Consumer Action and the Consumer Utilities Advocacy Centre have provided input to the Energy Networks Association’s position paper, Towards a National Approach to Electricity Network Tariff Reform.
Our organisations support network tariff reform to introduce flexible and cost-reflective tariffs that improve the efficiency of asset usage and lead to more efficient network spending. We also agree with the ENA that ‘engagement with customers on tariff design will be critical to making the transition to more cost-reflective network tariffs, and ensuring the benefits are realised’. The success of flexible network pricing at delivering market benefits will be dependent on consumer understanding, engagement and participation, and we therefore encourage distribution network service providers (DNSPs) to consider the implications of complexity in products and information on consumers’ ability to engage, and to work closely with consumer groups during the development of flexible network pricing structures.
With this in mind, we support the ENA’s proposal for an Industry Standard for Network Tariff Reform and the collaborative development of tariffs and consumer protections which could accompany it. We encourage you to consider the inclusion of consumer groups and specialists in consumer behaviour and decision making in this group to maximise the chances of success of network tariff reform, which fundamentally relies on consumer response.
The ENA paper acknowledges that the issue of peak price signalling to consumers is complicated by the structure of network price signals being delivered through retail offers and billing. In our view this barrier may be insurmountable for network tariff reform if we maintain the same approach to regulated network prices and deregulated retail prices. A prime example is AGL’s recent ‘Free Saturdays’ market offer, which removes any consideration of current network pricing for the consumer, but also demonstrates how retail market offers may distort future network pricing signals in the absence of effective and binding collaboration between retailers and DNSPs. This is not adequately addressed in the paper. More consideration is needed to resolve this issue than a loose co-operation between network and retail businesses if the industry is serious about this issue.
Our organisations are therefore concerned that critical aspects of consumers’ ability to engage with complicated flexible network tariffs are currently overlooked in the ENA’s proposed approach.
The risk to the industry (and to consumers) is that a proliferation of additional complex pricing structures will introduce a new barrier to consumer engagement and trust, which is already extremely low. Consumers may fail to engage (ie. not change their usage patterns in response to new tariff structures) or may experience bill shock as a result of new tariffs, or both. There is potential for backlash against new tariffs such as that seen in Victoria in response to the mandatory smart meter roll out, and this could further undermine trust and/or participation, thereby undermining the efficacy of further reforms.
A full copy of our submission is available by clicking: National Approach to Electricity Network Tariff Reform.