Submission to Ergon Energy on its future network tariffs

Transcription

1 Submission to Ergon Energy on its future network tariffs February 2015

2 About QCOSS The Queensland Council of Social Service (QCOSS) is the state-wide peak body for individuals and organisations working in the social and community service sector. For more than 50 years, QCOSS has been a leading force for social change to build social and economic wellbeing for all. With almost 600 members, QCOSS supports a strong community service sector. QCOSS, together with our members continues to play a crucial lobbying and advocacy role in a broad number of areas including: sector capacity building and support homelessness and housing issues early intervention and prevention cost of living pressures including low income energy concessions and improved consumer protections in the electricity, gas and water markets energy efficiency support for culturally and linguistically diverse people early childhood support for Aboriginal and Torres Strait Islander and culturally and linguistically diverse peoples. QCOSS is part of the national network of Councils of Social Service lending support and gaining essential insight to national and other state issues. QCOSS is supported by the vice-regal patronage of His Excellency the Honourable Paul de Jersey AC, Governor of Queensland. Lend your voice and your organisation s voice to this vision by joining QCOSS. To join visit 2 / 17 February 2015 Future network tariffs

3 Table of Contents Acknowledgements... 4 Introduction... 5 Development of Ergon s future tariffs... 6 Consumers views... 9 Issues to be considered by Ergon Phased approach to implementation of future tariffs Appendix / 17 February 2015 Future network tariffs

4 Acknowledgements This submission was part funded by the Consumer Advocacy Panel ( as part of its grants process for consumer advocacy and research for the benefit of consumers of electricity and natural gas. The views expressed in this submission do not necessarily reflect those of the Consumer Advocacy Panel or the Australian Energy Market Commission (AEMC). QCOSS would like to thank the panel for making funds available for this important advocacy project in Queensland. QCOSS would like to acknowledge and sincerely thank all who participated in the development of this submission. This includes a number of Queensland consumer and community representatives who participated in a workshop hosted by QCOSS to share their views on future tariff reform. These were: Carers Queensland Good Shepherd Microfinance MS Society Bright Actions (Low Income Energy Efficiency Program) Reduce your Juice (Low Income Energy Efficiency Program) Cummings Research (Cairns) Australians in Retirement (Cairns) QCOSS thanks Ms Linda Parmenter for facilitating this workshop and compiling the workshop report. This has allowed for early feedback from the community organisations for this submission. Finally, QCOSS would like to acknowledge and thank the staff of Ergon who organised and participated in the workshops as part of the consumer engagement. These were productive exercises that benefited QCOSS in the preparation of this submission. 4 / 17 February 2015 Future network tariffs

5 Introduction Developments in the electricity sector are of great interest to QCOSS because unlike many other regulated industries, electricity is an essential service that households rely on every day. It is essential for lighting, hot water, food preparation, washing and cleaning, communications, and heating and cooling. Having access to these things in the home in turn supports people to participate in employment, education and social interaction. The Queensland Council of Social Service (QCOSS) therefore considers it is critical that electricity is affordable and accessible to all Queenslanders. In light of this QCOSS believes it is important to provide a voice for residential consumers, and particularly low-income and disadvantaged households, in Ergon Energy s (Ergon) Tariff Reform Pathway and its pricing proposal. Many Queensland households are now struggling to pay their electricity bills following several years of rising electricity prices driven by significant increases in network costs. Recent research by Uniting Care Australia reveals that the network tariffs in Queensland are amongst the highest across the National Electricity Market (NEM) 1. For this reason, QCOSS is especially keen to ensure that any decisions made by Ergon and the Australian Energy Regulator (AER) on future network tariffs are equitable and do not result in worse outcomes for low income and vulnerable regional Queenslanders. Ergon commenced its consultation process by releasing a consultation paper 2 Future Network Tariffs outlining its intentions for tariff reform. Ergon also held two workshops on 17 December 2014 and 3 February 2015 that representatives from QCOSS attended. It is understood that Ergon, in compliance with Rule 2014, No.9 of the National Electricity Law, is currently preparing its Tariff Structure Statement (TSS) for submission to the Australian Energy Regulator (AER) and that there will be further consultation on the proposed tariff path later in QCOSS welcomes Ergon s decision to commence consultation with consumer groups during the development of the TSS as it allows for early input into the design of future tariffs and the greater likelihood that consumer issues and concerns will be taken into account. The Energy Networks Association (ENA) previously flagged the importance of consultation in the network tariff reform process when it stated that engagement with customers on tariff design will 1 Uniting Care Australia (2015), Network tariffs applicable to households in Australia: empirical evidence prepared by Carbon and Energy Markets. 2 Ergon Energy (Dec 2014), Future Network Tariffs. Document can be found at this link data/assets/pdf_file/0006/233763/consultation-paper-future- Network-Tariffs FINAL.pdf 5 / 17 February 2015 Future network tariffs

