A high price for policy failure: the ten-year story of spiralling electricity bills

David Blowers, Grattan Institute

Politicians are told never to waste a good crisis. Australia’s electricity sector is in crisis, or something close to it. The nation’s first-ever statewide blackout, in South Australia in September 2016, was followed by electricity shortages in several states last summer. More shortages are anticipated over coming summers.

But for most Australians, the most visible impact of this crisis has been their ever-increasing electricity bills. Electricity prices have become a political hot potato, and the blame game has been running unchecked for more than a year.

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Read more: A year since the SA blackout, who’s winning the high-wattage power play?

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Electricity retailers find fault with governments, and renewable energy advocates point the finger at the nasty old fossil-fuel generators. The right-wing commentariat blames renewables, while the federal government blames everyone but itself.

The truth is there is no silver bullet. No single factor or decision is responsible for the electricity prices we endure today. Rather, it is the confluence of many different policies and pressures at every step of the electricity supply chain.

According to the Australian Competition and Consumer Commission (ACCC), retail customers in the National Electricity Market (which excludes Western Australia and the Northern Territory) now pay 44% more in real terms for electricity than we did ten years ago.

Four components make up your electricity bill. Each has contributed to this increase.

How your rising power bills stack up. ACCC, Author provided

The biggest culprit has been the network component – the cost of transporting the electricity. Next comes the retail component – the cost of billing and servicing the customer. Then there is the wholesale component – the cost of generating the electricity. And finally, the government policy component – the cost of environmental schemes that we pay for through our electricity bills.

Each component has a different tale, told differently in every state. But ultimately, this is a story about a decade of policy failure.

Network news

Network costs form the biggest part of your electricity bill. Australia is a big country, and moving electricity around it is expensive. As the graph above shows, network costs have contributed 40% of the total price increase over the past decade.

The reason we now pay so much for the network is simply that we have built an awful lot more stuff over the past decade. It’s also because it was agreed – through the industry regulator – that network businesses could build more network infrastructure and that we all have to pay for it, regardless of whether it is really needed.

Network businesses are heavily regulated. Their costs, charges and profits all have to be ticked off. This is supposed to keep costs down and prevent consumers being charged too much.

That’s the theory. But the fact is costs have spiralled. Between 2005 and 2016 the total value of the National Electricity Market (NEM) distribution network increased from A$42 billion to A$72 billion – a whopping 70%. During that time there has been little change in the number of customers using the network or the amount of electricity they used. The result: every unit of electricity we consume costs much more than it used to.

There are several reasons for this expensive overbuild. First, forecasts of electricity demand were wrong – badly wrong. Instead of ever-increasing consumption, the amount of electricity we used started to decline in 2009. A whole lot of network infrastructure was built to meet demand that never eventuated.

Second, governments in New South Wales and Queensland imposed strict reliability settings – designed to avoid blackouts – on the networks in the mid-2000s. To meet these reliability settings, the network businesses had to spend a lot more money reinforcing their networks than they otherwise would have.

Third, the way in which network businesses are regulated encourages extra spending on infrastructure. In an industry where you are guaranteed a 10% return on investment, virtually risk-free – as network businesses were between 2009 and 2014 – you are inclined to build, build, build.

The blame for this “gold-plating” of network assets is spread widely. Governments have been accused of panicking and setting reliability standards too high. The regulator has copped its share for allowing businesses too much capital spend and too high a return. Privatisation has also been criticised, which is slightly bizarre given that the worst offenders have been state-owned businesses.

Retail rollercoaster

The second biggest increase in your bill has been the amount we pay for the services provided to us by retailers. Across the NEM, 26% of the price increase over the past decade has been due to retail margins.

This increase in the retail component was never supposed to happen. To understand why, you must go back to the rationale for opening the retail sector to competition. Back in the 1990s, it was felt that retail energy was ripe for competition, which would deliver lower prices and more innovative products for consumers.

In theory, where competition exists, firms seek to reduce their costs to maximise their profits, in turn allowing them to reduce prices so as to grab as many customers as possible. The more they cut their costs, the more they can cut prices. Theoretically, costs are minimised and profits are squeezed. If competition works as it’s supposed to, the retail component should go down, not up.

But the exact opposite has happened in the electricity sector. In Victoria, the state that in 2009 became the first to completely deregulate its retail electricity market, the retail component of the bill has contributed to 36% of the price increase over the past decade.

