Shielding the vulnerable from power spikes

The debate over energy affordability and vulnerable customers is dangerously over-simplified. And in the process of electricity market reform the key question should be whether to assist or protect.

A recent Climate Spectator article raised the question as to whether pensioners are the number 1 enemy of smart meters. The article was positive in intent but suffering from an all too common and potentially damaging over-simplification of the complicated issue of energy affordability and vulnerable customers.

To be fair, the closing statement “Vulnerable members of the community must be protected from possible adverse effects from electricity market reform, but it is counter-productive to manipulate the entire electricity market as a tool of social justice,” is an apt conclusion and deserves consideration. But in considering the issue, a more appropriate and nuanced understanding of the situation must be forthcoming. Too often policymakers, regulators, industry and stakeholders fail to adequately consider the diversity and variation in society and energy consumers.

There are many vulnerable consumers who must be considered in the process of reform. Whether they are to be assisted or protected is another question. To be sure, varying degrees of both assistance and protection will be the answer.

Policy must move beyond averages, assumptions and singularly-minded solutions. It must be able to recognise that the needs of the 34 per cent of NSW low income households that use less than 4 MW/h will differ from the 20 per cent that use more than 8MWh and the 4 per cent that use more than 12 MW/h.

The $215 Low Income Household Rebate provides an average assistance in NSW of around 14 per cent, great if you are using less than 4 MW/h (circa 25 per cent assistance) but literally cold comfort if you are using above 12 MW/h (circa 6 per cent). Energy efficiency is more likely to provide effective returns in the higher consumption levels but be marginal at best in the low consumption households considering the mix of fixed and variable cost.

Equally, low or fixed income does not automatically equate to vulnerable. AGL analysis of its customer base showed that those in the age brackets above 60 were underrepresented on its Staying Connected program, while those in the family formation stages where overrepresented. Pensioners may spend time at home, but so do families with children, a large mortgage and little discretionary (as opposed to disposable) income. In this context, the question must be asked, who is more vulnerable to the potential impact of time-of-use pricing?

Even the term pensioners requires clarification – are we talking about aged pensioners or disability pensioners; Newstart or Carers Allowance? This can make a big difference in relation to their ability to avail themselves of assistance. For example, in Queensland those with a Centrelink Healthcare Card (possibly unemployed and low income) do not even qualify for the basic electricity concession, but senior citizens, self-funded or otherwise, receive $216 per annum.

ABS data shows, in its assessment of financial stress indicators, 86.3 per cent of age pension recipients are able to raise $2000 for something important, but this decreases dramatically to 55 per cent, 43.2 per cent and 43 per cent for disability and carer, unemployment and family support recipients respectively. At the same time 72.5 per cent of age pension recipients own their home outright relative to 39.6 per cent, 23.1 per cent and 8.3 per cent for the other recipients. Arguably these two components are the most important when considering investment in energy efficiency, conservation or the ability to shift electricity load.

 If reform of government policy is to mitigate the risks for the vulnerable and effect a smoother transition, proper consideration of who is vulnerable, what factors influence their options and who is best placed to provide the different elements of assistance must occur. And it must occur in parallel with market reform, not as an afterthought.

Energy market reform must occur within a framework, but one that allows for a diversity of policy options that better respond to the diversity of household situations, across and within income groups, across and within consumption bands and across and within the spectrum of household dynamics.

While holding to the core principles of assisting and protecting the vulnerable within our society, we must recognise the need for differentiation of pathways to achieve this goal.  

A shared responsibility model is the answer to reducing customer hardship in the context of energy market reform. Governments (state and federal) have responsibility for providing funding for assistance and implementing public policy. Retailers have responsibility for distributing assistance and providing customers with energy plans and options that best suit their needs. Community organisations are best placed to reach those who are vulnerable and provide them with information about how to access government assistance through their retailer. But importantly, consumers at the end of the day are the best judge of what will work for them. The framework must focus on the commonality of purpose but allow for the different roles of the stakeholders.

All have a shared responsibility to develop an appropriately balanced assistance and protection framework, equally we all have a shared but differentiated responsibility to utilise, implement and adhere to this framework by playing our role.

Cameron Reid is Hardship & Social Policy Manager at AGL Energy.

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