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Select Committee on Electricity Prices
27/09/2012
Electricity price increases in Australia

BRODY, Mr Gerard, Director, Policy and Campaigns, Consumer Action Law Centre

LOWE, Ms Catriona, Co-Chief Executive Officer, Consumer Action Law Centre

WHITEMAN, Ms Caitlin, Research and Policy Advocate, Consumer Utilities Advocacy Centre

CHAIR: Welcome. Do any of you have an opening statement you wish to make to the committee?

Ms Lowe : We do. Both organisations have a short opening statement. With your indulgence, we will take it in turns and then open up for questions. Firstly, we would like to thank the committee for inviting us to speak with you today on this issue that is obviously of great interest and importance to consumers. The Consumer Action Law Centre has long had concerns regarding the trajectory of our energy markets and whether their design and operation are acting in the interests of consumers.

It was for this reason that we commissioned the draft report that we have provided to the committee in confidence titled A policy trilemma: creating an affordable secure and sustainable energy market. We will be publishing that report soon publicly and it provides a consumer perspective on many of the current issues of debate in energy markets. A key argument of that report is that consumer welfare has been given insufficient attention by Australian policymakers and regulators but it has been issued to flow from the implementation of market-based solutions. We will reflect on some of the comments and recommendations in that report today.

As noted in our submission to the inquiry, when it comes to electricity prices we do not think that there is a simple or silver bullet solution to the problem and believe that there are a range of drivers for ongoing prices. These relate to both monopoly and competitive aspects of energy provision as well as government interventions. At the network level, which is monopoly regulated, price increases are driven by not only a need for new investment to replace the ageing infrastructure and the well-documented peak demand problem but also the regulatory system itself which has been shown to have a limited ability to limit ongoing cost increases and may actually encourage the building of assets where cheaper options are possible. The appeals framework in turn has led to an additional $3 billion of network revenue. Of course, all of these costs ultimately are borne by consumers.

We do note that it has been suggested that limitations of the regulatory system do not apply to Victorian networks where private ownership has long been in place. Whilst we do agree that there are additional problems in the states where this is not the case, as recently stated by the expert panel reviewing the merits review regime, our Victorian framework for network regulation is based upon an economic approach developed for privately owned utilities. It does not work as effectively where there is public ownership.

We also agree that price increases resulting from network charges in Victoria have been more modest when compared with other jurisdictions. However, experience also demonstrates that cost increases in Victoria could be further restrained by stronger regulatory frameworks. For example, recently the Victorian distribution businesses were able to successfully appeal the decision of the Australian Energy Regulator and recover an additional $300 million in revenue without the views of consumers being heard by that appeal body.

At a government level, particularly in Victoria, we have seen decisions to invest in smart meters result in substantial cost increases to Victorian bill payers. Whilst smart meters are designed to ensure better management of energy systems and assist consumers to better manage their energy uses, much of these potential benefits are yet to be realised. This sort of technology, and their associated policies such as more flexible pricing, are attempting to address that well-documented and costly challenge of peak demand and we agree that significant effort should be made to avoid costly expansions of power stations and power lines to deal with peak demand. However, we are concerned regarding a tendency to push the cost of policy responses back on to residential consumers, particularly when they are to end with similar assumptions about the effectiveness of markets which got us to the place where we presently find ourselves. More flexible pricing, for example, will mean greater risk. Price risk will sit with residential consumers compared with the supply side of the market.

As the Australian Energy Markets Commission has recently noted, some households will find increased financial difficulties under new pricing structures. All households will find understanding complex new energy offers and contacts a significant challenge. We think it should be remembered that residential consumers only use about 25 per cent of total energy consumption. While there is some validity to the view that it is residential consumers that particularly contribute to peak usage through, for example, air conditioner use, we think there may be better policy options than flexible pricing. We believe that, taking into account the nondiscretionary nature of much household usage and behavioural influences, flexible pricing is actually a blunt tool to seek to bring about changes in consumer behaviour.

Consider, for a moment, the range of tricks and devices that many human beings engage in simply to ensure that setting the alarm last night means that I get up in the morning and go to the gym rather than just hit the snooze button. That takes place within a 12- to 24-hour period. Think about that analogy in the context of a boiling hot day, the air conditioner remote is very close to hand and the bill is weeks, if not months, away. We think many households will seek the immediate comfort that the usage of energy will provide rather than thinking about the cost which will come later, with the bill. Pricing reform will also inevitably create winners and losers, so if governments are willing to take this path they must commit to enhanced concession arrangements for some of the consumers hardest hit by price increases and be prepared for some community backlash from non-concession households facing cost of living pressures. Families with stay at home parents come particularly to mind.

