Observations from the Vinnies Tariff-Tracking Project. November 2012

Transcription

1 The National Energy Market - in a bit of a state? Observations from the Vinnies Tariff-Tracking Project Gavin Dufty, St Vincent de Paul Society, Victoria May Mauseth Johnston, Alviss Consulting Pty Ltd November 2012

2 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. ObservationsfromtheVinnies TariffETrackingProject GavinDufty,StVincentdePaulSociety,Victoria MayMausethJohnston,AlvissConsultingPtyLtd Melbourne,13November2012 StVincentdePaulSocietyandAlvissConsultingPtyLtd Thisworkiscopyright.ApartfromanyusepermittedundertheCopyrightAct1968 Ctw),nopartsmaybeadapted,reproduced,copied,stored,distributed,published orputtocommercialusewithoutpriorwrittenpermissionfromthestvincentde PaulSociety.! 1!

3 Background:TheTariffLTrackingProject 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,queenslandandsouthaustralia. 1 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 regulatoryframeworkforexample,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 four states. The workbooks allow the user to enter consumption levels and analyse household bills for standing or regulated gas and electricity offers, as well as published electricity andgasmarketoffers. 2 Thefourworkbooks,aswellasassociatedreports,canbeaccessedattheStVincent depaulsociety swebsite: This paper is the result of a comparison of the state by statee based analyses undertakenaspartofthetariffetrackingproject,aswellasreflectionsonthepublic debate on energy market developments and reasons for price increases in recent months. 1 TheNationalConsumerAdvocacyPanelCAP)hasbeenthemainfundingsourceforTariffETracking projecttodate. 2 TheVictorianworkbookscontainregulated/standingoffersfromJuly2008toJuly2012andmarket offersfromjuly2010tojuly2012.thenswworkbookscontainregulatedoffersfromjuly2009to July2012andmarketoffersfrom2011and2012.Themostrecentadditionstotheproject,the QueenslandandSouthAustralianworkbooks,containregulated/standingoffersfromJuly2009toJuly 2012andmarketoffersasofJuly2012.!!!! 2!

4 1.Priceincreases ItiswellknownthathouseholdsacrossAustraliahavebeenexperiencingsignificant increasestotheirenergybills.chart1showsthatsincejuly2009,southaustralian householdshaveexperiencedthegreatestincreasesandqueenslandersthelowest. Chart1ElectricitypriceincreasesJuly2009toJuly2012asestimatedannualbillsnominal,incGST) forregulated/standingelectricitymarketoffers,6,000kwhperannum,singlerate 3 2,60 2,40 Annual&bill&)& 2,20 2,00 1,80 1,60 1,40 1,20 Qld! NSW! SA! VIC! 1, ! ! 2012! However,aschart1assumesthesameconsumptionlevel6,000kWh)acrossallfour jurisdictions,itsusefulnessintermsofunderstandinghowmuchtypicalconsumption households actually spend on electricity is limited. In Victoria, for example, households with singleerate electricity meters have relatively low consumption compared to other states, both due to Victorians high gas consumption and the differenceinclimate.table1belowthereforeoutlinesthetypicalannualbillasof July2012pricereEsets)andtheincreasesindollarandpercentageterms)sinceJuly 2009basedontypicalresidentialconsumptionlevelsforeachjurisdiction. 3 AsthepricesdifferbetweennetworkareasinNSWandVictoria,theestimatedbillsinthesetwo statesarebasedontheaverageacrossnetworkareas.! 3!

5 Table1ElectricityandgaspriceincreasesfromJuly2009toJuly2012basedontypicalconsumption levelsforeachjurisdictionnominal,incgst) 4 State Fuel Area/Network Est.annualbill AsofJul 12 Increase sincejul 09 %Increase sincejul 09 QLD El Energex/Ergon 2, % Gas Allaverage) % SA El ETSA 2, % Gas Allaverage) % NSW El Essential 2,980 1,135 61% El Endeavour 2, % El AusGrid 2, % Gas Jemena % Vic El Citipower 1, % El Powercor 1, % El SpAusnet 1, % El Jemena 1, % El UnitedEnergy 1, % Gas Allaverage) 1, % AnnualconsumptionassumptionsforsingleErateelectricityandgasare:Qld;8,000kWhand 10,000Mj,SA;6,000kWhand21,000Mj,NSW;7,200kWhand24,000Mj,VIC;4,800kWhand 63,000Mj. 2.Whoispayingforwhoandwhat? Onthe2 nd August2012theStVincentdePaulSocietylaunchedanupEdatereporton the Victorian TariffETracking project. The analysis presented found that while Network Use of System NUOS) charges had increased since July 2008, the NUOS componentofatypicalresidentialcustomer sbillhaddecreased. 5 Thereareofcoursemanyreasonsthatcancontributetothistrend.Theintroduction of the carbon tax definitely impacted on the proportionality in relation to the July 2012 prices, the cost of the Victorian Government s Smart Meter rolleout is not includedinthenuoscharges,andthecostofvarious greenschemes wouldclearly change the so called billestack or costestack. Nonetheless, the greatest unknown was whether the retail cost component had increased significantly and, if so, for whatreasons. Onthe14 th ofaugust,anarticleintheaustralianreferredtocalculationsproduced by the Australian Energy Market Commission that showed the following drivers of electricitypriceincreasesfrom2012/13to2013/14percentages): 6 4 BasedonregulatedelectricityoffersinNSW,QldandSA,andforVictoriatheaverageofthe3 incumbents standingoffers.basedonregulatedgasoffersinnswandsa,andtheaveragegas standingofferinqldoriginandagl)andvictoriaorigin,aglandtru). 5 SeeAppendix1forchartspresentedintheVictorianTariffETrackingreport. 6 TheAustralian,StateEownedpowercosts outofcontrol bydaviduren,14august2012at fn59niixe !! 4!

