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Legislative Council - Fifty-Second Parliament, First Session (52-1)
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NATIONAL ENERGY RETAIL LAW (SOUTH AUSTRALIA) BILL

Committee Stage

In committee.

The Hon. G.E. GAGO: The Hon. Mr Lucas asked a number of questions in his second reading contribution in relation to this bill. He noted that the bills before us today represent the national law and that the application of this national law in South Australia will require another legislative package. I can confirm that application legislation will be introduced into this parliament later this year. The application legislation will amend existing South Australian legislation and apply the national framework in South Australia with necessary state-specific provisions.

Mr Lucas has requested that further information be provided regarding the likely content of the application legislation. The national framework contains many of the obligations that will apply to South Australian energy retailers and distributors relating to the sale and supply of energy to small customers that will apply in South Australia from 1 July 2012. However, the application legislation will also contain necessary additional state-specific provisions, which will bind retailers and distributors. The regulatory arrangements for those off-grid areas not covered by the national framework are to be maintained in the South Australian legislation.

The application legislation will complement the national framework to form a sound regulatory structure for energy market participants and energy consumers in South Australia. The national framework is designed to operate in an environment of fully effective retail competition, without price regulation, although it can be adapted to jurisdictions with price regulation. As I indicated in my second reading response, it is the government's intention that retail price regulation for small customers will be preserved in South Australia once the national framework is applied.

It is also proposed that the current South Australian small customer threshold of 160 megawatt hours per annum will continue. Given that retail price regulation will continue, the obligation to offer supply will continue to apply only to AGLSA and Origin Energy for electricity and gas respectively, as are current arrangements. In regard to the Residential Energy Efficiency Scheme (REES), which requires retailers to actively assist South Australian energy consumers with energy efficiency in their homes, it is proposed that the REES will continue to operate in South Australia under South Australian legislation.

In accordance with the Australian Energy Market Agreement, the national framework does not contain regulatory obligations on energy entities to comply with jurisdictional energy concession schemes. Accordingly, this obligation will continue under South Australian legislation. The South Australian Energy Industry Ombudsman will also continue to perform current duties and hear matters arising under the national framework. There will be no change for South Australian consumers in their interaction with the Ombudsman.

It is the government's intention to consult widely with industry and consumer representatives on a consultation draft of the application legislation prior to it being presented to parliament later this year.

The Hon. J.M.A. LENSINK: I thank the committee for the indulgence to place these questions on the record, which all relate to the Residential Energy Efficiency Scheme (REES). My questions are:

1. How many assessments have been conducted under REES over the current and previous two financial years?

2. What is the minimum qualification for those carrying out audits under REES?

3. How is their work audited and quality assured?

4. Have all employees under this scheme had police checks?

5. How many are South Australian residents?

6. How much is the gross fee for an assessor for each audit?

7. How do businesses tender for this work?

8. How many companies or individuals carrying out these audits are based in South Australia and how many are not based in South Australia?

9. How many complaints have been received by:

(a) AGL; and

(b) the state government?

10. What are the terms of reference of the review of REES?

11. How can an individual or an organisation make a public submission?

The Hon. G.E. GAGO: I am happy to take those on notice, and we will start work on that.

Clause 1.

The Hon. R.I. LUCAS: The minister has responded to questions raised by members at the second reaching speech at the outset of the committee stage, and there are a number of issues that the minister has raised, a small number of which I seek to pursue. The minister has confirmed in her response and also her second reading response, I think, the government's current intention in relation to price control and price regulation in South Australia.

Can the minister confirm that there was a communiqué agreed by the previous minister and the government which broadly indicated that it agreed to the provision that, if a review was conducted on the extent of competition within a particular jurisdiction and if it broadly indicated that there was competition and it was a competitive market, that would be the trigger point for removal of price control and price regulation in each jurisdiction?

The Hon. G.E. GAGO: I have been advised that the Minister for Energy has provided this information: the Australian Energy Market Commission received submissions from 21 separate organisations and individuals to its review of the effectiveness of competition in the electricity and gas retail markets in South Australia. Five consumer groups and two business groups made submissions to the AEMC review disputing that there is effective competition in South Australia, which included: COTA Seniors Voice, the South Australian Council of Social Service, the Energy Consumers Council, Uniting Care Wesley, Uniting Care Kildonan, the SA Farmers Federation and the Corporate Rate Group. There were a number of other stakeholders that also raised issues, in submissions to earlier stages of the review, with the level of effective competition in areas of the market, but nonetheless supporting the removal of price control in South Australia, which included: Simply Energy, TRUenergy and South Australia Electricity.