In in our view, there are significant opportunities to be found in other non-price-based solutions that are less dependent on, or indeed work with, consumer behaviour. For example, we strongly believe that demand load control must be considered for appliances such as air conditioners and pool pumps. Demand load control involves arrangements between a supplier and a residential consumer where equipment is installed that allows the supplier to manage an electricity appliance owned by the consumer for a specified amount of time in return for a payment to that consumer. For example, an air conditioner might be cycled off during hot periods for, say, 10 minutes every hour. This is the policy equivalent of putting the alarm clock on the other side of the room.

For smaller loads relating to appliances such as dishwashers, washing machines and dryers we do believe that educational campaigns can provide an effective and efficient alternative. Simple campaigns calling on consumers to do the right thing are a safe and inexpensive way to reduce consumption or load shift. There are simple messages to be conveyed why households should aim to use dishwashers and washing machines after 10 pm and how they would benefit by doing so. We would note the significant success of the recent Save Water Target 155 campaign here in Victoria. The three metropolitan water retailers have stated that that campaign saved 60 billion litres of water. We note also that government green policies such as energy efficiency schemes, renewable energy targets and the carbon tax do contribute to price increases.

Our point here is twofold. Firstly, we are supportive of policies that abate carbon. Consumers have a very strong interest in energy services being environmentally sustainable. However, these sorts of green schemes need to be stringent and robust in monitoring distributional impacts and cost effectiveness. This sort of analysis has not been undertaken sufficiently to date in our view. Secondly, these sorts of policies have a tendency to assume that retail markets are effectively competitive and that their cost impacts can be mitigated by those competitive pressures. As we have said in our submission and in our remarks today, we think those assumptions need to be carefully examined.

Finally, we would like to point to three very real examples of competitive problems at the retail end of the electricity market. Firstly, as has been well documented and discussed by the parliament, most competition in energy sales is allegedly obtained through door-to-door selling. In our view, door-to-door selling stifles rather than enhances competition. It is a fundamental tenet of competition that it is driven by consumers who have the opportunity to view a range of offers from a range of providers and select the one that best meets their needs. It is equally clear that in a door-to-door situation a consumer is at best considering a range of options from one provider—certainly, in our experience they are very often considering a single offering from one provider. That does not encourage informed decision making. I also note that, despite regulatory efforts to enable information to be left with consumers and so they can make a more considered choice over time, in all of the times that I and my staff have been doorknocked we have not once ever been successful in getting the door-to-door seller to part with the piece of paper that would potentially enable comparison with other providers. We know that they are meant to hand over that piece of paper—most consumers do not know that.

Secondly, for consumers who are trying to shop around, marketing can be at best confusing and at worst misleading. Consider for a moment the very common market technique of claiming a percentage saving for consumers—10 per cent saving, 14 per cent saving. The question we ask is: 10 per cent or 14 per cent off what? Usually, if one examines where that claim is founded it is based on savings as compared with an energy retailer's standard rate. Most consumers are not likely to be on that rate; that rate applies only to those consumers who have never switched since the implementation of competition. As soon as someone switches they move off that standard offering and therefore that comparison point does not apply to them. Even where prices are transparent and the tariff is displayed consumers might need a day and a spreadsheet to work out what is the best deal for them. There is a further problem for low- and fixed-income households in that many of the discounts that are claimed come with fine print conditions—for example, requiring that payment is made on time to secure the discount. For consumers who find it hard to manage on-time payment the discount evaporates, and fines and penalties may follow.

Thirdly, once the consumer has done the work of choosing an energy deal, the way the protection framework is presently structured means there is nothing to prevent a retailer from changing the price once, if not many times, during the period of that fixed-term contract. Typically, the contracts will provide free unilateral variation capacity, which makes predictability from the consumer's point of view impossible to obtain. This has the adverse impact of making it less likely that consumers will take the time and effort that is necessary to shop around in the first place—why would they do that if in one, two or three months the price might change and they will have to go through the process again? This is a non-virtuous circle, in our view. We think that consumers ought to be entitled to certainty. If they are entering into fixed-term contracts the regulatory framework ought to support certainty during the period of that contract.