6 Table2Driversofelectricitypriceincreases Victoria NSW Queensland SouthAustralia Wholesalecost Networkcost Retail Other,incl greenschemes Total 100% 100% 100% 100% Accordingtothesefigures,thedriversofpriceincreasesinVictoriaaresignificantly differenttonsw,queenslandandsouthaustralia.similarviewsregardingvictoria s coststacktrendsweresubmittedbythevictorianelectricitydistributionbusinesses totherecentsenateinquiryintoelectricityprices. 7 Clearlythereareverylegitimatereasonsretailcosts may increase: compliance costs, billing machine changes to handle new tariff structures, for example), customer service, regulatory reform etc. However, these retail cost figures may indicate somethingelse,namelythatvictoriansarepayingfor electricity consumed by customers in NSW, Queensland and South Australia. After all, most of the big retailers operate across all four states and their revenue targets are not defined on a stateebye theseretailcostfigures mayindicatesomething else,namelythat Victoriansarepayingfor electricityconsumedby customersinnsw, QueenslandandSouth Australia state basis. Victoria is the only jurisdiction in the NEM that does not regulate its retail tariffs so any retailer feeling the squeeze by regulation in, for example, QueenslandmayseektorecoveritsmarginsinVictoria. Still, Victoria is commonly hailed as one of the most competitive energy retail marketsintheworldandwitheffectivecompetitionwewouldassumeatleastsome 2 nd tierretailerswouldactuponanopportunitytooffersignificantlybetterdealsfor Victorianhouseholds.However,thishasnotbeenthecasefortheresidentialenergy market. Our data shows that none of the retailers have attempted to significantly differentiate themselves in regards price increases. In Melbourne, for example, a typical consumption household experienced an annual electricity bill increase of between9e15%betweenjanuaryandjuly2012,iftheywereonamarketcontract withoneofthebigthreeretailersagl,originortru). 8 Ifhouseholdswerewithone ofthe2 nd tierretailersthepriceincreasewouldhavebeenbetween7e18%.analysis ofthepreviousprice reeset in January 2012 paints a similar picture, albeit lower increases occurred across the board. The big three increased their prices by 6E9% 7 SubmissiontotheSenateSelectCommitteeInquiryonElectricityPrices,VictorianElectricity DistributionBusinesses,September2012at 8 BasedonsingleratemarketoffersinCitipower sareaforhouseholdsusing4,800kwhperannum.! 5!