6 be critical to making the transition to more cost-reflective network tariffs, and ensuring the benefits are realised 3 With reference to the spectrum of consumer engagement outlined in the AER s Consumer Engagement Guideline for distribution network service providers, QCOSS expects that Ergon s consultation on future tariff reform will be meaningful and will be focused at the more advanced and challenging consult level of engagement. QCOSS expects that consumer questions and issues will be acknowledged and addressed in the TSS and if they are not accepted, then the rationale for those decisions will be clearly stated. Development of Ergon s future tariffs The Australian Energy Market Commission s (AEMC) recent determination and rule change requires distributors to follow a number of principles when developing their tariffs. Importantly the AEMC is looking for more costreflective tariffs that recover distributors long run marginal costs. Simply put, this means providing tariffs that recover the additional costs on the network that different users generate for each additional kilowatt of energy produced. As peak demand is the main driver of additional capital (augmentation) this means that households that contribute to peak demand should have to pay what it costs the network to meet their peak demand. In response both Ergon and Energex are considering some form of peak demand tariff, as in their view, this tariff structure is most effective at sending a price signal to reduce peak demand. Under the AEMC Rule change there are a number of principles, including the consumer impact principle 4, which must also be taken into account in deciding on future tariffs. Ergon has presented a seasonal time-of use (SToU) demand tariff as its preferred tariff and in its consultation paper (P10) has flagged the introduction of seasonal demand and energy tariffs from the financial year for its SAC Small 5 customers. A recent workshop presentation on this tariff included the tariff modelling work undertaken by Energeia 6 for the Energy Networks Association (ENA). This research modelled four tariff types 7 (IBT, DBT, SToU demand and MD+SToU) and found that the SToU demand tariff resulted in the greatest reduction in peak demand and overall cost savings to 3 Energy Networks Association (2014). Towards a National Approach to Electricity Network Tariff Reform pg 2 4 AEMC (2014), AEMC National Electricity Amendment (Distribution Network Pricing Arrangements) Rule 2014, Section sets out the Principle on Consumer Impact. 5 SAC Small = Standard Asset Customers (SAC-Small) (<100 MWh pa) 6 Energeia (Nov 2014), Towards a National Approach to Electricity Tariff Network Reform. 7 DBT = Declining block tariff and IBT = Inclining block tariff. MD = Maximum demand and SToU = Seasonal Time of Use 6 / 17 February 2015 Future network tariffs

7 customers. For example, the research states that the modelling shows SToU and MD+SToU tariffs delivering almost twice as much network peak demand reduction and avoided capex as the IBT and DBT tariffs and further that moving to the most cost reflective MD+SToU tariff could save customers $17.7 billion in present value terms 8. These findings are consistent with a report 9 from the Department of Energy and Water Supply s (DEWS) Expert Panel which also compared different tariff options by considering a number of criteria. The report found that Demand based charges are the strongest performing network tariffs overall for residential consumers. Time-of-use energy charges also perform well, but lack cost-reflectivity. This report found that demand tariffs performed especially well on cost-reflectivity, equity (i.e. notion of equity used here relates to reducing cross subsidies) and revenue stability (for the distributors). It must be pointed out that other tariff types performed well and possibly better on consumer type criteria. For example, the second highest performing tariff type was the TOU Volumetric tariff which also performed well against these criteria but additionally also scored especially well on the customer-related criteria of bill stability (for customers) and simplicity (easy for customers to understand). Critical peak pricing (CPP) performs well against all criteria but especially on the equity criteria, and DBT performed relatively well on bill stability and simplicity but not equity. However, these two studies did not specifically take into account the impacts of the examined tariffs on low income and vulnerable customers and QCOSS consider this to be a limitation on their results. Some studies that have looked at tariff impacts on low income and vulnerable groups have suggested that these groups may find it easier to respond to critical peak pricing (CPP) tariffs where a limited number of peak events are nominated compared to regular peak pricing. QCOSS is therefore curious about why the Energeia work for Ergon did not model CPP despite it performing very well in terms of reducing peak demand and customer s understanding in Ergon s own tariff trials 10 conducted between 2011 and In a recent research report 11, Dr Gill Owen argues for further exploration of CPP and calls for better understanding of the peak demand problem to be addressed day in day out or a more limited number of critical peak days. In 8 Modelling period was over a 20 year period 9 Department of Energy and Water Supply (2014), Network Tariff and Stabilisation Review: Project 1 Network Tariff Design for Residential Customers 10 Ergon (2014), Reward Based Tariffs Trial Summary Report data/assets/pdf_file/0006/197574/rbt-summary- Report.pdf 11 Owen G. (2014) Addressing peak demand opportunities and risks for vulnerable households. 7 / 17 February 2015 Future network tariffs

