Tackling Australia’s energy debt crisis

Energy affordability is a key issue for consumers and communities across Australia. With household energy debt on the rise, the Australian Energy Regulator (AER) has raised concerns about the lack of customer support through retailer hardship programs, and the effectiveness of these programs in tackling debt. Here, we review how responses to the energy debt crisis have evolved during the pandemic, as well as consider new approaches emerging from retailers and community groups that put consumers first when it comes to energy affordability.

An industry report and statement from the AER released in late-2021 warned of a climb in average household energy debt, as experiences of energy affordability over the last two years reflect the pressures of the COVID-19 crisis.

The rise in energy debt comes despite state and territory trends of falling energy prices, and has sparked a new dialogue about energy affordability in the industry, with mounting pressure for national bodies, energy retailers and community groups to collaborate further and empower consumers to beat the trend of energy debt.

The AER’s Annual retail markets report 2020-21 found that average household debt for gas and electricity combined has increased 12 per cent, from $897 in 2019–20 to $1,000 in 2020–21.

The report also found that the average electricity debt for a customer entering a retailer’s hardship program grew 21 per cent over the same period – increasing from $1,304 to $1,584.

The AER’s concerns extend to both why fewer customers are seeking support from retailers, as well as seeking ways to ensure greater effectiveness of these programs.

Energy affordability and the COVID-19 crisis

The energy debt findings in the AER’s report reflect ongoing challenges to energy affordability felt by consumers over the last two years.

During the height of the COVID-19 crisis, the AER responded nationally to concerns about energy affordability by releasing a Statement of Expectations to retailers.

The Statement of Expectations asked retailers to protect customers from disconnections and support struggling customers with their bills through hardship support programs, building on the existing expectation that retailers take some responsibility for their customers and their capacity to pay.

All energy retailers must offer hardship policies by law, enabling residential customers to enter payment arrangements that fairly reflect their own capacity to pay and help prevent spiralling debt.

However, AER Chair, Clare Savage, said that despite retailers having an obligation to identify whether a customer is experiencing hardship, the drop in both the uptake and efficacy of hardship support programs during the pandemic was concerning for all parties.

“It’s not surprising that energy debt rose due to the effects of the COVID-19 pandemic, and not surprising to see an increase in people on payment plans to manage their bills,” Ms Savage said.

“But we are not out of the COVID woods yet, and with our data showing more than 262,000 people paying off some form of energy debt, it does raise questions as to why there is a drop in the number of customers entering hardship programs.”

New attention on energy retailers

Ms Savage called for retailers to improve the accessibility of tailored hardship programs for customers, and even warned retailers to sure up their internal protocols for responding to customers in financial difficulty or face consequences.

“Our compliance and enforcement priorities for 2021–22 include a focus on reducing customer debt … we will be monitoring retailers to ensure they are identifying residential consumers in financial difficulty and offering them payment plans that have regard to their capacity to pay, where relevant,” Ms Savage said.

Added pressure on energy retailers to put consumer outcomes first comes as power and gas retailer Sumo Energy was fined $500,000 for alleged unlawful disconnections of 143 customers in 2020.

Federal Minister for Industry, Energy and Emissions Reduction, Angus Taylor, emphasised the Federal Government’s commitment to hold retailers accountable and ensure they provide necessary support to customers in hardship.

“Energy costs are continuing to fall. This is good news for Australian families and small businesses,” Mr Taylor said.

“However, as providers of an essential service, it is critical that energy companies step up to deliver necessary support to any customers doing it tough.”

New industry thinking on energy affordability

The Energy Charter recently conducted interviews with all signatory CEOs to identify common ground practises that put consumer outcomes first and included energy affordability goals in the national energy transition.

New initiatives raised by Energy Charter CEOs included: » Increasing solar connections in regional areas of

Western Australia and more automated processing of concession entitlements » Longstanding relationships with community organisations such as Uniting to deliver support to the most vulnerable customers » Extending the Energy Support Programs to Tasmanian residential and business customers through COVID » Proactively using energy data and analytics to better understand energy usage profiles and target customers in hardship » Targeted campaigns that encourage customers to claim energy concessions and rebates » The development of a Vulnerable Customer

Assistance Program » The innovative #BetterTogether “train the trainer” program with Voices for Power, Sydney Alliance, that offers energy literacy training in Western Sydney for culturally and linguistically diverse communities

Greater collaboration and knowledge-sharing among energy industry CEOs is critical to ensure energy affordability and tackling energy debt remains a part of a national conversation, as is the work of community groups working at the front line in the energy debt crisis.

Because hardship support programs can take many different forms – including face-to-face support approaches, financial counselling, energy audits and conventional payment plans – offering tailored solutions for consumers is vital to manage the energy debt crisis.

“For the past 20 years we’ve tried different tactics to manage the issues and barriers to consumers participating in the energy market,” Ms Savage said.

“Hardship programs will always be needed, but now is the time for the energy sector to ask what else we could do to support consumers who find themselves in vulnerable situations, especially when they least expect it.”