7 from July 2011 and the 2 nd tiers ranged between 5E12%. If the growing retail component of consumers bills includes a higher profit margin rather than simply retail costs), it raises questions about the effectiveness of competition in the Victorian retail market. 9 It is of course possible that Victorian households are currentlyexperiencingthecombinedeffectofbeingtheonlyjurisdictionwithretail pricederegulationaswellassubeoptimalretailmarketarrangements. IntheJanuary2012VictorianupEdatereport,weraisedconcernsaboutnothaving setdatesforstandingofferpricereesets. 10 Whenlegislationwasintroducedpriorto the deregulation of retail prices in January 2009, it stipulated that retailers may change their standing offer prices every six months. In the beginning this legislation did not create an issue as all retailers gazetted more or less at the same time in order to havestandingoffersinplaceinjanuary2009.since then, however, some retailers have chosen to gazette at different times every year. We can only speculate whether some retailers first delayed their gazettes in order to watch the price setting of their competitors.thelegislationhowever,asitcurrently stands,allowsforthistooccur. thegovernmentshould changethelegislationto stipulatetwodatesper annumwhentheretailers maychangetheirstanding offers Thiswould ensurethattheretailers pricethestandingoffer independentlyofeach other! Astheindividualretailers marketofferslargelymirrortheirgazettedstandingoffers i.e. they generally comprise of the same tariff shapes and tariff rates but include additionaldiscounts,bonusesorotherincentives),itisimportantthattheretailers price setting occur independently. We therefore believe the government should change the legislation to stipulate two dates per annum when the retailers may changetheirstandingoffersi.e.1januaryand1july).thiswouldensurethatthe retailers price the standing offer independently of each other they will of course continue to be able to publish new market offers throughout the year) as well as improvethe competitionbycomparison aspectoftheenergyretailmarket. 3.Energymarketreform:10yearson CrossEsubsidiesintheenergymarketarenotanewphenomenon,butitisnow10 years since COAG released its major report on energy market directions and the NEMreformprocesshascontinuedunderafairlyconsistentCOAGagenda. 11 Inour view, however, we are still far from having developed a truly national energy 9 If,ontheotherhand,themainreasonfortheincreasestotheretailcomponentofelectricitybillsis increasestoretailcosts,adebateaboutmarketinefficienciesandcomplexitiesareurgentlyneeded. 10 See!StVincentdePaulSocietyJanuary2012),Victorian.Energy.Prices.July January.2012,.An. Update.report.on.the.Victorian.Tariff@Tracking.ProjectbyMayMausethJohnston! 11 InDecember2002,COAGreleasedthefinalreportfromtheParerreviewofenergymarket directionstitled: TowardsaTrulyNationalandEfficientEnergyMarket.Seeforexample:COAG MediaRelease20December2002 Energymarketreviewfinalreport Billionsavailablefromfurther reform at 6!

8 market. The NEM currently has significantly different cost drivers in the various jurisdictionsandatypicalnswfocusedargument,suchasthemainproblembeing overeinvestment in networks, is unhelpful to the debate in Victoria where the network component is low by comparison. Nonetheless, prices have gone up significantlyandconsumersareentitledtounderstandwhy. TheCOAGagendaisclearlycommittedtoretailderegulationandwebelievethiscan potentially deliver many positive outcomes for consumers see section 4 below). However,weareconcernedthatsomeofthesepositiveoutcomes,experiencedby manyvictorians,areslowlybeingeroded.victoriahasnowbeentheonlyjurisdiction with deregulated electricity retail prices for nearly 4 years but we cannot assume that Victorian prices are set truly independent of what regulatory retail price settings,aswellasgovernmentinterventions,deliverinotherjurisdictions. Afterall,networkcostscanbe blamedonregulatoryfailure, ownershipstructures,aswellas consumersthemselvesforfailing toreducepeakdemand.the reformprocess,ontheother hand,needstobedrivenby COAGandtheSCER. Furthermore, we may ask whether it is more politicallyexpedienttofocusonnetworkcost as a cost driver rather than the lack of, or imbalanced, retail market reform. After all, network costs can be blamed on regulatory failure, ownership structures, as well as consumers themselves for failing to reduce peak demand. The reform process, on the otherhand,needstobedrivenbycoagand thescer. To be clear, we agree that network costs are a major driver for price increases in somejurisdictionsandthatstateownershipofnetworkbusinessesmeansthatsome state governments have different incentives to others. We also agree that peak demand is a challenge, both because it increases network costs and because the behaviouralsolutionsproposedsuchastimeofusepricing)canbebothunreliable in terms of delivering the benefits) and cause social harm for some customer segments. What we therefore want to see, is a political debate that stops the convenient blaming of everything from networks gaming the system, to weak regulators, to greedycompaniestoirresponsibleconsumers,whileamuchneededreformprocess continuestostagnatetothedetrimentofconsumers.changeisneeded,inoneway or another, and if the vision of a truly national energy market is politically unachievablethenitistimetoacknowledgeasmuch. We also believe energy consumers are treated differently to consumers of most other goods and services.governmentsbothfederalandstate)seemto regard energy bills as an instrument that can be fairly usedtoensurethecostofvariouspoliciesandprograms are met. Examples include the Federal Renewable Energy Target RET), the NSW Energy Savings Scheme ifthevisionofa truly nationalenergy market ispolitically unachievablethenitis timetoacknowledge asmuch! 7!

