CPSA's submission to the Independent Pricing and Regulatory Tribunal's (IPART) review of regulated retail tariffs and charges for electricity 2010-13

Download: Electricity - IPART Draft Report and Draft Determination [Adobe Acrobat PDF - 89.39 KB] 

 Quicklinks

• Summary of recommendations
• Introduction
  
• Factors influencing the price rise
• Pensioner and other low-income households
• NSW Pensioner Energy Rebate
• Energy inefficiency
• CPRS compensation
• Competition and comparator service
• Smart meters
  

Summary of recommendations

CPSA recommends that:

1. The NSW Government invest tax and dividend income from electricity retailers into electricity infrastructure, to improve network security and reliability of supply. This revenue must also be used to assist pensioner and other low-income households cover the cost of electricity and energy efficiency measures (discussed in recommendations 2 and 3);
2. The NSW Pensioner Energy Rebate to be extended to all Commonwealth Health Care card holders and to be indexed to energy prices;
3. The NSW Government works with the Australian Government and energy retailers to roll-out energy efficiency retrofit programs for pensioner and low-income households. The retrofit program would, but not be limited to, install insulation, replace electric hot water systems with gas or solar, refit or replace energy intensive appliances and undertake other energy efficiency measures, where appropriate;  
4. Electricity prices continue to be independently regulated and a comparator service be made available by phone; and
5. Smart meter installation should be voluntary.

Introduction

Combined Pensioners and Superannuants Association of NSW Inc (CPSA) was founded in 1931 in response to pension cuts. CPSA is a non-profit, non-party-political membership association serving the interests of pensioners of all ages, superannuants and low-income retirees.

CPSA has 138 Branches and affiliated organisations with a combined membership of 33,000 throughout NSW. CPSA serves the interests of its membership and broader constituency at the local, state and federal levels.

CPSA appreciates the opportunity to comment on the Independent Pricing and Regulatory Tribunal’s (IPART) Review of regulated retail tariffs and charges for electricity 2010 – 2013.

The price increases announced in IPART’s draft determination will have a devastating effect on pensioner and other low-income households. In CPSA’s view, it is critical that the NSW Government steps in and reforms the NSW Pensioner Energy Rebate and energy efficiency measures to ensure that these households will be able to afford the essential service of electricity.

Factors influencing the price rise

The bulk of the price increases are due to the Australian Energy Regulator’s (AER) network determination and the possible introduction of a Carbon Pollution Reduction Scheme (CPRS) by the Australian Government. While the CPRS will impose considerable cost on electricity consumers (which may not be fully covered by compensation for households in receipt of a pension or allowance payment as their sole source of income) it accounts for only 15 per cent of the two drivers behind the substantial price increases. It is the AER increases that will result in electricity prices escalating substantially, even if the CPRS does not go ahead.

In CPSA’s view, the NSW Government has a responsibility to ensure that electricity consumers in NSW (in other words, the NSW public) have access to reliable electricity supply, and that pensioner and other low-income households are protected from unaffordable electricity prices. In this light, CPSA takes issue with the claim that “the [AER] increases will allow NSW network service providers to increase investment in infrastructure and improve network security and reliability of supply in line with new licence conditions imposed by the NSW Government.” Energy Australia, Integral Energy and Country Energy, as wholly owned corporations of the NSW Government, pay dividends and tax payments to the NSW Government, which amounted to $1.5 billion in 2008/09 2  . Despite this, the responsibility for investment in infrastructure, network security and reliability of supply is to be met by retailers and funded by large price increases. In other words, the lack of investment in energy infrastructure by the NSW Government will now being paid for by electricity consumers, despite them having paid the NSW Government billions over the years by way of their electricity bills, funding, in part, tax and dividends paid by the aforementioned electricity retailers.    

The NSW Government is responsible for providing the people of NSW essential services such as electricity. The failure to adequately invest in energy infrastructure should not now fall on to the shoulders of NSW households, especially when the proposed price increases will prove disastrous for pensioner and other low-income households, already struggling to cover the cost of electricity.

Recommendation 1

The NSW Government invest tax and dividend income from electricity retailers into electricity infrastructure, to improve network security and reliability of supply. This revenue must also be used to assist pensioner and other low-income households cover the cost of electricity and energy efficiency measures (discussed in recommendations 2 and 3).

