In January 2014, the then Minister for Energy and Resources announced a number of proposed reforms to retail regulation. Those changes included:
- Increases to the wrongful disconnection payment (WDP) from $250 per day off supply to $500, and an increase to the prescribed cap from $3,500 to $5,000.
- Prohibiting the use of the term 'fixed' when retailers market fixed term market contracts that allow for price increases during the life of the contract. Customers must also provide explicit informed consent to terms and conditions that allow for price increases during a fixed term contract.
- Reducing the amount of time a retailer can recover amounts undercharged where a customer has not received an energy bill, from nine months to three months.
- Requiring retailers to offer free energy efficiency audits to hardship customers.
- Prohibiting non-essential planned network outages on very hot days, in response to community dissatisfaction regarding these outages and the impacts on vulnerable consumers during periods of extended high temperatures in January and February 2014.
The former Department of State Development, Business and Innovation sought feedback from stakeholders on the above policy proposals. A consultation paper was provided to assist in stakeholders in developing their responses.
Submissions to the consultation paper have now closed.
Questions for stakeholders:
- This paper identifies a number of concerns and issues which impact on customers, and on the community. Please provide comments on these impacts, including supporting information and data.
- Can you provide evidence of the impact of the proposed action? When providing your answer please consider:
- The impact on different groups, such as retailers, distribution businesses and consumers.
- Costs and benefits of the proposal, in relation to economic and financial impacts, social impacts and environmental impacts. Please provide as much quantitative and qualitative data as possible. For example:
- How much will it cost for industry to implement the proposals?
- How will these costs impact on customers?
- What benefits will customers gain from implementing the proposals?
- What is the magnitude or value of the benefits to consumers?
- How will these benefits be distributed among different types of customer?
- Key issues, such as direct and indirect costs and benefits, whether costs and benefits are incurred now or in the future, tangible and intangible impacts (intangible may include health and safety outcomes and other non-monetary outcomes), potential unintended consequences, and avoiding double counting of benefits.
- Are there any other options available to achieve the Victorian Government's objectives? If so, please specify the impact of the alternative options, with reference to the considerations above. For example, are there alternative options that will achieve the objectives listed in a more cost effective way, and if so why? Are there other existing programs or measures that may be suitable to address the identified problems?
- Any further information you believe the Department should consider when assessing the impact of the policy proposals.
In addition to the above questions, more specific questions are outlined below in relation to the policy proposals.
Increases to the Wrongful Disconnection Payment (WDP)
Problem: The number of customers being wrongfully disconnected for non-payment of energy bills is increasing.
Objective: Ensure that retailers are complying with consumer protections in the regulatory framework when disconnecting customers.
Proposed solution: Increase the WDP (per day rate and cap).
The WDP was introduced into legislation in 2004 to:
- Provide sufficient incentive to retailers to develop and implement systems and procedures that would mitigate against wrongful disconnections of customers; and
- Compensate customers for the loss and inconvenience suffered in the event of wrongful disconnection.
Despite the consumer protections in the Energy Retail Code regarding disconnections, according to the Essential Services Commission (ESC) 2013 retailer performance report, disconnections are increasing. Furthermore, wrongful disconnections appear to be increasing. The most recent data for 2011-12 indicates 233 cases of wrongful disconnection, whilst in 2008-09 there were 155 cases. As a result, the Victorian Government is concerned that the current wrongful disconnection payment is not providing adequate incentive to retailers to following the correct procedure before customers are disconnected.
Electricity and gas is an essential service. The Victorian Government is concerned about the increasing number of wrongful disconnections.
To ensure that retailers are following the correct process and complying with consumer protections when disconnecting customers, the Minister is proposing to increase the WDP from $250 to $500 per day off supply, and increase the prescribed cap on the WDP from $3,500 to $5,000.
Additional question for stakeholders:
- What is the cause of the increase in disconnections and wrongful disconnections?
Fixed term contracts
Problem: Customers who may not want to enter into fixed term contracts that allow for tariff increases are entering into these contracts, as they do not understand that their tariff is not fixed for the life of the contract.
Objective: To prevent customers from accidentally entering into fixed term contracts that allow for tariff changes.
Proposed solution: Prohibit the use of the word "fixed" when retailers market contracts that provide for tariff increases, and require that explicit informed consent is required for terms and conditions that allow for tariff increases.
Consumer groups in Victoria have highlighted the confusion sometimes experienced by consumers where a contract has a fixed term but variable price. According to the Consumer Utilities Advocacy Centre's (CUAC) 2012 report1, many customers do not understand that the tariffs in fixed term contracts can be changed by the retailer if this is provided for in the contract.
