessincejuly2009andthat SouthAustralianhouseholdspaythemostforelectricitywhileACThouseholdspay theleast. Chart1ElectricitypriceincreasesJuly2009toJuly2014asestimatedannualbills(nominal,incGST) forelectricityregulated/standingoffers,6,000kwhperannum,singlerate 3 2,600! 2,400! 2,200! Annual!bill!()! 2,000! 1,800! 1,600! 1,400! 1,200! Qld! NSW! SA! VIC! ACT! Tas! 1,000! 2009! 2010! 2011! 2012! 2013! 2014! Although recent public debate has focused on the fall in electricity demand and wholesale prices, only Tasmanian households had a price decrease in July 2014 (which was due to Aurora s anticipated repeal of the carbon tax). 4 Onecommon explanationforwhyhouseholdshavenotbeenexperiencingadeclineinelectricity costsisthattheregulatednetworkcostmakesupalargeproportionofhouseholds billsandthesepriceskeepgoingup. 5 3 InVictoriaandNSWthestandingofferpriceisbasedontheaverageretailstandingofferineach networkarea.asthepricesdifferbetweennetworkareasinnswandvictoria,theestimatedbillsin thesetwostatesarebasedontheaverageacrossnetworkareas.notethatthetransitionaltariffs currentlyavailableinnswandsouthaustraliaarenotincludedinthischart,andthatthesouth AustralianstandingofferspresentedasofJulyeachyearinthischartactuallytookeffectinAugustin See,forexample,TheConversation,Four%years%of%falling%electricity%demand:%can%this%continue?By AlanPears21January2013,TheBusinessSpectator,No%sign%of%end%to%falling%electricity%demandby HughSaddlerandHannahMeade,5June2013,SydneyMorningHerald,Watts%happening?%Electricity% demand%falling%as%prices%continue%to%risebyrossgittins,22august2014.inrelationtoaurora sprice adjustmentduetotheanticipatedrepealofthecarbontaxseeauroraenergy,2013standingoffer Determination,PricingProposalPeriod2,July2014E30June2015,p3 5 See,forexample,GrattanInstitute,Shock%to%the%system% %Dealing%with%falling%electricity%demandby TonyWoodandLucyCarter(December2013)! 5!

7 TheNationalEnergyMarket Wrongway,Goback? Chart2belowshowsthatNetworkUseofSystem(NUOS)chargeshaveincreasedin all of the NEM electricity networks since 2009, but it also shows that the NUOS charges,aswellasincreases,varysignificantlybetweenthenetworks.householdsin countrynsw(essential snetwork)paythehighestnuoschargesinthenemdespite costs decreasing since July South Australians (SA Power network) and Tasmanians(Aurora)alsopaysignificantNUOScharges.Although,comparedto2009 prices, the overall increases have been more significant in South Australia than in Tasmania. The NUOS charges are lowest in the ACT (ActewAGL s network) and Victoria(Citipower,Jemena,Powercor,UnitedEnergyandSPAusnet).Thisisdespite Victorian electricity bills being relatively high (similar to that of Queensland and NSW)inchart1above. Chart2NUOSchargesfromJuly2009toJuly2014asestimatedannualcost(GSTexclusive)for householdsusing6,000kwhperannum,singlerate ! NUOS!charges!!per!annum! 1200! 1000! 800! 600! 400! 200! 2009! 2010! 2011! 2012! 2013! 2014! Essential! SAPower! Aurora! Energex! AusGrid! Endeavour! SP!Ausnet! Chart 3 below looks at NUOS charges as proportion of total bill. It shows that the NUOSproportionofelectricitybillshasbeenhighestincountryNSW(Essential)and Tasmania (Aurora) over the last five years although Aurora s proportion higher in July2014.AusGrid,whichhadasignificantincreasein2011,isthenetworkareawith the second highest NUOS proportion of bills in NSW. In the Endeavour network, however, the NUOS proportion of bills has been in decline since The NUOS proportion in South Australia has increased significantly since 2012 and it is now similar to that of Ausgrid and Energex network area in Queensland. The five VictoriannetworkshavethelowestNUOSproportionofbills,andonlytwoofthem 6 TheannualNUOSchargeshavebeencalculatedbyallocating1,500kWhperquarter(againbasedon annualconsumptionof6,000kwh)tothestepchargesstipulatedinthenuos.theannualnuoscost alsoincludesfixedcharges.notethatasunitedenergy snuoschargehasbeenaseasonaltariffover thelastthreeyears,theunitedenergyconsumptionusedinthesecalculationsisthusbasedona proportionalallocationofa5monthsummertariffanda7monthnonesummer(offepeak)rate.! UE! Powercor! Jemena! ActewAGL! Citipower!! 6!

8 TheNationalEnergyMarket Wrongway,Goback? United Energy and SP Ausnet) have current NUOS proportions that are similar, or higher,towhattheywerebackin2009.theretailbills(chart1above)showthatthe regulatedretailrateintheactproducessignificantlylowerannualbillscomparedto the average standing offer in Victoria, yet chart 3 below shows that the NUOS proportionofthetotalbillishigherintheactthanitisinthevictoriannetworks. Chart3NUOScharges(exclGST)fromJuly2009toJuly2014asproportion(%)ofannualretailbill (inclgst)forelectricityregulated/standingoffers,6,000kwhperannum,singlerate 7 70! NUOS!as!proportion!(%)!of!total!bill! 60! 50! 40! 30! 20! 10! 2009! 2010! 2011! 2012! 2013! 2014! Aurora! Essential! AusGrid! Energex! SAPower! Endeavour! ActewAGL! SP!Ausnet! Chart 4 below shows the average annual NUOS cost and the average annual none NUOS cost over a five year period (2009E2014). It also shows the average NUOS proportion(%)foreachnetworkareaduringthatperiod.thefivevictorianenergy networkareaslookverydifferenttotheotherjurisdictionsinthischart.theoverall bills(nuosandnonenuoscombined)arerelativelyhighbutthenuosamount(in red)andthenuosproportion(dottedline)arerelativelylow.thecostofthenuos inunitedenergy(ue),forexample,issimilartothatintheact(actewagl)butthe overallaveragebillisalmost420moreperannum.whilecostsassociatedwiththe Victorian smart meter rollout do come under nonenuos costs in this chart, the UE! Powercor! Jemena! Citipower! 7 InVictoriathestandingofferbillisbasedontheaverageincumbent(AGL,OriginandEnergy Australia)standingofferasofJulyeveryyear.InNSWtheretailbillisbasedontheregulatedrate from2009to2013andtheincumbentretailer sstandingofferineachofthenetworkareas(originor EnergyAustralia)asofJuly2014.InSouthAustraliatheretailbillsarebasedontheregulatedratesas wellasagl sstandingofferpostretailderegulation.inallotherjurisdictiontheretailbillsarebased ontheregulatedrates.notethatasunitedenergy snuoschargehasbeenaseasonaltariffoverthe lastthreeyears,theunitedenergyconsumptionusedinthesecalculationsisthusbasedona proportionalallocationofa5monthsummertariffanda7monthnonesummer(offepeak)rate.! 7!

