Fairness, misbehaving and trust in the energy marketRosemary SinclairCEO Energy Consumers AustraliaOctober 2017

What I’ll cover

1. What consumers are telling us. 2. Misbehaving and trust.3. From Finkel to fairness.4. Going live: winning and maintaining trust to innovate.5. Take-aways.

2

Our objective: the LTIC

To promote the long term interests of consumers of energy with respect to the price, quality, safety, reliability and security of supply of energy services by providing and enabling strong, coordinated, collegiate evidence-based consumer advocacy on National Market matters of strategic importance or material consequence for Energy Consumers, in particular Residential Customers and Small Business Customers.

3

This means…making NEM 2.0 work for everyone

4

Small business Households

1.What consumers are telling us – zooming in on value for money

Australian Energy Update, Figure 3.6 http://www.environment.gov.au/en

ergy/publications/australian-

energy-update-2017

Now…household energy price index

6

Energy Consumer Sentiment Survey

(June 2017), Figure 8

http://energyconsumersaustralia.com.au/wp-

content/uploads/Energy-Consumer-Sentiment-Survey-

Key-Findings-June2017.pdf

Now…electricity and gas trailing other markets on value for money

7

48

63 6166

49

6763

39

30 30 28

41

2730

127 8 6

106

0

10

20

30

40

50

60

70

80

Electricity Gas Internet Mobilephone

Insurance Banking Water

Value for money for household services

Positive Neutral Negative

ECA Solar and Battery Research (May 2016)

Manage my costs and give me control – solar

8

60

32

34

27

26

17

6

3

24

30

28

27

24

22

11

5

8

20

18

20

22

27

16

10

0 10 20 30 40 50 60 70 80 90 100

Reducing household energy bills

Becoming less dependent on mains electricity

Being able to get a feed-in-tariff for feeding …

Government grant schemes for installing…

Protecting the environment

Adding to the house's resale value

Recommendation by a friend or family

The fact that your neighbours had it

How much have the following factors contributed to your decision to install a solar electricity system?

Strongly agree Mostly agree Mildly agree

ECA Solar and Battery Research (May 2016)

Manage my costs and give me control – batteries

9

41

43

39

29

25

18

11

7

6

21

19

22

14

15

18

12

13

8

14

11

11

14

15

17

16

11

11

01020304050607080

Becoming less dependent on mains electricity

Reducing household electricity costs

More efficient use of my solar panels

Don't get a high enough feed-in tariff

Protectng the environment

Adding to the houses's resale value

Being an early adopter of new technology

Recommendation by a friend or family member

The fact that your neighbours had it

Factors contributing to you considering installing battery storage

Strongly agree Mostly agree Mildly agree

Tech forward Western Australians…

0 10 20 30 40 50 60 70 80

NSWVIC

QLDSA

TASACTWA

SE QLDBus.

Rooftop solar panels

Already have Considering

10

Energy Consumer Sentiment Survey

(June 2017), p 25

http://energyconsumersaustralia.com.

au/wp-content/uploads/Energy-

Consumer-Sentiment-Survey-

June2017.pdf

Satisfaction with VFM stable in Tasmania, but down significantly in NSW, VIC, WA and ACT.

34 32

41

29

46 43

3438

4641 41 40 39

4339 42 39 42

25 27

19

32

1118

25 23

12

05

101520253035404550

NSW VIC QLD WA SA TAS ACT SE QLD Business(All)

Value for money – electricity

Positive (7-10) Neutral (4-6) Negative (0-3)

11

Energy Consumer Sentiment Survey, November 2017 –not yet released

Electricity and gas continues to trail other markets on value for money

35

59 6473

67 72

57

3829 29

23 28 2332

2612 7 4 5 4

11

01020304050607080

Electricity Gas Internet MobilePhone

Insurance Banking Water

Satisfaction with utilities – Tasmania

Positive Neutral Negative

12

Energy Consumer Sentiment Survey, November 2017 –not yet released

“I would prefer my six cents of power, sorry my units of power, which aren’t six cents, to go into my community. I get six cents from [energy retailer], but if I get 25 cents because I gave it to you because you have fallen on hard times, well I’m delighted.”

Attendee, ECA Regional Listening Tour April-June 2016

I want to trade, share, gift…

Consumers as…

14

Pariahs Pawns Partners

2. Misbehaving and trust

Thaler, anomalies and misbehaving

17

• Information ≠ action.• More tariffs ≠ real choice.• Smart meter data ≠ information • Potential saving ≠ switching. • Price signal ≠ behaviour change. • Cost/pay-back periods ≠ barrier to

solar and battery investment.• Big potential saving ≠ switching

rates. • Switching ≠ discipline market. • Rules ≠ compliance and outcomes. • Efficiency ≠ LTIC.• Big and expensive ≠ secure. • High wholesale prices ≠ new

investment.

Transformation is as much about culture, as it is about technology, regulation and policy

18

“Firms are very reluctant to run experiments.”

Richard ThalerDeloitte Review Issue 18

What is fair? The Snow Shovel Experiment.

20

A hardware store has been selling snow shovels for $15. The morning after a large snowstorm, the store raises the price to $20.

Rate this action as: ‘acceptable’ or ‘unfair’.

Acceptable 76% Unfair 24%

Acceptable 18% Unfair 82%

The AEMA(2004)

24

Goals of the 1997 Telecommunications ActTo promote:• the LTIE of end-users of carriage or

content services• the efficiency and international

competiveness of the industry• the availability of accessible and

affordable carriage services that enhance the welfare of Australians

Meeting consumers where they are, and as they are.

26

From the Federal Court…

27

to deliberative, aligned outcomes

3. From Finkel to outcomes

Re-setting retail: from pass-through to outcomes

29

“Now, with the retailers, we know that millions of Australian families are paying more than they need for their electricity. They are on plans that have run out, discounted plans that have run out and they are now on a standard offer and paying too much for their electricity. They have got people that are on the wrong plans.”

Prime Minister, 9 August 2017

How did we get here? ACCC analysis

30

Affordability: no silver bullet

31

Its complicated...

32

1. Better regulation, transparency and markets.

2. Strengthening reliability. 3. New technology and

innovation.

“…this brave new world of a radically changing energy

mix, disruptive technology and the empowerment of

consumers who are no longer at the end of the supply

chain but rather in the middle that the Turnbull

Government is implementing its plan”

Josh Frydenberg, AFR Energy Summit

The Labor view

34

• Open to deal on CET. • Activate ADGSM + introduce

National Interest Test. • Modernise energy rules.• New interconnection and

renewable energy zones.• Lower CEFC hurdle rate.

4. Going live

Finkel Blueprint: from coordinating and rewarding a SMALL number of BIG things to a BIG number of SMALL things…

36

The Finkel Blueprint

37

38

A new conversation about energy efficiency

39

We need to innovate in unexpected places…

40Source: Phil Wilkinson, AIRAH

Mould growth on air supply fan Dust and debris on cooling coil

5. Summing up

Three take-aways

1. Consumers are moving. They have ‘jumped the fence’ in search of ‘cost and control’ and are not going back to their seats in the grandstand.

2. How do we win the trust and confidence of consumers to design and build a market that allows consumers to get the energy services they need, derive value their investments AND optimises the system as a whole.

3. Design, test and refine to transform…meeting consumers where they are.

42

From decades to minutes…

43

1920-29…ish

Next…design, test and refine

44

ARENA A-LAB ‘Innovation Frames’ https://arena.gov.au/a-lab-energy-system-innovation/

Kuhn

45

Kuhn

46