The Hon. R.I. LUCAS: I thank the minister for that, but that is not the question that I put to her. I understand the position of the former minister for energy, who was not supporting the removal of price control in South Australia. We now have a new Minister for Energy, and I will not enter into a debate about the position of the new minister and those sorts of things. All I am trying to establish, firstly, is what agreements have been entered into by the government and the former minister through the ministerial council in relation to the process for removal of price regulation.

My question, again, was: was the government a party to an agreement at the ministerial council that in each jurisdiction there would be a review, which the minister has just referred to, of the extent of competition in the market, and if it was determined that there was competition in the market that that would be the trigger for the removal of price control in that jurisdiction? My question is: were we, the state of South Australia, a party to that agreement at the ministerial council?

The Hon. G.E. GAGO: I have been advised that, yes, we were party to the agreement that you refer to. However, the advice that we received from the AEMC, that they were asked to provide, was, yes, it was effective. However, we responded to that advice in a way that said we did not accept that and we were, in fact, not required to accept the AEMC advice. So, it is up to the jurisdiction to decide whether they are prepared to accept that or not and whether to proceed or not. It is at our election to provide.

The Hon. R.I. LUCAS: Thank you, minister, for that. Can the minister confirm, based on her advice, the nature of the agreement that we entered into? Was that a communiqué issued by the ministerial council or was it a formal agreement signed by each of the jurisdictions at some earlier stage that was signed by our minister on our behalf?

The Hon. G.E. GAGO: I am advised that it is the Australian Energy Market Agreement.

The Hon. R.I. LUCAS: My understanding is that, whilst I do not have a copy with me, that document is available on the various websites.

The Hon. G.E. GAGO: Yes, it is publically available.

The Hon. R.I. LUCAS: Yes, that is certainly my understanding. Minister, thank you for that. The confirmation is that we were signatories to the agreement; we set up this structure; the AEMC then conducted this review and, whilst there were various submissions to which the minister has referred, the AEMC eventually concluded that, in their view as the independent management body, there was a competitive market in South Australia and that, in their view, retail price control should be removed. What the minister is saying is that, even though that occurred, the original agreement signed by the minister gave the minister in each jurisdiction the power to reject that argument and maintain price controls.

The Hon. G.E. GAGO: I have been advised that there is nothing in that agreement that requires us to adhere to the advice of the AEMC.

The Hon. R.I. LUCAS: That is essentially what I was seeking; that is, what the minister is advising this committee is that, even though that structure has been entered into by the government on our behalf in that agreement, and the review concludes that it is competitive in South Australia and that, clearly in the AEMC's view, price control should be removed, there is nothing that requires a minister, in essence, first, to agree with it and, secondly, then remove the price control.

I seek a specific response from the minister: firstly, has our minister on our behalf given any undertaking in relation to the future in relation to price controls to the AEMC; that is, has he said to the AEMC, 'I hear what you say but we're never going to remove price controls.' Is that the government's position or is he saying, 'I hear what you say, but we're reviewing this on a year-by-year basis' or, indeed, is it somewhere in between? What is the government's position that has been formally outlined to the AEMC on behalf of our jurisdiction?

The Hon. G.E. GAGO: I have been advised that there has been no formal undertaking by the current minister.

The Hon. R.I. LUCAS: Just to clarify that, are we talking about minister Conlon?

The Hon. G.E. GAGO: No; the current energy minister.

The Hon. R.I. LUCAS: So minister O'Brien has given no commitment, but I am assuming that he has not attended a ministerial council meeting yet, so I can understand that he could not give a commitment in that he is only new to the job. I accept that, but has former minister Conlon on our behalf previously given a commitment to the AEMC in relation to our position; that is, is the position that minister Conlon gave to the AEMC, 'Never, ever; we're not going to do it' or 'We're keeping it under review on a year-by-year basis' or somewhere in between?

The Hon. G.E. GAGO: I have been advised that the AEMC has undertaken to conduct a further review, but a date has not been set for that at this time. I have also been advised that, to the best of our officers' understanding, there has been no formal undertaking to the AEMC by either minister other than the signing of the agreement.