9 ESS) and the Victorian Energy Efficiency TargetVEET) scheme. There is very little scrutiny and transparency around these additional costs and we do not believe consumers should pay through fees and levies to support policies and programs without,atleast,aclearcost benefitstudyshowingthatconsumerswillbenefitin the longer run. 12 Other policies and programs should be funded through consolidatedrevenue.forexample,theveetschemewasdesignedto: make energy efficiency improvements more affordable, contribute to the reductionofgreenhousegases,andencourageinvestment,employmentand innovationinindustriesthatsupplyenergyefficiencygoodsandservices. 13 While the intention and the deliverables may be good public policy, we question whetherenergyconsumersshouldpayforjobcreationinthesoecalledgreensector. The various policies and programs do add up and while Ministers get to announce their policy initiatives there is little acknowledgement of the accumulative cost impactonhouseholds Retailoffersinregulatedvs.deregulatedmarkets Victoria deregulated retail energy prices on 1 January Since then, we have seenthedevelopmentofamarketwhereretailoffersproducemeaningfulproduct differentiation. By meaningful, we refer to product differentiation that means households with certain consumption profiles e.g. low consumption, high consumption, high offepeak consumption etc.) are better off with some retailers than others. In comparison, product differentiation could simply mean market contracts with credit card reward schemes, footy jumpers and magazine subscriptions etc. While such product differentiation may promote customer switching and competition, however, it does not produce a more suitable energy offer. Chart 2 below shows Victorian electricity market offers across the five distribution areasasofjuly2012.theannualbillscalculatedforthischartdonotincludemarket offerdiscountse.g.10%offallconsumption)orpayontimediscountse.g.5%off entirebillifpaidontime).whatchart2illustratesisthatthereissignificantvariance between the retail offers available to a household with this specific consumption level4,800kwh).ifweproducedthesamechartforhouseholdsusing9,000kwh, forexample,theretailerswiththelowestannualbillwouldnotbethesameasthose withthelowestbillsinchart2. 12 WearenotreferringtonationalpolicyortaxreformslikethecarbonpriceortheGSTinthis context.theyaredifferentastheyaffectallaspectsoftheeconomyandnotjustenergy InthiscontextwewouldliketoacknowledgethatthemajorityofthefundingfortheVinnies TariffE TrackingprojecthasbeenreceivedfromCAPseeFN1)whichisfundedthroughanindustrylevy.! 8!

10 Chart2Victoria:Estimatedannualbillsnominal,incGST)forelectricitymarketofferspostJuly2012 excludingdiscountsandpayontimediscountsehouseholdsconsuming4,800kwhperannumsingle rate) &per&annum& Just to be clear, we have included chart 3 below to show that similar product differentiationoccurswhenweincludediscountsandpayontimediscountsinthe annual bill calculations. The point we aim to illustrate here is that the Victorian energy retail market does have meaningful product differentiation and households abletoidentifytheoffermostsuitabletotheirconsumptionlevel/patterncansave ontheirenergycostsnbtheissueofabilitytoidentifyoffersisdiscussedinsection 5below). Chart3Victoria:Estimatedannualbillsnominal,incGST)forelectricitymarketofferspostJuly2012 includingdiscountsandpayontimediscountsehouseholdsconsuming4,800kwhperannumsingle rate) &per&annum& 1,80 1,70 1,60 1,50 1,40 1,30 1,20 1,10 1, CP! PC! SP! Jen! UE! Citipower! Powercor! SP!Ausnet! Jemena! UE! Charts4E6belowshowtheregulatedoffertotheright)andmarketoffersavailable tohouseholdsinqueenslandchart4),nswchart5)andsouthaustraliachart6). Compared to charts 2 and 3 above, it is clear that there is a lot less product differentiationinthesethreejurisdictionscomparedtovictoria. AGL! Origin! TRU! Aus!P&G! Click!! Neighb'hood!! Powerdirect! Red!Energy! Simply! Lumo! AGL! Origin! TRU! Aus!P&G! Click!! Neighb'hood!! Powerdirect! Red!Energy! Simply! Lumo!! 9!

11 Chart4Queensland:Estimatedannualbillsnominal,incGST)forelectricityofferspostJuly2012 excludingdiscountsandpayontimediscountsehouseholdsconsuming8,000kwhperannum,single ratetariff11)andoffepeaktariff31and33) 15 Chart5NSW:Estimatedannualbillsnominal,incGST)forelectricityofferspostJuly2012.excluding discountsandpayontimediscountsehouseholdsconsuming7,200kwhperannum,singlerate 16 &per&annum& 3,50 3,30 3,10 2,90 2,70 2,50 2,30 2,10 1,90 1,70 1,50 2,40 2,30 2,20 2,10 2,00 1,90 1,80 Tariff!11! Tariff!31! Tariff!33! Essential! Ausgrid! Endeavour! Regulated! 15 Chartfirstpublishedin:StVincentdePaulSocietyAugust2012),Queensland.Energy.Prices.July. 16 Chartfirstpublishedin:StVincentdePaulSocietyAugust2012),New.South.Wales.Energy.Prices. AGL! Origin! TRU! Aus!P&G! Click! Lumo! Powerdirect! Integral! Energy!Aus! Regulated! AGL! Origin! Powerdirect! Integral! TRU! Aus!P!&!G! Red! Lumo! Energy!Aus!! 10

