ESC - Inquiry into the Financial Hardship Arrangements of Energy

Energy Retailers Association of Australia
Suite 3, Level 5, 189 Kent Street, SYDNEY NSW 2000
T (02) 8241 1800 W
29 April 2015
Energy Hardship Review
Essential Services Commission
Level 37, 2 Lonsdale St
Melbourne VIC 3000
Email: [email protected]
Dear Sir/Madam,
RE: Inquiry into the financial hardship arrangements of energy retailers (Approach
The Energy Retailers Association of Australia (ERAA) welcomes the opportunity to provide
comments in response to the Essential Services Commission’s (ESC) Approach Paper on
the inquiry into the financial hardship arrangements of energy retailers (the Approach
The ERAA represents the organisations providing electricity and gas to over 10 million
Australian households and businesses. Our member organisations are mostly privately
owned, vary in size and operate in all areas within the National Electricity Market (NEM) and
are the first point of contact for end use customers of both electricity and gas.
The ESC’s review has been brought on by an increase in the number of Victorian customers
being disconnected. However, the scope of the ESC’s review with regard to disconnections
is not clear. Although the ESC’s approach paper refers to retailer’s disconnection processes
and the rising disconnection rate, the scope of the inquiry appears to be limited to an
investigation of methods used to assist customers in hardship. In the ERAA’s view, hardship
and the disconnection rate are not necessarily correlative, and care should be taken to
conflate these issues. Disconnection numbers alone should not be used as the lead indicator
for assessing levels of customer hardship, and as such the relationship between these
indicators should be made clear within the scope of the inquiry.
The ERAA contends that this review is an opportunity to examine the underlying causes of
hardship, which must recognise that not all customers who are disconnected are in fact
hardship customers. Disconnection is a last resort for the ERAA’s members and is an
indication of the symptoms of a more significant affordability problem that retailers have
been charged with managing but are not able to solve alone. One of the challenges for
retailers is identifying those customers who are willing to pay their account but lack the
financial capacity, against those who simply choose not to pay, which is compounded by the
lack of engagement in hardship programs by certain customers.
A customer who is genuinely experiencing difficulty in meeting financial obligations
associated with their energy supply is also likely to be experiencing similar difficulties in
meeting other financial obligations. Again, this is systematic of a wider issue that needs a
collaborative approach across industry sectors and Government agencies so as to better
address affordability issues. However, in terms of energy, the ERAA believes that the
following initiatives should be considered:
A flexible approach to the regulation of retailer customer hardship programs, where
the focus is on outcomes, rather than the current procedural approach.
The role of Network companies in providing assistance to customers, given they are
a major driver of price rises.
Concession schemes, and whether they are structured correctly in providing
assistance to those customers most in need, including the issue of a national
approach to concessions.
Whether retailers are best placed to be administering concessions directly to
customers, or whether Governments or other support agencies are better placed to
administer these schemes.
Hardship fund initiatives.
Appropriateness and level of Government assistance provided to customers requiring
assistance, energy efficiency initiatives (appliance replacement etc).
Unfortunately, the ERAA believes that the usefulness of any solutions will be limited if the
focus is solely on retailers and whether they are adopting some notional idea of ‘best
practice’. Best practice and attempts to benchmark retailers against that best practice
overlooks the reasons why customers end up in hardship, and may not allow retailers the
flexibility needed to adopt different approaches to meet customers’ different circumstances.
Cross industry and government solutions are required
The ERAA recognises that hardship and disconnections are an issue that needs addressing
and has been proactive in commencing discussions across a range of stakeholders to
devise potential solutions. Other stakeholders have been engaged to recognise that
hardship is a shared responsibility and to garner the experience of these stakeholders in
helping retailers develop possible solutions.
The ERAA’s Affordability Forum sought to bring industry together to discuss energy
affordability and hardship. The forum generated some forty ideas that could be further
explored under a shared responsibility environment. The ideas focussed on ways that all
stakeholders can work collaboratively to improve the way consumers engage when it comes
to utility payments.
To progress these ideas, five working groups were established, including representatives
from retailers, a wide range consumer groups, and Ombudsmen. Of primary relevance to
this inquiry is a working group that is looking at initiatives to standardise access and
information on hardship options available to consumers, including the development of
industry wide consistent messaging on payment assistance that is easily accessible to
Additionally, in the realisation that hardship issues cannot be investigated in isolation, other
working groups are looking at related affordability, engagement, concessions, and billing
issues, namely:
 A working group that is investigating independent research on why consumers don’t
engage and how industry can improve existing engagement practices. This may
include earlier identification of increased consumption as a trigger for customer
 A working group that is reviewing the national energy concessions framework to
ensure their adequacy and effectiveness.