The Hon. R.I. LUCAS: I am happy if the minister is prepared to take that on notice to confirm that that is the case—that there has been no undertaking or indication given by the former minister on our behalf to the AEMC—and, if the bills have passed the council, if the minister is prepared to respond by way of correspondence.

The Hon. G.E. GAGO: The agreement that has been signed is an IGA which is not legally binding on parties. To the best of our knowledge, there has been no formal undertaking by either minister which means that it is now in the power of the current minister to determine any future positions. Clearly, he is not bound by any past commitments, and we are saying that we are not aware of any, but it is now for the new minister, who has the power now to position ourselves. So, what the member is asking for is, in fact, irrelevant.

The Hon. R.I. LUCAS: I thank the minister for that and, indeed, the answer from the minister makes it clear that it is irrelevant, first, if she is indicating that, to the best of the officer's knowledge, there has not been a commitment. Secondly, she has confirmed that, even if there had been a commitment, that is irrelevant now because the new minister could undertake a completely different direction if he so chose in relation to this.

Of course, this is a critical issue for South Australians (that is, the issue of regulation and price control in South Australia), and that has been the position of the former minister, which he has put down for the last nine years, and that is that he was not going to see price control removed. But, as the minister has now conceded, there is an intergovernmental agreement which did establish a framework through which price control would be removed.

The minister has now indicated that the AEMC is about to do a further review. Can the minister advise the committee: is that further review just a replication of the previous review of the extent of competition in the market, albeit it done at a later date, or is it to be structured in a different way from the previous review to the extent of competition in the South Australian marketplace?

The Hon. G.E. GAGO: I have been advised that we have not been informed of the terms of reference at this point.

The Hon. R.I. LUCAS: I assume, then, that the minister's advice is that at this stage there has been no call for submissions or, indeed, any commencement of a process in relation to the review. If that is the case, are the minister's advisers able to indicate when they believe this further review by the AEMC will be conducted; in particular, is it to be conducted this year (2011) or at some later stage?

The Hon. G.E. GAGO: I have already put on the record that we have not been informed of the timing of this review.

The Hon. R.I. LUCAS: Can the minister indicate how, then, officers are aware of this particular review?

The Hon. G.E. GAGO: I have been advised that the Australian Energy Market Agreement indicates that there will be further reviews.

The Hon. R.I. LUCAS: Is it the government's position that there has been no communication, verbal or written, from the AEMC representatives to state jurisdictional representatives in South Australia that there will be activated a further review?

The Hon. G.E. GAGO: To our knowledge, no, I have been advised.

The Hon. R.I. LUCAS: If that is the case, it is nothing more than an imponderable; that is, there may well not be a further review. If it says that there may well be further reviews, that does not mean that the AEMC will necessarily be conducting a further review, particularly, as the minister has just outlined, it has already conducted a review of the extent of competition, it has made a decision or provided advice, and the South Australian jurisdiction has rejected that. I do not propose to proceed any further with that issue. If that is the only extent of it, there is no clear indication at all that there will be a further review of the extent of competition in the South Australian marketplace.

The second broad area I want to clarify with the minister is the issue of postage stamp pricing, which ensures equity between pricing for country consumers and metropolitan consumers. Is that impacted in any way through the National Energy Retail Law framework we have before us? The provisions that exist in South Australia are different from the provisions that exist in some other jurisdictions. Is it this particular framework that confirms our capacity to do that, or is it the later bill that we are to see introduced later in the year that either confirms or changes that?

The Hon. G.E. GAGO: I have been advised that it will not have an impact and that it exists within the previous national electricity law of 2007.

The Hon. R.I. LUCAS: So the minister's advice is that clearly this bill does not impact on it but that, when the later bill, which refers to the specific jurisdictional arrangements, is introduced to the South Australian parliament, that bill will not cover those provisions at all either?

The Hon. G.E. GAGO: I have been advised that that is correct.

The Hon. R.I. LUCAS: The third area: I think the minister in her response today or perhaps at the end of the second reading said that the bill we will see later in the year (and I indicated in the second reading that my view was that a number of the issues that some members like myself may need to pursue will be the ones that are jurisdictionally specific, which will be covered in the bill we see later in the year, evidently) will relate to some provisions specific to South Australia as they relate to retailers and the distributor.