12 Chart6SouthAustralia:Estimatedannualbillsnominal,incGST)forelectricityofferspostJuly2012 excludingdiscountsandpayontimediscountsehouseholdsconsuming6,000kwhperannum,singlee rateandoffepeak/controlledload &per&annum& 2,60 2,40 2,20 2,00 1,80 1,60 1,40 1,20 1,00 Single!rate! Controlled!load! Regulated! Although we believe households ultimately benefit from retail markets with a high levelofproductdifferentiation,itisimportantthatthisdifferentiationisassociated withconsumptionlevel/patterns.themostcommonformofretailmarketproduct differentiation in all four states is the various market offer discounts. Generally speaking,thehigherthediscountthelongerthecontractterm.furthermore,2 nd tier retailerstendtofavourdiscountsconditionalonbillsbeingpaidontimeandwhile this is a sensible way for a retailer to manage risk in order to be able to offer competitiverates,thepracticecreatessomeconfusingresultsinmarketswherelate payment fees apply. The double whammy of a late payment fee combined with losing out on discounts means that households with cash flow problems can risk becomingsignificantlyworseoffifswitchingtosomeoftheseoffers,andwouldthus need to take extra care when assessing energy offers. Currently, both Queensland and New South Wales have market offers that can make a late paying customer worseoffthans/hewouldontheregulatedrates. InNSW,forexample,alatepayingSydneyhouseholdintheAusgridnetworkarea) unfortunate enough to switch to the worst market offer for them, may end up paying220moreperannumonthemarketofferthantheywouldiftheystayedon theregulatedofferaswellasbeinglockedintoa3yearcontractandfacingafeeof up to 88 to get out). Chart 7 below shows estimated annual bills for households thatalwayspayontimeandalwayspaylate. AGL! Origin! TRU! Simply! Alinta! Lumo! Powerdirect!! 11

13 Chart 7 AusGridnetworkarea:Estimatedannualbillforcustomersthatpayontimevs.paylate, electricityoffersasofjuly2012,singlerate,7200kwhnominal,incgst) 17 &per&annum& 2,60 2,50 2,40 2,30 2,20 2,10 2,00 1,90 1,80 1,70 Paid!on!time! Paid!late! AusGrid&Network& That households can actually become worse off on a market offer creates a challengeinitself.iftheaimistopromoteacompetitiveenergymarketwherethe purposeofthedeemed/standingoffermerelyistoguaranteeaccesstosupply,this kindofoffermakesanencouraging shopearound messagealotmoredifficult. InVictoria,wherethereisabanonlatepaymentfeeson standingoffersandthemarketisarguablymoremature than in the other states, there are currently no market offersthatapplylatepaymentfees.assuch,acustomer shopping for a better offer can start by identifying the retailers with tariff shapes i.e. fixed supply charge Thathouseholdscan actuallybecome worseoffonamarket offercreatesa challengeinitself. versusvariableconsumptioncharges)thatsuittheirconsumptionlevel/patternand then assess additional discounts on top of that. There are four typical types of additionaldiscountsavailable: Discountontheconsumptioni.e.kWh/Mjusedbutnotthesupplycharge) Discountonthetotalbill Discountontheconsumptionifbillsarepaidontime Discountontotalbillifbillsarepaidontime Subsequently,lowconsumptionhouseholdswouldprobablypreferadiscountonthe billcomparedtoonusageonly,andhouseholdsoftenstrugglingtopaytheirbillson timewouldpreferanydiscountthatisnotconditionalupontimelypayments.these are all quite easy assessments to make, as long as the offers clearly state the differentaspectsofthecontracts. 17 Annualbillcalculationincludesdiscounts,payontimediscountsandlatepaymentfeesasper energyoffer.note:lumo sofferdoesnotstipulatewhetherlatepaymentfeesapplyandthese calculationsdonotincludealatepaymentfeeforlumo.chartfirstpublishedin:stvincentdepaul SocietyAugust2012),New.South.Wales.Energy.Prices.July July.2012,.An.Update.report.on.the. NSW.Tariff@Tracking.ProjectbyMayMausethJohnston! 12