8 a scan of various international trials, the evidence presented shows there are better demand reductions from these tariffs than from ToU tariffs that apply year round, and Owen argues these may be more manageable for low income and vulnerable households. Owen s argument is that it is easier for consumers to respond and adjust behaviour just at the times it matters, compared to when peak applies every day of the year, or to seasonal peak tariff. Owen s work also suggests that CPP combined with automation (such as the Peak smart air-conditioners), or other enabling technology is likely offer the greatest demand response. In other research, Faruqui and Palmer 12 simulated the impact on electricity bills of CPP tariffs and found that 65 per cent of low-income consumers were immediately better off on the CPP rate than they would be on a flat tariff, before any behaviour change. These studies bear out the findings that many low-income consumers already consume a higher proportion of electricity at off- peak times, compared to the average consumer. These flatter loads (electricity use spread evenly across the day) mean that, before any behaviour change, low-income consumers may see a reduction in bills in a move from a flat rate tariff to a ToU or a CPP tariff. These findings raise two issues for QCOSS. Firstly, although Ergon did consider a number of different tariffs initially, QCOSS questions whether Ergon (and this also applies to Energex) has narrowed down its options to demand tariffs too soon. Given the limited knowledge and understanding of these options in the general public, QCOSS believes Ergon should strongly weight criteria such as simplicity, ease of understanding and bill stability when considering future tariff options. These criteria are particularly important in the context where tariffs are to be adopted voluntarily by consumers. QCOSS is concerned that Ergon has instead based its decision to favour a SToU demand tariff on criteria such as cost-reflectively and future revenue stability. Secondly, QCOSS is also concerned that the concept of equity that is referred to in the assessment of tariff options is too narrowly focused on addressing the inherent cross-subsidies in the current flat volumetric tariffs. QCOSS believes the concept of equity when applied to an essential service, should relate to access. If tariff reform gives rise to affordability problems for some groups of consumers and thereby limits 12 Faruqui and Palmer, (2012), The Discovery of Price Responsiveness- A Survey of Experiments involving Dynamic Pricing of Electricity. Unpublished paper submitted to the EDI Quarterly. (cited in Frontier Economics/Sustainability First paper for DECC.) 8 / 17 February 2015 Future network tariffs

9 their access to electricity, this reform should be considered inherently inequitable. Consequently, QCOSS view is that Ergon should actively demonstrate in its TSS that its tariff proposals meets the consumer impact principles by giving sufficient weight to objectives such as of ensuring bill stability and ease of understanding and simplicity for consumers. While network businesses may be focused on the objective of reducing peak demand and sending an appropriate price signal to induce behaviour change, QCOSS view is that a balance between criteria such as cost-reflectivity and revenue stability against bill stability and simplicity is necessary in order to facilitate consumer uptake and response. Without this balance the desired outcomes of tariff reform will not be achieved. Consumers views On 5 February 2015 QCOSS held a workshop for representatives in the community sector to discuss the network tariff reform process currently underway in Queensland. The purpose of this workshop was to: raise awareness of the reform process amongst community organisations; provide an opportunity for participating organisations to consider the impacts and issues for their clients; provide preliminary feedback on the tariffs being considered by Ergon and Energex to inform QCOSS advocacy efforts; and assist those organisations with information that is useful for making their own submissions should they wish to do so. The audience included a small number of people who have participated in Ergon or Energex s tariff reform workshops, but also a number who had not and who did not have a high level of knowledge about the background to tariff reform or the current process. The first half of the workshop consisted of a session on understanding the tariff structures including the current flat volumetric, TOU and demand. Participants were asked to work in pairs to discuss and develop a hypothetical customer and energy use profile based on their knowledge of the clients or constituents they represented. While the profiles developed were not homogenous and were based on individual characteristics, there were many shared characteristics amongst the profiles developed by the group, reflecting the fact that the organisations represented largely work with vulnerable groups. 9 / 17 February 2015 Future network tariffs