On average, Victorians pay almost A$400 a year to retailers, more than any other mainland state in the NEM. This is consistent with the Grattan Institute’s Price Shock report, which showed that rising profits are causing pain for Victorian electricity consumers. Many customers remain on expensive deals, and do not switch to cheaper offers because the market is so complicated. These “sticky” customers have been cited as the cause of “excessive” profits to retailers.

But the new figures provided by the ACCC, which come directly from retailers, paint a different picture. The ACCC finds that the increase in margins in Victoria is wholly down to the increasing costs of retailers doing business.

There are reasons why competition might drive prices up, not down. Retailers now spend money on marketing to recruit and retain customers. And the existence of multiple retailers leads to duplications in costs that would not exist if a single retailer ran the market.

But these increases should be offset by retailers finding savings elsewhere, and this doesn’t seem to have happened. History may judge the introduction of competition to the retail electricity market as an expensive mistake.

Generational problems

So far, we have accounted for 65% of the bill increase of the past decade, and neither renewables nor coal have been mentioned once. Nor were they ever likely to be. The actual generation of electricity has only ever formed a minor portion of your electricity bill – the ACCC report shows that in 2015-16 the wholesale component constituted only 22% of the typical bill.

In the past year, however, wholesale prices have really increased. In 2015-16, households paid on average A$341 a year for the generation of electricity – far less than they were paying in 2006-07. But in the past year, that is estimated to have increased to A$530 a year.

Generators, particularly in Queensland, have been engaging in questionable behaviour, but it is the fundamental change in the supply and demand balance that means higher prices are here to stay for at least the next few years.

The truth is the cost of generating electricity has been exceptionally low in most parts of Australia for most of the past two decades. When the NEM was created in 1998, there was arguably more generation capacity in the system than was needed to meet demand. And in economics, more supply than demand equals low prices.

Over the years our politicians have been particularly good at ensuring overcapacity in the system. Most of the investment in generation in the NEM since its creation has been driven by either taxpayers’ money, or government schemes and incentives – not by market forces. The result has been oversupply.

Up until the late 2000s the market kept chugging along. Then two things happened. First, consumers started using less electricity. And second, the Renewable Energy Target (RET) was ramped up, pushing more supply into the market.

Demand down and supply up meant even more oversupply, and continued low prices. But the combination of low prices and low demand put pressure on the finances of existing fossil fuel generators. Old generators were being asked to produce less electricity than before, for lower prices. Smaller power stations began to be mothballed or retired.

Something had to give, and it did when both Alinta and Engie decided it was no longer financially viable to keep their power stations running. Far from being oversupplied, the market is now struggling to meet demand on hot days when people use the most electricity. The result is very high prices.

A tight demand and supply balance with less coal-fired generation has meant that Australia increasingly relies on gas-fired generation, at a time when gas prices are astronomical, leading to accusations of price-gouging.

Put simply, Australia has failed to build enough new generation over recent years to reliably replace ageing coal plants when they leave the market.

Is it renewable energy’s fault that coal-fired power stations have closed? Yes, but this is what needs to happen if we are to reduce greenhouse emissions. Is it renewables’ fault that replacement generation has not been built? No. It’s the government’s fault for failing to provide the right environment for new investment.

The right investment climate is crucial. Marcella Cheng/The Conversation, CC BY

The current predicament could have been avoided if we had a credible and comprehensive emissions reduction policy to drive investment in the sector. Such a policy would give investors the confidence to build generation with the knowledge about what carbon liabilities they may face in the future. But the carbon price was repealed in 2014 and replaced with nothing.

We’re still waiting for an alternative policy. We’re still waiting for enough generation capacity to be built. And we’re still paying sky-high wholesale prices for electricity.

Green and gold

Finally, we have the direct cost of government green schemes over the past decade: the RET; the household solar panel subsidies; and the energy-efficiency incentives for homes and businesses.

They represent 16% of the price increase over the past 10 years – but they are still only 6% of the average bill.

If the aim of these schemes has been to reduce emissions, they have not done a very good job. Rooftop solar panel subsidies have been expensive and inequitable. The RET is more effective as an industry subsidy than an emissions reduction or energy transition policy. And energy efficiency schemes have produced questionable results.

It hasn’t been a total waste of money, but far deeper emissions cuts could have been delivered if those funds had been channelled into a coherent policy.

