Policy report: Winners and Losers – the impact of energy concession caps on low-income Victorians

A new report from Consumer Action Law Centre and the Victorian Council of Social Service, Winners and Losers: the impact of energy concession caps on low-income Victorians, finds new restrictions on Victoria’s energy concessions will make it harder for some low income Victorians to access affordable electricity and gas.

Concessions form the basis of a safety net to those consumers in the energy market who, for various reasons, are unable to afford the full price of energy. They are particularly important as at times they can be the main factor keeping people on supply.

In its 2013–14 budget, the Victorian Government announced it would be capping the Annual Electricity Concession and Winter Gas Concession and introducing an Excess Energy Concession, for concession payments above the cap which households could claim via an additional application process if they were not using energy fraudulently. The Victorian Council of Social Service (VCOSS) and the Consumer Action Law Centre (Consumer Action) conceived of this research to understand the implications of these changes, the potential impacts on Victorian consumers, and what alternative approaches may more effectively meet the objectives of the changes.

We therefore secured funding from the Consumer Utilities Advocacy Centre’s (CUAC) grants program to undertake this project and commissioned Alviss Consulting to produce the analysis presented in this report.

The analysis identified several issues with the proposed concession changes. In addition to being concerned about energy affordability for low-income Victorians after several years of significant price increases, we are also concerned about the design of the Excess Energy Concession for the following five reasons:

1. It creates winners and losers

As there are the significant differences between the tariffs and tariff structures in the various electricity network areas and gas zones, a household in one area will exceed the cap while one with the same level of consumption in another area will not. By introducing a concession cap based on dollar value, the Victorian Government has effectively chosen winners and losers based on their geographic location.

2. It introduces new barriers to access

Having a separate application process raises the risk that some households that are entitled to the Excess Electricity Concession will miss out because of system errors, low literacy, application form mistakes, not understanding what they need to do, or simply not applying due to feeling overwhelmed by a complex process. As there is already a problem with people not applying for concessions for which they are eligible, what is needed is a smoother process, not a more difficult one.

3. There are market barriers to customers’ ability to access maximum concessions

Concession card households that reach the annual concession threshold may have been eligible for ongoing assistance had they been with a different retailer or on a 6 different retail product instead. In our view, this creates a significant challenge for the Government in ensuring that concession recipients are on the best offer available to them.

4. The Government’s capacity to promptly adjust the cap is limited

We are deeply concerned about the Government’s capacity to promptly and adequately adjust the cap to reflect future price increases in the deregulated retail market. Failing to do so will lead to an increasing number of households being affected by the cap over time.

5. It creates consumer confusion

We believe the introduction of a concession cap on the eve of the launch of TOU pricing in Victoria is a move that can cause consumer confusion and potential detriment. Concession recipients, like other households, may benefit from moving to a TOU tariff, however the ‘newness’ and unfamiliarity of the tariff type combined with the existence of a concession cap, may deter concession recipients from exploring new tariff options. The analysis found that for high consumption households in one network area, a difference of 10% between off-peak and shoulder consumption would be enough to determine whether a household reaches the cap or not.

We therefore call upon the Victorian Government to:

  • Immediately review the decision to introduce an energy concession cap
  • Use a usage threshold, not a dollar threshold, for any policy that targets households with high energy usage
  • Use energy efficiency-based measures if seeking to reduce the concessions budget impact of high energy usage, rather than measures that will decrease energy affordability among low income households.
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