 A working group that is reviewing information on energy bills and letters, and whether
the information contained in these communication tools is preventing consumers
from understanding their bills.
 A working group that is reviewing the frequency of consumer billing and more
frequent payments to reduce size of the bill. This may include exploring an “opt-out”
model of monthly billing as a regulatory option.
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Energy Retailers Association of Australia
Suite 3, Level 5, 189 Kent Street, SYDNEY NSW 2000
T (02) 8241 1800 W
Energy affordability
The ERAA notes that the Approach Paper states the broader issue of affordability and the
cost of energy are out of scope of the review and will not be addressed.
While the ERAA acknowledges that the ESC does not regulate energy prices, it must be
recognised that cost of living issues have been a key factor in driving the outcomes that
have resulted in this review.
Hardship programs play a role in providing temporary assistance to customers who find they
cannot afford their energy bill. However, although retailers can provide a broad range of
support mechanisms, hardship programs are not able to provide long term financial
assistance to customers who find themselves in chronic financial hardship. Typically,
customers who are experiencing chronic hardship are unable to afford their ongoing usage
and have little ability to pay off the debt that they have accumulated.
Retailers face significant challenges in trying to deal with this situation and have long
advocated that chronic hardship requires a solution involving industry and government. Even
with early identification of hardship customers, subjecting retailers to increasing levels of
regulation relating to hardship is unlikely to address the ongoing gap between a customer’s
consumption and their ability to access concessions against their ability to repay a debt.
As such, as the lead regulator in Victoria, the ERAA believes the ESC has a responsibility to
report to Government on the dynamics of the industry and the causes of the outcomes being
observed. If the ESC does not take this opportunity of at least understanding why chronic
hardship occurs, then an opportunity will be missed. By reporting on the causes of chronic
hardship, the ESC has an opportunity to start a broader and more mature discussion about
how chronic hardship is managed and lead the debate on effective solutions.
Best practice solutions
The ERAA is concerned that this review will end up forcing upon some notional idea of what
best practice involves.
Writing into the Energy Retail Code a current view about what constitutes best practice will
only result in the Code becoming obstructive towards process improvements and retailer
innovation, as best practice will naturally evolve over time. This will create uncertainty and
an emphasis on process rather than individual responses to customer circumstances that
are based on principles.
At the ESC’s disconnections forum and the ERAA’s own energy affordability forum both held
in 2014, significant attention was given to the hardship practices used in the Australian
banking and Victorian water sectors. Members will provide the ESC with information on how
the practices in these sectors compare with those used by their own businesses. However,
there are a few important contextual considerations that must be borne in mind when
comparing the banking and water sectors with the energy retail sector. As such, the ERAA
would encourage caution when making comparisons between these sectors when the
frameworks that support hardship in these industries are vastly different.
The ERAA welcomes the ESC’s openness to receiving feedback on where the Energy Retail
Code may be hindering retailers from helping hardship customers and the ERAA’s members
will be providing detailed commentary on this topic. Feedback from members suggests that
the current regulatory framework imposes an inflexible set of rules that do not allow the
retailer to take into account the individual circumstances of the hardship customer. The
wrongful disconnections regime contributes to this rigidity because it focuses retailers on
‘ticking the boxes’ and diverts attention and resources away from hardship services.
Flexibility in methods of interaction, engagement, assistance and timeframes must be
available to retailers to encourage engagement from consumers.
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Energy Retailers Association of Australia
Suite 3, Level 5, 189 Kent Street, SYDNEY NSW 2000
T (02) 8241 1800 W
The ERAA does not believe that benchmarking of hardship practices is possible as
benchmarking tends to suggest that there is one definitive solution to hardship regardless of
the customer’s circumstances.
Thank you for the opportunity to outline ERAA member’s view on this issue. Should you wish
to discuss the details of this letter, please contact me on (02) 8241 1800 and I will be happy
to facilitate such discussions with my member companies.
Yours sincerely,
Cameron O’Reilly
Chief Executive Officer
Energy Retailers Association of Australia
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Energy Retailers Association of Australia
Suite 3, Level 5, 189 Kent Street, SYDNEY NSW 2000
T (02) 8241 1800 W