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_Read more: One day we won’t need a Renewable Energy Target, because we’ll have good climate policy

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The story of Australia’s high electricity prices is not really one of private companies ripping off consumers. Nor is it a tale about the privatisation of an essential service. Rather, this is the story of a decade of policy drift and political failure.

Governments have been repeatedly warned about the need to tackle these problems, but have done very little.

Instead they have focused their energy on squabbling over climate policy. State governments have introduced inefficient schemes, scrapped them, and then introduced them again, while the federal government has discarded policies without even trying them.

There is a huge void where our sensible energy policy should be. Network overbuild and ballooning retailer margins both dwarf the impact of the carbon price, yet if you listen only to our politicians you’d be forgiven for thinking the opposite.

And still it goes on. The underlying causes of Australia’s electricity price headaches – the regulation of networks, ineffective retail market competition, and our barely coping generators – need immediate attention. But still the petty politicking prevails.

The Coalition has rejected the Clean Energy Target recommended by Chief Scientist Alan Finkel. Labor will give no guarantee of support for the government’s alternative policy, the National Energy Guarantee. Some politicians doubt the very idea that we need to act on climate change. Some states have given up on Canberra and are going it alone.

We’ve been here before and we know how this story ends. Crisis wasted.

David Blowers, Energy Fellow, Grattan Institute

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

Comparing Australia’s electricity charges to other countries shows why competition isn’t working

Bruce Mountain, Victoria University

Australia’s residential electricity prices are amongst the highest in the world so it’s not hard to see why customers have been up in arms about high prices.

Comparing the charges for electricity retail services in Australia and in other countries, we find Australia’s charges are much higher. The difference is particularly stark when comparing retailer charges in New South Wales with those in Denmark, Germany, Italy and Britain which have the highest electricity prices in Europe.

Residential electricity prices in Canada and the United States are typically less than half those in Australia and so the situation in Australia is even more damning in that comparison.

The prime minister’s recent request to the ACCC to review the retail end of the electricity market will put this part of the industry under the spotlight. This request follows the Victorian government’s appointment of a panel to review the Victorian retail energy market.

But rising concern about retail markets is not unique to Australia. In Britain, retail energy markets have received prime ministerial attention for many years. In what the British government described as the most significant review of its industry in the 30 years since privatisation, their Competition and Markets Authority concluded that significant changes needed to be made, although some ex-regulators disputed their estimates of the problem.

These reviews indicate changing attitudes in government. The Australian Energy Markets Commission reviews Australia’s retail energy markets every year and has consistently concluded that they are working well. Similarly, the Independent Pricing and Administrative Tribunal advised the New South Wales government last year that their retail energy market is working well. Evidently the Commonwealth and Victorian government are now seeking a second opinion.

How Australia’s electricity retail market is set up

The business of retailing electricity is really finding out what customers want and then offering deals that meet those requirements. More specifically, it’s the business of procuring electricity and network services, acquiring retail customers, selling to those customers and then metering, billing and collecting revenue.

Analysis of regulatory filings shows that around 6.5 million of Australia’s 10 million households and small business customers (those in New South Wales, South Australia, South East Queensland and Victoria) can choose their retailer. These four deregulated markets are dominated by three retailers that also own sufficient generation to supply those customers.

After more than a decade of retail competition, the three big retailers typically still supply at least 80% of all customers in each regional market. While in some of the regional markets, customers can choose amongst 24 retailers, the new entrant retailers have invariably grown their customer base slowly, if at all, despite powerful incentives to the contrary.

Social services organisations, customer advocates and some independent energy economists have long voiced concerns about retail energy markets. Their concerns centre on the amount that the retailers’ charge, that customers are not happy and that electricity is becoming increasingly unaffordable.

The Grattan Institute recently published a blunt critique that went one step further. It suggested that not only are retailers charging a great deal, but that this is explained not by high costs but by excessive profits.

Competition and consumer choice

The official reviews in Australia hitherto have taken the line that if customers don’t engage in the market they can’t complain. But electricity is complex and customers need skill and a great deal of effort to reliably evaluate the market.

Since it’s a repeat purchase, active engagement means ongoing effort. Even customers with the necessary skills seem to often conclude they have better things to do with their time, as evidenced in switching rates. Pervasive advertising and the profitability of the commercial switching websites provides additional evidence of the challenge new entrant retailers face in acquiring customers.

Why would it be so hard and expensive for new entrant retailers to attract customers if they were not loyal? Therein lies an explanation for Australia’s incumbent retailers’ apparently extraordinary profits.

