Second Submission
to Energex on
Network Tariff
Reform
October 2015
About QCOSS
The Queensland Council of Social Service (QCOSS) is the state-wide peak body for
individuals and organisations working in the social and community service sector.
For more than 50 years, QCOSS has been a leading force for social change to build social
and economic wellbeing for all. With almost 600 members, QCOSS supports a strong
community service sector.
QCOSS, together with our members continues to play a crucial lobbying and advocacy role in
a broad number of areas including:
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sector capacity building and support
homelessness and housing issues
early intervention and prevention
cost of living pressures including low-income energy concessions and improved
consumer protections in the electricity, gas and water markets
energy efficiency support for culturally and linguistically diverse people
early childhood support for Aboriginal and Torres Strait Islander and culturally and
linguistically diverse peoples.
QCOSS is part of the national network of Councils of Social Service lending support and
gaining essential insight to national and other state issues.
QCOSS is supported by the vice-regal patronage of His Excellency the Honourable Paul de
Jersey AC, Governor of Queensland.
Lend your voice and your organisation’s voice to this vision by joining QCOSS. To join visit
the QCOSS website (www.QCOSS.org.au).
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Table of Contents
................................................................................................................................................... 1
About QCOSS ........................................................................................................................... 2
Acknowledgements.................................................................................................................... 4
Introduction ................................................................................................................................ 5
Why this process is important to QCOSS .............................................................................. 5
QCOSS’s engagement in the current process ....................................................................... 6
Summary of QCOSS’s position ................................................................................................. 7
Clarity about the rationale and expected consumer benefits .................................................. 10
Availability and scope of information provided to assess the customer impact ...................... 11
Customer Impacts ............................................................................................................ 11
Transparency and clarify of information provided ............................................................ 13
Comments on Energex’s proposed tariffs ............................................................................... 13
Peak period ...................................................................................................................... 14
Single Peak or average of four peaks .............................................................................. 15
Fixed Charges .................................................................................................................. 16
New Economy Tariff ......................................................................................................... 17
Bill Protection ........................................................................................................................... 18
Metering: Costs and Access .................................................................................................... 19
Demand Management and Distributed Energy Resources (DER) .......................................... 20
Transitional Measures and Consumer Protections ................................................................. 20
Future trials ....................................................................................................................... 20
Communication/consumer education ............................................................................... 21
Addressing split incentives and establishing a fair access to technology initiative .......... 22
Wider reform on concessions and/or consumer protections ............................................ 22
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Acknowledgements
QCOSS would like to acknowledge and sincerely thank all who participated in the
development of this submission including members of its Essential Services
Consultative Group. QCOSS would like to acknowledge and thank the staff of
Energex Limited (Energex) for conducting a number of information sessions and
making themselves available to answer queries and provide clarification where
required.
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Introduction
Why this process is important to QCOSS
Under the new pricing rules outlined by the Australian Energy Market Commission
(AEMC), Energex is currently preparing its Tariff Structure Statement (TSS) for
submission to the Australian Energy Regulator (AER).QCOSS welcomes the
opportunity to provide input to Energex in response to its consultation papers on
network tariff reform and it’s TSS for 2016-20. Developments in the electricity sector
are of great interest to QCOSS because the supply of electricity is an essential
service that is vitally important for the health and wellbeing of families and
individuals. QCOSS believes it is important to provide a voice for residential
consumers, and particularly low-income and disadvantaged households, in the tariff
reform process.
Network tariffs in Queensland are amongst the highest across the National Electricity
Market (NEM)1, and changes in tariff structures can have a large impact on the prices
that households pay, depending on their current usage profile and ability to change it.
QCOSS believes that any decisions made by Energex and the AER on future
network tariffs must not result in worse outcomes for low-income and vulnerable
Queenslanders, many of whom have been under considerable pressure from price
increases in the previous 10 years. It is vital that:
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households can understand the tariffs and respond to them
households can access the tariffs and any supporting technology if they wish
to do so; and
there are adequate protections for vulnerable households.
The purpose of this submission is to respond to Energex’s recent consultation
papers: Residential and business customer consultation paper: Tariff Reform and
Customer Impact Statement. In this submission QCOSS provides specific comment
on Energex’s suite of tariffs including its Residential Demand and Residential Flat
tariffs from 2016 to 2020 for its Standard Asset Customers (SAC) Small2 Residential
Customers. QCOSS’s priority is the extent to which Energex is meeting the customer
impact principle and also considering what actions and greater protections are
required prior to, and during, the implementation of the new tariffs. We have outlined
a number of ‘enabling conditions’ that will be necessary from an industry and
government policy perspective for the new tariff to be effective in achieving its
objectives.
1
Uniting Care Australia (2015), Network tariffs applicable to households in Australia:Empirical
evidence prepared by Carbon and Energy Markets.
2 SAC Small = Standard Asset Customers (SAC-Small) (<100 MWh pa)
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QCOSS’s engagement in the current process
QCOSS has participated in Energex’s two rounds of consultation. The first consisted
of four interactive workshops which Energex held in late 2014 and early 2015 on
Tariff Reform. QCOSS subsequently, along with other consumer and community
groups, made a submission to Energex in March 2015.3
Energex then held a second round of consultation where it produced its key
consultation report in July 2015 setting out its proposed new Residential Demand
Tariff and New Economy and its customer impact statement in September 2015.