10 The example customers identified in the workshop: tended to have members of the households at home throughout the day and would therefore have a flatter load profile than other customers; had older appliances that were not considered energy efficient or, had a mixture of inefficient and efficient appliances; were renters and were on low incomes; where the household had air-conditioning tended to use a lot of it, either specifically because of a medical condition or generally because thee was someone at home during the day; and were described mostly as having medium electricity usage rather than low (with the exception of the household with medical issues requiring cooling who was likely to have high or very high usage). The main issues and questions raised from the workshop include: 1. Likelihood of bill shock during the summer: It was noted that the SToU tariffs proposed by Ergon could produce significant bill shock in the summer bills. This was especially a risk for low-income households on statutory fixed incomes. These households would have to save in order to be able to pay the much bigger summer bills. QCOSS would expect that Ergon Retail would continue to allow financially constrained customers to access bill smoothing arrangements or payment plans to allow customers to manage their electricity bills and budgets. However we note doing so may dull the price signal and the connection between behaviours at seasonal peak times and the amount charged on bills. 2. Ability to understand the new tariffs and the bills: Participants were immediately concerned about the likelihood of their clients or constituents being able to understand the future tariff changes that were being described, noting that the current level of consumer understanding of how to read electricity bills and the way the charges are structured is very low. In the workshop the participants noted that the description of charges on bills in the Energex area where there are multiple retailers could be very confusing. For example: Retailers have different ways to describe the current charges on bills and do not always use official tariff labels (i.e. 11, 12, 31 or 33); The fixed charges can also be labeled differently on the bill and the basic unit used for calculation can vary (i.e. annual, daily, or no unit represented at all); and 10 / 17 February 2015 Future network tariffs

11 The font size used to show the detail of the usage and fixed charges is very small, which is a challenge to a person with average eyesight, let alone those with sight difficulties or literacy and numeracy challenges. It must be noted that there was a lot less confusion with Ergon s bill as essentially there is only the one bill for its serviced area. However, it is likely that confusion may be exacerbated in the future when there may well be four distinct charges on the bills: fixed, volumetric, demand and meter charges. 3. Ability of clients to change behaviour easily: There was strong concern about the extent to which clients would be able to change behaviour. Participants believed that their clients (who can largely be defined as vulnerable customers) would be unable to change their behavior or alter any of the circumstances of their lives to be able to respond to price signals or to take advantage of opportunities to lower costs. This inability to change energy use was due to factors that ranged from: the difficulty of adjusting routines around family life, especially where there is some complexity of need in the household and these needs are significant drivers of behaviour (for example, routines around caring for a person with an illness or disability); having medical needs that determined the amount of energy needed and at what times it is needed; and actually not having control over energy usage at all, due to being cared for by others and having others control the times of the day at which energy is used as well as how it is used. It was also noted that many of the appliances that can be easily be avoided during peak times are not major consumers of power, in contrast to appliances for cooling and heating which are relatively big users of power. Energy use for heating and cooling purposes were especially difficult to modify for many of the participants clients due to medical reasons disability, or being at home during the daytime. A recent research study on changing energy behaviour in response to different tariffs by RMIT 13 looked at the energy use of families with children in Victoria. It found that many of the respondents did not know which ToU tariff they were on or the times of peak and off peak. Many also did not change their behaviour to save money. The easiest behaviours to change were using the dishwasher and clothes washing machine. However the survey found that many were already using these appliances outside of 13 RMIT Centre for Urban Research (2015), Changing Demand, Flexibility of Energy practices in households with children. 11 / 17 February 2015 Future network tariffs

