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Lead Author: Sarah Toohey, Victorian Council of Social Service
Email: [email protected]
VISIONS FOR VICTORIA
DRAFT WORKING PAPER: WATER GAS & ELECTRICITY
Introduction
In the coming years prices for electricity, gas and water will rise due to climate
change impacts such as reduced rainfall, climate change mitigation measures
like the Emissions Trading Scheme and the cost of large infrastructure
projects like the Victorian Water Grid.
These price rises, combined with further deregulation of the Victorian energy
market and the progression of the National Energy Market highlight the need
for a strong consumer protection framework and investment to improve
household energy efficiency and promote resilience in adapting to climate
change.
Brumby Government’s Vision
The Brumby Government’s energy statement, Energy for Victoria, outlines the
four key objectives of Victorian Government energy policy: an efficient and
secure system, a safe and reliable supply, affordability for consumers and
environmental sustainabilityi.
The Brumby Government’s approach to water is outlined in the Our Water Our
Future documents, with the objective of providing “water security for Victoria’s
growing population and economy in the face of drought and the challenge of
climate change”ii
Successes
Since 2004 the Bracks/Brumby government has implemented a range of
consumer protection measures that have resulted in a strong consumer
protection framework for electricity, gas and water in the utilities market.
These measures include a ban on prepayment meters, a wrongful
disconnection payment in cases where utility companies unlawfully disconnect
someone, a requirement for utility retailers to have hardship programs, the
extension of the Capital Grant Scheme (now Homewise) to purchase energy
efficient applicances, the expansion of eligibility for the Utility Relief Grant
Scheme for low income people experiencing financial difficulty in paying their
utility bills and establishing a range of rebates for energy efficiency measures.
Issues of concern
Price Deregulation
With the removal of energy price regulation in Victoria as of 1 January 2009,
consumers who have not previously engaged in the energy market will be
faced with a complex system of market contracts and variable prices for their
essential services.
The removal of a regulated price for the standing offer means that consumers
will need strong safeguards to ensure that they can get the right advice when
they need it.
Ensuring that consumers have the right information to be able to participate is
essential in creating a competitive and effective market system.
To assist vulnerable and disadvantaged households the roundtable
recommends that the Victorian Government establish an energy advisory
service to provide information on the energy market and assist consumers to
choose an energy contract.
Pricing principals
The cost of infrastructure projects, like the mandatory roll out of interval
metres, the Sugarloaf pipeline and the Wonthaggi desalination plant, will
contribute significantly to price rises for essential services in the coming
years. Similarly the impacts of a Carbon Pollution Reduction Scheme and
other climate change mitigation measures will flow through to consumers in
the form of higher energy prices.
Given the relative inelasticity of energy demandiii for low income households
(meaning that low income households find it difficult to reduce their
consumption of energy in response to a price increase), the way in which
these cost increases are passed on to consumers raises significant equity
issues.
Pricing principles that secure a minimum ‘lifeline’ supply for the essential
services of electricity , gas and water, (to cover drinking water, sanitation
needs, heating, refrigeration, hot water and lighting for a typical household) at
an affordable rate, could be used to mitigate the impact of price rises on low
income and vulnerable households.
By introducing a ‘lifeline’ tariff for household energy use, low income & low
usage households would receive a proportion of their usage at a lower price
and as such be insulated from excessive price rises, while the market is given
sufficient flexibility to pass on additional costs in an inclining block tariff
structure (meaning that the price paid per unit of consumption increases the
more you consume, creating a strong incentive to reduce consumption where
that is possible), over and above this minimum supply rate.
The application of these pricing principles on the regulated distribution tariffs
for electricity and gas, and in the price determinations for water, would ensure
that low income households are provided with a minimum supply of electricity,
gas and water, at an affordable price for their basic needs.
Effective concessions
Ongoing price pressures on gas, electricity and water highlight the need for a
strengthened concessions regime to protect vulnerable consumers,
particularly those households in rural and regional areas that are not
connected to mains gas or water supply.