Andy Vesey, the chief executive of Australia’s largest electricity retailer AGL described the retail market as one that penalises customer loyalty. While such candour is admirable, even hardcore market economists question the effectiveness of a market in which retailers profit most from their most loyal customers.

The issue is non-trivial: in its cost of living surveys, customer advocate Choice has found that electricity prices are consistently the top cost of living concern for households. Electricity poverty payments to deal with affordability problems, are understood to now be costing state governments several hundreds of millions of dollars each year.

Next steps

While it has been a long time coming, the ACCC’s review in addition to the Victorian government’s review, is to be welcomed.

A great deal of effort will need to be made to get to the heart of the matter. Retail energy markets are complex and the amount that a retailer charges a customer for its services is not known for certain – it has to be estimated by subtracting the charges for network services, wholesale production, metering and environmental charges from the customer’s actual bill.

Not only do customers’ bills differ greatly but the components of the bill differ greatly for different customers and so obtaining reasonable estimates of retailers’ charges across the industry requires effort and care.

Fairly evaluating retailers’ offers and how much of their offers are explained by the retailers’ charge, is the place to start. Then finding out what customers are actually paying, and what retailers’ costs and profit margins are, is essential in assessing the nature and extent of market failure.

The reviews will need to cover tricky ground in assessing the economies of scale in retailing, and the value to electricity retailers of also owning electricity generation businesses that supply them. The extent to which high customer acquisition costs provide an advantage to the dominant incumbent retailers who don’t incur those costs unless they are seeking to expand their market share must also feature in the analysis.

There is reason to be hopeful about the ACCC and Victorian government reviews. Done well, they can allow sunlight into this part of the industry. As they say in regulatory circles, sunlight is the best disinfectant.

Bruce Mountain, Director, Carbon and Energy Markets., Victoria University

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

Big win for small business in government embrace of competition ‘effects test’

Michelle Grattan, University of Canberra

In a major victory for small business and the Nationals over big business, the government has agreed to write an “effects test” into competition policy.

It will make it easier to stop large businesses exploiting their market power to the disadvantage of small businesses and farmers.

The new test, which will be an amendment to section 46 of the Competition and Consumer Act, would change the law so it only had to be shown that the effect, rather than the purpose, of a corporation’s decision would be to substantially lessen competition.

Importantly, under the changes, a company will no longer be able to rely on the defence that their actions to exclude competitors were actions that their smaller competitors could take as well.

Announcing the change, Prime Minister Malcolm Turnbull said: “What this will do is ensure that our competition law works better to enable competition, to enable smaller businesses, emerging businesses, to be better able to compete.

“We know that while larger firms are often very innovative and very often very competitive, they are more innovative if the hot breath of competition is coming down their neck.”

But the Business Council of Australia slammed the decision. BCA President Catherine Livingstone said if Australia “wants to have an innovation-driven economy, this is poor policy”.

Government sources said Treasurer Scott Morrison had been in favour of bringing in the effects test – in contrast to his predecessor Joe Hockey.

The Abbott cabinet was deeply divided on it, when it was recommended to it by then small business minister Bruce Billson, and it was put on hold.

Turnbull on Wednesday strongly denied he had opposed it then, saying he had “always taken a thoroughly open mind to this issue”. At the time he was reported as being against it.

Revisiting the effects test was one of the conditions the Nationals inserted into the Coalition agreement concluded with Malcolm Turnbull.

The Nationals have for years been deeply concerned at Coles and Woolworths in particular exploiting their market power over suppliers.

The decision is in line with the Harper Review into competition policy, which found the current misuse of market power provision was not reliably enforceable and permitted anti-competitive conduct.

Turnbull said the government was “backing small business”. The change was not about protecting one firm over another, he said, but about “protecting consumers overall … protecting the whole competitive process”.

“This is a vital economic reform. This is yet again a case of my government taking long overdue reforms out of the too-hard basket.” He said this reform, like media reform on which the government was also moving, “has been in the long grass for many years”.

Deputy Prime Minister Barnaby Joyce said the decision would be welcomed by thousands of farmers and small and medium enterprises.

“The Coalition Government has listened to the overwhelming view of agricultural and small business stakeholders,“ he said.

“For the first time in Australia, the Australian Competition and Consumer Commission (ACCC) will have meaningful provisions to protect businesses that have been subject to misuse of market power,” Joyce said.