12 the peak times. Interestingly, most respondents said that they would be willing to change behaviour on an occasional basis and especially if it meant avoiding an outage or for the common good. Over 85% of respondents said that they would change their behaviour for a hot day alert and also would be willing to change the family routine occasionally. This finding accords with the Gill Owen researched cited above. Changing behaviour in response to a SToU tariff is especially difficult as the price signal or resulting incentive to change the pattern of energy use could be easily forgotten over the following nine months of lower bills. It is already generally accepted that a quarterly bill does not provide sufficient real time feedback to customers, and a seasonal tariff is likely to provide even less without accompanying enabling technology. This is one of the most appealing features for consumers of load control tariffs - T31 and T33 - which ensure that demand is managed without consumers having to respond as they can set and forget, and still get the benefit of lower prices. 4. Ability of their clients to benefit from the new tariffs? Participants were generally not optimistic about the prospect of their clients benefiting from new tariffs and did not easily identify opportunities for cost savings. This is despite the fact that many low income and vulnerable clients are likely to have a flatter load profile and less peaky usage and hence should be less likely to attract price penalties. It must be noted that there was limited time at this preliminary workshop to expand on how households with a low peak to average load profiles may benefit from demand tariffs. The fact that participants gravitated towards the barriers rather than potential benefits may be because the prospect of TOU pricing or demand tariffs is seen to add complexity and risk into what is for many consumers an already complex electricity retail market. These risks may be unacceptably high for low income and vulnerable households, given many are struggling to pay bills at present. This provides an indication that consumer education and perception will be a barrier to uptake and ultimately the success of complex tariffs. 5. Ability of people to access advanced meters: It was explained at the workshop that households would also have to acquire an advanced meter (smart meter) if they choose to go on a demand tariff. As set out in Ergon s Regulatory Proposal, Ergon is proposing that there is an exit transfer fee of $137 to $166 if they choose another meter provider other than Ergon. Then there will be cost of the new meter and its installation as well as the ongoing meter charges that will be separately presented on the bill. This may act as a barrier for many low income households who have limited discretionary income available. Further, many low income people are 12 / 17 February 2015 Future network tariffs

13 tenants and live in private or social rental housing and may have to rely on their landlord to install an advanced meter. QCOSS is concerned that low income households who believe they may benefit from demand tariffs, may miss out due to lack of access to advanced meters. At the workshop there was interest in understanding a lot more about how reforms related to metering would interact with network tariff reform. It is understood that the draft determination by the AEMC on future metering arrangements will come out in early March It is expected that the TSS will address questions around access to advanced metering as well as tariff structure. Issues to be considered by Ergon It is acknowledged that the development of the cost-reflective tariffs is ongoing and that Ergon is continuing to prepare its TSS. The provision of submissions at this stage in the process is timely as it allows Ergon to address stakeholders concerns prior to the production of its TSS. QCOSS would ask that Ergon consider and address the following issues in its TSS. Implications for other tariffs: Ergon s focus to date has mainly been on its proposed SToU tariff and explaining this to stakeholders. Demand tariffs however are set to recover the long run marginal costs only and the question then arises how to recover the residual costs. It is understood that these may have to be recovered by a combination of fixed and volume charges. Already as mentioned above Ergon and Energex fixed network tariffs are amongst the highest in the NEM and have grown rapidly in recent years. Moreover, Ergon has also not yet discussed the implications for load control tariffs - T31 and T33. These are very popular tariffs and the uptake has been good, especially in the Energex serviced area. In its TSS Ergon will have to explain the implications of introducing the new tariffs for its full suite of existing tariffs, including load control. It is noted that Ergon has flagged that it will be reviewing its load control tariffs in its consultation paper. QCOSS will be looking for any new tariffs to have significantly lower fixed charges in the future. How will retailers react? Peak demand pricing signals to consumers can be complicated or diluted when delivered through retailers offers and billing. This is probably less of an issue in the Ergon area than for Energex as there is currently no retail competition. However this may change in the future and there is a risk to 13 / 17 February 2015 Future network tariffs