Finally, in response to the committee's terms of reference about improved consumer advocacy, we note that we have provided the executive summary of the report Making energy markets work for consumers, which advocates increased resources for consumer advocacy. The committee will also have been informed about the work of various community and consumer agencies in progressing the development of a new national consumer agency. We are strongly supportive of this initiative. We believe that an effective national voice for consumers is required to ensure national policy and regulatory decisions are informed by the views and needs of residential and small business consumers.

CHAIR: Ms Whiteman, do you have an opening statement?

Ms Whiteman : We would also like to thank you for inviting us to present to the committee today. CUAC really welcomes this inquiry. We see it as a valuable opportunity to think about energy policy in the context of affordability and with specific reference to low-income consumers. In our submission we have identified a number of factors that we think are the main drivers of electricity price increases. It is worth noting that the extent to which each of those is avoidable, justified or able to be mitigated varies. I am going to comment briefly on three areas where CUAC has some expertise and thinks there is a realistic prospect of restraining price increases or assisting consumers.

Firstly, CUAC sees room for demand side participation to increase in the NEM and we are broadly supportive of demand side reform to reduce network costs and peak demand. At the same time, we see significant risk related to increased choice and complexity with demand side reform. Many customers have limited motivation to engage with that complexity and limited capacity to respond effectively. Consumer protection is obviously crucial here, particularly with regard to vulnerable consumers who might be disadvantaged by the reforms. Obviously with reforms like flexible pricing some consumers will be better off and some will be worse off. We need to make sure that already vulnerable consumers are protected there. We would go even further than that and suggest that governments think not only about how vulnerable consumers can be protected from adverse consequences of those reforms but how the consumers can be included in the reforms and given the tools to realise some of the potential benefits.

Secondly, I want to address consumer information and support for consumer decision making. As Catriona has covered, we see a need for policies and regulatory settings that help consumers to navigate the retail energy market, especially in the context of deregulated retail prices. In Victoria, choosing the right retailer and the right retail offer can make a significant difference to a household bill. If you look at the ESC's latest comparative performance report on market price, you will see that the difference between the most and the least expensive offer is usually around 20 per cent. That is significant for households. The problem is it can be difficult to select the right tariff, for a couple of reasons. Firstly, the consumer motivation and capacity to compare complex offers is not always there, as Catriona has discussed, and, secondly, the quality of information often leaves a lot to be desired. I am talking there about door-to-door sales and commercial switching sites.

Thirdly, like the Consumer Action Law Centre, CUAC has real concerns about the effectiveness of network pricing regulation in Australia. We acknowledge that cost increases since the introduction of the national rules are partly legitimate; they are partly attributable to things like growing investment requirements and peak demand. But we also think that network costs to consumers are higher than they need to be and that, with a stronger regulatory regime, we could see those restrained without affecting the liability or service quality.

I have to say that CUAC's experts on this topic are on leave at the moment. I will do my best to answer any questions but I might have to take some things on notice.

CHAIR: I am sure you will do a good job, Ms Whiteman. If I could begin, I have a question for both organisations. Ms Lowe, you mentioned concerns that your organisation had with variable pricing. Would your organisation be supportive of a system of opt-in to variable pricing for those consumers that did have not only the financial capacity but also the time to monitor their energy use, with an appropriate public awareness campaign about the benefits of variable pricing in terms of demand reduction?

Ms Lowe : We certainly think that that sort of regime can mitigate some of the concerns around flexible pricing, and we note that that is the sort of approach that is going to be trialled here in Victoria and we are likely to gain some learnings from that. We would maintain though that the benefit of a non-price based solution is, as we have mentioned in our opening remarks, that it works with rather than against, if you like, human behaviour. So, even with an education campaign, if we look to behavioural economics and what that is starting to tell us about the way humans behave and our systematic departure, if you like, from the rational ideal, we need to come up with solutions that are going to help consumers manage those factors as well. Education is certainly part of the puzzle, but it is that alarm clock on the other side of the room factor that we need to get to, because, of course, some people will not have the capacity to shift load, but we still want to realise benefits from the introduction of this technology. So we think that a broad view of using the benefits of smart technology ought to be taken. Certainly price is part of it. As we have seen, we can get enormous response from consumers by voluntary behaviour change and by working with them to offer arrangements which might allow the air conditioner to be on on the 45-degree day, which people are going to want, but at the same time still get those peak demand benefits.