The chairman of the ACCC Rod Sims said the change would be “good for competition, good for the economy, and good for consumers”.

In a statement, the opposition said a deeply divided cabinet had come to a decision that would “chill innovation and investment. The only beneficiaries of this decision will be lawyers”.

“Malcolm Turnbull has totally capitulated on the effects test after earlier arguing against it.”

Labor said among the questions for the Treasurer were how much food prices would increase, what impact would the decision have on forward investment, and how many jobs would be affected.

The Greens welcomed the decision. The Council of Small Business of Australia (COBOA) congratulated the government on its decision.

“In particular, COSBOA is aware that the Business Council of Australia and big businesses such as Westfarmers have been placing undue pressure, indeed threatening, the Government on this issue. However, the Government has stood firm.”

The changes are not expected to come in before the election.

https://www.podbean.com/media/player/ve99p-5d9281?from=yiiadmin

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

 

Can the ACCC ‘target the source’ of misleading labelling?

Michael Vagg, Barwon Health

Regular readers of this column will know that I’ve been less than complimentary about the effectiveness of the Therapeutic Goods Administration (TGA) in its efforts to regulate advertising of non-prescription products.

I am therefore delighted to give some credit when good news breaks. The Australian Consumer and Competition Commission (ACCC) has succeeded in a Federal Court action to have misleading packaging of Nurofen products banned.

The manufacturer Reckitt Benckiser (Australia) Pty Ltd has three months to remove all its misleadingly packaged Nurofen products from shelves. This outcome has taken five years from the time CHOICE magazine awarded Nurofen a Shonky Award for the labelling. The TGA first ordered them to withdraw the claim in 2011.

Following a final TGA review in 2012 which backed up the original finding, Reckitt Benckiser effectively dared the TGA to force them to change their ways. It was announced in March this year that following the failure of the TGA to get an outcome, the ACCC would pursue it using their consumer protection powers.

Today’s outcome is entirely predictable, from a scientific point of view. There was never any merit to the claim that ibuprofen could in any way be said to “go straight to the site of pain” any more than a sprinkler system in a high-rise building goes straight to the cause of a fire.

So why didn’t Reckitt Benckiser change their branding when ordered to?

My guess (and I emphasise this is speculation) is that they understood that there has never been a prosecution by TGA under the Therapeutic Goods Act 1989 because the derisory penalties aren’t worth paying good public money to enforce.

Once Reckitt Benckiser have paid their lawyers and costs, I’m guessing they will be well in front after selling the offending products for four years longer than they were supposed to. They have also had four extra years to gather marketing data and optimise their plan for rebranding.

It was inevitable that they were going to have to change their indefensible labelling, but why jump until you’re about to be savagely pushed?

Another example of the contempt in which the TGA is held was in 2013 when Swisse vitamins had an “appetite supressant” product banned by TGA only to re-register the exact same pills as a “hunger control” product. They only made the change after the TGA threw everything they had at them. Yet it was as easy as that to shrug off all the bluster the regulator could work up.

The example Reckitt Benckiser has set in defending its misleading and unfair consumer strategy with Nurofen will be noted by other companies, and the lesson will not be lost on them if they are next in the ACCC’s sights. The tactic is to fight in the courts for as long as the ACCC has the will to spend taxpayers’ money in order to buy time to plan the exit strategy and get a few more months or years of benefit from the dodgy claims. Milk the cash cow until the law closes in, then cop it sweet and move on.

Australian consumers will continue to be ripped off and fleeced as long as we are represented by a TGA which has not been given the tools to do its job. Neither side of politics is very interested in legislative change because the big players are just fine with it how it is. The real problem is that the same legislation that makes the TGA a tough-but-fair sheriff as far as prescription drugs and devices go also renders it flabby and supine enough to be unable to seriously hamper the sales targets of the non-prescription sector.

The foxes of the health-care industry may not be directly in charge of the hen house, but no holes in the wire are getting fixed without them giving the nod.

Michael Vagg, Clinical Senior Lecturer at Deakin University School of Medicine & Pain Specialist, Barwon Health

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

 

Poker machines and the law: when is a win not a win?

Cristy Clark

If I took all of the money out of your wallet, you’d probably feel as though you’d lost something – wouldn’t you? Now imagine instead that I only took 80% of your money. Would you feel as though you had “won” the remaining 20%?

What if I tried to convince you that you had actually benefited from this transaction by playing happy music and letting off a few firecrackers?