9 TheNationalEnergyMarket Wrongway,Goback? averageannualcostoftherolloutdoesnotcomecloseto400,asexaminedintable 1andcharts5and6below. 8 Chart4AverageNUOScomponentoftotalbillfromJuly2009toJuly2014asperannum(exclGST), average(2009e14)nonenuoscomponentoftotalbillasperannum(inclgst)andaverage(2009e14) NUOSproportion(%)oftotalbillforelectricityregulated/standingoffers,6,000kWhperannum, singlerate 9 Avg!electricity!bill!(/annum)! 2,500! 2,000! 1,500! 1,000! 500! 0! Avg!NUOS!()!component! Avg!NUOS!%! Avg!NonRNUOS!()!component! 100! 90! 80! 70! 60! 50! 40! 30! 20! 10! 0! Avg!NUOS!component!(%)! In order to examine what households actually pay for the various services (and policies)thatarecostedbythesupplychainandpassedontoconsumersintheform of a retail bill, table 1 below deducts estimated cost components off the average annualretailbill(from2009e2014)forhouseholdsusing6,000kwhperannum.after deducting GST, NUOS costs, wholesale costs, the cost of environmental policies ( greenschemes )andthecostofrollingoutsmartmeters(victoriaonly),amounts in the final column are as low as 190 (in NSW sausgrid network) and as high as 529(inVictoria spowercornetwork).chart5belowshowsthesamebilldeductions asthoseincludedintable1. 8 ThecostofthesmartmeterrolloutisnotaccountedforintheNUOSchargesduetotheAMICost RecoveryOrderEInECouncilthatensuresthatthedistributorsareabletorecoverexpenditure associatedwiththeamiprogramfromconsumersonacostpassethroughbasis. 9 InVictoriathestandingofferbillisbasedontheaverageincumbent(AGL,OriginandEnergy Australia)standingofferasofJulyeveryyear.InNSWtheretailbillisbasedontheregulatedrate from2009to2013andtheincumbentretailer sstandingofferineachofthenetworkareas(originor EnergyAustralia)asofJuly2014.InSouthAustraliatheretailbillsarebasedontheregulatedratesas wellasagl sstandingofferpostretailderegulation.inallotherjurisdictiontheretailbillsarebased ontheregulatedrates.notethatasunitedenergy snuoschargehasbeenaseasonaltariffoverthe lastthreeyears,theunitedenergyconsumptionusedinthesecalculationsisthusbasedona proportionalallocationofa5monthsummertariffanda7monthnonesummer(offepeak)rate.! 8!

10 TheNationalEnergyMarket Wrongway,Goback? Table1Deductionofbillcomponents,averageannualbillbasedontheJuly2009toJuly2014period (forelectricityregulated/standingoffers,6,000kwhperannum,singlerate) 10 Retailbill incl.gst^ Retailbill excl.gst Retailbill excl.gst andnuos^ Retailbill excl.gst, NUOSand wholee sale^^ Retailbill excl.gst, NUOS, wholesale and green scheme costs* Retailbill excl.gst, NUOS, wholesale, green scheme costsand smart meter costs** Citipower 1,619 1,472 1, Powercor 1,842 1,675 1, SPAusnet 1,830 1,664 1, Jemena 1,817 1,652 1, UE 1,730 1,573 1, ActewAGL 1,314 1, E Aurora 1,759 1, E Energex 1,640 1, E Ausgrid 1,654 1, E Endeavour 1,705 1, E Essential 2,194 1, E SAPower 2,047 1,861 1, E ^Asperchart4above ^^BasedonAEMO saverageannualpricesperfiscalyearfrom2009to *In19%ofbillexclGSTinQld,VicandSA,17%inNSW,22%intheACT,and3%inTasmania 12 **BasedonannualaverageAERapprovedsmartmeter/AMIchargesfor2011to Thischartisbasedonthecalculationusedforchart4above 11 TheestimatedwholesalecostisbasedonAEMO sannualaveragewholesalepriceforeach jurisdictionbetween2009and2014(see: Demand/AverageEPriceETables/AverageEPriceETablesEAnnual)andmultipliedby6MW.Theaverage pricefor6mwusedinthiscalculationis:257fornswandtheact,248forqueensland,298for SouthAustralia,214forTasmaniaand236forVictoria. 12 The greenscheme costsincludecarbontax,renewableenergytargets,feedintariffsandother jurisdictionalschemes.theaemcreport,2013%residential%electricity%price%trends(december2013) estimatedthecostofenvironmentalpoliciesforeachjurisdictionandthepercentagesusedforthis reportarebasedonthecostofenvironmentalpolicies(c/kwh)andtotalcost(c/kwh)in2012/13(the baseyearoftheaemcstudy).wenotethatthecostofenvironmentalpolicieshasvariedbetween 2009and2014(thecarbontax,forexample,didnottakeeffectbeforeJuly2012)butasthecostof manyenvironmentalpoliciesalsohasdeclinedoverthisperiod,webelievethat2012/13figures provideagoodoverallindication. 13 ToestimatetheimpactoftheVictoriansmartmeterrolloutonthebillEstack,weusedAER s forecastchargesforsingleeelementmetersfor2011to2015.seetable2inaer,victorian%advanced% Metering%Infrastructure%Review,%2012L15%budget%and%charges,FinalDetermination(October2011)! 9!

11 TheNationalEnergyMarket Wrongway,Goback? Chart5Deductionofbillcomponents,averageannualbillbasedontheJuly2009toJuly2014period (forelectricityregulated/standingoffers,6,000kwhperannum,singlerate) 14 2,500! Avg!RETAIL!()! 2,000! Annual!bill!minus!GST!!per!annum! 1,500! 1,000! 500! 0! Citipower! Powercor! SP!Ausnet! Jemena! UE! ActewAGL! Aurora! Energex! Chart 6 below is based on the same calculations presented in table 1 and chart 5 abovebutshowsthevariousbillcomponentsasapercentageofthetotalbill.while we stress that some of the cost components are based on estimates rather than actual, known costs, we believe chart 6 clearly illustrates that the cost of retail is significantinsomenetworkareas. 15 According to our estimates, between 27E 33% of the bills paid by Victorian households goes to the retailer. That is significantly more than the amount that goestopayfortheactualelectricityused (wholesale), which accounts for 14 16% of the bill. In some network areas, it is even more than the network charges AusGrid! (NUOS). We acknowledge there are costs associated with retailing electricity in a competitive market. Retailers pay to attract customers, to keep customers, to service customers and so on, but when the retail component of households electricitybillstartsmatchingthecostofoperatinginfrastructureheavyutilities,itis timetoacknowledgethatsomethingiswrong. Endeavour! Essential! SAPower! Annual!bill!minus!NUOS!(and! all!the!above)! Annual!bill!minus!Wholesale! (and!all!the!above)! Annual!bill!minus!"Green! Schemes"!(and!all!the!above)! Annual!bill!minus!Smart! Meter!costs!(and!all!the! above)! Retailerspaytoattractcustomers,to keepcustomers,toservicecustomers andsoon,butwhentheretail componentofhouseholds electricitybill startsmatchingthecostofoperating infrastructureheavyutilities,itistimeto acknowledgethatsomethingiswrong.! 14 Thischartisbasedonthecalculationusedforchart4andtable1above 15 Costofretailincludesbothretailcostsandmargins(profits).! 10