Following the release of these documents, Energex held a consultation session on its
key reports and proposals with QCOSS and its Essential Services Consultative
Group (comprised of community and consumer representatives) on 11 September
2015.
QCOSS has also undertaken its own desktop research, collaborated with other
consumer groups throughout Australia, and participated in broader related topics
including attending a Network Tariff Masterclass organised by the South Australian
Council of Social Service (SACOSS) in Adelaide and a number of Energy Network
Association (ENA) and CSIRO Roadmap Transformation events. QCOSS is also
participating in Ergon Energy’s consultation process and is engaging with the
Queensland Department of Energy and Water Supply (DEWS) regarding the broader
jurisdictional issues.
To assist in responding to the Ergon Energy tariff reform process, and building on a
successful workshop held in Brisbane in February this year, QCOSS held a further
two workshops in Toowoomba and Cairns. While the focus of the workshops was on
Ergon Energy’s proposed tariffs, the responses from participants in the workshops
have helped inform this submission also.
3
QCOSS (2015), Submission to Energex on Network Tariff Reform
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Summary of QCOSS’s position
QCOSS understands that Energex is required to put forward a tariff in its TSS that
better reflects the LRMC of supplying electricity. QCOSS also understands that in
principle, this approach is to signal to networks and customers the correct incentives
to make efficient investment decision and ameliorate the removal of cross-subsidies
in the electricity market. Under the current tariff structures low-income households
are particularly at risk of price instability due to falling overall demand alongside the
requirement to recover the regulatory determined revenue. They have been
adversely affected by the increasing network costs and have faced barriers to
avoiding these costs through the take-up of new technologies such solar photovoltaic
(PV) systems. QCOSS’s view is that the future pricing system must contribute to
greater sustainability in the supply of energy by ensuring that the correct efficient
decisions are made. Over time this may result in a reduction in the regulated asset
base and/or one that will see efficient use of distributed energy resources. Ultimately
consumers are looking for greater productivity in the supply of energy that will
translate into overall lower prices and bills.
For cost reflective pricing to be effective customers will need to understand it and
respond to price signals. This will require that consumers “trust” and support the new
reforms and that Energex effectively communicate the rationale for the reforms. For
those who are not able to respond (for whatever reason), QCOSS’s view is that there
must be an effective “safety net” that demonstrates a much wider concept of equity
and fairness than simply removing the inherent cross-subsidies in the current pricing
system. Affordability and access are also an essential component of equity in tariff
design. This necessitates consideration of the impact of the tariffs on customers
including identifying potential affordability issues and the ability of consumers to
access technology and to take advantage of opportunities to reduce demand or use
energy differently.
QCOSS believes the consumer impact principle in the current rules recognises this
broader notion of equity and that application of the principle is both important and
central in the TSS process. The principle must not be addressed in a tokenistic way
or given less prominence than the economic analysis. Demonstrating the consumer
impact principle may well mean compromising on cost reflectivity, particularly in the
initial phases, in preference for other objectives such as bill stability and simplicity.
Assessing the customer impact also requires outlining the steps that will take place
during the early implementation phases (and potentially a transition phase to what
eventually will be mandatory tariffs). This includes efforts to better understand the
impact of the tariffs as more data becomes available, and to trial and experiment with
approaches that remove barriers to accessing the tariff and associated technologies.
QCOSS is especially advocating that any trials include vulnerable groups such as
people with a disability, Aboriginal and Torres Strait Islander households, refugees,
seniors and people from a cultural and linguistically diverse background (CALD).
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At this time QCOSS believes that Energex has attempted to assess and address the
customer impact of its new tariffs in particular through:
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The proposed bill protection mechanism which attempts to limit bill shock
Providing for a new (cheaper) load control tariff (New Economy)
Providing the schedule of its indicative network tariffs for each year of the
TSS to 2019/204; and
Recognising that it is not possible to really assess the customer impact
without revealed data and therefore proposing a Real Time Tariff Study
during the transitional period to inform its future TSS in 2020.
QCOSS has concerns about the potential impact of the proposed cost reflective
tariffs on some households, and the capacity of some households to understand and
respond to the tariffs. The CSIRO customer impact analysis identified that even with
the bill protection mechanism overall 58 per cent of households in its sample would
be better off. This means there would be 42 per cent of households in its sample
would see their annualised bills decrease if they were on the Energex proposed
demand tariff. The CSIRO analysis identified that 20 per cent of households would
experience bills increasing by more than 10 per cent and further, the analysis
identified that in almost every cohort some people were better off, and some worse
off.
However, this analysis is essentially a static exercise and would be influenced by
individual and system-wide behavior change, tariff uptake and the mix of households
included in the study. Also, given the revenue cap, for some people to be better off,
there must be some worse off. QCOSS’s view is that there are still some areas
where Energex can further demonstrate that it is meeting the customer impact
principle in its TSS by refining its tariff design and ensuring that low-income and
vulnerable people are not worse off. For example:
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There is a need to provide a clearer rationale for tariff reform and in particular
identify and evidence the long term benefits for consumers.