Mr Brody : Can I add that, in terms of opt-in, we are of course more supportive of an opt-in arrangement than a mandatory move to flexible pricing, but I think we need to unpack how opt-in actually works in practice. In Victoria, I think 25 per cent of all customers switch each year. The majority of those do switch via a marketer door-to-door. That environment is, by its very nature, high pressure, where people are not given the opportunity to really understand in detail the deal that has been put in front of them. That is only going to get worse with flexible pricing. It is going to be a complex decision; they are going to need some tools and assistance to understand whether moving to this sort of tariff is going to be better than their flat tariff currently. We have real difficulty understanding how that can effectively be done in a door-to-door sale environment.

CHAIR: From a government perspective in terms of regulation, how can we do it so that it is providing protection for vulnerable consumers? There are quite a few submissions to this committee that are advocating moves to variable pricing, for obvious reasons. But there is also a willingness from this committee to ensure that vulnerable consumers are not exploited. So how do we do that? From your perspective, how do we still look to provide that price signal but protect vulnerable customers?

Ms Whiteman : CUAC is not opposed to flexible pricing. We certainly prefer an opt-in approach to that. One protection that can help, or one way of designing it that can help, is to make sure that there are not penalties for moving off the flexible tariff, particularly in the first few years or in the initial implementation of flexible pricing. If consumers have moved onto a flexible tariff, whether through a door-to-door situation or elsewhere, and find that it does not work for them, they need to be able to switch off that without being faced with exit fees and other barriers.

Ms Lowe : There are two things we would also say to the committee. Given what we have seen occur in this market to date, there have been a whole series of assumptions about markets and the benefits that will occur to consumers based on implementing those approaches. I am sure you have heard a good deal of evidence, and you have more from us in our submissions, about there being some real basis to question that it simply trickles down in that way. That has also been the experience in the UK and Europe—that more is needed to be done to make sure that the benefits flow.

In this framework, where we are talking about using a pricing mechanism and the assumption, of course, is that people will respond to that mechanism, I think that needs to be treated with a fairly healthy degree of scepticism given the market framework that we have at the moment, because of course the market framework assumes that people will shop around and compare deals and that they will understand what it is they are comparing. We think there is a very clear basis to question that assumption, and that is why we think that there are other mechanisms which achieve the same goal of knocking the top off peak demand—and we agree that that needs to be done. There are other ways of skinning that cat. For example, the direct load control option that we discussed is just such an option, because that means the consumer does not face the risk of necessarily paying the peak price on the peak day but the network still has the capacity to manage those peaks more effectively than it currently does. So we think a range of solutions need to be applied, because vulnerability in this context is not just for people on a low income; vulnerability is for anyone who does not understand the electricity offer.

CHAIR: Sure. For your average working family on a normal day, you cannot really avoid the peaks, can you? If there are two parents working and kids going to school, the peak use of electricity is going to be in the morning and in the evening, when everyone else is using electricity. That is why it is the peak. So we are keen to look at ways that we can protect those vulnerable consumers, but by the same token it appears to me that if consumers are informed about variable pricing, if they do choose to move on to those sorts of tariffs and if there is a peak, a shoulder period and a low period then it can change behaviour. People can do their washing in the evening. You can now buy a lot of appliances where you can program them to delay their start.

Ms Whiteman : I think the elasticity of demand in response to pricing is something that is extremely complex, and we will not necessarily know how people are going to respond until it happens. That is one reason why CUAC sees it as really important that there be some monitoring and that, once a jurisdiction implements flexible pricing, we have some mechanism there to check whether people are experiencing bill shock, keep an eye on what is happening there, see how consumers respond and adjust our policy as that evidence comes in.

CHAIR: In terms of smart meters, if we could start again from a policy perspective, what should a government do differently from the way it has occurred here in Victoria? If a policy decision were made to encourage the take-up of smart meters, how should it be done differently? What are the lessons learned, I suppose?

Mr Brody : I think the lessons learned have been pretty well documented. There was an Auditor-General's report here in Victoria about that program and some of the difficulties and challenges it faced. One of the concerns that were particularly highlighted by that report was the way in which it was allowed to be an industry-led program that then had the focus on industry needs rather than public interest needs and consumer interests. Our view is that for a period the government took their eye of the ball and let that industry leadership go ahead with the rollout. It is the industry's infrastructure and their money, so I guess there was a basis for them doing that, but that led to a lack of oversight and a lack of a view on the consumer benefits that should be accruing from that sort of reform.