12 TheNationalEnergyMarket Wrongway,Goback? Chart6EstimatedbillEstack,averageannualbillbasedontheJuly2009toJuly2014period(for electricityregulated/standingoffers,6,000kwhperannum,singlerate) %! 90%! 80%! 70%! 60%! 50%! 40%! 30%! 20%! 10%! 22! 18! 22! 38! 3! 25! 13! 58! 19! 17! 17! 17! 19! 16! 13! 20! 13! 19! 17! 13! 17! 17! 16! 48! 53! 57! 46! 45! 7! 7! 8! 11! 8! 19! 19! 19! 19! 19! 33! 32! 27! 28! 29! 14! 14! 14! 15! 16! 24! 29! 32! 28! 29! Smart!Meters! Green!schemes! Retail! Wholesale! NUOS! 0%! Chart6abovealsoshowsthattherearesignificantdifferencesbetweenjurisdictions, aswellasnetworks,whenitcomestothenetwork(nuos)proportionofbills.itisto beexpectedthatmoresparselypopulatednetworkareassuchasessential,aurora andsapowernetworkmayhavetochargeeachcustomermorefortheoperationof the network. However, Ausgrid is far from sparsely populated and especially not comparedtothetwovictorian countrynetworks SPAusnetandPowercor. As the calculations for the charts above are based on standing and/or regulated prices,wehavealsoexaminedthenuosproportionofvictorianmarketoffers.we found that the NUOS proportion of retail bills is currently the same for standing offers and market offers with guaranteed discounts but that the NUOS proportion was higher for market offers with pay on time discounts (assuming that the customersareactuallyabletoobtainthesediscounts). 17 Chart7belowshowsNUOSchargesasannualcost(greycolumns),annualretailbills for average standing offers (red columns), for market offers including guaranteed discounts(greencolumns)andmarketoffersincludingpayontimediscounts(blue columns)injemena snetworkarea. 16 Thischartisbasedonthecalculationusedforchart5andtable1above 17 StVincentdePaulSociety,Victorian% Energy% Prices% July% 2014,% An% update% report% on% the% Victorian% TariffLTracking%ProjectbyMayMausethJohnston(July2014)p,35E37! 11

13 TheNationalEnergyMarket Wrongway,Goback? It also shows NUOS as a proportion of standing offer bills (solid line with red markers), market offer bills including guaranteed discounts only (dotted line with green markers) and market offer bills including pay on time discounts(dotted line withbluemarkers). 18 Chart7Jemenanetwork(Victoria):Annualretailbill(incl.GST),NUOScostsandNUOSasproportion ofretailbills(basedonaveragesinglerateelectricityoffers,4,800kwhperannum) ! 35! 1800! 33! NUOS!!per!annum! 1600! 1400! 1200! 1000! 800! 600! 400! 200! 0! 2010! 2011! 2012! 2013! 2014! Another issue the above charts clearly illustrate is that the residential billestack varies significantly within the NEM. We believe these differences have been under acknowledged,andapossibleimplicationofthiscanhavebeenaddingconfusionfor consumers.theelectricitysupplychainandthevariouscostcomponentspassedon to consumers are not easily explained, but when the decision is to bundle several costs and charges together into a final bill received by households encouraged to engage with the market, the accuracy of the information provided becomes important. Box 1 below shows some of the explanations that consumers who use google searches to ascertain the network component of electricity bills will find. It shows that various reputable sources provide various answers that may or may not be correctforaparticularhousehold slocation.wedowishtostress,thatweraisethis issue as we believe it is confusing electricity consumers(as well as policy debates) and we are ourselves among the many commentators and organisations that have communicated broad estimates of network charges in order to simplify and more 31! 29! 27! 25! 23! 21! 19! 17! 15! NUOS!as!%!of!retail!bills! Retail!(standing)! Retail!(guaranteed! discounts)! Retail!(all!discounts)! NUOS!%!Standing! NUOS!%!Market! (guaranteed)! NUOS!%!Market!(all! discounts)! 18 TheNUOSproportionoftotalmarketofferbillshasbeencalculatedusingannualNUOScost calculationsandtheaverageofthethreeincumbentsretailers marketoffersasofjulyeveryyear (from2010to2014),presentedasannualbillsforhouseholdsusing4,800kwhperannum(singlerate) acrossthefivedistributionareas.! 19 Thischartwasfirstpublishedin!StVincentdePaulSociety,Victorian%Energy%Prices%July%2014,%An% update%report%on%the%victorian%tariffltracking%projectbymaymausethjohnston(july2014)p,37!! 12

14 TheNationalEnergyMarket Wrongway,Goback? easily communicate an issue. In reality, however, the only simple answer to a questionaboutwherethemoneygoesis:itdepends. Box1Howmuchisthenetworkcomponentofmyelectricitybill? Itisalsoimportanttonotethatnetworkpricesareonlypart(typicallybetween35E 55%)ofthefinalelectricitybillpaidbyresidentialcustomers. 20 Forelectricity,atypicalbreakdownofthefinalpriceisaroundoneEhalfforthe networkcomponentand40percentforthewholesalecomponent,withtheretail componentandmargincomprisingtheremainder 21 Businessesthatownthetransportationnetworksandfacilitiesthatdelivergasand electricitytoyouarecalleddistributors.thesearethelargestcomponentofyour energybill,accountingforalmosthalfthecostofyourenergysupply. 22 Retailersgenerallypaynetworkserviceschargesandthenpassthemontoend users.thesechargescanrepresentabout10%to20%oftotalcostsforlargeenergy users,andabout40 50%forresidentialconsumers. 23 ThefigurepresentedonOriginEnergy swebsiteshowsthatnetworkcostsareclearly thelargestcomponentofhouseholdenergybills: ErnstandYoung,Electricity%Network%Services,%LongLterm%trends%in%prices%and%costsavailableat 21 ReserveBankofAustralia,Bulletin Decemberquarter2010,Developments%in%Utilities%Prices, ArticlebyMichaelPlumbandKathrynDavis 22 AER,Factsheet,Energy%prices%explained,January TheEnergyEfficiencyExchange(ajointinitiativeoftheAustralian,stateandterritorygovernments administeredbydepartmentofindustry)seehttp://eex.gov.au/energyemanagement/energye procurement/procuringeandemanagingeenergy/understandingeyoureretailebill/ 24 Seehttp:// 13

