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COMMENTS ON THE GOVERNMENT POLICY STATEMENT
We
welcome the revised Government Policy Statement however we consider
that there are some key parts missing from the Statement. Specifically
we consider the Statement should address issues around electricity
as an essential service, vulnerable customers and their inability
to pay for electricity, and fuel poverty.
In
our submission, we first address the consumer protection and consumer
complaints resolution system parts of the Statement. We then discuss
issues around peoples’ inability to pay for electricity.
Domestic
consumer contracts
We
strongly support the introduction of model contracts for residential
consumers. We are aware of work currently underway on the drafting
of a model contract. We hope this work has a successful conclusion
and that the Electricity Commission is able to adopt that model.
We
would endorse any model contract that:
-
requires companies to make their charges transparent on consumers’
bills
-
specifies how often meters are read and bills generated (we recommend
that meters be read at least once every 3 months, and that bills
are generated monthly), and
-
controls the use of bonds (see below).
The
Commission must ensure coordination between its model contract and
the Electricity Complaints Scheme’s Electricity Consumer
Code of Practice.
Low
fixed charges
We
strongly endorse low fixed charges as outlined in the Statement.
Pre-payment
meters
The
Statement provides no rationale for the introduction of pre-payment
meters (PPM). Why does Government favour these? Are they to provide
greater consumer ‘choice’ and management over their energy
use? Are they to address issues around consumers’ inability
to pay for electricity?
International
evidence suggests PPMs do not address the issues for which they
were introduced. PPMs tend to be introduced on the rationale that
they provide greater control for consumers over their energy use
and budget. However there are a number of problems with this assumption:
- PPMs
as an energy management tool assumes that the household has control
over the thermal efficiency of their house and the appliance quality,
which is often not the case, particularly for tenants and low
income households including aged pensioners.
- PPMs
are often installed at the insistence of the retailer and are,
in fact, not customer demand led.
- PPMs
tend to have the highest tariffs, and customers not on PPMs are
often offered discounted tariffs if they pay using direct debt.
Therefore the poorest people pay more for their electricity than
others.
PPMs
do not address the underlying reasons of peoples’ inability
to pay for electricity. If people have limited disposable income
there is little they can do except juggle between whether they pay
their power bill, their rent, or buy food. If they cannot afford
electricity, all the PPM will do is shift the process of disconnection
from the retailer to the consumer, leaving the household without
an essential service. We contend, therefore, that PPMs will exacerbate
rather than limit peoples’ hardship.
The
Government needs to have a clear rationale for PPMs. We recommend
the Electricity Commission not move forward on PPMs until it does
more work on this issue.
Use
of bonds
Bonds
are a barrier to people accessing electricity, and we question the
need for retailers to charge a bond. Overseas evidence, and anecdotal
evidence in New Zealand, suggests bonds are used by some retailers
to purposefully exclude poorer customers.
Bonds
are likely to be charged in a discriminatory not universal way (e.g.
to tenants on a benefit rather than homeowners). This means that
poorer customers are effectively required to pay more for the service.
Indeed, if the person cannot afford the bond and no other retailer
will provide the service, they are unable to access the service
at all.
We
consider more work needs to be done on whether bonds are in fact
necessary, and recommend the Commission have responsibility to
undertake research on this issue.
Retailer
insolvency
We
endorse the requirement on the Commission to establish arrangements
for retailer insolvency. We also consider the Commission should
address the issue of provider of last resort (see below).
Consumer
complaints resolution system
We
support the existing Electricity Complaints Commission Scheme and
its code of practice, but consider that it is essential that all
residential consumers be covered by the scheme. We recommend
the Commission make it a priority of ensuring all retail and distribution
companies join the scheme.
We
also note that the Commission will need to coordinate between the
Scheme’s code of practice and the Commission’s model retail
contract to ensure consistency. If there are inconsistencies between
the two documents, then, as a rule, the document that provides greater
consumer protection must be given primacy.
Consumer
hardship and electricity as an essential service
It
is the obligation of government to articulate the rights and responsibilities
of customers and utilities, and it is these that inform the objectives
of “consumer protection”. Does it support or not support
the delivery of sufficient energy to households to ensure their
essential needs for heating, cooking, hygiene and security? If
it does believe that households should have these essential needs
met, then it cannot support policies that require disconnection
for inability to pay. Appropriate consumer protection in this
case would be to ensure that consumers are not penalised for inability
to pay, and that barriers to achieving the minima of welfare are
removed.
Electricity
is an essential and vital service for peoples’ health and safety.
We consider it untenable that households go without this essential
service simply because they do not have the means to pay for it.
Further, we consider the Government has an obligation, regardless
of how the market is structured, to ensure universal electricity
supply.
The
Government should acknowledge whether it does or does not support
the delivery of sufficient energy to households to ensure their
essential needs for heating, cooking, hygiene and security. We
recommend the Government should explicitly articulate this as a
policy objective in the Statement.