Ms Lowe : That for us is a theme that runs right through, if you like, our regulatory framework for the energy market. In a way we would say that the same conclusion has been reached by the expert panel that is looking at the limited merits review regime. We are not suggesting that this is an easy thing to do, I hasten to add, but there needs to be a focus on the long-term interests of consumers—not efficiency that automatically gets to that but what are actually the long-term interests of consumers.

If that is the starting, framing question, that starts to suggest some different policy paths for some of these questions from a consumer perspective. It starts to allow what consumers want in this, and those wants and needs are simple, if conflicting, in this space. But that is the appropriate starting point for these questions, not the assumption that if we hand this to industry the benefits will flow through. We think there is way too much of that sort of assumption being made all through the regulatory system.

Senator THORP: Going back to the non-price related reforms you were talking about, one thing that has struck me over the years is that some of the most expensive electrical appliances to run are the oldest. It is quite often the people who can least afford to upgrade to the better quality products who are stuck with them. Do you want to comment more on that? I am being a bit over the top here and suggesting that high electricity consuming products should just be banned.

Ms Lowe :    We would certainly agree that poor quality housing stock and cheap appliances absolutely correlate with higher energy use, and of course that sort of housing stock and those sorts of products tend to be purchased by people who are financially vulnerable. So there is a very, very clear correlation. Indeed, they have the least capacity to avoid high electricity bills by making investments in those sorts of appliances. There is some attractiveness to just not allowing products on the market that create those problems, but I guess the twin problem that goes with that, as we would know, is that the five-star energy rated appliances cost a lot more money. If such options were being considered, there would also need to be responses that enabled those appliances to be affordable.

Senator THORP: Such as no interest loan schemes?

Ms Lowe : Precisely. In other policy contexts we are seeing significant expansion of those schemes, but it is notable that significantly greater expansion would be needed. In other policy work our centre does, for example, we note with concern that we see low-income consumers very often accessing unsafe forms of credit for electricity related expenses.

Senator THORP: Payday lenders.

Ms Lowe : Exactly right. It is the stated reason for something like 17 per cent of the people using those lenders. So affordability in this market does have a whole range of flow-on consequences.

Senator THORP: Do you have much experience of or an opinion on the pay-as-you-go meters?

Ms Lowe : Yes. Much has been written, particularly in the United Kingdom, about the dangers of those meters—effectively the self-disconnection problem that if you do not put money in the meter you do not have power. There are some really quite awful stories. They have a lovely term in the UK, 'excess winter deaths', which is the people who would not have died but for heating problems. There is also the problem that these meters tend to come, though this has been fixed in the UK, with a higher tariff. So there are positives to them, in much the same way, if you like, in that it gives a very direct signal about usage, but there are huge consumer protection issues that come with them that need to be addressed.

Ms Whiteman : We would certainly agree with that assessment and also add that, where the disconnection process is something people do to themselves, it seems to diminish the responsibility of the retailer a bit. Drawing the retailer's attention to the fact that there is an issue there and that they may need to involve that customer in their hardship program or provide some kind of support is another problem.

Senator THORP: We were hearing earlier from distribution networks that were talking about remote disconnection as well, so that fits in with what you were saying. It seems to me that what you are saying is very much about education and information sharing for consumers so that they know what they are doing. I note your advocacy for the national consumer body. How would you see that happening? Who would be populating that organisation, a national consumer body? Do we have organisations here? Do we have the expertise? Is it doable?

Ms Lowe : We certainly think it is doable. The aim of the centre would be to build on existing advocacy expertise. Our centre and CUAC have been involved in energy advocacy for many years, and there is a growing body of expertise around the country. You have doubtless received submissions from a range of energy advocates around the country. The work regarding the national body really recognises that, despite the fact that there is a growing expertise in the consumer sector around these issues, much more advocacy is needed. A report done by Gordon Renouf identifies many significant regulatory and governmental processes involving questions related to energy that have a very real impact on consumers and that there was simply not capacity, in the sense of enough people and enough time, to respond to those inquiries and to give the consumer voice sufficient prominence in those debates.

Mr Brody : There is also an opportunity to build expertise. An example would be in relation to distribution price determinations, which are undertaken once every five years in each state. When it comes around to each state that consumer body—say it was our body—has to look back five years ago and remember what we did then and try to engage with the various distribution businesses. If there were a national body able to assist that, it would be consistently participating in those reviews because they are going on around Australia all the time. We think there would be real benefits from having that repeat player to build expertise and more effectively participate in those determination reviews.

