An update on the 2015 Hardship Inquiry
In February 2015, the Victorian Government directed the Essential Services Commission (ESC), regulator of Victoria’s retail energy market, to conduct an inquiry into the financial hardship programs of energy retailers. The terms of reference noted the legislation governing the energy industry aims to ensure customers remain connected to supply wherever possible and disconnection should be a last resort. The inquiry was asked to investigate the design and delivery of hardship programs and the effectiveness of the regulatory regime driving them, and propose ways the programs and regulatory framework could be improved to drive better results.
The draft report, released in September, drew from 22 submissions (primarily from consumer advocates and energy retailers) as well as the ESC’s own investigations, which included a review of hardship policies in other industries and jurisdictions, an extensive analysis of energy retailer performance data, and deep analysis of data from nine retailers’ hardship programs. Whilst the report provided comprehensive analysis of the causes and manifestations of hardship and the failings of the current framework, the proposed solution only goes part of the way in addressing them.
The proposed new hardship framework (Figure 1) actively discourages the use of an “in hardship” label to control access to hardship assistance. Instead the framework requires all people requesting assistance to be helped. It promotes early intervention by requiring retailers to offer customers a self-service facility to set up an instalment plan if unable to pay a bill. It removes the expectation that retailers assess customers’ capacity to pay debt repayment instalments. It aligns with the Energy Retail Code’s requirement that people cannot be disconnected before failing two payment plans by stipulating customers missing a payment must be given access to a default payment plan, followed by a second plan with more generous terms if they miss a payment on the first. The proposed framework features a more intensive “Active Assistance Plan” for customers who can’t make payments on their second payment plan. If people are unable to fulfil the requirements of the Active Assistance plan, they would be disconnected and placed on an even more intensive “Reconnection Plan” if they are reconnected. The Reconnection Plan focuses on helping customers reduce their usage to an affordable level, and provides for the use of prepayment metering or automated supply restriction to limit consumption.
The proposed framework addresses a number of critical issues, such as universal access to assistance, the importance of early intervention, and the significance of high usage. However it also has some failings, including that it:
- has no clear path for people facing entrenched financial hardship. Disconnection remains the ultimate destination for people who cannot pay for ongoing usage and repay debt.
- gives little guidance for assistance to customers in the intensive assistance programs, and provides no minimum requirements.
- is premised on avoiding and repaying debt, with maintaining energy supply considered a secondary objective – despite the terms of reference (and the Electricity and Gas Industry Acts) emphasis on continuity of supply.
- describes a very linear process, requiring customers to try and fail two payment plans and the Active Assistance Plan, and be disconnected, before receiving material assistance with managing their energy use. This leaves no room for innovative hardship approaches by retailers, and leads to a poor customer experience.
A number of consumer groups’ submissions proposed an alternative framework that:
- contains flexible pathways so customers can be steered toward the most appropriate level of assistance immediately
- provides a clearer path for those in severe financial hardship
- encourages proactive assistance and innovation by retailers
- promotes continuity of supply, with disconnection as a last resort.
Since the report was published, a number of consumer groups and energy retailers have been meeting with the ESC, via some newly-formed working groups, to improve the draft framework. This process is still underway. The issues are being addressed and a number of design elements from the consumer groups’ alternative framework are proving useful in informing the revisions. However, we are still concerned about the possible use of prepayment metering and supply restriction with vulnerable households who struggle to reduce their energy use. Overall, we remain hopeful that the final version of the framework will provide a good foundation for more responsive and appropriate assistance for customers in financial difficulty. Ultimately, it will depend on the detail describing the types of assistance customers should be offered on their journeys through the system. The working groups established by the ESC to advise on that detail will be meeting during the first part of 2016, including the participation of most of the consumer advocates who have been active in this process. We look forward to keeping you informed of our progress.