Specifically in relation to the regime that used to exist (or still exists, I assume) in relation to bonuses and penalties in terms of the payments made to the distributor in South Australia for rewarding good performance and penalising bad, is that structure threatened by the national framework and does it have to be confirmed by the jurisdictional specific legislation we will see later in the year?

The Hon. G.E. GAGO: I have been advised that the answer is no.

The Hon. R.I. LUCAS: To clarify the answer: no, it is not covered by this legislation and no, it will not be covered by the bill later in the year?

The Hon. G.E. GAGO: That is correct, I have been advised.

The Hon. R.I. LUCAS: Thank you.

Clause passed.

Remaining clauses (2 to 14) passed.

Schedule 1.

The Hon. M. PARNELL: I move:

Clause 2, page 20, after line 21—Insert:

extreme weather event means an event declared by a local instrument to be an extreme weather event for the purposes of this law as it applies in the jurisdiction in which the local instrument is made;

My first amendment relates to the disconnection of energy to customers during a heatwave. For the benefit of the committee I advise that this amendment should be treated as a test for amendments Nos 2 and 3 and the first part of my amendment No.4. In my second reading contribution, I outlined why I believed this was an important amendment. I think that most members who have discussed this with me have understood that it is very poor practice for energy retailers to be disconnecting customers during a heatwave and, in fact, that is not how it has worked in South Australia. We have had rules against disconnection during extreme weather events.

The national laws and rules we are debating now also recognise that it is not good practice to be disconnecting consumers during a heatwave. As I understand it, it is intended to include this provision in rule 116, to be precise. Notwithstanding that this will have some level of force, I still move this amendment.

I agree with SACOSS that it is such an important issue, especially in an age of climate change, as we are going to be experiencing more and more extreme weather events, that we should give this rule the force of law by including it in the act, rather than relying on disallowable instruments. Whilst some members might take some comfort from the fact that it is covered elsewhere, I think it deserves to be in the act, and that is why I have moved this amendment.

The Hon. G.E. GAGO: The government does not support this amendment. The national regime for presenting disconnection for non-payment during an extreme weather event is located in the National Energy Retail Rules which are binding on retailers and distributors. This location allows each jurisdiction to nominate whether events are relevant to local conditions. The rules have the force of law and can be enforced by the Australian Energy Regulator in the same way as it enforces statutory provisions.

South Australia currently has a regime to prevent disconnection in heatwaves where a person has not paid their bill. An equivalent regime will be retained when South Australia adopts the national framework. The current South Australian regime is located in the Energy Retail Code, which is enforced by the Essential Services Commission of South Australia, similar to the National Energy Retail Rules. The code has the force of law and has been a successful instrument for the establishment and enforcement of the South Australian regime.

The Hon. D.W. RIDGWAY: I indicate that the opposition will not be supporting the Hon. Mark Parnell's amendment which, as he explained, elevates this provision from the rules or the regulations, if you like, into law. It is not that we do not agree with the sentiment so much as that we think that this legislation, as the minister explained, is national framework legislation. I know the minister referred to it earlier in answer to some questions from the Hon. Rob Lucas, that we will have a South Australian application act and the accompanying miscellaneous amendment bill later in the year.

As to provisions that are specific to South Australia, which clearly heatwaves are—and in discussions I have had with departmental officers in Tasmania, extreme cold is extreme weather, not extreme heat—it is clear to the opposition that, while we are not necessarily opposed to the intention of the Hon. Mark Parnell, we think that it is probably better dealt with when this place visits the South Australian application act and the accompanying miscellaneous amendment bill later in the year. So, we will not be supporting it at this stage.

Amendment negatived.

The Hon. M. PARNELL: I will not move amendments Nos 2 and 3, which are consequential. I will also not move the first part of amendment No. 4, which was the insertion of proposed new clause 64A. If it is useful to the committee, I will move just the inclusion of the proposed new clause 64B, which relates to compensation for wrongful disconnection. I would then, depending on the result of that, like to move the proposed new 64C, which is a separate issue. So, whilst my amendment No. 4 comprises three issues, we have dealt with one, but I would like to deal with the second and third separately. I move:

Page 47, after line 24—Insert:

Division 13—Miscellaneous

64B—Compensation for wrongful disconnection

(1) It will be taken to be a condition of a customer retail contract that the retailer will make a payment of the prescribed amount to the customer under the contract if the retailer—

(a) arranges for the de-energisation of the customer's premises; and

(b) fails to comply with the terms and conditions of the contract specifying the circumstances in which de-energisation (or disconnection) may occur.