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Pensioner and other low-income households

Pensioner and other low-income households restrict their electricity use in order to reduce bills. Going to bed early, showering every second or third day, staying in bed in winter to save on electricity bills are realities for many pensioner and low-income households. The biggest issue facing low-income households is the limited capacity to reduce electricity consumption, because of their already very low discretionary energy use. The expense of upgrading to more energy efficient appliances, installing solar or gas hot water systems, solar panels and insulating the home, inhibit low-income households from further reducing their energy use.

Consequently, these households reach an ‘energy reduction limit’, which they cannot alter unless they cease energy use altogether. The theory that households will reduce their energy consumption when prices increase may work for higher-income households that have larger discretionary energy use. Low-income households on the other hand cop unaffordable bills, and can do little to reduce their energy consumption because of their typically low discretionary energy use and inability to cover the cost of significant energy saving measures. High energy prices drive low-income households into energy poverty, force them to cut back expenditure on other essential goods and services, or risk going into debt, and/or have their power cut-off.

Below are tables that demonstrate the price increases’ impact on pensioner and Centrelink Allowee households for Energy Australia and Country Energy.

Energy Australia

2009/10	Single Pensioner	Couple Pensioner	Single Allowee	Couple Alllowee
Income (p/w)	$336	$506	$228	$411
Expenditure p/w (3,000 kWh p/a)	$10.40	$10.40	$12.90	$12.90
Expenditure p/w (5,600 kWh p/a)	$19	$19	$21.50	$21.50
% income (3,000 kWh p/a)	3.09%	2.05%	5.6%	3.1%
% of income (5,600 kWh p/a)	5.6%	3.75%	9.4%	5.23%
2012/13	Single Pensioner	Couple Pensioner	Single Allowee	Couple Allowee
Income (Treasury forecast)	$367	$553	$241	$435
Expenditure (3,000 kWh p/a)	$17.58	$17.58	$20.38	$20.38
Expenditure (5,600 kWh p/a)	$31.12	$31.12	$33.92	$33.92
% of income (3,000 kWh p/a)	4.79 %	3.18 %	8.45%	4.68%
%of income (5,600 kWh p/a)	8.47 %	5.46 %	14.07%	7.79%

Country Energy

2009/10	Single Pensioner	Couple Pensioner	Single Allowee	Couple Allowee
Income (p/w)	$336	$506	$228	$411
Expenditure p/w (3,000 kWh p/a)	$15.61	$15.61	$18.11	$18.11
Expenditure p/w (5,600 kWh p/a)	$26.40	$26.40	$28.90	$28.90
% of income (3,000 kWh p/a)	4.64%	3.08%	7.94%	4.40%
% of income (5,600 kWh p/a)	7.85%	5.21%	12.67%	7.03%
2012/13	Single Pensioner	Couple Pensioner	Single Allowee	Couple Allowee
Income p/w (Treasury Forecast)	$367	$553	$241	$435
Expenditure p/w (3,000 kWh p/a)	$26.48	$26.48	$29.28	$29.28
Expenditure p/w (5,600 kWh p/a)	$43.95	$43.95	$46.75	$46.75
% of income (3,000 kWh p/a)	7.21%	4.78%	12.15%	6.73%
% of income (5,600 kWh p/a)	11.97%	7.94%	19.39%	10.74%

N.B: Modelling includes NSW Pensioner Energy Rebate indexed in accordance with annual CPI of 3%.

It is clear that households dependent on income support as their sole source of income will be subject to severe ‘price shock’ and will have great difficulty affording electricity. These households’ budgets are stretched at the best of times, and both federal and state income support/concessions do not recognise such price rises for electricity as will be witnessed in NSW. More disturbingly, most allowee households and medium energy use single pensioner households will be spending more than ten percent of their income on electricity. Country Energy single allowee households will spend a whopping 19.39 per cent of their income on electricity alone (up from 12.67 per cent currently spent).

Such expenditure as a proportion of income has not been witnessed in NSW. The Pensioner and Beneficiary Living Cost Index (used to index pension payments because it recognises that these households spend greater portions of their income on essential goods and services), assumes that pensioner households only spend 2.69% of their income on electricity. It is obvious that that the pension will not maintain pace with the electricity price increases proposed. Indeed, it is failing to do so with current prices.