The Australian Consumer Law has protections regarding marketing of products to consumers, including protections regarding misleading and deceptive conduct. It is unclear whether these protections are sufficient to assist customers in this area, as labelling contracts as "fixed term" may not necessarily be misleading.
CUAC and the Consumer Action Law Centre submitted a rule change proposal to the Australian Energy Market Commission (AEMC) to prohibit price increases during contracts that have a fixed term.2 This is currently being considered by AEMC. It is noted that, if implemented, the rule change would not apply in Victoria, as the National Energy Customer Framework has not been implemented in this State.
The Minister has announced changes to the retail regulatory framework to prohibit the use of the term "fixed" by retailers when marketing fixed term contracts that provide for price increases. The Minister has noted that customers often believe that the term "fixed" refers to both the duration of the contract and the tariffs. The aim of preventing this terminology would be to minimise consumer confusion, so that consumers understand the difference between a fixed term contract that allows for price increases and one that does not.
An alternative approach would be to specify what terminology can be used by retailers when marketing fixed term contracts with variable prices, rather than simply prohibiting the term "fixed". This would ensure that the terminology used by retailers is transparent for consumers.
Furthermore, while customers must give their consent before entering into a contract, it is proposed that changes to legislation are made to specify that retailers must receive explicit informed consent to terms or conditions that specify that the contract may be subject to tariff changes during the life of the contract. This will ensure that only customers who are comfortable with these contracts will sign up for them. This will be in addition to already existing requirements for retailers to obtain consent prior to putting consumers on market contracts.
Additional question for stakeholders:
- Are the protections in the Australian Consumer Law regarding misleading and deceptive conduct sufficient or insufficient to guard against consumer confusion when entering into fixed term, variable priced contracts? Why/Why not?
Problem: Customers have experienced significant billing delays with some retailers.
Objective: To reduce the number of consumer accounts experiencing billing delays.
Proposed solution: Create additional incentives for retailers to minimise billing delays by reducing the amount of time a customer can be backbilled due to a billing system issue from nine months to three months.
Over the past five years, upgrades of retailer billing systems have resulted in significant billing delays for some Victorian energy consumers. Many of the concerns raised with the Victorian Government have been in regards to billing delays.
Billing delays can be very frustrating for customers. Customers have difficulty in budgeting as they do not have a bill to monitor their usage and costs. Many customers contact their retailer on numerous occasions to try and get a bill issued. When customers finally do receive a bill, it is often quite large as it can be for up to nine months of usage. Consumer protections in the Energy Retail Code can assist customers in these circumstances by requiring retailers to offer a payment plan and to waive usage after the nine month period. However, customers would still prefer to receive regular billing and not have arrears to pay off.
The Energy Retail Code provides that where a customer has not received a bill due to a billing system upgrade, when they do finally receive a bill, the retailer can only recover the previous nine months of usage3. The Minister has proposed to decrease this amount to three months, to increase the incentives in the regulatory framework for retailers to bill customers on time. If a retailer is experiencing difficulties with their billing system, the customer should not be inconvenienced.
The Department notes that a three month backbilling restriction may have implications and impacts on meter reading settlement processes, as well as business to business processes between retailers and distributors. The Department is interested in understanding these impacts.
The Department is also interested in how these changes would impact risk allocations across distribution and retail businesses, and the extent to which the proposal would place additional risks on retailers that are better managed by other industry stakeholders (such as distributors).
Finally the Department would like stakeholder feedback regarding when the three month period that a retailer can backbill a customer should commence. One option is for it to commence from the date that the retailer issues a bill that contains the amount undercharged. This would create an incentive for a retailer to issue an accurate bill as soon as possible.
Additional questions for stakeholders:
- Should the restriction on retailer backbilling be limited to where a retailer has upgraded their billing system, or apply to all billing delays and undercharging?
- What implications will the changes have on processes and risk allocation between retailers and distributors?
- When should the three month restriction commence? For example, should it commence from the date that the retailer issues the customer their delayed bill or when a retailer notifies the customer of the billing delay?
Energy efficiency audits
Problem: Hardship customers are having difficulties in managing their energy bills.
Objective: To assist hardship customers manage their energy bills.
Solution: Require retailers to offer free energy efficiency audits to hardship customers.
Many Victorian consumers have raised the issue of energy affordability with the Victorian Government. In particular, the Government is concerned about the capacity of hardship customers to manage their energy costs and avoid disconnection.
The customer hardship policy regime is set out under the Electricity Industry Act 2000 and Gas Industry Act 2001. These Acts make provision of free energy efficiency audits to hardship customers a mandatory minimum requirement of retailer hardship policies. However, it is not clear that retailers must offer them to all hardship customers.