14 industry that a proliferation of new offers from retailers will lead to greater mistrust and consumers will not engage with new tariffs. The need for a better understanding of the impacts on consumers It will be difficult for many consumers to think positively about the prospect of different tariffs (as QCOSS observed in the workshop). Therefore the businesses will need to work harder to communicate the potential benefits, and give practical examples with real households to demonstrate that lowincome people will benefit. Under the AEMC rule change the TSS has to clearly set out the impact on consumers as well as ensure that the tariff structures are understandable to consumers. QCOSS s view is that a full social impact assessment is required to understand the impacts on different groups with a focus on low income and vulnerable. As also recommended to the ENA by other consumer advocates, Consumer Action Law Centre (CALC) and Consumer Utilities Advocacy Centre (CUAC) 14, this should include the likely effect on tariffs of increasing numbers of people exiting the network as a valid response to cost-reflective tariffs and decreasing cost of solar generation and storage technologies. This assessment should also include modelling how the residual costs will be recovered as well as the magnitude of the different tariffs (fixed, demand and volumetric charges) in scenarios of low and high marginal costs. QCOSS view is that such in-depth impact assessment is required so that the impacts of different tariffs (including critical peak pricing) on different load profiles are considered. In terms of vulnerability, QCOSS would be able to assist Ergon compile profiles in the low income, aged, disability, indigenous, and CALD communities. Testing should address consumer specific criteria such as bill stability, and simplicity/ease of understanding. As discussed above, other tariff options that would also meet the AEMC criteria of cost reflectivity could be tested. It is worth noting that the QCOSS workshop group expressed a mistrust of modelling relating to vulnerable groups where that modelling is undertaken without specialised knowledge and experience of the client group. In order to build trust, Ergon (and Energex) should therefore ensure that consumer representatives with this specialised knowledge have an opportunity to input into the methodology of such research or in fact undertake the research directly. 14 CUAC and CALC (2014) Response to the ENA Paper. Their letter can be found at this link 14 / 17 February 2015 Future network tariffs

15 Overall, a full social impact study will assist distributors to propose tariffs that balance the interests of all consumers against those of distributors, and will assist with developing solutions to address adverse impacts. These solutions are likely to require involvement by different parties within the electricity supply chain and by government and policy makers, and may involve both tariff and non-tariff options. Distributors to advocate for wider reform on concessions and/or consumer protections Economic regulators and industry tend to put pricing policy and social policy in separate baskets, and are likely to suggest that any negative impacts arising from tariff reform on vulnerable consumers should be addressed through the latter rather than the former. While the strengthening of the concessions and/or consumer protections frameworks in the tariff reform process is clearly critical, arguments to keep these issues separate risk nothing being done at all to address the concerns while pricing policy reform proceeds unimpeded. This has already occurred in Queensland in the move to more cost reflective pricing and the resulting rebalancing of fixed and variable energy charges. This rebalancing has most significantly impacted on low consumption households, as they tend to have low to medium use consumption patterns. However, there has been no accompanying reform to the structure of concessions in Queensland at any point in this rebalancing. This has also come at a time when the funding for financial counselors in Queensland and the effective Home Energy Savers Scheme (HESS) were cut by the Federal Government. QCOSS believes it is too risky to allow tariff reform to progress without the required reform of social policy instruments occurring beforehand or at least in tandem. Without effective and targeted concessions and other consumer protections in place, any significant impacts from tariff reform are likely to result in public backlash. It is therefore in the distributors own interest to advocate with governments for the wider reform needed. Examples of where wider reform is required include: Reform of concessions: QCOSS 15 has been advocating for concession reform for a number of years. Specifically it calls for the Queensland Government Electricity Rebate Scheme to be widened to include holders of the commonwealth health card. This would include singles and couples without children who are on the unemployment allowance (Newstart) as well as very low income working households. 15 QCOSS (2014), Energising Concession Policy in Australia 15 / 17 February 2015 Future network tariffs

