COVID-19-related electricity price increase under consideration for Default Market Offers

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Key points

QCOSS is concerned that the Australian Energy Regulator (AER) may include a COVID-19 related electricity price increase for those customers on a Default Market Offer contract (on a standing offer contract) from 1 July 2021.

QCOSS believes that this will unfairly impact customers already experiencing financial difficulties, particularly while the impacts of the economic fallout from the COVID-19 pandemic are still being experienced.

QCOSS has made some policy priority recommendations on actions that government, industry and the community sector must focus on to:

  • create systemic change;
  • ensure new vulnerabilities are transient;
  • support those with pre-existing hardship to create better futures; and
  • destigmatise hardship and vulnerability.

Background

In their current paper on the price at which the Default Market Offer (DMO) for 2021-22 will be set, the Australian Energy Regulator (AER) considers the case for increases in retailers’ business costs as a result of COVID-19. The AER suggests that there is a case for such costs to be added to the calculation of the 2021-22 DMO retail electricity price.

The main area of retailer cost increase that the AER details, relates to retailer businesses’ bad and doubtful debts – that is, money owed to retailers by customers, that may not be paid by these customers for any number of reasons, typically because they cannot afford to pay.

QCOSS is extremely concerned that the issue of accumulated debt in the energy industry – resulting from the increased number of people unable to afford their energy bills as a result of the impacts of COVID-19 – will be dealt with bypassing the costs of the debt back onto customers. That this ‘payback’ could also begin to take place while the impacts of the pandemic and economic fallout are still being experienced is even worse.

Such an approach will not support consumer confidence and will serve to increase the struggles of people and prolong disadvantage and hardship when we need to be fully focused on recovery and resilience. For the energy sector itself, such approaches to recovering costs will do nothing to improve the very low levels of trust that exist between retailers and customers.

The issue of COVID-19 related accumulated debt in the energy sector needs to be addressed in a dedicated, transparent and focused way. It should be ring-fenced from the Default Market Offer price-setting process and a genuine unified and coordinated approach pursued by the energy sector. Such an approach should consider very clearly how debt should be shared between industry, government and consumers and outline a long-term pathway to good outcomes for customers and the industry over the long-term.

This type of approach to recovering accumulated debt would go against three of the six policy priority areas QCOSS identified for successfully navigating the impacts of COVID-19 on consumer energy vulnerability:

  1. prevent unmanageable energy debt and debt accumulation;
  2. unify and coordinate responses within the energy sector, putting help and trust at the centre;
  3. maintain engagement between retailers and customers;

The Queensland Government has provided every household with $250 in utility bill relief this year, knowing full well the impact energy bills have on cost of living. It would be counterproductive for accumulated debt in the energy sector to somehow simply be paid for by customers across various pricing cost pass throughs. We need a better, fairer and more useful approach.

QCOSS maintains a firm belief that four aims must be pursued in relation to COVID-19’s impact on energy consumers and our approach to recovery:

  • create systemic change;
  • ensure new vulnerabilities are transient;
  • support those with pre-existing hardship to create better futures; and
  • destigmatise hardship and vulnerability.

More details on our policy priorities in this area and the role of stimulus in increasing energy affordability and resilience for those most in need can be found in our report COVID-19 and consumer energy vulnerability in Queensland.

What is the Default Market Offer and the role of AER in setting that price?

The first Default Market Offer (DMO) price came into effect on 1 July 2019. The DMO limits the price that retailers can charge electricity customers on default contracts known as standing offer contracts. A customer might be on a standing offer for various reasons.

The AER’s role is to determine the maximum price that a retailer can charge a standing offer customer each year. The AER refers to this as the DMO price.

The AER’s DMO price determination applies to residential and small business customers on standing offers in distribution regions where there is otherwise no retail price regulation – South Australia, New South Wales and south-east Queensland and whose standing offer is of a tariff type for which the AER determines a DMO price.

The DMO price for each area also acts as a ‘reference price’ for residential and small business offers in that area. When they are advertising or promoting offers, retailers must show the price of their offers in comparison to the DMO reference price. This aims to help customers more simply compare the price of different offers.

Learn more about the Default Market Offer on the AER website.

Submission and stakeholder group

This submission was made to the AER by Etrog Consulting to support advocacy by a stakeholder group of 13 community sector organisations in Queensland. The submission is made on the AER’s Position Paper for the price-setting of the Default Market Offer (DMO).

QCOSS proudly supported the formation of the stakeholder group and supports with convening workshops/briefings and would also like to acknowledge David Prins, Etrog Consulting for leading the work. QCOSS is also on the Steering Group along with Council on the Aging (COTA) Queensland; Energetic Communities Association Inc, Queensland; Queensland Consumers Association; and  Youth and Family Service (YFS), Logan, Queensland

Additional members of the larger stakeholder group:

  • Caxton Legal Centre, Queensland
  • Good Shepherd, Queensland
  • Kildonan & Lentara Cluster, Queensland
  • Laidley Community Centre, Laidley, Queensland
  • Multilink Community Services Inc, Queensland
  • St Vincent de Paul, Queensland
  • Uniting Care, Queensland
  • Uniting Church, Queensland

Learn more about QCOSS’ recommendations on Policy Priorities for household energy vulnerability

Across government, industry and the community sector our actions must focus on the realisation of the following key aims:

  • create systemic change;
  • ensure new vulnerabilities are transient;
  • support those with pre-existing hardship to create better futures; and
  • destigmatise hardship and vulnerability.

The identified policy priority areas where actions are needed are:

  1. advocate to the federal government to maintain adequate levels of income support;
  2. prevent unmanageable energy debt and debt accumulation;
  3. unify and coordinate responses within the energy sector, putting help and trust at the centre;
  4. maintain engagement between retailers and customers;
  5. achieve cross-sector coordination; and
  6. build household, community and economic resilience, including through stimulus.

Stimulus expenditure creates a once-in-a-lifetime opportunity to solve urgent pre-COVID-19 social, economic and environmental challenges as the basis of recovery. Energy harbors major opportunities for stimulus to support meaningful job creation, reduce cost pressures for those most in need, increase household resilience, improve health and wellbeing and move the State towards its commitments to affordable energy and net zero emissions by 2050 among others.

QCOSS’ COVID-19 and energy vulnerability report in Queensland report strongly recommends the Queensland government implement further stimulus in the following areas:

  • largescale investment in household energy efficiency and rooftop solar PV;
  • fast-track rollout of digital meters across Queensland; and
  • community renewable energy for local economic growth.

Read our COVID-19 and energy vulnerability report in Queensland report

 

1 December 2020 | ,