14 5.Transparencyandconsumerinformation We acknowledge that accessible consumer information and education is a prerequisite in order to achieve the consumer benefits from meaningful product differentiation. However, we do not believe that the lack of accessible consumer information is a reason in itself to stop seeking meaningful product differentiation throughmarketdesign. Although none of the four states analysed as part of the TariffETracking project provide great consumer information, there are significant differences between the jurisdictions both in terms of their approach to consumer information and the qualityoftheirservices. Asthesefourjurisdictionshavenotsignedonto Weacknowledgethat accessibleconsumer informationandeducationis aprerequisiteinorderto achievetheconsumer benefitsfrommeaningful productdifferentiation. However,wedonotbelieve thatthelackofaccessible consumerinformationisa reasoninitselftostop seekingmeaningfulproduct differentiationthrough marketdesign.! thenationalenergyretaillaw,theaer s Energy Made Easy comparator is currently only availabletocustomersintheactandtasmania. Customers in Victoria, NSW, Queensland and South Australia will have to rely on energy price information services produced by the Essential Services CommissionESC) Victoria, Independent Pricing and Regulatory Tribunal IPART), Queensland Competition Authority QCA) and Essential Services Commission South Australia ESCOSA) respectively. However, none of these jurisdictional price information or comparison services are optimal and we hope having one single regulator, the AER, providing this service will assist in creating a uniform and standard approachtoprovidingconsumerswithtimelyand accurateinformationinthenearfuture. Firstly, there is the issue of timely information provision. In Victoria, NSW, Queensland and South Australia, major price reesets occur in July every year that attract substantial media coverage in which politicians and other commentators typically encourage consumers to shopearound for a better deal. However, consumers seeking to act on this advice through visiting their jurisdictional regulator spricecomparisonservicemayfindthemselvesconfused,wastingtime,or inaworstcasescenario,actingoninaccurateinformation.clearlyallregulatorsseek tominimisethisriskbutinsteadoffixingtheproblemtheysimplyreducethesites usefulness. AttheIPARTsiteservingNSWenergyconsumers,thereissimplyapopEupmessage warningconsumersthatmostretailerschangetheirtariffsatthistimeofyearand that they should contact the retailers individually to confirm the rates. In Victoria thereappearstobeanautomaticupdateeverydaythatstatesthedatetheretailer createdthetariffandthelastdatethetariffwasupdatedonthecomparatorwebsite! 13

15 whichisautomaticallythecurrentdate.insouthaustralia,atleast,theregulator liststhenewoffersreceivedaswellastheretailoffersitisstillawaitingincluding theexpecteddate,ifthisinformationhasbeenprovidedbytheretailer). Secondly,thereisanissueregardingthetypeofinformationprovidedtoconsumers. InbothSouthAustraliaandQueenslandtheregulators webebasedpriceinformation services produce estimated annual bills but do not provide information about the actualtariffratesorshapes.asnotedinapreviousreportbythestvincentdepaul Society,theQCAPriceComparatorcalculatesannualbillsbasedontheretailoffers andsomeassumptionsenteredbytheuser,butdoesnotstateorprovidealinkto) theactualretailtariff. 18 Furthermore,theretailers ownprice factsheets fortheir Queensland offers often exclude details about tariff rates or tariff componentsas theyarenotrequiredtodoso).rather,factsheetsstipulateanestimatedannualbill for low, medium and high consumption households. If the intention is to have an energymarket,.itisnecessarytoensurethatconsumersareeducatedandequipped toparticipateinthemarket.kiloewattsandmegaejoulesareunitsofmeasurements just like kilograms. It is thus puzzling how the South Australian and Queensland regulatorsseemtobelievethatconsumersmustonlyreceiveinformationinaformat of estimateddollaramountperannum. Increasingly,. we see retailers publishing new standingofferswhilethepublishedmarketoffers remain unchanged giving the impression that the price of standing offers have gone up while marketoffersremainstable.however,retailers existing customers would have been notified about price increases directly. The published market offer rates are effectively only available tonewcustomersandcanofcoursebechanged Ifthistrendcontinues, consumerrepresentatives, governmentsandregulators mayfacealimited opportunitytomonitor energyaffordability.! at any time after a customer has signed up) and do as such not provide any information about the price increases that have occurred or what households are actuallypaying.ifthistrendcontinues,consumerrepresentatives,governmentsand regulators may face a limited opportunity to monitor energy affordability. For example, if the Victorian or NSW electricity markets end up having 80E90% of customersonmarketoffers,theonlywaytoreliablyestimatehowmuchcustomers payforenergycouldbetoconductexpensive)householdsurveys.. Notonlydoesthisimpactonstakeholders abilitytomonitorenergyaffordabilitybut italsoreducescompetitionbycomparison.wethereforestronglyrecommendthat theregulationischangedtorequireretailers.to.publishnewratesforexistingmarket offersaswellasmarketoffersavailabletonewcustomers. 18 StVincentdePaulSocietyAugust2012),Queensland.Energy.Prices.July July.2012,.A.Report. from.the.queensland.tariff@tracking.projectbymaymausethjohnston! 14