15 TheNationalEnergyMarket Wrongway,Goback? 2.Wrongway We believe a rule change that will make the network businesses better reflect the costofprovidingservicestoindividualconsumerscanbenefitconsumers.theaemc recently published a draft rule determination outlining the rule change and to highlighttheimportanceofthischangetheexecutivesummarystated: This draft determination sets out significant changes to the rules on how distributionnetworkbusinessesdevelopandstructuretheirprices.network pricesareresponsibleforaround50percentoftheelectricitypricespaidby residentialconsumersonaverageacrossaustralia. 25 Whileweagreethatnetworkpricingchangesareimportant,wealsobelievethatthe vastgeneralisationofnetworkscountingfor50%ofthebillalsodrivesgovernments narrowfocuson fixingthenetworkissues. 26 Just because the framework for energy retail markets are based on competition ratherthanregulation,themarketarrangementsarestillcrucialtoensurethatretail competition is effective and deliver efficient prices to consumers. In our view, the marketarrangementscurrentlyinplaceforderegulatedretailmarketsdonotdeliver thesebenefitsandinterventionisneeded. The AEMC has stressed the complexity involved in estimated gross and net retail margins due to thevariousassumptionssuchanalysescontain. 27 We acknowledge that the analysis presented in charts 5 and 6 above is based on imperfect assumptionsinregardstowholesalecosts,green scheme costs, and to a certain extent, smart Inourview,themarket arrangementscurrentlyinplace forderegulatedretailmarkets donotdeliverthesebenefits andinterventionisneeded.! meter costs. We nonetheless believe that an imperfect analysis is better than no analysis, and that imperfect analysis can, and should, be used as an indicator for furtherinvestigation. AnotherrecentreportbytheAEMC,assessedtheeffectivenessofcompetitioninall NEMjurisdictionsandwhileitnotedthatpreviousstudieshadfoundthatthegross retailmarginappearedtobehigherinvictoriacomparedtootherjurisdictions,the reportstatedthatthisissuewasoutsidethescopeofthisreview: It was not within the scope of this NEMEwide competition review to extensivelyanalysenetretailermarginsinvictoriaorconsiderspecificpolicy interventions. Estimating net margins is a complex and resourceeintensive 25 AEMC,Distribution%Network%Pricing%Arrangements,DraftRuleDetermination,28August2014,pi 26 TheCouncilofAustralianGovernments(COAG)andtheNSWregulator,IPART,requestedtheAEMC toundertakethisrulechange. 27 AEMC,2014%Retail%Competition%Review,FinalReport,22August2014,p175!! 14

16 TheNationalEnergyMarket Wrongway,Goback? task that is prone to error due to the assumptions that are required to be made. 28 Weagreethatanalysingretailmarginsinaderegulatedmarketisanoneroustask. Furthermore, we stress that the above analysis does not assess retail margins, but retailcoststoconsumers(whichincludemargins).thatsaid,wedonotunderstand how the AEMC can be tasked to undertake an effectiveness of competition review withoutassessingretailcosts/margins.thecostofretailinderegulatedmarketshas become the elephant in the room that governments and regulators continue to ignore. AsreiteratedintheAEMCreport,thevisionforNEMreforminrelationtoretail competitionandpricederegulationisthat: Asmarketsevolve,competitivepressuresshouldresultin: pricesthattrendtotheefficientcostofsupplyingaservice; aqualityofservicethatmatchescustomers'expectations;and achoiceofproductsandservicesthatmatchcustomers'preferences. 29 After 12 years of retail competition and 5 years of price deregulationinvictoriayouwouldthusexpecttoseetrends that support this vision. The Vinnies TariffETracking project doesnotcollectinformationaboutqualityofservice,butit doesobservetrendsinrelationtopricesandproductchoice. As already discussed, we do not believe the competitive pressures have resulted in prices trending to the efficient costofretailservicesbutourdatadoesshowthattherehas beenasteadyincreaseinproductchoice. Thecostofretailin deregulatedmarkets hasbecomethe elephantinthe roomthat governmentsand regulatorscontinue toignore.! Product differentiation and consumer choice are positive aspects of markets. However, we do not believe product differentiation and choice in itself can justify marketarrangementsthatdonotdelivereffectivecompetitivepressuresonprice. TheAEMCreportfoundthatcustomersatisfactionwiththeACT sdominantretailer, ActewAGL, was high and argued that the [l]ow awareness of options in the electricityandgasmarketisreflectedinlowreportedswitchingrates. 30 However, theaemcresearchalsofoundthat: ACT residents reported high levels of interest in looking for a better deal, but very few are actually shopping around. Ten per cent of residential customersreportedinvestigatingtheiroptionsinthepasttwelvemonths AEMC,2014%Retail%Competition%Review,FinalReport,22August2014,p Ibid,p18! 30 Ibid,p127! 31 Ibid,p126!! 15

17 TheNationalEnergyMarket Wrongway,Goback? Inourview,thiscouldalsoindicatethatACTconsumersactuallywouldliketohavea choice in the energy retail market but that they quickly realise that the options available to them are not worth considering. The Vinnies TariffETracking project foundthataverageconsumptionhouseholdsintheactwouldnotbeabletoreduce theirelectricitycostsbyswitchingtoamarketoffer(includingdiscountsandpayon time discounts). Furthermore, as ACT market offers contain significant Early TerminationFeesifcancellingcontractspriortotheexpirydate,thereiscurrentlyno goodreasonforaresidentialconsumertoshoparoundeveniftheyareawareofthe opportunitytodoso. 32 A quick read of community news blogs such as the RiotACT in the ACT, indicates that ACT consumers are frustratedbythelackofchoicebutthattheyalsorealise that they pay less compared to those across the border. 33 Consumerchoicetheorytalksaboutrevealing consumers preferences but the theory can of course only be properly tested within a market. Victorian consumersarenotabletoshowapreferenceforthelack of choice in exchange for ACT s lower electricity prices, alltheycandointermsofrevealingtheirpreferencesis switching between market offers in a market where pricescontinuetoincrease. Productdifferentiation andconsumerchoice arepositiveaspectsof markets.however,we donotbelieveproduct differentiationand choiceinitselfcan justifymarket arrangementsthatdo notdelivereffective competitivepressures onprice.! Itisalsounreasonabletoexpectthatconsumersinregulatedretailmarketsshould beconfidentthatdeeregulationwouldnotresultinhigherpriceswhentheevidence is questionable in other jurisdictions. Why would ACT consumers give the ACT Government the mandate to deregulate if it looks like regulation gives a better price? The AEMC report shows that consumers are concerned about the cost of energy. NEMwide81%ofresidentialsurveyrespondentsstatedthattheywerequiteorvery concerned about future energy prices. Jurisdictionally, the level of concern was lowestintheact(74%)andhighestinregionalsoutheastqueensland(87%). 34 Chart8belowshowsaverageaccumulatedelectricityexpenditurefrom2009to2014 (5 year period) for households consuming 6,000kWh per annum. It shows that householdsincountrynsw(essential)wouldhavespentover13,000onelectricity bills during that period. By comparison, households in the ACT(and bordering the Essential network) would have spent approximately 5000 less. It also shows that householdshavepaidsignificantamountsfornonenuoscosts.victorianandsouth Australianhouseholdshavepaidbetween7,000and8,000fornonENUOSrelated electricity costs during this period. This high level of household expenditure, combined with the concerning retail cost trends shown in charts 5 and 6 above, 32 StVincentdePaulSociety,ACT%Energy%Prices%July%2013% %July%2014,%An%Update%report%on%the%ACT% TariffLTracking%projectbyMayMausethJohnston(July2014) 33 See,forexample, 34 AEMC,2014%Retail%Competition%Review,FinalReport,22August2014,p141and70! 16