The improvement of low income households' energy efficiency is an effective way of ameliorating energy hardship at low long term cost. Therefore, the Victorian Government is proposing to make further changes to the hardship regime by requiring retailers to offer all hardship customers energy efficiency audits, free of charge.
There may be other ways of easing the pressure of energy bills on hardship customers, and the Department is interested in views from stakeholders on this.
Planned electricity network outages on hot days
Problem: Planned electricity network outages occurring on hot days put vulnerable customers at risk, as well as those who rely on electricity to manage routine activities such as accessing fresh water.
Objective: To prevent electricity outages on hot days due to non-essential maintenance works.
Solution: This could be achieved either by placing restrictions on non-essential outages on hot days through amendments to the Electricity Industry Act 2000, through a review of the Electricity Distribution Code, through changes to regulatory instruments administered by Energy Safe Victoria (such as the Electricity Safety Management Schemes).
The restrictions could apply for days that are declared heat health alert days4. Under a legislative approach, mechanisms would need to be developed to enable exemptions to be progressed for essential outages.
Concerns have been raised about electricity supply interruptions occurring on hot days due to planned maintenance works on the electricity network, as this places significant risk on vulnerable customers and those who rely on electricity to, for example, access fresh water.
Electricity distribution companies have statutory obligations to ensure their networks are safe, and are subject to licensing obligations with respect to the reliability and quality of supply. Arrangements for the management of planned outages are also part of Bushfire Mitigation Plans which form part of the Electricity Safety Management Schemes approved by Energy Safe Victoria.
Distribution businesses are required to give their customers four days' notice of any planned outages, so they can prepare to deal with the loss of electricity, and in practice two weeks' notice is usually given. Many distribution businesses also put information on their program of planned outages on their websites.
Works are often planned on six week cycles. The timing of when works are carried out is subject to a range of variables which the company needs to manage. These include a) the urgency of the work; b) weather conditions; c) safety of work crews and the public; d) wider network impacts; e) cost of scheduling the works at different times and f) the impact of the planned outages on affected customers. These works need to be completed before the start of the declared bushfire season.
In addition, the businesses will respond to community needs such as major events, fire activity etc. Restrictions currently apply on works carried out by distribution businesses in extreme weather conditions under fire legislation and for occupational health and safety reasons unless the works are critical to the local network.
Although weather forecasts might predict high temperatures on a particular day, the maximum temperature might not be reached until later in the day. Planned works are normally completed before the day's maximum is reached. Sometimes the works are brought forward by a few hours to enable their completion before the high temperatures are reached on a particular day.
However, the Government is concerned about the impact of planned works on vulnerable consumers on very hot days. It is understandable that on hot days consumers would be concerned if they did not have access to electricity due to planned works that could be postponed to another day. In addition, as noted above, the effects on the health of vulnerable customers could be significant. While it is current practice to only undertake essential works on hot days, there is nothing in the regulatory framework to that effect (with the exception of restrictions under fire legislation and for occupational health and safety reasons). Legislative changes may provide more assurance to consumers that planned outages undertaken on hot days are absolutely essential.
The Department also notes that there may be other options for addressing this issue that does not involve legislative amendments, for example, through a memorandum of understanding between Government and industry. The Department is interested in stakeholder views on this.
To the extent that legislative or other regulatory changes are required, mechanisms would need to be introduced to enable essential maintenance works to be exempted from the prohibition. The development of any such mechanism would need to be flexible to enable urgent exemptions to be provided, for example, where an asset inspection by a network business has identified a defective or dangerous asset in need of immediate repair. The Department would welcome views on the practicalities of such an exemption mechanism and the implications an exemption mechanism would have for respective roles of Government and network businesses in the management of issues such as bushfire mitigation.
Additional question for stakeholders:
- How will the proposed restriction impact on the operations of distribution businesses?
- How should "essential works" be defined, and what are the implications of an exemption mechanism?
- What are the practicality issues for distribution businesses in placing the restriction on heat health alert days? For example, how will distribution businesses identify whether their customers are in heat health alert boundaries?
- Are there other extreme weather thresholds that may be more suitable, for example, days where the maximum temperature is over 40 degrees?
1. CUAC, 2012, Fixing up fixed term contracts: Your questions answered, available at cuac.org.au, accessed February 2014.? 2. This rule change is made in relation to the National Energy Retail Rules (NERR) which govern retail energy contracts in New South Wales, South Australia, Australian Capital Territory and Tasmania. Victoria has not applied the NERR at this stage.?
3. Essential Services Commission, Energy Retail Code, clause 6.2. ?
4. The Department of Health's heat health alert system has been developed to notify local governments, departmental program areas, hospitals, and statewide or major metropolitan health and community service providers of forecast heatwave conditions which are likely to impact on human health. Further information is available at the Department of Health's heart alert system. ?