Senator THORP: If there was one single recommendation you would like this committee to come up with, what would be the most important one? If you cannot give me one, give me five—I do not mind. What is the most significant issue that our report needs to address, from your point of view?

Ms Lowe : I suppose the slightly cheating answer to that question is that the long-term interest of consumers has to be the first, middle and last consideration in any policy process—not a proxy for it but actually that. From that we believe that we would be able to move and shift a number of the difficulties that we see occurring in the market, whether that be at the network pricing level or in how you best use smart meter and smart grid technology to get the results you want without causing a whole lot of unintended harm to consumers.

Ms Whiteman : I think we would give pretty much the same kind of answer. All the market reforms, we have to remember, are not just going to work automatically. Considering how consumers will respond, as well as consumer attitudes, behaviour and knowledge and potential adverse consequences, is something that needs to be part of all these processes right from the beginning and taken into account in the design and implementation.

Senator EDWARDS: I am just looking at my electricity bill here. I notice that my bill in the last quarter was 2½ times what the Australian Energy Regulator issue as an annual seasonal household average and I can tell you that we just have an air conditioner, lights and all that. Our family is very conscious of our power use and I would say that we are quite vigilant, yet it is 2½ times the average. I just cannot help thinking that there are a lot of people who are in that same boat but who have less opportunity to pay than I do.

I would like to know a bit about your organisations and how you are funded? Can we start with your organisation, Ms Lowe?

Ms Lowe : We are a non-government organisation. We are a company limited by guarantee. We have a range of funding sources. Our main funding is through the state of Victoria, through the community legal centres program, a partnership between state and federal governments to fund legal centres around the country. We also receive a portion of funding through Consumer Affairs Victoria. We have a legal advice service. We provide financial counselling services and we have our policy and campaigns advocacy work. We have funding streams attached to each of those things. We also receive, for our energy related work, funding through the National Energy Market Consumer Advocacy Panel. We receive a small amount of funding through FaHCSIA for some of our financial counselling work.

Ms Whiteman : CUAC is also a company limited by guarantee. We are funded by the Victorian government through Consumer Affairs Victoria. That is our main source of funding. Occasionally we will do a project funded by the Consumer Advocacy Panel but we do not have any ongoing funding from them. We might also get funding from other bodies for particular projects.

Senator EDWARDS: It is an area which is opening up and it is a big area. Obviously we have a whole community trying to swallow deregulation, we have infrastructure investment and we have the voracious appetite of corporations for getting returns on that infrastructure so that their passive investments can list on the stock exchange and encourage investment—through giving investors a flow of income—thereby supporting the ongoing supply of the energy the community needs. We have had this massive investment and we need to continue the massive investment, but the problem is: how do we get consumers to swallow it all? We need to take consumers on a journey and educate them about the various funds and investment vehicles available to them and about things like meters, which are now mandated here in Victoria. How do we enable them to understand what all these things are about, rather than it all being a complete mystery? People do not even understand what a kilowatt hour equates to—they do not understand the units of energy. They have no idea and would probably rather stick their finger in a light socket rather than go to a lesson about how to understand their power bill. How do you as consumer advocacy groups combat that issue? People feel quite helpless. How do you fix that?

Ms Whiteman : That is actually very difficult. I think it is important that we acknowledge the limits of providing information to consumers. There is a limit to the amount of time people will devote to understanding these things and to their capacity to—as Catriona said—get a spreadsheet happening and compare offers. That means, firstly, that we need to make sure that the choice architecture and the design of the system is not so complex that it is actually impossible to communicate things to consumers. Then, within that context, which is so important, CUAC sees a big role for government and regulators in being a source of independent, unbiased information—providing good comparison sites, for example, and very clear, simple, consumer friendly information. We would point to the Victorian government's current Switch On campaign as an example—it has some fairly good consumer information resources.

Ms Lowe : We agree with that. I think the first thing to do is acknowledge that there is a consumer engagement issue here. The energy industry does not have a mobile phone with which you can get that engagement happening. But there is a pretty good opportunity at the moment in the sense that everyone is quite focused on electricity because of the price rises. That is an opportunity, I guess, to engage with consumers but they will so quickly turn off again in the face of complexity.

We would say two things: let us be realistic about how much consumer engagement we are going to get and work with it. We certainly are not in favour of solutions which say if only consumers would behave in this way then everything would be fine. We think we need to work with the way the consumers actually do behave and build on that. That is why we advocate a range of tools and solutions and take a great deal of account of the lessons of consumer behaviour and behavioural economics in designing those tools. But we agree also that part of the solution is not only simplicity and accessible tools—good comparison sites, good information—but also a safe foundation in the market. The benefit of a safety net is not only avoiding egregious harm to consumers; it is also likely to give them the confidence to step into the market and have a go.