18 TheNationalEnergyMarket Wrongway,Goback? warrant a thorough, albeit complex, investigation into retail costs/margins in deregulatedretailmarkets. Chart8AccumulatedNUOScostsfromJuly2009toJuly2014(exclGST)andaccumulatednonENUOS costsfromjuly2009tojuly2014(inclgst)forelectricityregulated/standingoffers,6,000kwhper annum,singlerate 35 14,000! 12,000! 10,000! 8,000! 6,000! 4,000! 2,000! 0! Total!NUOS!(5!years)! Total!NonRNUOS!(5!years)! 35 InVictoriathestandingofferbillisbasedontheaverageincumbent(AGL,OriginandEnergy Australia)standingofferasofJulyeveryyear.InNSWtheretailbillisbasedontheregulatedrate from2009to2013andtheincumbentretailer sstandingofferineachofthenetworkareas(originor EnergyAustralia)asofJuly2014.InSouthAustraliatheretailbillsarebasedontheregulatedratesas wellasagl sstandingofferpostretailderegulation.inallotherjurisdictiontheretailbillsarebased ontheregulatedrates.notethatasunitedenergy snuoschargehasbeenaseasonaltariffoverthe lastthreeyears,theunitedenergyconsumptionusedinthesecalculationsisthusbasedona proportionalallocationofa5monthsummertariffanda7monthnonesummer(offepeak)rate.! 17

19 TheNationalEnergyMarket Wrongway,Goback? 3.Goback? We believe that consumers generally prefer to havechoice. Furthermore, retail regulation is no guarantee for lower prices. Queensland, the ACT and Tasmania all haveregulatedrates,butitisonlytheactthathashadconsistentlylowerelectricity ratescomparedtootherjurisdictions. TheTariffETrackingprojecthasshownthattherearesavingstobemadebyshopping aroundinmostjurisdictions(actandtasmaniabeingtheexemptions).invictoriaa typical consumption household can save 700 E 1,000 per annum (depending on network area) by switching from a standing offer to the best market offer. The differencebetweenbestandworstmarketoffersisapproximately500e600per annum. 36 In South Australia, a typical consumption household can save approximately 500 per annum by switching from a standing offer, or the worst marketoffer,tothebestmarketoffer. 37 InNSWatypicalconsumptionhousehold cansave550e700perannum(dependingonnetworkarea)byswitchingfromthe worst standing offer to the best market offer. The difference between best and worst market offers is approximately 350 E 450 per annum. 38 Queensland consumers switching from the regulated rates to the best market offer may save 450 E 475 per annum. The difference between best and worst market offers is approximately350perannum. 39 Thatsaid,wedonotbelieveasignificantpriceEspreadisakeycriteriatoassesshow effective competition is in regards to delivering efficient retail prices. The pricee spread, i.e. potential maximum saving that can be achieved by switching includes outliers. In Victoria, for example, the difference between the best and the worst market offers is reduced to between 190 and 260 per annum (depending on network area) if we exclude the single best and single worst market offer. Chart 9 belowshowstheannualpriceofsixteenvictorianmarketoffersandthatthepricee spreadisalotlessifweignoretheextremesoneitherside. 36!StVincentdePaulSociety,Victorian%Energy%Prices%July%2014,%An%update%report%on%the%Victorian% TariffLTracking%ProjectbyMayMausethJohnston(July2014)p,42! 37!StVincentdePaulSociety,South%Australian%Energy%Prices%July%2014,%An%update%report%on%the%South% Australian%TariffLTracking%ProjectbyMayMausethJohnston(August2014)p,6! 38!StVincentdePaulSociety,NSW%Energy%Prices%July%2013%L%July%2014,%An%update%report%on%the%NSW% TariffLTracking%ProjectbyMayMausethJohnston(August2014)p,7! 39!StVincentdePaulSociety,Queensland%Energy%Prices%July%2013%L%July%2014,%An%update%report%on%the% Queensland%TariffLTracking%ProjectbyMayMausethJohnston(July2014)p,7!! 18

20 TheNationalEnergyMarket Wrongway,Goback? Chart9PriceEspreadforsixteenVictorianelectricitymarketoffersineachnetworkareapostJuly 2014(inclGST),includingdiscountsandpayontimediscountsEHouseholdsconsuming4,800kWhper annum(singlerate) 40!per!annum! 2000! 1900! 1800! 1700! 1600! 1500! 1400! 1300! 1200! 1100! 1000! 900! 0! 2! 4! 6! 8! 10! 12! 14! 16! Retail!offers! Wecanalwaysencourageconsumerstolookforabetterdealandswitchretailersto save, but the litmus test for effective retail competition must be the retail component of bills. Both retail costs and retail margins are relevant for such assessments. Excessive margins would naturally be the primary concern but if the cost of providing retail services is spiralling and existing, or new, retailers do not identifyopportunitiestoreducethesecosts,thiscouldindicatethatthecompetitive pressures are too weak. It could also indicate that the market and/or regulatory frameworksareunsuitableforcompetitiveretailmarkets.ifthelatteristhecase,we faceasignificantchallengeinensuringthatconsumerprotectionsareadequately,as well as cost effectively, delivered within a competitive market model. The cost of retailingisimportantasitcanhaveasignificantimpactonhouseholds energybills butenergyisanessentialserviceandtheneedforadequateconsumerprotections inordertoensureaccesscannotbeunderestimated.wedonotproposeanyscalee backofexistingconsumerprotectionsorassistanceschemes,wearehoweveropen toadiscussionabouteffectiveandefficientdeliverymodels. The idea behind ensuring that retailers will not misuse their market powers in the retail markets appears to be anchored in governments ability to waive theree regulationstick.thatis,aslongasgovernmentsretainthepowerstoreeregulatethe retailers will behave and coeoperate to avoid such an outcome. However, we cannot,andshouldnot,expectretailersto disciplinethemselves inordertoenjoy thebenefitsofderegulation.thevictorianretailersarecurrentlylikekidsinalolly 40 Thischartwasfirstpublishedin!StVincentdePaulSociety,Victorian%Energy%Prices%July%2014,%An% update%report%on%the%victorian%tariffltracking%projectbymaymausethjohnston(july2014)! SP! PC! Jen! UE! CP!! 19