The design of the proposed new tariff and bill protection mechanism can be
strengthened to further limit bill shock and bill instability.
There is a need for Energex to provide further detail in its TSS on how the
Real Time Tariff Study will address the customer impact for low-income and
vulnerable households in particular more robust consideration for the fact that
there are some groups, such as tenants, where uptake of the new tariffs may
be problematic due to barriers assessing smart meters and other
technologies.
In its TSS, Energex must ensure that the customer impact principle also covers the
suite of tariffs available to the SAC Small Customer Tariff class and not just the new
Residential Demand and New Economy tariffs. It is likely that many low-income and
4
Energex (2015), Energex Indicative Pricing Schedule, Appendix A, Table A1, (PPs 2-4)
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vulnerable customers, and especially tenants, may not be able to access the new
Residential Demand and New Economy Tariffs and hence will remain on the default
tariff.
QCOSS also believes that there are a number of enabling conditions required for an
effective transition to cost reflective tariffs with adequate consumer protections for
vulnerable people already struggling with the cost and complexity of their electricity
bills. QCOSS considers that Energex has an important role in highlighting these
issues and working with stakeholders to identify and implement solutions to adverse
customer impacts for Queensland’s most vulnerable households.
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Clarity about the rationale and expected
consumer benefits
QCOSS received a clear message from participants at our workshops in
Toowoomba, Cairns and Brisbane that distribution businesses must clearly explain
the rationale for tariff reform and then link this rationale to their preferred tariffs.
QCOSS believes there is a need for clearer and transparent rationale on tariff reform
and information about the objectives of Energex’s proposed New Demand
Residential tariff and the longer-term consumer benefit.
Energex’s initial investigations, as set out in the Table on P5 in its Consultation
Report, suggest that some comparative analysis was conducted on three types of
tariffs: capacity, time of use energy and demand tariffs. Energex states: “After
examination of the strengths and weaknesses of each option, the decision was made
to introduce a demand tariff with customer input into the structure of the tariff”.
There appears on this table to be multiple stated objectives, some of which relate to
the new pricing rules, and some of which are clearly broader network priorities.
These objectives include improving cost reflectivity, lowering peak demand, removing
cross subsidies, preventing investment in Distributed Energy Resources (DER), and
promoting price stability and lowering the need for additional infrastructure. While it is
reasonable to have multiple objectives, it is important that this does not lead to
confusion and mistrust of the process by stakeholders. These objectives will need to
also clearly set out the benefits and costs for consumers.
For example Energex states that “longer term will reduce the need for additional
infrastructure, thereby reducing costs”5 . QCOSS presumes this is because demand
tariffs will stabilise demand, and especially peak demand, and therefore over time
prevent further major capital augmentations which will moderate price increases as
the regulated revenue requirement stabilises and even decreases. However, QCOSS
questions whether it is reasonable at this stage to claim this as a benefit based on
the information provided. It is particularly unclear how long it will take for these
benefits to emerge given the metering and other constraints which need to be
addressed before the tariffs can be fully implemented, and indeed it is not clear that
demand tariffs will be successful in changing behavior and reducing peak demand.
At this point in the consultation process it is not yet clear by what mechanism a
broader long-term benefit for all consumers will transpire. We would also expect
Energex to outline its strategy for dealing with the inevitability of increased solar
generation and battery energy storage and associated declining demand. This is a
future we would expect Energex to be embracing and responding to.
If the real benefit for consumers is simply the removal of the cross subsidies, then it
would be more accurate to say that some consumers will benefit, but others will
5
Energex (2015), Residential and business customer consultation paper: Tariff Reform (P6)
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inevitably have higher bills. Likewise, we are concerned that the impression is given
that prices are stabilising for all customers. This is not known given the range of
possible impacts during the transition to demand tariffs on individual customers – for
both those who adopt the new tariff and those who remain on the default tariff. Being
unclear about the outcomes and benefits of demand tariffs carries a high risk of
consumers getting mixed messages. This may translate to confusion about the
appropriate behavioral response and could result in more customers going off grid or
customers reducing rather than shifting load and overall demand falling further.
QCOSS believes these scenarios should be modelled for the impact they will have
on prices and future tariffs.
Availability and scope of information
provided to assess the customer impact
The AEMC rule change requires the TSS to comply with the consumer impact
principle which is described by the AEMC as consisting of two parts:
The first part requires distribution businesses to consider the impact on
consumers of changes in network prices…. the second part of this principle
requires network prices to be reasonably capable of being understood by
consumers. Consumers will not be able to respond to price signals if they
cannot relate price structures to their usage decisions.
In its final rule change determination the AEMC also acknowledges that managing
the customer impacts may require a period of transition to more cost reflective
pricing. In this section QCOSS comments on the two parts to the consumer impact
principle and the transitional measures we believe are required are set out later in the
submission.
Customer Impacts
In QCOSS’s previous submission, we expressed the view that not enough was yet
known about the impact of demand tariffs on consumers, and particularly low-income
and vulnerable consumers, and that significant further work was required.
