Olivia lives with the rare Kleefstra Syndrome.

Heat or Eat – The true cost of disconnection Analysis

Heat or Eat – The true cost of disconnection

Consumer Action released a report, Heat or Eat, in August this year, detailing the experience of six Victorians who have been disconnected from energy.

Disconnections in Victoria increased from 9,598 electricity disconnections in 2008-09 to 34,448 in 2013-14, an increase of 359%. For gas, disconnections had an increase of 239% from 10,077 in 2008-09 to 24,178 in 2013-2014.[1] The growth in disconnections highlights systemic failures in the energy market for many consumers, with alarming ramifications.

The report describes the various issues that contribute to disconnection, how access to energy and financial difficulty interrelate and the chain of events that result in disconnection. Fundamentally, it describes the additional avoidable costs incurred—economic, social and emotional—when someone is disconnected. In addition to attempting to calculate those costs, the report provides detailed case studies of six Victorians who have been disconnected in the past 12 months.

Consumer Action appointed researchers from the Beyond Behaviour Change (BBC) Research Program at RMIT University’s Centre for Urban Research to conduct confidential in-depth interviews with people who had been disconnected.[2] The findings of that research exposes the impact that the disconnection has on individuals and their households, and how it exacerbates existing financial, emotional or social stress. The report also draws upon the understanding and expertise of Consumer Action’s legal and financial counselling services. These services speak to over 20,000 Victorians experiencing financial difficulty each year.

Many Victorians are increasingly unable to cover the cost of their energy use.  This can be due to income insufficiency, or a range of issues that combine to result in inability to pay.

While it is accepted that energy retailers aren’t responsible for income insufficiency, they do play a significant role when it comes to disconnections. The report finds that poor customer service, badly targeted marketing and an unsophisticated approach by some retailers to handling customers with financial difficulties can make a difficult situation much worse. For example, court-based collection strategies including bankruptcy can put family homes at risk.

Findings from the report contributed to the current inquiry into best practice financial hardship programs of energy retailers, being undertaken by the Victorian Essential Services Commission (ESC). The inquiry was announced in February 2015 and a draft report was published in September 2015[3], a final report is due in February 2016. Our report provides further evidence to the ESC of the harms caused by current practices associated with energy hardship and disconnection. It suggests some significant reforms that the ESC could consider as part of its inquiry to better protect vulnerable Victorians, as well as a recommendation to the Victorian Government to further enhance its support for energy efficiency measures.

While we know that income insufficiency is a significant contributor to many who are experiencing financial hardship and subsequent disconnection from energy, this issue is beyond the scope of our work and that of the ESC. We chose to focus on sensible and practical measures to guide retailers at various points of the sales and collection cycle to help their customers maintain connection to their energy supply and for the Victorian Government to help Victorian households achieve energy efficiency and affordability.

The report exposes the impact that poor policy and industry practice has on individuals. 27 year old Emira* (a public housing tenant from regional Victoria) detailed the experience of having her energy disconnected while trying to escape a violent relationship:

“I had a domestic issue and [the retailer] was demanding money that day. I was more worried about my son’s safety: I just wanted to get him out of there. I hung up the phone and they rang me back in half an hour, while I’m trying to get ready to get out… but they don’t care. They just want their money.”

Sarah*, an inner-Melbourne woman in her forties was living with post-traumatic stress disorder following an assault and was disconnected by her energy company over $220. She told RMIT researchers that“…given that they knew my situation and in the end I only owed $220.00… I just wonder whether there are better ways to go about addressing these issues than just cutting someone’s power off.”

The report makes recommendations that, if embraced, would assist consumers to remain connected at an affordable level of supply, with increased accountability on retailers for the impact of disconnections. The recommendations are:

  1. To cap the maximum amount of fortnightly income that a retailer can request from a consumer in receipt of government allowances for gas, electricity and water.
  2. For the Victorian Government to initiate a home energy audit program for low income households that is deliverable by retailers as a condition of the Energy Retail Code.
  3. That the decision for retailers to disconnect account holders be made by an independent panel or arbiter.

Society has a greater role to play in addressing the problems of access to energy as an essential service.  We need to consider the value that we place on households being able to participate fairly and equally, including fair and safe access to energy. Households should not be forced to decide whether they heat or eat.