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NSW Pensioner Energy Rebate

CPSA acknowledges the customer assistance measures implemented by the NSW Government following the last electricity price increase in July 2009. Whilst this assistance is welcome, the sheer size of the proposed increases (on the back of past increases well in excess of CPI) diminishes the real impact that these measures will have.  

Centrelink Allowance and Parenting Payment recipients are not entitled to the Australian Government’s Utilities Allowance (now part of the New Pension Supplement) or the NSW Pensioner Energy Rebate. As such, these households are offered very little protection by way of financial assistance from electricity price increases. CPSA recognises that the NSW Government did expand eligibility criteria for the rebate. However, most Commonwealth Health Care card holders still miss out. (N.B. Carers Allowance recipients with child/ren under 16 receive it, despite being able to claim the payment regardless of their level of income or assets).

The price increases will be felt more strongly by pensioner households compared with all other households because of the failure of the NSW Pensioner Energy Rebate to maintain its purchasing power in light of the price increases. As the rebate is indexed in accordance with the CPI, its power will gradually decline as electricity prices rise over the course of this determination period (and very likely thereafter).    

Percentage price increase experienced by pensioner and all other households

2009/10 – 2012/03	Pensioner households % increase	All other households % increase	Difference
Energy Australia (5,600 kWh p/a)	63.76%	57.7%	+ 6.06%
Integral Energy (5,600 kWh p/a)	47.69%	44%	+ 3.69%
Country Energy (5,600 kWh p/a)	66.42%	61.76%	+ 4.66%

N.B: These amounts assume that the NSW Pensioner Energy Rebate increased with CPI at a rate of 3% per annum to $146 by 2013. 

For this reason, CPSA calls for the NSW Pensioner Energy Rebate to be indexed to energy prices and expanded to all Commonwealth Health Care card holders.

Recommendation 2

CPSA calls for the NSW Pensioner Energy Rebate to be extended to all Commonwealth Health Care card holders and to be indexed to energy prices.

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Energy inefficiency

A research paper by Australian Council of Social Service, CHOICE and the Australian Conservation Foundation (Energy & Equity: Preparing households for climate change: efficiency, equity, immediacy) argues that low-income households generally have high energy use appliances. Low-income households are also less likely to take advantage of government energy efficiency assistance measures for big ticket items such as home insulation, solar hot water systems and solar panels as these generally require unaffordable upfront payments or a large co-payments.

On the other hand, higher-income households that already have the financial capacity to purchase energy efficiency measures could do so without government assistance, but they will receive it anyway. It is not unreasonable to assume that a larger portion of government expenditure on energy efficiency rebate programs may, or indeed have, largely aid/ed higher income households to reduce their energy bills, while low-income households with a reduced capacity to reduce their energy use miss out. CPSA believes that household energy efficiency measures should be means-tested, with saving redirected to assisting low-income households.

Current federal and state government energy efficiency programs have had a mixed impact. Most of these programs are not means-tested and therefore overwhelmingly advantaging high-income households while low-income households (especially private renters) face higher energy prices and little capacity to reduce their energy bills. CPSA recognises that some low-income households have been able to benefit from the Australian Government’s insulation program (mainly because it covered the entire cost of the insulation). However, most low-income households dependent on income support as their sole source of income cannot raise $2,000 in a week in case of an emergency, as demonstrated by ABS data from 2003/04. These households do not have: a) savings to draw from to take advantage of 100% rebate offers for energy efficiency measures and b) adequate savings and income to cover the cost of co-payments for energy efficiency offers.

CPSA considers a coordinated government response is required to address energy efficiency in low-income households. This effort must expand beyond current measures (as welcome as they are) such as the NSW Government’s low-income household energy efficiency refit program. Although the measures featured in this program are helpful (energy efficient light globes, door runners, window seals, etc), energy inefficient households need to transfer to more energy efficient appliances and systems such as energy efficient fridges, water heaters (solar or gas), solar panels and insulation. Without such structural reform in low-income homes, the price rises that NSW households will experience, with or without the Carbon Pollution Reduction Scheme, will make electricity unaffordable for pensioner and low-income households, where the main source of income is a government payment.

It is in governments’ best interest to make these households more energy efficient. Not only does energy efficiency protect low-income households from unaffordable energy prices and price rises, it reduce carbon emissions and better meets carbon reduction targets; and reduces voter backlash when such price rises take effect.