In our view, Energex has attempted to respond to these concerns in that it has:
 Stated the voluntary nature of the demand tariff suggesting that customers who
are not sure or who might not benefit can stay on the default tariff;
 Built a bill protection mechanism into the design of the demand tariff;
 Had CSIRO undertake customer impact analysis to attempt to identify the
impacts on a number of different cohorts; and
 Committed to Real Time Tariff Study in the future
QCOSS commends Energex on the CSIRO work to assess the impact on the bills of
applying a demand tariff on various household types. However, we note the limitations
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of this study in that it is likely to be biased towards homeowners and new properties.
Nonetheless the results do reveal some interesting findings. For example, the CSIRO
customer impact analysis identified that even with the bill protection mechanism that
58 per cent of households in its sample would experience their annualised bills
decreasing if they were on the Energex proposed demand tariff. This means that there
would be 42 per cent where the bills would increase. Also the CSIRO analysis identified
that 20 per cent of households would experience bills increasing by more than 10 per
cent. Also the CSIRO study revealed that there were winners or losers within most (but
not all) of the cohorts that were considered, and that the cohorts that are worst off,
tended to be low-income with low consumption ones. This is not consistent with some
earlier studies 6 which indicated that low-income households in the main would be
better off under demand tariffs.
Consequently, these CSIRO results suggest that more analysis is required and that
this type of analysis needs to delve deeper so that we can identify the features or
reasons particular households within each cohort gain or lose on the proposed
demand tariff. Such studies need to focus on greater customer segmentation in order
to see if there are clearer patterns for specific demographics, such as people with low
incomes, carers, large families and people with medical heating or cooling needs.
Without a better understanding of the specific characteristics of households that have
more peaky usage it will be difficult to make targeted efforts to mitigate impacts for
these households or cohorts.
We note that Energex has committed to undertaking further assessment of the
impacts using a Real Time Tariff Study. QCOSS would appreciate clarification of
Energex’s intention here and asks for more details in the TSS, for example, what
customer segments might be included; if the sample will only be of early adopters;
and how will they be able to access their advanced meter?
QCOSS would encourage Energex to actively identify the impact of its demand tariffs
and default tariffs on low-income and vulnerable customers. QCOSS especially
points to vulnerable customers such as those with medical cooling or heating needs,
Aboriginal and Torres Strait Islander customers, refugees and CALD households who
may be adversely impacted. Even if analysis indicates a majority of low-income or
vulnerable households are better off, those who are worse off and cannot change
behaviour to avoid paying higher bills must still be identified and acknowledged.
QCOSS does not consider that dealing with these problems is necessarily Energex’s
responsibility, however Energex has a responsibility to understand the consumer
impacts of their pricing – this is part of the new rules.
6
AGL (2014), On the inequity of flat-rate electricity tariffs, AGL Applied Economic and Policy
Research Working Paper 41.
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Transparency and clarify of information provided
Energex has also attempted to provide an understanding of different load profiles and
what maximum demand over a half hour period looks like. This is information which
could be expanded upon as QCOSS found that people at our workshops could not
answer the likely impact of the demand tariffs without understanding the likely range
of demand a customer might be charged for. It was evident that it will be difficult for
many consumers to initially understand how the demand tariff is structured and how it
would impact on their bills. The concept of charging for demand rather than energy
use will be a significant shift in itself for many consumers as many people do not
currently understand how they are charged. Participants at QCOSS workshops
believed it would be very difficult for some of their clients to understand the tariff
without considerable tailored communication material, and they believed some clients
would never understand it.
QCOSS therefore calls on Energex to develop a tariff calculator to help households
determine whether or not they might benefit from moving to a demand tariff. We
appreciate the complexity inherent in creating such a tool, but would encourage
Energex to continue to develop this product and to ensure it usefully takes account of
individual circumstances. We note that other distributors including Ergon are
attempting to develop such a product.
Another concern that became evident at the workshops was that if consumers do not
understand how the demand tariffs work, they may simply reduce demand overall or
shift to alternatives such as gas if they do not see a corresponding fall in their bills
following adoption of the new demand tariffs. This may in turn result in some
consumers using less energy than they need for a satisfactory quality of life, and
consumption falling further and thus pushing prices higher. It is also likely to lead to
distrust and hostility towards the new tariffs which presents broader implications and
risks for the overall success of tariffs reform in being able to achieve its objectives.
Comments on Energex’s proposed tariffs
Energex’s preferred tariff from 2016/17 to 2019/20 for its SAC Small customers is a
time-of use demand (TOUD) tariff which it calls Residential Demand. It is also
proposing to introduce an economy tariff, known as New Economy which can only be
taken up if the household is on the Residential Demand.
QCOSS is aware that the different components of the suite of new and existing
residential tariffs are finely balanced, and that changes in the parameters of one of
the tariff components will have impacts on the other components. However, we ask
Energex to demonstrate in its TSS, using indicative load profiles, that it has identified
an appropriate balance between fixed charges, peak demand charges, flat charges
and load control tariffs. As mentioned below the proposed tariffs have to trade off
simplicity and bill stability against cost reflectivity and revenue stability, and this is
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especially important in the first TSS period as people get used to demand tariffs and
learn over time to modify their behaviour and use.