21 TheNationalEnergyMarket Wrongway,Goback? shopanditistheroleofgovernmentsandregulatorstosettheparametersthatcan disciplinethemarket. Firstly, we encourage governments and regulators to actually acknowledge that thereisaproblem.ratherthanjustlookingforevidencethatsupporttheclaimof effectivecompetition,suchashighswitchingrates,governmentandregulatorsmust beopentopotentialfindingsthatdonotsupportthisclaim.consumersshouldnot beexpectedtoacceptaderegulationpolicyifitdoesnotlooklikeitisintheirlong termbenefit. Secondly, we recommend that governments and regulatorsactwithurgency.victoriawasderegulated five and a half years ago, South Australia one and a half years ago, NSW two months ago and Queensland will be in ten months. So even if the problem currently only appears to exist in Victoria, there is no reason to believe that the same will not occur in other jurisdictions when fully deregulated (e.g.whentransitionaltariffarrangementsexpire). Apart from the obvious need to monitor retail costs and margins in deregulated marketstherearealsosomeurgentamendmentsneededtothemarketdesignand regulatoryframework. 3.1Recognisethatstandingoffersareimportant Wedonotencourageconsumerstostayonastandingofferinaderegulatedretail market but well structured standing offer arrangements can discipline the market andincreasetransparency. We have previously raised concerns about the Victorian standing offer gazettal arrangements. 41 The legislation, which simply stipulates that retailers may% change theirstandingofferseverysixmonths,isinsufficient. 42 Firstly,thisallowsretailersto determinetheirpricebasedonwhattheircompetitorsofferand,secondly,thereis no incentive for retailers to change their standing offer prices in an environment where prices are falling. The Essential Services Commission (ESC) touched on this aspectofthelegislationinarecentreportpertainingtotherepealofthecarbontax. TheESCexplainedthatthelegislation: [I]mpose time restrictions on when a retailer can vary its standing offer tariff, which ensures a level of price stability for standing offer customers. 41 WefirstraisedthisissueinJanuary2012.SeeStVincentdePaulSociety,Victorian%Energy%Prices% July%2011LJanuary%2012,%An%update%report%on%the%Victorian%TariffLTracking%ProjectbyMayMauseth Johnston(January2012)andagaininStVincentdePaulSociety,Victorian%Energy%Prices%July%2014,%An% update%report%on%the%victorian%tariffltracking%projectbymaymausethjohnston(july2014) 42 Aspersection35ElectricityIndustryAct2000(EIA)andsection42oftheGasIndustryAct2001 (GIA) Ratherthanjustlookingfor evidencethatsupportthe claimofeffective competition,suchashigh switchingrates,government andregulatorsmustbeopen topotentialfindingsthatdo notsupportthisclaim.!! 20

22 TheNationalEnergyMarket Wrongway,Goback? However, this could result in standing offer customers not immediately receivingabenefitfromtheremovalofthecarbonprice,dependingonwhen aretailerlastvarieditsstandingoffertariff. 43 The legislation appears to have been drafted based on the assumption that prices will always increase and that a minimum timeframe of six months between price changeswouldsafeguardconsumers.however,thewholesalepriceofelectricityhas decreased in recent years and the current legislation serves as an impediment to lowerretailprices. In Victoria, none of the incumbent retailers have gazetted new electricity or gas market offers since December 2013 and two retailers (Red and Neighbourhood) havenotchangedtheirstandingofferratessincedecember TheAEMC scompetitionreviewnotedthat: The requirement to provide a standing offer may create an artificial benchmark for retailers' pricing strategies and can make it difficult for customerstocompareoffers.thisissuemaywarrantfurtherinvestigation. 45 Weagreewiththesentimentthatcurrentarrangementsmakeitdifficulttocompare offers but we believe the only solution to this issue is to strengthen the standing offerframework.currently,astandingoffermaycreateanartificialbenchmarkfor retailers pricing strategies but this can be fixed, and if done, standing offers can provide an actual benchmark for retailers pricing strategies and make it easier for customerstocompare. AsnotedbyoneconsumersurveyedfortheAEMCstudy: It'salltooconfusing.It'slikephonecompanies.It'salldifferentbutthere's nobase.(maroochydore) 46 Aspreviouslyrecommended,weurgethe Victorian Government to change these arrangements. We propose an arrangementoffixedgazettaldates(e.g.1 June and 1 December every year with tariffs taking effect one month later) where retailers can change or maintain 43 EssentialServicesCommission,Variations%to%Standing%Offer%Tariffs%Following%the%Removal%of%the% Carbon%Price FinalDecisionPaper(July2014),p3 44 RedandNeighborhoodEnergydidgazettenewstandingoffersinAugust2014toadjust consumptionratesfortherepealofthecarbontax(asrequiredbylegislation).notethatmomentum hasgazettedinauguralgasstandingoffersandtwonewretailers(blueandcommander)notyet includedinthetariffetrackingprojectgazettedtheirinauguralelectricitystandingoffers.also,some retailershaveseparatelygazettedflexiblepricing(timeofuse)offersatamorerecentpointintime. 45 AEMC,2014%Retail%Competition%Review,FinalReport,22August2014,pviii! 46 Ibid,p21! Currently,astandingoffermaycreate anartificialbenchmarkforretailers pricingstrategiesbutthiscanbefixed, andifdone,standingofferscanprovide anactualbenchmarkforretailers pricingstrategiesandmakeiteasierfor customerstocompare.!! 21