(2) A payment under a condition under subsection (1) may be made directly to the customer or by rebate on an energy bill of the customer.

(3) A payment under a condition under subsection (1) must be made as soon as practicable after the supply of energy to the premises is restored.

(4) Nothing in this section affects any other right that a person may have to take action against a retailer or other person in relation to the de-energisation (or disconnection) of premises or the supply of energy.

(5) This section applies despite anything to the contrary in any terms and conditions that form part, or are taken by or under this Act to form part, of the contract between a retailer and a customer.

(6) In this section—

prescribed amount means—

(a) the amount specified by a local instrument to be the prescribed amount for this section as it applies in the jurisdiction in which the local instrument is made; or

(b) if no amount is specified under paragraph (a) with respect to a particular jurisdiction—$250 for each whole day that the supply of energy is disconnected and a pro rata amount for any part of a day that the supply of energy is disconnected.

In my second reading contribution, I pointed out that this was a provision that has existed in Victoria for some time. In fact, it has been a point of some pride to the Victorians that their disconnection rates were so much lower, because there was a provision for those who were wrongfully terminated to get compensation. I mentioned in my second reading contribution that the Victorian Essential Services Commissioner was asked to look into this whole question in January 2010 and was asked to advise whether they thought the scheme should continue or whether it should be abandoned.

I would just like to elaborate a little bit more on the findings of that inquiry. The Essential Services Commission's final recommendations included, firstly, that the scheme be retained and that it be retained in the same form it had operated for some time. That included the $250 per day payment. The commission recommended that the payment should continue until the customer was reconnected to their power, or for 10 business days, whichever came first. The commission also recommended that, if the customer contacts the retailer within 10 business days seeking reconnection, then the $250 per day payment should continue to accumulate until the customer is reconnected and without upper limit.

Importantly, the commission recommended that, if a customer does not contact the retailer within 10 business days seeking a reconnection, then payment for any economic loss beyond the 10 days would not be guaranteed and would be subject to the existing dispute resolution mechanism. That final point, I think, was important, because the examples that are usually trotted out as to why this scheme is unfair are the two examples of holiday homes which are only partially occupied and the case of a prisoner whose power was disconnected while they were in prison and therefore entitled to compensation.

So, I think it is possible to work around those two situations. It is probably also worth pointing out that, in Victoria, in the year 2008-09, which is the last year for which I have figures, there were only 155 wrongful disconnection payments made, so it is not a huge number. It involved nine retailers, and the total amount of compensation paid was $90,832. I think that this provision, which has worked well in Victoria and has resulted in them having an enviable low rate of disconnection, should be incorporated in this national law.

I will finish with a quick quote from the Victorian Council of Social Services (the Victorian equivalent of our SACOSS). What it says is:

The introduction of the payment in Victoria saw a sharp decline in disconnections that had previously been rising. While Victoria has generally had lower disconnection rates compared to other states, it is clear that the payment has been a key factor in retaining these enviable disconnection rates and protecting disadvantaged households from disconnection due to an incapacity to pay.

So, I would urge all members to support this amendment.

The Hon. G.E. GAGO: The government does not support this amendment. The Hon. Mark Parnell highlights that the Victorian Essential Services Commission indicated in its January 2010 review that the principal intent of the payment was to place an additional incentive on retailers to guard against disconnecting relevant customers who are willing to pay but do not have the immediate capacity to pay their energy bills.

The commission also found that the number and proportion of wrongful disconnections does not show an obvious pattern as to whether the payments are having an effect on reducing the retailer's wrongful disconnection. The commission also found that the scheme's simplicity was appealing but that it has proven too blunt in its application and led to outcomes that are unintended and perhaps disproportionate.

The Energy Retailers Association of Australia has provided information from their members that the Victorian scheme has caused them to establish policies that cause a delay in implementing the disconnection, during which time the customer's debt continues to increase. The result is not only an increased burden to the customer but an increase in the level of bad debt for retailers.