16 QCOSS has also been advocating for a more equitable structure for the rebate, calling for percentage based rebate to replace the current flat rebate. This means if there are changes in the price impact of different tariff structures for consumers then the rebate will change commensurately. Victoria, for example has had percentage based electricity concessions for some time. Energy management and behaviour change program: A program focused on providing customers with energy literacy and education would be especially well suited to accompany tariff reform. Programs that assist households, particularly those who are struggling financially and at risk of bill shock with the introduction of new tariffs, could be introduced. Such programs would provide energy literacy, encourage behaviour change, and facilitate uptake of complementary devices and upgrades to automated appliances. Through greater understanding of current energy use and behaviour, households are more likely to be able to change behaviour and secure the benefits of tariff reform. The scheme could also assist low income households navigate concessions and rebates, as well as access the No Interest Loan Scheme (NILS) to purchase new appliances and equipment. QCOSS believes the Home Energy Saver Scheme (HESS), previously funded by the Commonwealth Government (up until 30 June 2014) and Ergon s own Powersavvy program both provide a good example of the type of program which could usefully accompany tariff reform and target consumer education to low income households. This scheme was delivered by local community agencies and hence was able to reach especially vulnerable and difficult to reach groups. Funding for financial counsellors: Financial counsellors fulfil an important role in assisting people struggling financially. This is a specialized area where trained counsellors assist people to manage their finances well as well to change behaviour that may be contributing to the financial hardship. The number of financial counsellors in Queensland has reduced in recent years and Queensland is now lagging behind other Eastern States on an investment per capita basis. With an ever complex electricity market, there will be a growing need for financial counsellors to work directly with people struggling to manage their electricity and other bills. This will help prevent hardship and disconnections. Communication/consumer education The success of tariff reform in delivering cost savings to both consumers and industry will be dependent on consumer understanding, engagement and participation. There is already significant distrust by consumers in the electricity industry due to continuously rising prices; retailers aggressive 16 / 17 February 2015 Future network tariffs

17 marketing campaigns; and lack of a comprehensive concessions and protection framework. Tariff and metering reform will add yet another layer of complexity to an increasingly complex market. In order to build trust with consumers there will need to be delivery of a clear and simple information campaign which explains the benefits of participation to consumers and especially to low income people. This will require Ergon to work closely with consumer groups during the development of new network pricing structures as well as the metering arrangements. The education program has to be lot more than a marketing campaign. Recognition is required that one size does not fit all. Different consumer groups require different styles of education and communication determined by the barriers they experience. For example households from culturally and linguistically diverse communities, indigenous households, and households with low literacy and numeracy skills will all have different requirements. It is likely that some vulnerable consumers would benefit from face to face and independent information e.g. home visits from community organisations. The education campaign should be flexible to accommodate such requirements. It was also noted at the workshop that in the event of a SToU being implemented, reminders and educational messages about the increased cost of energy use during peak periods would need to occur at the beginning of each summer season. This should become a recurring event as people would need to be made aware that the cost of electricity is increasing over the summer months.. Safeguards for vulnerable people Ergon should recognise the potential for certain groups to experience bill shock and should therefore build in appropriate safeguards (particularly in the early years of implementation) to minimise this risk. This most likely would involve setting limits on price increases. Consideration should also be given to a simple vanilla type tariff that is easy to understand and tailored to low income and/or vulnerable people. For example, this could be targeted to Centrelink concession and healthcare card holders. Given views about difficulty of changing behavior, a tariff that demonstrably rewards low-income households flatter load profile, without behavior change, will be easier to sell for distributors and retailers. There is clearly a case for consideration of a safeguard tariff. Currently, many people are struggling to managing the day to day cost of living, and a single large electricity bill can be a cause of significant hardship. Such hardship my resulting in a household having to go without food, or having to contact one of the charitable agencies for emergency relief. In many cases 17 / 17 February 2015 Future network tariffs