There
is a broad range of evidence available that suggests an increasing
number of people struggle to pay for their electricity. For example:
- Our
own client enquiry statistics point to emerging problems. Citizens
Advice Bureau average client enquiries over the past two years
in the following areas:
- electricity,
including consumer complaints, billing problems and disconnections:
6,800
- financial
difficulties, debt and repossession: 8,000
- requests
for budgeting assistance: 16,600
- social
security and emergency assistance: 22,000.
- The
cost of electricity has increased dramatically since the 1999
electricity reforms, instead of decreasing as was suggested when
the reforms were introduced. Between November 1999 and August
2003 domestic electricity prices increased 13.1%.
- Alongside
the cost of electricity are increasing housing and accommodation
costs:
- The
cost of buying a home has increased by 16.2% since August
2002, including increases of 59% in Marlborough/Nelson, 43%
in Southland and 24% in Hawkes Bay.
- Further,
Housing New Zealand reports a substantial increase of 36%
in the number of households renting between 1991 and 2001,
and a related increase in the cost of renting. The Corporation
warns that higher rents reduce the purchasing power of people’s
incomes, and increase financial pressures on less affluent
households.
- Foodbanks
across New Zealand report that many applicants are in debt to
their electricity retailer. In Christchurch, for example, up to
80% of foodbank applicants are in arrears with their electricity
bill (see table below for more information).
Percent
of foodbank applicants in arrears with their electricity bill
Southland Foodbank Presbyterian Support Otago Christchurch City
Mission Wellington Downtown Community Ministry Palmertson North
Foodbank Hamilton Combined Christian Foodbank Manukau Salvation
Army
4% 30% 80% 9% 21% 6% 47%
- In
an attempt to conserve resources by reducing expenditure on energy,
some older people may keep the temperature of their household
too low for comfort, a practice described as “voluntary hypothermia”.
- The
Fire Service is increasingly concerned with the number of deaths
from fires in residential occupancies caused by the improper use
of candles in households disconnected from the electricity supply.
Hardship
policies
The
use of disconnection is punitive and unhelpful. While we do not
condone people not paying for electricity because they are unwilling
to do so, we are strongly opposed to retailers not supplying or
disconnecting people because of an inability to pay. Peoples’
inability to pay is characterised by either those who have an outright
incapacity to pay, or those who have an inability to pay within
the specified period. For the second group we consider that retailers
need to have better policies dealing with indebted customers. For
the first group we consider that Government has the responsibility
to ensure those people continue to access electricity services.
We
recommend that the Commission develop a hardship policy, to be adopted
by all retailers, for those with an inability to pay within the
specified period. These
policies should be included in the model consumer contract.
The
Government recently passed the Credit Contracts and Consumer Finance
Act, which provides a hardship policy for debtors who are unable
to pay due to unforeseen circumstances. This provides a possible
model for an electricity hardship policy.
We
further recommend the Commission examine ways Government can ensure
people have universal access to electricity, including
ways to ensure those who have an outright incapacity to pay are
supplied electricity.
There
is a wealth of overseas experience that the Government could learn
from, including:
- provider
of last resort schemes
- levies
on all customers that is re-distributed to low-income programmes
- government
directly funding low-income programmes
- income
support directly to customers.
Fuel
poverty
Many
of the issues discussed above are closely related to the concept
of “fuel poverty.”
A
fuel poor household is one that cannot afford to keep adequately
warm at reasonable cost. The most widely accepted definition of
a fuel poor household is one which needs to spend more than 10%
of its income on all fuel use and to heat its home to an adequate
standard of warmth.
Importantly,
the definition focuses on what people would need to spend, rather
than what they actually spend on heating. This is because fuel
poor households have to balance the need for fuel and other essentials,
and very often cannot heat their homes properly.
The
Government is addressing some issues related to fuel poverty; primarily
in the area of energy efficiency (e.g. retrofitting programmes,
insulation standards in the Building Code, and Minimum Energy Performance
Standards for appliances). However we consider it should examine
fuel poverty in New Zealand more strategically. To this end we
recommend that Government develop a Fuel Poverty Strategy that includes
a target for fuel poverty elimination, similar to that developed
in the United Kingdom.
- There
the government set the target of eradicating fuel poverty in vulnerable
households by 2010. In addition, the Office of Gas and Electricity
Markets developed a “Social Action Plan” detailing work
it and others, including industry, was undertaking to tackle fuel
poverty; this includes particular work on debt and disconnections.
We
would like to make a final comment about the priorities of the Electricity
Commission. Many of the issues it is required to consider are ‘big
picture’, including security of supply, electricity infrastructure,
etc. A focus on these issues, coupled with the strength of voice
that the electricity industry has, is likely to mean that residential
consumer issues are ignored, or at least given less attention. We
strongly recommend the Commission commit specific resources to focus
on residential consumers’ issues, including consumer hardship.
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