Where a customer has been wrongfully disconnected, they can make a claim with their retailer and, if this is not successful, with the energy ombudsman. In fact, over 70 per cent of wrongful disconnection cases in Victoria are handled by the energy ombudsman. Each claim made, whether through the retailer or ombudsman, requires case-by-case analysis and investigation by the retailer, thereby increasing staff costs.

Retailers have informed the ERAA that the costs of the wrongful disconnection scheme, including the costs of increased bad debt and increased staff, are much greater than the wrongful disconnection compensation payments made to customers. These increased costs are then passed on to all customers through the electricity price.

In South Australia, an alternative more proportional compensation regime exists through the Energy Industry Ombudsman. This allows wrongful disconnection disputes to be heard and payment to a consumer may be required. This is a more targeted and a much lower-cost approach. Most jurisdictions agree that the national framework does not need to include a wrongful disconnection scheme because it contains a wide range of protections which achieve the goal of preventing disconnection of vulnerable customers.

The national framework adequately addresses the issues of disconnection of customers who lack the capacity to pay their bills on time via a range of measures. These include the introduction of a customer hardship policy to identify customers experiencing hardship and an explicit statement that disconnection of a hardship customer must be a last resort option. There is also a general requirement that retailers seek to make personal contact with the residential customer and offer a payment plan prior to the disconnection.

It is important to recognise that the increased costs of a wrongful disconnection regime, including the necessary regulatory arrangements, oversight and compliance costs, will be recovered over time from all customers, including vulnerable customers. It is for those reasons that we do not support the amendment.

The Hon. D.W. RIDGWAY: I indicate that the opposition will not be supporting the Hon. Mark Parnell's amendment for wrongful disconnection for a whole range of reasons, mostly as outlined by the minister in her response from the government. I reiterate the comments I made earlier, and we will look at it again when we have the South Australian application act. I am sure the Hon. Mark Parnell will take the opportunity to re-introduce amendments of a similar nature when that bill comes before us. We do not see the national energy framework legislation as the place to have these measures.

The opposition agrees with the minister that there is significant protection for people for wrongful disconnections through non-payment. In particular, we have the energy ombudsman and, under the new framework, we have the mandatory customer hardship policy. My understanding of that is that, once somebody enters into a payment plan, if they are having trouble meeting their energy bill, then they will not be disconnected and the issue of late fees will not apply. I will cover late fees now. I suspect the Hon. Mark Parnell will not progress with the third section of his amendment No. 4, but I will cover that while I have an opportunity.

The Hon. M. Parnell: I am going to speak to it separately.

The Hon. D.W. RIDGWAY: Well, it will save me having to stand up again. Late payment fees. I understand the intention of the Hon. Mark Parnell. If somebody is suffering financial hardship and unable to pay their energy bill, then to hit them with a late payment fee makes it even more difficult for them to pay. Under the mandatory hardship policy those late fees will not apply. However, late payment fees should not be abolished for all customers. There would be a number of customers who would use late payment fees as a tool to manage the cash flow in their own businesses. Abolishing late fees would mean that the energy retailers would have to have some sort of mechanism to make sure that they were not exposed to people not paying their accounts on time. Ultimately, of course, it would end in pressure on prices and prices going up if customers start using the energy retailers as a second bank. For those reasons, I indicate that the opposition will not be supporting the second part or the third part of the Hon. Mark Parnell's amendment No. 4.

Amendment negatived.

The Hon. M. PARNELL: I move:

Page 47, after line 24—Insert:

Division 13—Miscellaneous

64C—Prohibition of fee for late payment

(1) A term or condition in a customer retail contract is void to the extent that it permits the retailer to charge the customer a fee or charge for the late payment of an energy bill.

(2) Nothing in this section prevents a retailer from offering an incentive or rebate to a customer for paying an energy bill on or before the due date for payment.

(3) This section applies despite anything to the contrary in any terms or conditions that form part, or are taken by or under this Act to form part, of the contract between a retailer and a customer.

This is the final amendment, and, I think, the most significant. They have all been important, but this is the most important. This is the issue that is going to affect most consumers. Quite simply, the issue is whether energy retailers should be able to add extra to their bill on account of late payment. In my second reading contribution I gave the broad case. I was subjected to an interjection from the Hon. Rob Lucas, which I will come back to in a second, because the Hon. David Ridgway has also referred to that same issue. The issue is whether people are going to start using electricity and gas companies as some sort of second bank to avoid paying their bills.