16 6.ConsumerProtections All jurisdictions should make it a priority to adopt the National Energy Retail Law. ThelawtookeffectinTasmaniaandtheACTfrom1July2012whileVictoria,South Australia, Queensland and New South Wales have for various reasons delayed its introduction.anationalenergyretaillawnerl)acrossthenemshouldmakethe retailmarketsmoreefficient,hopefullyenhanceconsumerinformationandprovide theopportunitytoensurethatappropriateregulationandconsumerprotectionsare in place. That said, due to significant differences between the retail markets as highlightedseveraltimesinthispaper)thenerlmayneedtobesupplementedby jurisdictional derogations. While we strongly support the move to a national retail framework, we do not believe the NERL, in its current format, can adequately replaceallofthestate sretailandconsumerprotectionframeworks. In order to have a competitive energy retail market it is of course crucial that consumershavetheconfidencetoswitchwithoutbeingconcernedthattheymight endupworseoff. Apart from improved consumer information and education, we believe there are two regulatory amendments, in addition to a requirement for retailers to publish newratesforbothexistingandnewmarketcontractcustomersasoutlinedabove) thatcanfacilitatesuchanoutcome. Firstly, there needs to be a ban on unnecessary fees and charges on regulated/standing offers. As long as there are fees and charges on the regulated offers, such as late payment fees, many retailers will continue to apply these fees and charges to their market offers. Furthermore, as the retailers themselves of course determine the size of fees and charges on market offers, the late payment fee, for example, is quite often higher for market offer contracts than regulated/standingoffercontracts.inourview,retailersarelesslikelytoapplyfees andchargestotheirmarketoffersifcustomersknowthatsuchfeesandchargesare bannedfromregulated/standingoffers. bybeingallowedtolock customersintofixedterm contractsthattheycan changetheconditionsof atanypointintime,the riskislargelytransferred fromtheretailertothe customer.! Secondly, as long as retailers are free to change the price at any time during the contract term there needstobeabanonlockincontracts.thispractice makes the shopearound message to consumers facing increasingly high energy bills quite complex. Basically,themessageneedstobe shopearoundfor abetterdealbutdonotnecessarilygoforthebest and what sbesttodaycaneasilybecometheworst in six months time. While not sounding overly encouragingorconvincing,thesewarningsarecrucial astheearlyterminationfeesdemandedfromcustomerswantingtogetoutofabad contractcanbesignificantover100insomecases).werejecttherationalethat retailers must be allowed to charge early termination fees because of the cost of acquiringcustomers.thatcostshouldbebuiltintotheratesthattheyoffer.wedo,! 15

17 however, accept that retailers must be able to change their prices as they pass through new network charges, taxes, levies etc. over which they have no control. Furthermore, retailers need to be able to manage risk arising from changes to wholesalecostsaswellasdemand,butbybeingallowedtolockcustomersintofixed termcontractsthattheycanchangetheconditionsofatanypointintime,theriskis largelytransferredfromtheretailertothecustomer. There are many practical options that can be considered in order to more appropriatelybalancetheriskbetweenretailersandcustomers.optionsincludeto: 1. Only allow early termination fees to be applied to contracts where the retaileragreestonotincreasepricesfortheperiodofthecontractsee rate freeze examplebelow). 2. Require retailers to waive the early termination fee if they increase their ratesduringtheperiodofthecontract. 3. Continuewithcurrentarrangementsbutbanearlyterminationfees. Some retailers have recently developed market offer products that effectively guaranteenoretailpriceincreasesduringthelengthofthecontract.originenergy, forexample,hasintroducedits RateFreeze productandtheofferstipulatesthat: WemayvarytheChargesincludingtheamount,natureandstructureof anyofthecharges)bynoticetoyouatanytimeincludingduringorafterthe EnergyPlanPeriodifany).Thenoticecouldtaketheformofamessage containedinyournextbillandwillspecifytheeffectivedateofthevariation. DuringtheEnergyPlanPeriodwewillnotvarytheenergyrateordaily supply/servicetopropertycomponentsofthecharges ouremphasis) 19 ThisofferbyOriginEnergydoescontainahigherfixedsupplychargethantheirother marketoffers.customersinmelbournethecitipowernetworkarea),forexample, wouldpayapproximately10centsmoreperday,or36perannum,andmissouton marketofferdiscountssuchasthe8%offconsumptionthatappliestoorigin sdaily Saverproduct)inexchangefornoretailpriceincreasesoverthe2yearlongcontract term.asoriginenergyagreestonotincreaseitsretailpriceoverthose2yearswe believetheearlyterminationfeethatappliestothiscontractisfair.however,only Origin and Energy Australia have introduced this type of offer, so while they demonstratethatitisdoable,manycustomerscontinuetoswitchtomarketoffers wheretheratesincreasesignificantlyandearlyterminationfeesapply. 19 FromOriginEnergy sresidentialenergypricefactsheetforvictoria! 16