This thought experiment might help you to get your head around a proposed legal action by law firm Maurice Blackburn that plans to use Australian consumer law to argue that poker machine operators are engaging in misleading and deceptive conduct to entice gamblers into using poker machines.

Misleading and deceptive conduct is prohibited by Section 18 of the Australian Consumer Law. The central test for this is whether the conduct is likely to mislead or deceive consumers having regard to all the circumstances. To apply this test, you need to identity both the “conduct” and the “relevant class of consumers”.

In this particular case, the class of consumers might be “gamblers”. Or, it might focus more specifically on “novice gamblers” or “problem gamblers”.

Maurice Blackburn seems to have identified a range of potential conduct that it would like to target in its action. One that particularly stands out is the technique known as “losses disguised as wins”. This is where a poker machine enables players to bet on more than one line and a minor win on one of these lines sets off a graphics and sound display that indicates a “win” when, in fact, the player has lost most of their money.

Applying the law to poker machines

The nice thing about consumer law is that it relies on fairly common-sense questions. So, the court would basically ask: if a poker machine displays a series of flashing symbols and music associated with winning and makes a chiming sound indicating that it is counting up winnings, would an ordinary and reasonable (novice) gambler be misled or deceived into thinking that they had won something despite having actually lost money?

Further inquiries or closer attention to detail that could enable a person to discover their error is not particularly relevant to this test. Also, the literal truth can be legally misleading, because the law recognises that humans do not behave rationally and tend to form an opinion in response to their overall impression of conduct.

In this case, for example, it might be argued that gamblers pay more attention to the flashing symbols and music than they do to their credit balance.

Previous cases give some idea of how the courts have applied this test. In ACCC v TPG Internet in 2013, the High Court found that TPG Internet had misled consumers by advertising “Unlimited ADSL2+ for $29.95 per month” when this price was available only to customers who bundled broadband with a home phone service.

The important detail was that TPG’s advertisements actually contained an explanation of this condition, but it was displayed less prominently than the advertised deal.

The High Court found that the attention given to advertising material by an ordinary and reasonable person may well be “perfunctory” and, therefore, many will only absorb the “general thrust”. The court also emphasised that it was enough if consumers were sufficiently misled to engage further with the company, even if they subsequently understood the true nature of the offer and chose not to purchase anything.

The TPG case was followed by the Federal Court in ACCC v Coles Supermarkets in 2014. In this case, the Australian Competition and Consumer Commission (ACCC) successfully alleged that Coles had misled consumers by advertising its reheated frozen par-baked bread with the words, “baked today, sold today” and “freshly baked”. This finding was made despite par-baked bread being able to be truthfully described as having been “baked”, and that Coles had detailed its par-baking method on its website.

Once again, the court emphasised the importance of considering both the context and the dominant message of the conduct.

Forming an argument

So, how could Maurice Blackburn possibly prove that gamblers might be misled by the “losses disguised as wins” technique?

It might draw on recent Canadian research which found that the flashing symbols and music that accompany “losses disguised as wins” trigger similar arousal levels in novice gamblers as real wins do – and that arousal is a key reinforcer in gambling behaviour.

In short, research seems to have demonstrated that novice gamblers do pay more attention to flashing symbols and music than they do to their credit balance. Perhaps unsurprisingly, these bright, loud messages appear to dominate.

Cristy Clark, Lecturer in Law

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.
 

2014, a Bad Year for Homoeopathy

By Ian Musgrave

This has been a bad year for homoeopathy, first there was the Draft Information Paper on Homoeopathy from the NHMRC, which concluded there was no reliable evidence for the use of homoeopathy in the treatment of the 61 health conditions looked at. Then a homoeopathic remedy manufacturer left the North American market due to law suites over the ineffectiveness of their products, then the Federal Court has found that Homeopathy Plus! was engaged in misleading conduct over its homoeopathic “vaccines”

Quoting from the ACCC website “…[Homeopathy Plus!] engaged in misleading and deceptive conduct and made false and misleading representations to the effect that there was an adequate foundation in medical science for the statement that homoeopathic treatments are a safe and effective alternative to the whooping cough vaccine, when in fact no such foundation exists..”

However, this is not a one-way street. Complementary Medicines Australia has claimed, 6 months after the public consultation process had closed, that the NHMRC process was flawed. In the august publication Food Navigator Asia it was claimed to be “fatally flawed”.

