The Impacts and Consequences for Low-income Australian Households of Rising Energy Prices

Abstract

There is limited understanding of the impacts and consequences for low-income households of the substantive increases in household energy prices since mid-2007. The average increase in Australian household electricity prices from 2007 to 2013 was nearly 83% with the highest experienced by NSW households (108%) and the lowest average increase for those living in the ACT (71%).

This study provides a substantive evidence base of the lived experiences of low-income households as a result of rapidly rising household energy bills. The study comprised: an online survey completed by 372 respondents across Australia during the period 1 February to 30 November 2012; and, focus groups and interviews conducted with 130 participants in the capital city and a regional centre of the four most populous States during October and November 2012.

There has been anecdotal reporting by the media, welfare agencies, community organisations and charities of the deleterious effects of rising energy prices. The findings of this study indicate the nature of these damaging effects is widespread and systemic.

The well-being, health and lifestyle of low-income Australian households are suffering from the cumulative effects of ever-increasing electricity bills over a sustained period of many years which has compounded the circumstances of these vulnerable households.

Never or rarely leaving home, using only one room, shorter (or occasionally, no) showers, watching less television, going to bed fully clothed (or early) to avoid the use of heating, families using a common sleeping room when cold, rarely having friends or extended family at home to avoid using cooking appliances and/or the room temperature being uncomfortable – these are some of the ‘strategies’ that low-income households have adopted to ‘manage’ their energy use as they endeavour to control the size of bills. These actions are far more extreme than the commonly promulgated measures to improve household energy efficiency.

As a result of cutting expenditure on essentials such as food and reallocating expenditure on other items to be able to pay energy bills, and making relatively severe changes in household practices to reduce the size of energy bills, these households are suffering physical discomfort, reduced physical and mental well-being, loneliness and social isolation, strains within household relationships, and distress about the social and emotional well-being of children.

The awareness of energy efficiency measures is strong and nearly all households have tried to reduce their energy use in response to rising energy bills. Barriers to further reductions in energy consumption are no financial capacity to afford energy saving appliances or household repairs/improvements (which is most problematic for renters), the need for health-related use of heating and cooling and life support equipment, and the presence of children. Households are loathe to cut heating or cooling too much in case it affects the health of children or exacerbates existing health vulnerabilities.

The dominant policy measure to assist low-income households with energy bills are rebates, concessions and temporary financial assistance provided by State and Territory governments, generally as an absolute amount (lump sum) rather than a proportion of a household energy bill as is the case only in Victoria. More subtly, this assistance shifts the problem to one of poor financial management and individual (lack of) responsibility.

At least 2.3 million low-income households are regularly receiving some form of State Government concession or rebate on their electricity bill. Yet all States record a higher proportion of residential consumers being disconnected for non-payment of bills in 2011-12 compared to 2007-08 which strongly signals the increasing ineffectiveness of these measures.

Access to assistance measures requires self-identification and hence the need for information. Yet many eligible households are ignorant of programs because they do not have internet access where information is most commonly provided, mobile phone costs and call waiting times prohibit them making contact with an energy supplier, or communication difficulties are experienced when contact is made which leads to frustration and an unwillingness by the household to spend further time trying to engage with their energy company.

Payment plans and hardship policies are further types of assistance for households experiencing energy hardship. Under the new, and partially implemented, National Energy Customer Framework (NECF) energy retailers are required to implement customer hardship programs which are generally framed around payment arrangements for energy bills owing, ongoing use and the avoidance of disconnection. Households who have used such plans to date generally consider the payments were unaffordable, being set too high and not reflecting their capacity to pay.

Overall, the study’s findings pose a number of critical issues for government and policymakers.

There is strong evidence of the inability of low-income households to become more energy efficient. Effort to reduce household energy use is widespread but has been highly concentrated on low-cost practices like the installation of low-energy light bulbs. The barriers to reducing energy consumption mean the scope for further – and substantive – improvements in the energy efficiency of these households are highly constrained. More minor changes to household energy behaviour will not result in sufficiently significant changes being reflected in lower energy bills and will undoubtedly aggravate already diminished levels of health and well-being.

There is a problematic relationship between low-income households and energy retailers. This relationship is framed by companies providing customer information on websites, the use of 1300 or 1800 numbers for customers to make telephone contact, and the customer experience encountered when discussing payment difficulties or a payment plan. Nearly 1.5 million low-income households do not have home internet access. From 1 January 2015 calls from mobile phones to an 1800 number will be free. In the meantime, call costs pose a significant barrier to contact and information. The new NECF requires a more proactive approach by energy retailers to assist those likely to experience energy hardship although the success of this approach is as yet unknown.

A further critical policy issue is the purpose of energy bill assistance. Current assistance, the monetary value of which varies considerably across Australia, is reactive. Assistance is directed at the bill which is the end-point of household energy use. Thus this assistance does not help low- income households manage their energy use to achieve the maximum possible energy efficiency level for their circumstances. Measures for widespread, long-term improvements to the energy efficiency of housing occupied by low-income households are also non-existent. Energy efficiency measures are limited in scale and focus on household behavioural practices to reduce energy use.

The effectiveness of current energy bill assistance would appear questionable given, for example, the increasing rate of residential electricity disconnections and the findings of this study. But to understand the ‘effectiveness’ of current measures will require a systematic evaluation drawing on data which should be held by all Australian Governments even if not publicly released at this time. Nevertheless, such an evaluation would only deal with current reactive measures and not provide preventative or remedial policies; preventative in the sense that low-households are ‘prevented’ from falling into energy hardship and remedial in the sense that households are ‘removed’.

Energy hardship is caused by a conjunction of factors – low income, energy prices, the condition of housing, and the capacity to adopt different household practices to manage energy use given its size, composition and needs. Given the current extent of energy hardship, as evidenced by this study, there is a high need for reactive policies – and undoubtedly an improved level of assistance - to continue until preventative and remedial policies are implemented and successively operated for some years. Thus the threshold question for policymakers is whether there is the political will to directly address and eliminate energy hardship or whether the only form of assistance will remain reactive, fragmented and increasingly ineffective.