Mr Brody : I think the reforms the federal government have been taking down the superannuation track in recent times after the 2002 Jeremy Cooper review of super really are applicable to energy as well. I have a quote here from that report, and it says: 'Australians have contributions made to their super funds whether they like it or not. Members should not have to be interested, financially literate, or investment experts to get the most out of their super. If members want to engage and make choices, then the system ought to encourage and facilitate them doing so. If members are not interested, then the system should still work to provide optimal outcomes for them. The super system should work for its members, not vice versa. This is the basis of the panel’s new "choice architecture".' I think a lot of learning could be applied from that quote and that framework in the energy industry.

Senator EDWARDS: The irony of all that is that a lot of those super funds are going into renewable energy, so it is really all a big circular arrangement. They are going into potentially increasing their electricity costs with the superannuation funds in the yearning for yield on their superannuation funds. What are the differences between the two organisations? You have agreed with everything each other has said all day, and you advocate virtually the same things. Why are you not in the same building collecting the same funding?

Mr Brody : I think there are a couple of subtle differences in our positions. I would say CUAC has a slightly more pro position on, say, flexible pricing and is perhaps slightly less anti door-to-door selling. They are fairly subtle differences. CUAC also does a lot of work on water, and I know Consumer Action does as well but we have more resources to address that area.

Ms Lowe : In this policy space in relation to this inquiry we have similar views, but we make the point that for the two centres there is more than enough work to go around.

Senator EDWARDS: You made a lot of comment in your submission, Ms Lowe, about why prices are rising. You have dot points, including new investment to replace ageing infrastructure—we have heard evidence of that—and you systematically go through all those things. What avenues do you have with the Australian Energy Regulator to raise these issues? How much desk thumping do you do with the people who can actually influence the things that you highlight to this committee and live with every day?

Ms Lowe : The very most we can is the answer to your question. The AER has some capacity to respond to the sorts of issues we are raising, but they too work within the regulatory framework they have, and that is why we are seeing the AER taking requests for rule changes to the Australian Energy Markets Commission, because they agree with many of the things we are saying about the limitations of the regulatory framework. In fact, our concern is that it encourages decisions and requires the AER to make determinations which they may themselves not consider to be the best or least cost solutions. So there is a very real need to address some of the incentives.

Senator EDWARDS: Why do you reckon they make those decisions even though they think they may not be in the best interests of the system going forward?

Ms Lowe : Because they are statutorily obliged to.

Senator EDWARDS: But they are trying to make changes to that. Have you had a look at those?

Ms Lowe : We have made submissions to those. But, of course, a regular must operate within the rules as they stand.

Senator EDWARDS: But your contention is that they are not right.

Mr Brody : That is right and I think we are being broadly supportive of the direction that the Australian Energy Market Commission are making with the rule change review and particularly approaching providing greater discretion to the Australian Energy Regulator so that they can focus on the whole decision and its impact on consumers rather than requiring them to go through a line-by-line item about distribution spending proposals, for example. We think that having a bit more discretion in that Australian Energy Regulator will help them to be able to make decisions that are in the long-term interests of consumers.

Ms Lowe : We would also say though that, exactly as Gerard said, we support that additional discretion but that will not help unless there is also reform to the merits review system because all that will mean is there will be more discretion exercised and more reasons that the distribution businesses will do what they have pretty much always done and that is appeal the decision as soon as it is made. So the incentives of that regime need to be looked at as well because otherwise the very good intentions of giving the AER more discretion where it needs it may be undermined by the fact that history shows who the people making the appeals for most decisions are going to be.

Senator EDWARDS: So the AER has not come off all that well in any of those appeals processes, have they?

Ms Lowe : Well, we would urge very strongly for the committee to take account of the work that is being done by the limited merits review committee. Much as we have been saying to you today, they have made some interesting findings about the incentives in the regime to properly consider the long-term interests of consumers. They are making beautifully readable reports as well.

Senator EDWARDS: Even for mere country senators?

Ms Lowe : They are written in very accessible language. The Goldilocks problem of regulation is one that will live with us all for a long time, I think. As I say, there is a real theme here about placing the long-term interests of consumers in the centre and it is a theme that is coming up in multiple places that are examining network and energy regulation more generally.