QCOSS notes that Energex has set out its Indicative Pricing Schedule for 2016/17 to
2019/207. It is assumed that Energex has made a number of assumptions about the
uptake of the new tariffs and what proportion of revenue they will recover. QCOSS
also asks Energex to provide additional information on these assumptions and how
different uptakes may impact on the Residential Flat over the next three years. If
there is a risk that the rates for this tariff will rise as a result of higher than assumed
numbers of people adopting the demand tariff than there would be a need to ensure
there are some protections for consumers that remain on the default tariff. Energex
should point to any risks in its TSS and provide an indication of the magnitude of
possible changes in the Residential Flat tariff.
This section now continues and outlines QCOSS’s views on the specific detail of the
Residential and New Economy tariffs.
Peak period
QCOSS supports Energex’s proposal that the peak period is between 4:00 and
8:00pm. As illustrated in its consultation reports, these times correspond more
generally with the peak that the network experiences and to the period when Energex
controls load through its load switching program. Further, as Energex points out,
some customers are already familiar with the messaging “can it wait ‘til after eight?”
This will allow customers a better opportunity to identify times to which they could
defer energy use and shift load.
We also support that the peak period be limited to weekdays and would go further
and state that the peak period should also exclude public holidays that fall on
weekdays. It is understood that at least some of the Victorian Distributors in their
recently finalised TSS8 have proposed that the demand tariffs only apply on working
weekdays.
Public holiday (similar to weekends) peak charges are inconsistent with LRMC based
pricing. In our view, including public holidays in the peak period would be justified on
an Long Run Marginal Cost (LRMC) basis if perhaps 20 per cent of homes within
Energex’s network were supplied by a local network or sub transmission system that
peaks on public holiday evenings. Recently Victorian consumer representatives put a
similar proposition to Victorian network businesses following a proposal to extend the
peak charges to weekends, and following analysis by the networks it was agreed that
a vastly smaller portion of Victoria’s electricity networks peaked on weekends.
Analysis by ATA in Victoria indicated that cohorts that would be charged more than
they should as a result of weekend/public holiday peak charging include: weekend
workers and some shift workers; consumers hosting a party or event on any
7
Energex, (2015), Indicative Pricing Schedule, Appendix A,.
Jemena (2015), Tariff Structure Statement 25th September 2015
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weekend or public holiday in a given month; pensioner households with
weekend/public holiday family visits and/or babysitting once or more per month;
CALD households with culturally-specific weekend/public holiday activities once or
more per month; and part-time sole parents with weekend/public holiday visitation.9
More detailed analysis by ATA will be made available in October.
Weekend and public holiday peak charges send perverse signals to households, to
curtail or move loads away from those times when there is no benefit from doing so.
They also restrict the opportunities available for weekday-peaking consumers to shift
loads, reducing the effectiveness of any price signals.
Public holiday peak charges may be highly confusing for consumers, who have been
told for some time now that weekday working evenings are the ‘peak’ time for
households. These consumers are likely to be confused by the introduction of public
holiday evening peak charges especially if this is not the case on weekends. Further
public holiday peak charges are likely to be very unpopular with the public, and
negatively impact acceptance of the introduction of cost reflective pricing.
Single Peak or average of four peaks
In its previous consultation Energex canvassed two options to measure demand: the
single maximum or an average of the top four demand maximums in the billing
period.
Consumer and community groups’ strong preference during the consultation was for
the average of the top four demand measurements in the billing period. This was
because consumers could experience significant bill shock as a result of applying a
maximum demand charge where a single (extreme) maximum demand could result
in an abnormally high bill.
While Energex does acknowledge the customer feedback, it states that it is
“concerned that the complexity in deriving an average demand may result in
confusion amongst residential customers and impact their ability to understand their
electricity bill”. Energex also states that retailers do not support the averaging of the
four peaks as this approach was not “operationally viable”. Consequently, Energex
presented10 its preference to set the demand measurement on a “single maximum” in
a billing period in its recent Customer Impact Statement.
QCOSS does not support Energex’s preference of a single maximum peak in the
billing period. This is the first TSS and therefore the tariffs should be designed to
prevent bill shock while households learn to adapt their energy use and behavior. It
may be feasible to introduce a single maximum tariff in a future TSS however during
the implementation stage there is a risk to Energex and retailers if households
experience significant bill shock as a result of switching to the new tariffs as this will
9
Alternative Technologies Association (ATA) et al, Letter to ENA regarding Weekend Peak
Charges, 19 August 2015.
10 Energex (2015), Customer Impact Statement, Table 3.4, P6
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alienate customers. Customers need to be given the opportunity to get accustomed
to the new tariffs without the risk of bill shock.
There are a number of factors that need to be balanced in assessing the pros and
cons of each approach and arriving at a preference. Even though there is some
added complexity in averaging demand across the four maximum days as opposed
to single maximum demand, this is outweighed by the greater potential for bill shock.
To counter this risk, the bill protection mechanism would need to “kick in” at a lower
level than 5KW and would need to remain for the three years of the TSS.