I think we have to put this in context. I know that the majority of people are not of the type that was described today by the Hon. David Ridgway, or by the Hon. Rob Lucas the last time we debated this. We have to acknowledge that access to affordable utilities, such as electricity, gas, water and sewerage, are basic rights and necessities for anyone living in a modern society. These services are vital to our health and wellbeing. If you do not have access to those services it is a major barrier to social participation. From the consumers' point of view, the cost of these utilities is as non-discretionary as rent. You have to have a roof over your head. You have to have the power on. You have to have the water on. So, these utilities need to be incorporated into, if you like, the cost of housing.

When we are looking at people who are living under poverty, one of the tests is the proportion of your income that is spent on your housing, including all of its associated costs, such as utilities. SACOSS has estimated that expenditure on utilities can be up to 9 per cent of many people's total expenditure. In fact, 9 per cent is an average—it is not a maximum. For average welfare recipients and low income earners, up to 9 per cent of their total expenditure is what they spend on utilities. The SACOSS cost of living update from July last year, showed that welfare recipients were very likely to be living in housing stress, or extreme housing stress, where their total housing costs were more than 30 per cent of their income, or more than 50 per cent of their income. So, what we are looking at is one of the major determinants of poverty, that is, the cost of utilities.

The issue with these late payment fees (and I will directly address the issue that the Hon. David Ridgway raised) is that, whilst only two to four customers in every 1,000 are on hardship programs and therefore have any late payment fees waived under the proposed new National Energy Retail Law rules, about 250 per 1,000 customers struggle to pay their bills on time due to financial pressures. So, about one in four struggle to pay their bills on time because of financial pressures. SACOSS has written to me, stating:

These figures are consistent with what we know about the level of poverty in the community and the number of families and households that live below the poverty line. With growing numbers of customers unable to pay on time as prices continue to rise in real terms over the coming years, the concern is that retailers will both shorten collection cycles and charge late payment fees to put further pressure on households to pay their bills on time.

The relationship with this amendment is that, if we do not put a stop to the charging of late payment fees, that is the outcome—shorter payment cycles. You will have to pay your bill sooner after having received it, and there will be a late payment charge added to it when you do get around to paying it.

UnitingCare Australia did a survey recently, and they looked at the priority that people attach to paying their utility bills on time. They found that 40 per cent of low income households gave a high priority to trying to pay their electricity bills on time, compared with 30 per cent for middle and higher income households. What that indicates is that late payment fees or penalties, if you like to call them that, are less likely to prompt low income people to pay more quickly but more likely just to compound their situation.

The industry, of course, argues that late payment fees will provide an incentive for households to pay their bills on time, but even the retailers will acknowledge that it is difficult to differentiate between the 'can't' payers and the 'won't' payers. The question has to be asked: where is the evidence that the 'won't' payers exist? The Hon. David Ridgway has referred to them. The Hon. Rob Lucas, last time, mentioned that it was interest free if you did not pay your bills on time. The fact of the matter is, as I understand it, that there is no clear evidence as to the different relationship between the 'won't' payers and the 'can't' payers.

The closest I could get was analysis in the United States, which suggested that the 'won't' payers was between about 8 and 12 per cent of consumers, whereas we know that the number of people who cannot pay or struggle to pay on time is a much higher proportion, possibly up to around 25 per cent. So, the question is: should 90 per cent of customers be hit with a late payment fee because a small percentage of people want to hold out paying their bills until the last possible moment?

I think that we have got it wrong if we think that there is a massive proportion of people out there who are thinking, 'If I delay paying my electricity bill, and I can afford to delay it because they are not going to charge me any late payment fees, I will just put that money on the stock market for a little while, or maybe as some short-term cash or bonds or something, and somehow use it to increase my wealth.' It is not how the world works. A very small proportion of people hold out paying their bills until the red letter arrives or someone knocks on their door. It is a very small proportion, but a bigger proportion is genuinely struggling to pay their bills.

I also just mention that, if we consider utilities as an essential, as we do housing, if you do not pay your rent on time there is no provision for late payment fees for rent, so I think we need to consider utilities in the same category. I think that it makes no sense to have a legal response to people who cannot afford to pay their bills on time to increase their total bill and make it even harder for them to catch up.