18 Appendix1TheNationalEnergyMarket Inabitofastate? Appendix1:VictorianElectricitynetworkcharges2008C The Victorian electricity networks introduce new Network Use of System NUOS) chargesasof1januaryeveryyear.thesenuoschargescompriseoftransmission UseofSystemTUOS)andDistributionUseofSystemDUOS)andtheretailerscan, andgenerallywill,buildchangestothenuosinrelationtobothshapeandprice) intotheirretailtariffs. 2 The charts presented in this section show that while the NUOS charges have increased for average consumption households over the last 4 years, network chargesasproportionoftotalbillhaveactuallydecreasedsincejuly2008. ChartA:NUOSchargesasannualcosttoresidentialconsumersfrom2008to2012,allnetworks basedonsinglerate,4800kwhperannum,nominal,gstexclusive) perannum ! 2009! ! 2012! 15 Citipower! Powercor! SP!Ausnet! Jemena! UE! 1 ThechartsandcommentarypresentedinAppendix1wasfirstpublishedinStVincentdePaul SocietyJuly2012)Victorian)Energy)Prices)January)2012) )July)2012,)An)update;report)on)the) Victorian)Tariff;Tracking)ProjectbyMayMausethJohnston 2 NotethatNUOSchargesdonotincludesmartmeteringcosts. 3 TheannualNUOSchargeshavebeencalculatedbyallocating1200kWhperquarteragainbasedon annualconsumptionof4800kwh)tothestepchargesstipulatedinthenuos.theannualnuoscost alsoincludesfixedcharges.notethatasunitedenergy snuoschargesthelastthreeyearshave beenseasonaltariffs,theunitedenergyconsumptionusedinthesecalculationsisthusbasedona proportionalallocationofa5monthsummertariffanda7monthnonvsummeroffvpeak)rate.!

19 Appendix1TheNationalEnergyMarket Inabitofastate? ChartB:NUOSchargesasproportionofannualbillfrom2008to2012,allnetworksbasedonaverage singleratestandingoffer,4,800kwhperannum,nominal,gstexclusive) 4 35! 3 %ofannualbill 25! 2 15! 1 5! 2008! 2009! ! 2012! Citipower! Powercor! SP!Ausnet! Jemena! UE! ChartsCVGbelowshowNUOSchargesasannualcostcolumns)andasproportionof annual bill line) for each of the network areas. The methodology used for these calculationsisthesameasforcharts20v21above. ChartC:Citipower snuoschargesandproportionoftotalbillbasedonaveragesingleratestanding offer,4800kwhperannum,nominal,gstinclusive) 30 3 NUOScharges)perannum ! 2 15! 1 5! NUOSproportion%)oftotalbill NUOS! Proportion! 2008! 2009! ! 2012! 4 The NUOS proportion of total bill has been calculated using annual NUOS cost calculations as above)andtheaverageofthethreeincumbentsretailers standingoffersasofjulyeveryyearfrom 2008 to 2012), presented as annualbillsforhouseholdsusing4800kwhperannumsinglerate) acrossthefivedistributionareas.astherewasonlyonestandingofferpernetwork/meteringtypein July2008,the2008 average isbasedontheincumbentretailer sstandingoffer.!

20 Appendix1TheNationalEnergyMarket Inabitofastate? ChartD:Powercor snuoschargesandproportionoftotalbillbasedonaveragesingleratestanding offer,4800kwhperannum,nominal,gstinclusive) 45 35! NUOScharges)perannum ! 2 15! 1 5! NUOSproportion%)oftotalbill NUOS! Proportion! 2008! 2009! ! 2012! ChartE:SPAusnet snuoschargesandproportionoftotalbillbasedonaveragesingleratestanding offer,4800kwhperannum,nominal,gstinclusive) 50 35! NUOScharges)perannum ! 2 15! 1 5! NUOSproportion%)oftotalbill NUOS! Proportion! 2008! 2009! ! 2012!

21 Appendix1TheNationalEnergyMarket Inabitofastate? ChartF:Jemena snuoschargesandproportionoftotalbillbasedonaveragesingleratestanding offer,4800kwhperannum,nominal,gstinclusive) 40 35! NUOScharges)perannum ! 2 15! 1 5! NUOSproportion%)oftotalbill NUOS! Proportion! 2008! 2009! ! 2012! ChartG:UnitedEnergy snuoschargesandproportionoftotalbillbasedonaveragesinglerate standingoffer,4800kwhperannum,nominal,gstinclusive) 40 35! NUOScharges)perannum ! 2 15! 1 5! NUOSproportion%)oftotalbill NUOS! Proportion! 2008! 2009! ! 2012!