23 TheNationalEnergyMarket Wrongway,Goback? their prices but are required to explain the rationale for their decision in a supplementarystatement.thissupplementshouldcontainstatementsofreasonfor whypricesaremovingthewaytheyare,i.e.movementsinwholesalecosts,network costsorretailcosts.justlikeregulatedmonopoliesneedtojustifytheircostingstoa regulator,retailersthatarefreetosettheirownpriceshouldjustifytheircostingsto thepublic. 47 WealsorecommendthattheSouthAustralian,NSWandQueenslandGovernments introduce these standing offer arrangements and that the AEMC take a stronger interest in adequate arrangements(besides more consumer information) for retail marketspostederegulationwhenundertakingeffectivenessofcompetitionreviews. We envisage these changes will deliver the following benefits to competition and consumers: A) It provides consumers with a fair and transparent indication of each retailer s maximum price. As this price is set every six months, and independentlyofwhatotherretailersoffer,consumerscanusethestanding offer prices(the base price) as a tool to assess the price, and discounts, of marketoffers. As2 nd tierretailershaveveryfew,ifany,customersonstandingoffers,they haveveryfewreasonstopublishnewones(andthereisacostattachedto gazetting standing offers). The three incumbents do still have a reasonable number of standing offer customers and thus have an incentive to publish new ones%if costsgoup. As such, it is currently impossible to ascertain whetheranindividualretailer sstandingofferratesbearanyrelationtothe rates they charge existing market offer customers or advertise to potential newcustomers. AVictorianconsumersearchingforoffersinJuly2014wouldnothavebeen able to assess whether the standing offer listed was the basic or worst priceforthatspecificretailer,norwouldshebeabletousethestandingoffer toquicklycomparepricesbetweenretailers.instead,shewouldhavebeen facedwithvariousmarketoffersthatvariedinbaserates,discounts,payon timediscounts,contracttermsetc. With our proposal in place, consumers could check base rates first and investigate whether the retailer has contract terms, discounts or other incentivesthattheconsumerwouldliketosignupfor. 47 WealsomadethisrecommendationinNovember2013.SeeStVincentdePaulSociety,Victorian% Energy%Prices%September%2013,%An%update%report%on%the%Victorian%TariffLTracking%ProjectbyMay MausethJohnston(November2013),inDufty,GandJohnston,MMThe%NEM% %Is%there%a%devil%in%the% retail?%(december2013)andagaininstvincentdepaulsociety,victorian%energy%prices%july%2014,%an% update%report%on%the%victorian%tariffltracking%projectbymaymausethjohnston(july2014)! 22

24 TheNationalEnergyMarket Wrongway,Goback? B)Itallowsforamoretransparentandpublicdebateaboutenergypricesand potentialsavings.standingoffersallowconsumergroups,mediaandprivate entities (independently of commercial arrangements with retailers) to analyse and publicly comment on market developments. This increases transparencyandstimulatesconsumerengagementwiththemarket.wedo not want customers to become sticky but we also realise that consumers are unlikely to shop around for new energy contracts several times a year. Regular public debate about the market and potential savings twice a year canpromptconsumersthathavenotswitchedforawhiletolookforabetter deal. 3.2Distinguishbetweenpositiveproductdifferentiationandunnecessaryconfusion Customer confusion is a real concern for the energy retail markets. The AEMC report,forexample,statedthat: In the Victorian forums, a key message was that energy offers were too numerousandhardtocomparebecausetheywereallpresenteddifferently andinwaysthatwerehardtounderstand. 48 Residentialenergyconsumersarenotahomogenousgroupofcustomers.Howmuch theyuse,whentheyuse,howeasilytheycanpayandhowtheyprefertopayarejust some of the factors that vary between them. As such, we are reluctant to call a restrictiononthenumberofoffersavailable. 49 Thatsaid,webelievepolicymakers andregulatorsmustaddresstheissueofconsumerconfusionasanurgentmatter. The terminology used by energy retailers could be simplified and standardised. Whilewewelcomeproductdifferentiationsuchasoptionsaroundbilling,tarifftypes and communications method we do not believe a varied and creative language to describecontracttermsisofanybenefittoconsumers. Thelengthofthecontracttermandearlyterminationfeesarekeycontractfeatures that consumers will look for. However if you look for this information on various Price and Product Information Statements you will see that the terminology and clarityofthesemessagesvariessignificantly.thebelowprovidessomeexamples. TermofContract:2yearfixedterm 50 Agreementlength:Theagreementcontinuesuntilyouorweendit.TheEnergyPlan periodis12months.attheendofyourenergyplanthebenefitsofyourplanwill endbuttheagreementcontinues AEMC,2014%Retail%Competition%Review,FinalReport,22August2014,p IntheUK,theregulatorrestrictedretailerstoofferfourcoretariffsforelectricityandgasaspartof its Simpler,Clearer,Fairer retailmarketreform. 50 FromtheLumoAdvantageofferinNSW 51 FromtheOriginDailySaverPlusofferinQueensland! 23

25 TheNationalEnergyMarket Wrongway,Goback? Termofcontract:Nofixedterm Contractexpirydetails:Notermcontractsdonotexpire 52 Termofcontract:Evergreenwithfixedbenefitperiod. Contractexpirydetails:TheBenefitTermforthisplanisfor3years.Wewillprovide youwithnoticeofyouroptionspriortotheendofthebenefitterm.yourcontract willcontinueuntilitisendedbyeitherparty. 53 AMarketContractwillshowthestartdateandtheenddateinthescheduletothe MarketContract.AcustomermayterminatetheMarketContractearlybygivingnot lessthan20businessdays noticeinwritingandpayinganearlyterminationfeeof 20.00(includingGST)(anadditionalearlyterminationfeemayapplybutwillbe limitedtotheproeratacostsofanyincentiveprovidedunderyourmarket Contract). 54 SmilePowerismorethanjustrenewableenergygeneratedfromnature.Itis renewableenergywithexceptionalratesandflexibilityof12,24or36month contracts.soit ssuretomakeyousmile monthcontractterm 56 Benefitterm:TheBenefitTermforthisplanisfor3years.Wewillprovideyouwith noticeofyouroptionspriortotheendofthebenefitterm.yourcontractwill continueuntilitisendedbyeitherparty.wealsoreservetherighttoreviewthe continuationofanypromotionaldiscounts(inadditiontothoseshownonthissheet) 12monthsaftertheyareappliedtoyouraccount;andchargeanadditionalexitfee (ifapplicable)torecoverthecostofthevalueofanycampaignrewardsyoumay havereceivedaspartofthisplanifyouleavewithin12monthsofthestartofyour BenefitTerm. 57 Evergreenwithfixedbenefitperiod.Attheendofthe1yearFixedBenefitPeriod, theenergyplan,includingallapplicablediscountsandaccountcredits,willcontinue forafurtheryear,unlessweadviseyouotherwiseoryourenergyplanisterminated. Anearlyterminationfeeonlyappliesforthefirst1yearfixedbenefitperiod. 58 Termofcontract:1yearfixedterm Contractexpirydetails:Energyagreementperiodis12months FromDodo sofferinnsw 53 FromtheEnergyAustraliaEveryDaySaverofferinNSW 54 FromtheQEnergyFreedomHomeofferinVictoria 55 FromtheMomentumSmilePowerofferinVictoria 56 FromthePeopleEnergyOntimesaverofferinVictoria 57 FromtheEnergyAustralia,EverydaySaverofferinVictoria! 58 FromtheAGLSelectofferinVictoria 59 FromtheQEnergyHomeDiscounterofferinSouthAustralia! 24