Arguably, the level of complexity implied in the averaging of the top four peaks is not
that onerous and can be moderated with effective consumer education and
communication.
QCOSS also requests that in its TSS, Energex clarify the “operational viability” issues
which retailers cite and that both Energex and retailers work together to address
these. There is very limited information presented on this issue in the Customer
Impact Statement and therefore it is not clear as to the materiality of retailers’
concerns.
Fixed Charges
QCOSS supports lower fixed charges as low-income households are more likely to
be disadvantaged by fixed charges as they tend to have lower usage11.
There has been a policy for the past three years of tariff rebalancing where the fixed
tariff has increased significantly, and usage charges have been decreasing. For
example, the increase in fixed charges for 2015-16, inclusive of metering costs, was
approximately 42 per cent. This comes on top of a 66 per cent increase in the fixed
charge in 2014-15 and almost 50 per cent in 2013-14. While increases in the fixed
charge are offset by lower volume charges for some customers, many customers will
not consume enough to reap any benefit and will pay more. We know that in the
Energex area that around 52% of customers would see a decrease and 48% an
increase if their consumption stays the same in 2015/16. The ones who are worst off
will be the relatively small users. This policy has resulted in bills for relatively small
users continuing to increase while those for large users have stabilised in recent
years.
The rising fixed charge and the inability of people to lower their bills has caused
angst and confusion for many people. Energex’s own Queensland Household
Energy Survey noted that household had become ‘jaded’ with controlling their energy
usage as they had tried and yet still since their bills increasing. This is an important
11
St Vincent de Paul (2015), An updated report on the Queensland Tariff Tracker. Footnote
cites ABS Survey data which shows that households on government concessions mean
weekly electricity consumption is approx. 122 kWh, while households on wages use approx.
20 kWh (142 kWh/week). See ABS 4670.0 Household Energy Consumption Survey, Table 8,
Sept 2013.
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aspect to understand if the introduction of demand charging is intended to drive
behavior change and load shifting.
In its submissions to the Queensland Competition Authority12 (QCA) QCOSS has
advocated for a moderation of this policy. We are therefore disappointed that the
proposed network fixed charge will continue to increase, albeit by inflation, over the
period of the TSS. We were anticipating with the introduction of the demand tariffs,
that this was an opportunity to have some moderation in the fixed charge.
However, with the addition of a demand charge, which even for a flat profile energy
consumer, will result in a larger proportion of the bill being (in essence) fixed, it will
be very difficult for most households to completely move load out of the 4:00-8:00pm
period. We know that certain households, those with medical and cooling needs,
those with small children13, and large families, will find it very difficult to move load
from the peak period.
The new demand charge will undermine the price signal for consumers because,
similar to a fixed charge, it may appear to consumers that their actions to adjust
energy use behaviour make no difference to the final bill. Further, it appears to
consumers that continuing the policy to keep the fixed charge constant in real terms
as well as introduce the demand charge is a revenue stability exercise and, because
it is associated with a decreasing flat charge, one which is designed to reduce the
likelihood of further uptake of DER.
Given the punitive impact of an increasing fixed component of the bill on low income
and vulnerable customers, this rationale is not sufficient to justify such a policy.
QCOSS therefore requests that Energex reduces the fixed charge in real terms over
the next three years for both the Residential Flat and Residential Demand Tariffs.
New Economy Tariff
As part of its tariff reform package, Energex will allow a number of appliances14 on
the smart control tariff. It is understood that in most cases, operating times will be
dependent on the control mechanism attached to the appliance and peak demand on
the network. For example, for hot water, which is controlled via a relay, Energex will
supply electricity for a minimum of eight hours per day. There will be a minimum15 of
12
13
QCOSS (2015), Letter to the QCA on 2015/16 Regulated Retail Electricity Prices.
RMIT (2015), Changing Demand: Flexibility of energy practices in households with children.
Dr Larissa Nicholls and Dr Yolande Strengers.
14 These include hot water equipment, pool pumps, air conditioning units, electric vehicles,
and smart batteries.
15 Energex advice (via pers coms 11 September 2015) that the reason for not communicating
specific timeframes is to allow greater flexibility around controlling load through this
tariff. There are two control mechanisms, a relay or demand response enabled device
(DRED) depending on the appliance type. In most situations Energex is not intending on
communicating specific switching times however we will communicate the minimum supply of
electricity.
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two hours during the day and two hours during the night. This new economy tariff is
only available with the Residential Demand tariff and a smart meter.
The new economy tariff is priced at a “competitive level” and over the TSS is
projected to decrease from 3.785 cents/kWh to 1.041 cents/kWh. It is not surprising
therefore, as Energex demonstrates in its Customer Impact Statement, p21, that
there are considerable savings from adopting the New Demand tariff in conjunction
with the New Economy tariff. For the typical household with 4,319 kWh per annum
there is likely to be savings of up to $323 in 2016/17.