What coffee diluted homeopathically looks like. Ian Musgrave

Before we examine these claims, let me remind you that homoeopathy is based on two principles “like cures like” and extreme dilution, in most cases to levels so dilute that there is almost no chance of a single remaining molecule of original compound being present in the remedy. Thus caffeine diluted 1 in a hundred 30 times is used to treat insomnia and Uranium nitrate diluted 1 in a hundred 30 times is used to treat diabetes.

In the latter case it is fortunate at no uranium will actually be present, as uranium nitrate causes kidney failure. In uranium nitrate-induced kidney failure some glucose turns up in the urine, as the kidneys ability to reabsorb it is damaged. This is completely unlike what happens in diabetes, where high blood glucose overwhelms the kidneys capacity to reabsorb it (in uranium nitrate toxicity blood glucose is not elevated so it is not “like” diabetes at all). Thus the rationale for homoeopathic treatment is flawed at many levels.

But back to the draft report of the NHMRC’s review of homoeopathy. This represents the largest and most extensive recent review of homoeopathy research. The review looked at both systematic reviews of the use of homoeopathy in 61 heath conditions and submissions on behalf of interested parties, which contained a mix of systematic reviews and individual randomised controlled trials. All submissions and papers were carefully evaluated against strict criteria recognised internationally for this type of review. The Australasian Cochrane Centre independently reviewed the overview report to ensure that it was valid and high quality.

To remind you, the review found there was no good evidence that homeopathy was effective for any of the 61 medical conditions considered. In some cases, there was clear evidence that homoeopathy was ineffective; in others the evidence base was too weak to give a clear result. These findings are in concert with other large reviews of homoeopathy. Let’s look at the claimed “flaws”.

There was no adequate explanation of why randomised controlled trials (RCTs) were excluded.

They were not excluded. The main review focused on systematic reviews, which included randomised controlled trials (and other types of high level evidence). This is the best way to compare multiple studies. Randomised controlled trials are considered the highest level of evidence, but the results of a single randomised controlled trial may be misleading for many reasons.

Chance is one, if a therapy has no actual effect,by chance alone you will find some studies that appear to show an effect.

Thus it is far better to compare as many high quality trials as possible to get a clearer picture. Randomised trials were not excluded, but an integral part of the evidence through systematic reviews. Randomised controlled trials submitted by stakeholders that were not already part of systematic reviews were considered as well.

While there are limitations to this approach (specifically the most recent research may be excluded), it is widely used in making clinical decisions and in no way invalidates the findings of the report. One of the biggest limitations is that negative findings tend to be under-reported, so that systematic reviews tend to overestimate the effectiveness of a therapy. That homoeopathy cannot pass muster under these conditions is telling.

Three academics invited to comment on the review all broadly agreed there was no high quality evidence recommending homoeopathy for any disorder.

The review excluded too many studies.

Of the 1367 publications considered in the main review, only 60 were finally considered. Not because of anything sinister, but because only those met the review criteria. 374 were duplicate citations, 729 were the wrong study type (not peer-reveiwed, not systematic reviews or metaanalyses, or not looking at controlled trials or high level evidence) or were not looking at the conditions considered in the review or did not report the outcomes (etc. etc.) (see the main review for details).

Of the reports submitted by stakeholders, only a few passed the inclusion criteria or were not already included. Pro tip, if the NHMRC asks you for peer-reviewed systematic reviews and randomised controlled trials in humans, don’t submit books on the life of Hahneman and studies of frogs exposed to thyroxine (yes, I went through the papers).

The review did not consider any publication not in English.

While this excludes some studies, most high quality studies are published in the English language press. As well, the practicalities of translating foreign language papers to ensure there are no complicating errors in translation are avoided. Overall, the impact of this decision on the reliability of the report is marginal at best.

The NHMRC had not appointed a homeopathic expert to the panel.

Assoc Prof Evelin Tiralongo on the NHMRC panel is trained in homeopathic remedies.

The review did not consider animal studies.

These homoeopathic preparations are already in use in humans, so the appropriate studies are ones in humans in the first place. As well, the studies in animals suffer the same flaws as those in humans, too many are of poor quality and many are unable to be interpreted or make claims that cannot be supported. For example, one study submitted to the review that claimed to demonstrate that homoeopathic treatments kill breast cancer cells actually shows that the ethanol diluent is the lethal factor.