26 TheNationalEnergyMarket Wrongway,Goback? Notermcontract:Entera NoTerm contractandreceive20%payontimediscount offyourelectricityconsumption EarlyTerminationorExitFees:Termination/Exitfeesapplydonotapplyto noterm contracts(sic). 60 ThetemplateprovidedbytheAERcontainsonecommentboxfor Termofcontract next to one for Contract expiry details, and when used this template does make things clearer. Click Energy s example below is a clear and efficient way of communicatingthatthecontracthasnofixedterm. Termofcontract:Nofixedterm Contractexpirydetails:N/A 61 Languagesuchasevergreenandfixedbenefitperiodisparticularlyconfusing.Firstly, fixedbenefitperiodcaneasilybeinterpretedaseverything(includingrates)isfixed during the period, which it is not. 62 Secondly, information about benefits, such as discounts, should be listed under that category rather than the terms of contract. Simplemeasuressuchasstating Weoffera10%payontimediscountforthenext 12months ratherthandiscussingbenefittermscouldreduceconsumerconfusion intheretailmarket. We therefore recommend that the Energy Retail Association of Australia consult with its members and stakeholders to develop a code or guideline for clear and efficientterminologytocommunicatekeymarketcontractfeaturestocustomers. 3.3Standardisepresentationsofcostandchargesonbillsandoffers Standardisation of the terminology used to describe contract terms is one way of alleviating customer confusion, another, and equally important change, is to standardise the presentation of costs and charges on both bills and offers. Furthermore, comparison services offered by governments and regulators should ensurethattheoffersarepresentedinthesamestandardisedway. To illustrate, a customer in Melbourne s Citipower area received the following bill fromclickenergyinfebruary FromDodo sofferinsouthaustralia 61 FromtheClickSuperiorofferinVictoria 62 SeeConsumerActionandConsumerUtilitiesAdvocacyCentre sfixitcampaignatwww.fixit.org.au! 63 Customerprofileisfictionalandintendedonlytoillustratehowasearchandswitchingprocessmay progress.thebillandoffersarerealandcorrectasoffebruary2014.! 25

27 TheNationalEnergyMarket Wrongway,Goback? Details (28/01/ /02/2014) Usage Rate (Ex. GST) Total (Ex. GST) GST Total (Inc. GST) Peak Usage - Step 1 (A E1) kwh Peak Usage - Step 2 (A E1) kwh Fixed Daily Charge (28/01/ /02/2014) 30 days Rounding Adjustment (0.01) (0.01) Sub total NMI: GST this bill 4.05 Charges this bill Total Adjustments Total Bill ShehadjustmovedtoMelbournefromcountryVictoriatostartinherfirstfulltime job.shewasrentingasmallapartmentthatwascostingher40%ofhertakehome incomesoshewasdesperatetofindwaystoreducehercosts.shewasupsetabout her high fixed daily charge (being 77% of her bill) and decided to look at other retailoffersinherarea. ThefirstretailershewenttowasOriginEnergy.LookingattheirPriceandProduct Information Statement (PPIS) she become somewhat confused about Click s step increasescomparedtoorigin s,thewaythesupplychargewaspresentedonherbill comparedtoorigin sppis,andwonderedwhethertherewasanysignificancetoher currentsupplychargebeing fixed whileorigin sdidnotappeartobe. ELECTRICITY VIC RESIDENTIAL Energy Price Fact Sheet (Effective 10 January 2014) Smart DailySaverPlus CITIPOWER Distribut ion Zone The of f er set out in t his Energy Price Fact Sheet is only available t o resident ial elect ricit y cust omers w ho consume less than 160 MWhs of electricity in the relevant distribution area with the necessary metering system/configuration. Your charges for the sale and supply of electricity are listed below. The prices are exclusive of any applicable usage discount and apply to customers signing up to this offer from the above effective date. Residential Peak Anytime (GD/ GR) Unit Excl GST Inc GST Consumpt ion of f irst 1020 kwh/ qt r cents per kwh Remaining consumption kwh/ qtr cents per kwh Daily Supply Charge cents per day Shecontinuedhersearch,andthenextoffershelookedatwasfromRedEnergy.It took her a while to establish exactly what prices to compare but most of all she wondered whether a Service to Property charge is the same as what Click calls a Fixeddailysupplycharge.ThechargewasnoticeablylowerthanClick(andOrigin s) supply charges so she became suspicious that this charge may be something different.! 26

28 TheNationalEnergyMarket Wrongway,Goback? Residential Offer: Living Energy Saver Connect on a 2 year fixed term contract today and get 10% Pay on Time discount on every electricity bill you pay on time. The Early Termination fee is 20 plus the value of any upfront benefits you receive (as set out on that offer's terms and conditions). Electricity - Citipower Tariff Before Pay on Time discount After 10% Pay on Time discount exc GST inc GST exc GST inc GST Peak Step 1 First kwh/day c/kwh c/kwh c/kwh c/kwh Peak Step c/kwh c/kwh c/kwh c/kwh Service to Property c/day c/day c/day c/day Thenextretailer swebsiteshewenttowaspowershop.shewasoverwhelmedby allthedifferentrateslistedsoshedecidedtofocusonthesupplychargefirst(asit was the cost of Click s Fixed daily supply charge that had prompted this investigation in the first place). She guessed that she would be on the tariff that Powershopcalls Anytime Singlerate andnoticedthatthesupplychargeislower thanclick s.however,italsostatesthatthissupplychargeisanaverageonly.she foundthisveryconfusinganddecidestolookatoneofthebiggerretailersinstead. Powershop - Standard Saver Standard Saver represents a 15% discount off our Standard Power rates. By regularly purchasing our Online Saver products, an additional 5% discount (20% off in total) is available. MARKET OFFER FOR RESIDENTIAL / DISTRIBUTION AREA CITIPOWER Anytime Single Rate Anytime Monthly Breakdown Meter configuration / Tariff Unit Avg. Avg. with 20 % Online Saver Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Anytime Usage Ex. GST c/kwh Controlled Load Ex. GST c/kwh Ex. GST Daily Charge Ex. GST c/day Ex. GST Anytime Usage Inc. GST c/kwh Controlled Load Inc. GST c/kwh Inc. GST Daily Charge Inc. GST c/day Inc. GST Peak / Off Peak Two Rate Peak / Off Peak Two Rate Monthly Breakdown Meter configuration / Tariff Unit Avg. Avg. with 20% Online Saver Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Peak Usage Ex. GST c/kwh Off Peak Ex. GST c/kwh Ex. GST Daily Charge Ex. GST c/day Ex. GST Peak Usage Inc. GST c/kwh Off Peak Inc. GST c/kwh Inc. GST Daily Charge Inc. GST c/day Inc. GST Green Energy You can also choose to take up our green energy offer for an additional 4.95 c/kwh inc GST. See overleaf for details. Eligibility AGL sofferwaseasiertounderstandbutastheconsumptionchargeswereactually The details presented in this Price and Product Information Statement are for Victorian residential customers located in the Citipower distribution area and subject to verification of your meter configuration. Powershop is currently conducting a beta trial and this market offer is currently generally only available to selected beta trial participants. Further eligibility criteria may apply. See our full higher terms than and conditions Click s at she became uncertain whether for details the slightly lower supply charge offeredbyaglwouldmakeswitchingworthwhile.shedecidedthatshewouldneed tocalculatethecostofthevariousratesforherconsumptionlevel.! 27