The New Economy tariff features, including price, will in our view be very appealing
to customers and will allow Energex to utilise excess energy from solar export during
the day and to extend its current load control capacity. However, low-income and
vulnerable customers may not be able to access the Residential Demand tariffs and
the smart meters. This is especially the case for tenants who require the lessors’
permission to install the meter. Experience from Victoria shows that when smart
meters were installed a number of other issues were identified such as wiring and
switch board upgrades. These would require the lessors to cover the costs of these
improvements.
The existing controlled load tariffs (T31 and T33) have been very successful in
Queensland and consumers are not only familiar with them and understand them,
they work well for consumers because they are “set and forget” in nature. Further,
there has been significant investment in load control meters and systems that
consumers have paid for over the years. To the extent that the tariffs are designed to
manage peak demand and spread load more evenly they are also cost reflective
tariffs Consequently, QCOSS believes that with the introduction of the demand
tariffs, that the current incentive (difference between the Residential Flat Volume and
Super Economy and Economy) to adopt or retain load control options remains.
Bill Protection
QCOSS welcomes Energex’s proposal of a bill protection mechanism. A bill
protection mechanism could allow Energex to have a more cost reflective signal but
protect customers from significant bill shock for a period of time while they are
adjusting to the tariff. QCOSS would prefer that such a mechanism apply over the full
period of the next TSS, and for a period of time after (and if) demand tariffs become
mandatory. In this way those households who might otherwise experience bill shock
can have the opportunity to better understand the tariff, their energy use patterns,
and the possible and appropriate behaviour change they might make to ensure their
bills are manageable when the protection is removed.
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A bill protection mechanism could also be applied by pre-qualification criterion to
some especially vulnerable households for a longer period or even indefinitely. This
would go a long way to assist vulnerable households to adjust, and to protect these
households while we learn more about the impact of demand tariffs and how
particular cohorts/customer groups will be impacted. Such a mechanism would be
somewhat similar in effect to the “safety net” tariff that QCOSS proposed in our
earlier submission to this process.
QCOSS also questions the rationale for a ceiling of 5KW when the bill protection
mechanism will be activated. This appears to be quite high and should in some way
relate to a realistic concept of peak demand over a half hour period. QCOSS
requests that Energex provide in the TSS additional rationale and examples of the
appliances and usage that would make up a 5KW demand over a half hour period.
Metering: Costs and Access
QCOSS notes that Energex states in its consultation report (P15) that it address
questions around the cost and access to smart metering as well as tariff structure in
its forthcoming TSS.
QCOSS is aware that demand tariffs require the customer to have a smart meter and
that this will add additional initial costs, as well as the ongoing costs, for consumers
who adopt the tariff. While we appreciate that the market for meters has not yet
emerged and some of the detail of how it will look remains unknown, the indicative
future costs of advanced meters and how Energex and retailers propose to roll out
the meters for customers who adopt the tariff is relevant for the consultation of tariff
reform. w. Without such information it is difficult to assess a number of factors
including the likely take up of the tariff, the potential cost barrier to take up by lowincome households, and whether any potential benefits of the tariff are in fact
outweighed by the cost of meters. Information on these matters will potentially inform
our views on the transitional pathway to new tariffs, including whether or not such
tariffs could become mandatory at some point in the future.
As mentioned above we are also concerned that low-income households may find
themselves in a position where they either cannot afford the meters at all or must opt
for models with more limited features, thus limiting their options for managing their
energy and bills. Further, many low-income people are tenants and live in private or
social rental housing and may have to rely on their landlord to install or give
permission for a smart meter. QCOSS is concerned that low-income households who
believe they may benefit from demand tariffs, may miss out due to lack of access to
smart meters. QCOSS welcomes that Energex has indicated that it will address this
concern in its TSS and asks that it give some consideration to the “Fair access to
technology initiative” as discussed earlier.
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Demand Management and Distributed
Energy Resources (DER)
QCOSS is interested in more detailed information from Energex on how they expect
customers with solar PVs to respond to the tariff and the future strategy to
accommodate the likely growth in DER into the future. It would appear that the tariff
will incentivise those with solar to invest in batteries as soon as they are affordable,
and this will not only reduce peak demand, but potentially demand in general. We are
interested in what Energex’s strategy will be if demand falls further as result of this,
and we are also interested in how Energex intends to meet and embrace the inevitable
growth in customer interest in DER into the future.
Transitional Measures and Consumer
Protections
A transition phase will be required to ensure customer acceptance and uptake of the
proposed tariffs and QCOSS in principle supports the “slow” pace which Energex is
proposing. QCOSS believes that the transition phase must be considered as part of
the “network tariff reform” and that the ultimate outcome which Energex is working
towards are cost reflective tariffs which people understand, can respond too and
accept before they become mandatory. This is for some time in the future when a
relatively large proportion of customers have adopted them, thereby allowing for a
much better understanding of the customer impacts and what is required to address
these impacts.
QCOSS is concerned that without some form of transition period, there is a risk that
consumers will become confused and/or that poor outcomes in the early stages will
result in the public being put off by their own or others’ experience of unexpectedly
high bills. This presents a broader public perception and political risk which may be
detrimental to the long-term pathway towards cost reflectivity.