Summary

Overall, while there are some limitations to the study, this is a wide ranging, carefully interpreted study. While overall the broad conclusion is that there is no good evidence the homoeopathy being effective in the 61 studied conditions, in at least 13 studies there was good evidence that homoeopathy was ineffective (asthma for example). The results of this study are in broad agreement with previous studies of homoeopathy (see also this, and before you bring up the “Swiss Report” see here and here).

The NHMRC study conclusion that “…the assessment of the evidence from research in humans does not show that homeopathy is effective for treating the range of health conditions considered” cannot be ignored or dismissed.

This article was originally published on The Conversation. (Reblogged with permission). Read the original article.

Bath milk crisis must prompt better cosmetic safety regulation

By Craig Dalton, University of Newcastle

The death this week of a Victorian toddler after allegedly drinking “bath milk” is a reminder of how dangerous some natural cosmetics can be. The product – Mountain View Organic Dairy’s Organic Bath Milk – was recalled today.

“Bath milk” is raw cow’s milk. It is illegal to sell raw milk for human consumption in Australia so raw milk is sold as a cosmetic, labelled “not for human consumption”. While some believe this is a ruse to get around food safety laws, this could be immediately addressed as a cosmetic safety issue.

Under Australian consumer law, products are meant to be safe for consumers. Yet cosmetics accounted for 30% of injury reports to the Australian Competition and Consumer Commission (ACCC) in the past year.

Bath milk is particularly risky because it may contain the deadly shiga toxin-producing Escherichia coli (STEC E. coli) bacteria that can cause haemolytic uraemic syndrome. This is a particularly dangerous disease in young children that can cause kidney failure and strokes. STEC E. coli is the bug responsible for the fatal outbreak in South Australia in 1995 which originated from processed meat.

A child accidentally swallowing just a mouthful of bath water conditioned with bath milk could ingest enough bacteria to suffer serious illness. While this bath milk is labelled not for human consumption, children inevitably drink and squirt bath water from their mouth as part of normal bath play (and some of them can’t read warning labels). So this cosmetic needs to be of the highest microbiological safety.

Fortunately the ACCC has been investigating the role of microbiological contamination in cosmetic injuries, which has resulted in recalls in some instances. ACCC Deputy Chair Delia Rickard recently noted that cosmetic surveys revealing microbiological contamination were:

a timely reminder as the trend to produce all natural and all organic products may increase pressure on manufacturers to produce cosmetics with less preservatives or less effective natural preservatives.

Bath milk and drinking milk are sold in similar containers.
val lawless/Flickr

Complicating this issue is that bath milk is often sold in containers that look just like drinking milk containers and may be stored in refrigerators alongside drinking milk. This may provide a false sense of security leading people to believe it is a food or as safe as a food.

We could learn from the European Union’s Cosmetic Regulation No 1223/2009 which states the:

presentation of a cosmetic product and in particular its form, odour, colour, appearance, packaging, labelling, volume or size should not endanger health and safety of consumers due to confusion with foodstuffs.

It is not surprising that consumers would confuse bath milk for a foodstuff, as even a cursory review of bath milk manufacturers’ websites suggest that even they confuse it for a foodstuff.

The European Union’s Cosmetic Regulation No 1223/2009 requires cosmetic manufacturers to produce a product that is not conducive to microbiological growth and defines the antimicrobial preservatives that might be used to prevent bacterial growth. However, the use of preservatives could be a problem in bath milk, as some of them could be dangerous if accidentally ingested.

The bath milk supplier at the centre of this incident reports getting regular tests that find the milk negative for bacteria. This highlights the need for good manufacturing practices and hazard-control interventions as even daily or weekly microbiological testing cannot ensure safety of a potentially hazardous product. End-product testing without a valid microbiological kill step is a hit-and-miss approach to product safety.

The media coverage of the risks of bath milk will hopefully lead to increased reporting of illness incidents to the ACCC leading to greater oversight of the industry. While bath milk suppliers may be reluctant to report illnesses to the ACCC, they risk a fine of up to A$16,650 for failing to comply with the mandatory reporting of serious consumer injury complaints (within two days) to the ACCC.

The history of food-borne disease associated with drinking raw milk will not be lost on the bath milk industry. Their best strategy may be to follow the lead of drinking milk manufacturers and find a method that will treat the product without taking away from its cosmetic qualities – pasteurisation, for example.

Further reading: Explainer: what is raw milk and why is it harmful?

This article was originally published on The Conversation. (Republished with permission). Read the original article.