The experience is that low income customers do not withhold payment of their utility in order to gain a higher return by devoting their resources to alternative uses. They are not out there on the share market spending their electricity money. If they cannot pay, it is because they are under financial stress, so increasing the bills of low-income people will provide no inducement to prompter payment and may, in fact, be counter-productive as it delays rather than accelerates their eventual payment of arrears.

I am disappointed that the Liberal Party has already said that it is not going to support the amendment. I imagine that the Hon. David Ridgway will now be writing to the Herald Sun to counteract the articles that it was writing about how Ted Baillieu was so fond of these measures and was keen to make sure that Victoria kept all its consumer protection measures in place. Maybe the Liberal Party is such a broad church that it does not mind what each other does in different states, but certainly the Victorian Liberals are right behind these consumer protection measures, and it is a big disappointment that the Liberal Party is not. Notwithstanding that, I would urge all other honourable members to support this important consumer protection amendment.

The Hon. G.E. GAGO: The government also does not support this amendment. The national laws and rules preclude retailers from charging late payment fees for the most vulnerable customers, those experiencing hardship. In relation to other customers, retailers may choose to impose late payment fees for those customers who can pay but consistently fail to do so on time. This is an important tool for retailers to manage their commercial costs of supply to customers. If retailers are unable to recover these costs from those who fail to pay on time, the increased costs end up being recovered indirectly from all customers, who include hardship customers. For those reasons we will not be supporting the amendment.

The Hon. D.W. RIDGWAY: I am interested to know whether, if we do not have this late payment fee policy, the honourable member expects that energy retailers will then tweak their pricing mechanisms to, if you like, recover the money if people are starting to use them? The Hon. Mark Parnell claims that there are only 10 or 12 per cent from some US data that shows the 'won'ts' and the 'can'ts' but, clearly, if people start doing that, the retailers will be out of pocket, so how do you expect that they would recover their revenue? Do you expect that they would pass it on and then eventually everybody would wear the cost, including the people who are least able to pay?

The Hon. M. PARNELL: The answer, I think, is clearly that there is no evidence that that has happened in any of the jurisdictions where they do not allow late payment fees. What we have to remember, of course, is that the ultimate sanction for not paying your bills is that you get cut off; you get disconnected. When you are disconnected, they make extra money by charging you a reconnection fee, so they get their money back. The point is that the idea of setting a time frame in which bills have to be paid is a fairly arbitrary exercise.

People are involved in commerce. There are some bills that you are supposed to pay as you take the goods out of the shop immediately; other things have seven-day net terms or 28 days; other people provide credit for longer. I do not think there is any evidence that there is going to be a particular or verifiable spike in the prices for energy paid by other consumers because we ban unfair late payment fees, which we know hit low-income earners. I do not see any evidence for that at all.

If the honourable member or the minister or anyone else wants to point to a before-and-after study in other jurisdictions where they did not have late payment fees and then they allowed late payment fees, I bet that you would have trouble finding a jurisdiction where the price of energy went down when they introduced late payment fees. You cannot argue that it is going to go one way and not the other. If you are saying, 'If we prohibit late payment fees the cost of energy will go up,' show me where the cost of energy has gone down where the reverse situation applies.

The Hon. G.E. GAGO: It costs money to bill people. There are administrative costs with issuing further accounts: it costs money. I ran an organisation based on fees applying to members. We issued a late payment fee, and that fee covered our administrative costs. It was purely cost recovery. We worked out what would be the administrative costs of having to put out another billing round, on average, to that many people, and we covered our costs—and it is reasonable to do that. We know that it costs money to issue and mail out accounts to people. It costs in staff time and money to input and manipulate data, and there are also postage costs.

It costs money, and it is reasonable that those costs are passed on to people who are incurring those costs. These are not hardship cases—they are already captured and precluded from having this supplied to them—but people who, for a wide range of reasons, choose not to pay on time. These are people who were habitual late payers; they cost the organisation, and it is unfair and unreasonable to pass on those costs to other members.

Amendment negatived; schedule passed.

Title passed.

Bill reported without amendment.

Third Reading

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises) (17:37): I move:

That this bill be now read a third time.

Bill read a third time and passed.

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