18 household income is simply not sufficient to meet the cost of their bills. This is especially demonstrated in the number of disconnections for non payment experienced by households which has increased in Queensland in recent years. For example, last year there were over 25,300 disconnections in Queensland of which almost 49% were in the Ergon serviced area. Already for the first quarter figure in a higher rate is evident as the quarterly number has increased to over 7,000. As also highlighted in the QCOSS annual cost of living report, a growing number of households are finding themselves in financial stress. Establishing a fair access to technology initiative A fair access to technology initiative would assist low income households and those in the rental market to have equal opportunities to adopt new tariffs and technologies to assist them to control their electricity usage and bills. This initiative should include investment to reduce the financial and other barriers that households face in adopting technologies such as advanced metering, solar hot water and other measures that may become available in the future. This fund should be technology agnostic and aimed at ensuring equality of opportunity for all users of essential services to benefit from the future new tariffs. Phased approach to implementation of future tariffs QCOSS view is that Ergon has yet to make a case for its preferred future tariffs and QCOSS acknowledges that this is work in progress and that its preferred tariff structure will be revealed in the TSS in November In reaching a final position, additional analysis should be undertaken to i identify the impacts on low income and vulnerable customers and identify tariffs options that strike a balance between consumer principles such as bill stability and simplicity and cost reflectivity and revenue stability for distributors. QCOSS would ask that Ergon considers the following in the TSS: Social impact assessment including additional tariff modelling: Include modelling its own TOU Volumetric Tariff (T12) and CPP as well as the role of enabling technology. Ideally indicative load profiles could be developed and the different tariff types tested against these. QCOSS would be able to support Ergon in developing these profiles for low income and vulnerable groups. In proposing its preferred tariff, Ergon is to carefully consider the consumer impact principle and consumers interests in its design; and 18 / 17 February 2015 Future network tariffs

19 In proposing its preferred tariff structure, Ergon should set out an implementation plan which includes : o That the new tariffs are optional for the remainder of the regulatory period until 2020; o That households who opt-in be given the option to revert back to the existing tariffs; o Details of the tariffs available to customers who do not take up the new tariffs; o The proposed metering arrangements and what sort of packages/plan Ergon would offer to customers who take up the new tariffs and advanced meters; o Details of consumer engagement and education including how Ergon intends to connect with difficult to reach customers ; o Details of monitoring and evaluating trials which Ergon would be conducting over the period 2016 to 2020 to assess the impact of the new tariff structures, especially on low income and vulnerable customers. If necessary, this should include consideration of a safeguard tariff for low income and vulnerable customers and other mitigation actions; and o Details of its proposed consumer engagement on its trials up to Overall, there needs to be a policy of gradualism as there is a need to build trust and knowledge amongst consumers as well allow distributors to develop trials and monitoring systems on the impacts of new tariffs on different consumers. Clearly there is a need to undertake more research/evaluation in order to understand how customers change behaviour as well as their take up of energy efficient appliances. Importantly there is also a need to identify any mitigating action and who is responsible for this action if it is found that low income and vulnerable people are impacted. Over the next regulatory period, Ergon should conduct trials for low income and vulnerable consumers to work out which tariff structure ensures that they can continue to access and afford electricity. If it is found that certain groups are likely to be adversely impacted then consideration should be given to a safeguard tariff. QCOSS and other consumer groups will continue to advocate for a fair and inclusive concessions and customer protection framework and would encourage the distributors to do likewise. All consumers should have the right to access affordable electricity to ensure their full and effective participation in all aspects of social and economic life. QCOSS appreciates that there may well be benefits for people who can successfully transition to a new tariff 19 / 17 February 2015 Future network tariffs

20 regime, but it is important to ensure that low income and vulnerable customers who cannot manage this transition will not be disadvantaged. 20 / 17 February 2015 Future network tariffs

21 Appendix 1 Profiles of customers represented by participants at the workshop Participants were asked to work in pairs to discuss and develop a hypothetical customer and energy use profile based on their knowledge of the clients or constituents they represented. It was acknowledged that their clients would not necessarily be homogenous, so the exercise involved identifying one particular example. The hypothetical customer profiles were then shared with the broader group. The profiles included: an African refugee family with two adults and three children a No Interest Loans (NILS) client (in this case a single parent with one child) a retired couple, one of whom has Parkinson s Disease a couple with two teenagers, with the female adult having a thermoregulatory dysfunction a single mother caring for a child with a disability a single person with cerebral palsy. There were many shared characteristics amongst the individual profiles developed by the group, which is not surprising given the organisations represented largely work with vulnerable groups. Specifically, the hypothetical customers: tended to have members of the households at home throughout the day and would therefore have a flatter load profile than other customers had older appliances that were not considered energy efficient or, had a mixture of inefficient and efficient appliances were renters and were on low incomes where the household had air-conditioning tended to use a lot of it, either specifically because of a medical condition or generally because they were at home all day were described mostly as having medium electricity usage rather than low, with the exception of the household with medical issues requiring cooling whose usage was described as high or very high. 21 / 17 February 2015 Future network tariffs