Therefore, there will also need to be some transitional measures and a strengthening
of existing consumer protections in order to ensure that the introduction of cost
reflective tariffs in Queensland will be effective in meeting its objectives. Energex’s
TSS should acknowledge these measures and protections. In QCOSS’s view this
should include describing the need for measures to protect consumers from adverse
impacts that are predictable, even where these measures are not the primary
responsibility of Energex as it best placed to understand and to describe the relevant
impacts of these tariffs on their customers. This information is important so that others
such as retailers, regulators and government can respond and adjust their policies and
activities appropriately.
Future trials
In the absence to date of a comprehensive social impact assessment of demand
tariffs, QCOSS believes that the collection of information through trials is critical in the
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next voluntary phase of the tariff implementation. As already discussed above
Energex has indicated in its consultation paper (P22) its intention to undertake a “live”
trial using data from the early adopters of the demand tariff. While information from
such a trial will undoubtedly be valuable, QCOSS believes that this trial must be
extended to include a broader group than the early adopters or it will be necessarily
biased. Early adopters are likely to be households who have a high level of
understanding of the trial. They will be either aware that their energy use profile is flat
and that the tariff will benefit them, or that they are able to make the required behavior
changes in order to reduce their peak demand on the network.
QCOSS and other consumer representatives would like to assist Energex in identifying
and obtaining the relevant customer segments that should be included in its future
trial, for example low-income, aged, disability, Indigenous, and CALD communities.
Trials should address consumer specific criteria such as bill stability, and
simplicity/ease of understanding. Consumer representatives with specialised
knowledge should have an opportunity to be involved.
A full social impact study will assist distributors to propose tariffs that balance the
interests of all consumers against those of distributors, and will assist with developing
solutions to address adverse impacts. These solutions are likely to require involvement
by different parties within the electricity supply chain and by government and policy
makers, and may involve both tariff and non-tariff options.
Communication/consumer education
In our previous submission to Energex, QCOSS proposed that the success of tariff
reform would be heavily dependent on consumer understanding, engagement and
participation. We suggested that the education program has to be lot more than a
marketing campaign and that “one size” would not fit all and that the needs of
particular groups must be considered such as households from culturally and
linguistically diverse communities, Indigenous households, and households with low
literacy and numeracy skills. We also suggested that some consumers, particularly
those who are struggling financially and at risk of bill shock, would benefit from face to
face and independent information including home visits from community organisations
or from specially designed energy literacy and energy conservation programs.
Ergon’s powersavvy program provides a good example of the type of program that
could usefully accompany tariff reform and target consumer education to low-income
and vulnerable households. This scheme was delivered by local community
organisations and hence was able to reach especially vulnerable and difficult to reach
groups. While Energex has acknowledged the importance of community education in
response to the input from stakeholders, we are yet to hear any proposals about how
this will occur and who will be responsible.
There is also an opportunity to support consumer education through the provision of
energy monitoring devices in the home. There are numerous devices now available
including models that are relatively inexpensive and can be used without an
smartmeter, such as that provided under the ClimateSmart Homes program.
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Participants at QCOSS’s Toowoomba workshop suggested the use of such monitors
prior to the introduction of new tariffs could assist households to better understand
their energy behaviour patterns and how much energy different appliances consume.
Monitors that allow consumers to set an alarm would also be relevant to helping
consumers understand when demand in the household has exceeded specified levels,
and therefore help people to understand what behaviour change is necessary and
possible to bring this level down. Participants also saw these devices as being critical
once consumers are actually on the tariff to assist them to respond and avoid high
bills. An additional suggestion from both workshops was that a system of SMS
messages to warn customers that they had exceeded a specific demand level on a
day (which could be set by customers) could be useful in educating customers and
avoiding unexpectedly high bills.
Addressing split incentives and establishing a fair access to
technology initiative
A ‘fair access to technology’ initiative would assist low-income households and those
in the rental market to have equal opportunities to adopt new tariffs and technologies
to assist them to control their electricity usage and bills. Such an initiative would
include investment to reduce the financial and other barriers that households face in
adopting technologies such as advanced metering, solar hot water and other
measures that may become available in the future. This fund should be technology
agnostic and aimed at ensuring equality of opportunity for all users of essential
services to benefit from the future new tariffs.
Wider reform on concessions and/or consumer protections
QCOSS believes it is too risky to allow tariff reform to progress without the required
reform of social policy instruments occurring beforehand or at least in tandem.
Without effective and targeted concessions and other consumer protections in place,
any significant impacts from tariff reform are likely to result in public backlash. It is
therefore in the distributors’ own interest to advocate with governments for the wider
reform needed.
QCOSS has been advocating for concession reform for a number of years16.
Specifically it calls for the Queensland Government’s Electricity Rebate scheme to be
widened to include holders of the Commonwealth Health Care Cards. This would
include singles and couples without children who are on the unemployment allowance
(Newstart), as well as very low-income working households. QCOSS has also been
advocating for a more equitable structure for the rebate, calling for a percentage based
rebate to replace the current flat rebate. This means if there are changes in the price
impact of different tariff structures for consumers then the rebate will change
16
QCOSS (2014), Energising Concession Policy in Australia
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commensurately. Victoria, for example, has had percentage based electricity
concessions for some time.
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