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CPRS compensation

CPSA acknowledges that pensioner and other low-income households will receive compensation under the Australian Government’s Carbon Pollution Reduction Scheme (CPRS). However, the compensation package is based on ABS data gathered from its Household Expenditure Survey (HES). The HES, last completed in 2004, asked pensioner and other low-income households what goods and services they spent their income on. This meant that areas of unmet need were overlooked by the survey, as it asked people who generally do not have enough money where they allocate that money. In other words, the survey assumed that households’ income was adequate to cover living costs rather than acknowledge that households were underspending on certain goods and services out of necessity.

The CPRS compensation equally assumes that households are currently able to cover the cost of energy and other goods and services that will be affected by the CPRS. The very best case scenario will see the status quo remain for households, which is unacceptable for pensioners and other low-income earners whose sole source of income is an income support payment. The CPRS compensation also excludes certain developments that will likely take place with or without a CPRS, such as smart meters (already in place in Victoria and proving to be disadvantaging pensioner and other low-income households), feed-in tariffs, and renewable energy targets.

As compensation is based on a percentage of the income support recipients’ payment, allowees in particular will be very poorly shielded from price rises. These households can expect annual compensation of $315, compared with single pensioner households who will receive compensation of about $455 per annum. The reason being is the difference in their base rates of income support rather than the cost increases that they will actually experience. IPART’s draft determination states that the ETS impact will add 15% on to electricity bills. The prices of other fuel and energy intensive products such as fuel and food are expected to rise and CPSA does not consider compensation adequate to cover cost increases. Adding to the cost variations are the differences in costs, which various households will experience depending on their location. As we have witnessed with Country Energy customers facing electricity bills compared with their city counterparts, so too will location have an impact on food prices, fuel prices, etc. Yet, income support recipients receive the same benefit, irrespective of where they live. The Australian Government’s compensation package will poorly serve the lowest-income groups, underscoring the need for substantial energy efficiency measures to be rolled-out for these households.

Recommendation 3

The NSW Government works with the Australian Government and energy retailers to roll-out energy efficiency retrofit programs for pensioner and low-income households. The retrofit program would, but not be limited to, install insulation, replace electric hot water systems with gas or solar, refit or replace energy intensive appliances and undertake other energy efficiency measures, where appropriate.

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Competition and comparator service

Competition in the sector will only be as good as the sector’s pricing transparency. Even then, there will always be groups of consumers who will be disadvantaged by deregulation, which is why CPSA is opposed to the cessation of regulated pricing post 2013 and the sale of electricity retailers. Customers with communication difficulties, poor access to services, and mental illness are just some groups for whom shopping around for a better price is not straightforward. The current complexity of electricity bills means that most customers have trouble reading their bills let alone comparing retailer’s prices and offers. CPSA doubts that the market will ensure lower electricity prices, as pricing information will inevitably not reach all customers evenly.

CPSA supports a comparator service to allow customers to easily compare electricity prices between retailers. While a web-based program may be the most practical way to display comparisons, CPSA considers it essential to have another mode of doing so to ensure that people without access to the internet can still access such a service. A phone service would appear to be the best option, where people could call and receive comparisons over the phone.

Recommendation 4

Electricity prices continue to be independently regulated and a comparator service be made available by phone.

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Smart meters

CPSA acknowledges that the smart meter proposal is outside the scope of this review. However CPSA wishes to express its opposition to a mandatory roll-out of smart meters because of its impact on pensioner and other low-income households.

The NSW Government’s planned roll-out of smart meters will drive up bills for household least able to afford it. Pensioner and other low-income households (especially sole parents) spend large portions of their day in the home when peak tariffs are in effect. These households generally have limited capacity to alter behaviour in response to time-of-use (TOU) tariffs, opposed to working households, who are better able to switch to off-peak or shoulder times of the day because they are not in the house at peak times.

CPSA is not aware of any protections that will be afforded to households with a limited capacity to alter the time at which they use a large portion of their electricity. As such, rather than assist these households to reduce their electricity bills, smart meters will provide retailers with higher revenue, and penalise pensioners, people with disability and stay-at-home parents with even higher prices.

CPSA also understands that some households may be ‘locked-in’ to having a smart meter, if they take part in the targeted roll-out which is currently underway. Customers have complained that once their smart meter is installed, it becomes impossible to change their electricity retailer because most retailers do not offer a connection where a smart meter is installed.

Recommendation 5

Smart meter installation should be voluntary.

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References