Senator EDWARDS: You are an advocate in Victoria. It seems to me that you do not have a voice which is raising the necessary attention of policymakers around the country. Do you lack a national assertive body?

Ms Lowe : There is not a national consumer energy body in place at the moment. Certainly various organisations deal with national issues from time to time, but the creation of a national body that has a national focus, as distinct from growing out of a jurisdiction, is precisely the work that is being done through the steering group process that we mentioned earlier because that need is very generally agreed as one that needs to be filled.

Senator EDWARDS: We have a national electricity network, but it is not really national. Is it because we have Western Australia sitting out there and we have private and public network owners and things like that? Yet we do not have a consumer advocacy which is a national base. I hate increasing bureaucracies and creating committees, but it seems to me that you quite rightly are defending your patch. We have everybody defending their patch but nobody is having a look from the helicopter down on to the national issue. Do you want to talk about that?

Ms Lowe : I guess the first thing we would say is that we agree. As I mentioned, the organisations that exist do the best that they can to communicate with each other about the work that they are doing through a round table that comes together on a regular basis. But there is nobody that specifically has a responsibility to take that national view. Of course, advocates working in the area do their best to do that, but it is a need. We would note that the voices on the supply side are powerful voices and the voices of consumers need to be heard to offset those powerful voices.

Senator EDWARDS: And they are well resourced on the other side.

Mr Brody : Can I reflect on the work that we are doing on creating a national energy body. It is looking to an example that exists most recently in the telecommunications base, and that is Australian Communications Consumer Action Network which was established in about 2010. Since the establishment of that organisation we have seen consumer issues in telecommunications become more clearly articulated and more firmly on the policy landscape. The creation of a national voice to deal with those issues has really contributed to that, and the same could happen with energy.

CHAIR: I have a couple of follow-up questions. Do you want to make some comments about the National Energy Customer Framework, in particular the impact if all of the states do not sign up to that?

Mr Brody : We were supportive of and participated in the creation of that framework over many years on the basis that it moved to a best practice framework. Rather than moving to a lowest common denominator framework of the consumer protections that existed in the states and territories, consumer advocates moved on the assumption that it would move to best practice. Our view is that it does not achieve that best practice at the moment. There are some concerns in that it is less than the protection framework in Victoria. The Victorian government has promised it will maintain a number of those protections despite the national framework. We think that would be a good approach to moving forward to a nationally consistent framework.

The benefits of a nationally consistent framework include being able to have one clear enforcement agency and having a much more robust range of enforcement powers to deal with misconduct amongst retail energy providers. At the moment our state regulators have a much more restrained range of enforcement mechanisms, often just taking away their licence or writing them a letter; there is nothing in between. That sort of framework has real prospects at a national level, so we would like to see a move to that national customer framework coming into place while ensuring that it reaches the best practice standards.

Ms Lowe : We agree we are in favour of that in theory, but there are issues with it. Victorians, with our high rate of churn, our smart meters and the imminent introduction of flexible pricing, need some protections that are not included. We do not want to go down a level when we have a market that is getting more and more intense.

CHAIR: Wouldn't the other states argue that the reason you have those protections is that you are on smart meters and they have been rolled out on a mandatory basis, that you do have competition in your market whereas others are still regulated in terms of retail prices, so you need those extra protections?

Ms Whiteman : We would say that that is probably a bit of a chicken-and-egg argument. Not all of those protections relate just to smart meters. For example, one of the most significant differences between the Victorian framework and the national framework is the Victorian wrongful disconnection payment. That has been enormously important and effective in preventing disconnections from supply where they ought not occur. That very long pre-dates any decisions about smart meters. We would also say that protections can help market development, but they are not necessarily just a post-fact issue. If you create a framework that has enough protection in place, consumers are more likely to participate and we have seen that play out not just in this market but in a whole range of markets. In the UK there was very low take-up of direct debits until a direct debit guarantee was introduced and consumers felt that it was safe for them to start taking up that product and now it is a market that works effectively. It is a bit of a chicken-and-egg thing to say you must have competition before you introduce some of these protections. We would suggest that you will not get competition unless you do.

CHAIR: Perhaps you could take on notice the elements you would like to see included in the national consumer framework and provide those to us.

Ms Whiteman : We would be delighted to.

CHAIR: Thank you for your evidence this afternoon. You are now excused.

Ms Whiteman : I thank the committee very much for your time today.