Prices for bottled gas and carted water are significantly higher than mains
services. Extended drought will increase the dependence of households on
carted water and the international price of oil will be reflected in the price of
bottled LPG. Given these impending price pressures the mechanism by which
non-mains gas and water concessions are applied, indexed and distributed is
in need of urgent review.
Energy and Water efficiency
To help mitigate the impact of energy and water price increases in the long
term, investment in ongoing energy and water efficiency measures will be
essential.
For middle and high income households the current range of rebates for
energy efficiency investments is an important incentive to encourage
households to reduce their environmental impact. However rebates are only
accessed by a small proportion of the population and need to be supported by
broader regulatory measures. Additionally many low income households are
unable to access rebates that would enable them to reduce energy costs.
Insufficient up front capital, the size of the rebate and insecure household
tenure are all barriers to low income households being able to invest in energy
efficiency measures.
To ensure that all households can actively make changes to their house that
would reduce energy and water consumption, the roundtable recommends
that extensive energy efficiency retrofits, similar to those offered in the
WarmFront program in the United Kingdom, be targeted towards low income
households. This would include measures such as roof insulation, replacing of
inefficient hot water services and upgrading inefficient appliances.
In addition to the initiatives outlined above, additional measures will be
required to improve the energy efficiency for rental properties. As landlords do
not bear the costs of increased energy prices, there is little incentive for them
to invest in energy efficiency measures for their rental properties.
In order to overcome this split incentive mandatory energy efficiency
measures should be introduced for rental properties. These measures could
be phased in with rental properties required to meet minimum energy
efficiency standards at the time of re-letting. Such a policy should be part of a
larger package that aims to overhaul the water and energy efficiency of the
State’s entire existing and future building stock.
With regard to water efficiency and minimising the impact of expensive
augmentation projects on water bills it is important that the State Government
takes measures to ensure that the desalination plant can be turned off at
times when additional water supply is not needed. This will minimise price
rises for consumers and will encourage the continued uptake of lower cost
water conservation and efficiency measures.
Towards a Legacy
The reforms of the past four years have gone some way to ensuring that all
Victorians can access essential services. By securing a strong consumer
protection framework, and effective hardship policies, many Victorians are
able to access the electricity, gas and water they need on a daily basis.
How the Brumby Government ensures that Victorians can continue to access
the essential services they need in the face of increasing prices in the coming
years will be a significant challenge. The transition to a low carbon economy
will in the short term create price pressures that will need to be managed and
mitigated through encouraging more efficient energy use. However making an
orderly transition to a clean energy economy that protects vulnerable
consumers and communities will reduce the state’s carbon liability in the
longer term.
Through pricing principles, effective concessions, energy and water efficiency
measures and the continuation of the consumer protection framework, a
secure, sustainable and affordable supply of electricity, gas and water can be
secured.
Score: 7 out of 10
Recommendations
The Victorian Government should:
1. Provide funding to an independent energy advisory service to assist
consumers engaging in the energy market
2. Implement pricing principles that guarantee a minimum ‘lifeline’ supply
of electricity, gas and water at an affordable price, with increasing price
per unit of consumption above the lifeline supply.
3. Encourage the transition to low carbon energy supplies.
4. Ensure that all Victorians can access essential services through a
concessions framework that addresses the unique circumstances of
rural and regional households
5. Implement a comprehensive suite of measures to improve household
energy efficiency, including the introduction of minimum energy
efficiency measures for rental properties.
i
Department of Natural Resources and Environment, Energy for Victoria, Victorian
Government, 2002, p.13, accessed 12/9/08 at
http://www.dpi.vic.gov.au/DPI/dpinenergy.nsf/9e58661e880ba9e44a256c640023eb2e/b0bc44
e303ecded5ca2572b1000f1734/$FILE/Energy_for_Victoria.pdf
ii Department of Sustainability and Environment, Our Water Our Future: The Next Stage of the
Government’s Water Plan, Victorian Government, 2007, p.3, accessed at
http://www.ourwater.vic.gov.au/__data/assets/pdf_file/0015/366/The-Next-Stage-of-theGovernments-Water-Plan-2007.pdf
iii Langmore, M & Dufty, G, Domestic demand elasticises: issues for the Victorian Energy
Market, St Vincent de Paul, June 2004.