5 August 2011

Dear Mr Sarcich,

Discussion Paper: Victoria-specific regulatory requirements under the National Energy Customer Framework (NECF)

Australian Power and Gas (APG) welcomes the opportunity to comment on the Department of Primary Industries' (DPI) Discussion Paper for Victoria-Specific regulatory requirements under the National Energy Customer Framework (Discussion Paper).

APG commends the DPI's efforts to transition to the NECF through the harmonisation of existing regulatory obligations with those proposed under the NECF. We understand that the DPI is proposing to preserve certain Victorian energy regulations in the form of "Victorian Energy Regulatory Rules" (VERR). The VERR will supplement the NECF to the extent that it will govern issues which the DPI believe are not adequately addressed by the NECF, or will see to preserve a level consumer protection in Victoria.

APG questions the need for the VERR, as we hold the view that the NECF provides more than adequate consumer protection. Further the VERR will ultimately result in the dilution of consumer benefit delivered through the NECF. Should the DPI remain of the view that the VERR is required it must be limited to covering only those truly unique Victorian consumer protections of which we believe there to be few – the smart meter provisions is an example that comes to mind.

We do not however, support the preservation of regulatory obligations where:

  • the perceived net benefit does not outweigh the ongoing compliance costs; and
  • it is contrary to the national objectives of improving regulatory efficiency across all participating jurisdictions of the NECF.

Furthermore, the VERR should be treated transitional arrangements with a view that the VERR would be phased out after a specified period. This approach will be consistent with the core objectives and principles of NECF, namely:

"to promote efficient investment in, and efficient operation and use of, energy services for the long term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply of energy".
This arrangement will allow consumers and market participants sufficient time to adapt to a harmonised national energy retail framework.

In relation to the Discussion Paper, we make the following comments:

Table 1: Contracting customers – fair contract terms

1. Retail fees and charges on standing offer contracts

The DPI proposes to retain clause 7.5(b) of the Energy Retail Code (ERC) that prohibit retailers to impose fees and charges for merchant service fees to customers on standing offer contracts.

APG does not support this proposition as this position detracts from the current market conditions and that of other industries where retailers can impose merchant related fees on consumers. For example, credit card payment fees are applied in general retail stores, telephone and internet service providers.  There should be no restriction on a retailer imposing such merchant fees provide the application / existence of such fees has been clearly disclosed to the customer
Furthermore, energy retailers are currently able to recover merchant service fees from customers on a market contract. However, customers could avoid the payment of any merchant service fees and charges simply by electing to pay their energy bills with a method that does not attract such fee or charges.

APG recommends that the prohibition for retailers to recover merchant fees from customers on standing offers should not be retained in the VERR. It should be the retailer's choice whether or not to impose such fee or charge onto its customers. This position would also be consistent with other industries that permit such fee or charges. Alternatively, such prohibition could be retained in the VERR as a transitional arrangement. This will give customers on standing offer contracts sufficient notice of the retailer's ability to impose such fees and charges at a future date.

2. Gas billing cycle for customers on standing offer contracts

The DPI proposes to retain clause 3.1 of the ERC that requires gas bills to be issued at least once every two months for standing offer gas customers (as opposed to three months under the NECF).
We note that there is an inconsistency in the timeframe in which the gas billing cycle will be retained as part of the transition process – namely, under 3.2.2 of the Discussion Paper, the DPI proposes that the existing gas billing cycle will be preserved until 31 December 2014, whereas Part 4 of the Discussion Paper in Table 1, the proposed retention date is until 31 December 2013. Therefore, clarity is sought from the DPI as to the correct date in which the current gas billing arrangements will be preserved.

Table 3: Assistance to vulnerable customers

3. Energy audits and appliance assistance

The DPI proposes to retain s 43(2) of the Electricity Industry Act (2000) (EIA) and s 48G(2) of the Gas Industry Act (2001) (GIA) that require retailers to include in their hardship policies, free or subsidised home energy audits or flexible options for the purchase or supply of appliances.

APG supports the principle that customers in hardship should be provided with a level of support from retailers to alleviate affordability pressure. However, there are issues with home energy audits – in particular, the lack of demonstrated benefit against the costs of conducting a field home energy audit.

APG currently offers its hardship customers, home energy audits under its Energy Support Program. However, our view is that the DPI should adopt the NECF position by not retaining the regulatory requirement (within a retailers hardship policy) to offer in field home energy audits. Should the DPI seek to retain this obligation, then the method of conducting the energy audit should be at the discretion of the retailer. Energy audits conducted via the telephone are no less effective than field audits. Nonetheless, retailer may still choose to offer such audit services to its hardship customers.

In assessing the cost benefit of energy audits, there needs to be recognition on the limitation of the customers' ability to implement recommendations from the audit. Customers who reside in rented housing, particularly those in Government housing, generally have a limited ability to make significant changes to improve energy efficiency. We would put it to the DPI that in such cases the Government needs to play a more active role in assisting these customers.

Table 6: Connecting, disconnecting and reconnecting customers on basic meters

4. Compensation for wrongful disconnection

The DPI proposes to retain the wrongful disconnection payment scheme which is currently in place under the EIA and GIA.

The DPI referred to the Essential Services Commission's (ESC) report, Review of Wrongful Disconnection Payment: Final Report (January 2010)(Report) where the ESC found that that there was no evidence to support a repeal of the scheme.
Nonetheless, the ESC did recommend in the Report that the scheme should be amended to impose a maximum cap on the amounts payable to affected customers under the scheme. At the time of writing this submission, the EIA and GIA are yet to be amended to implement the ESC's recommendation to impose the maximum cap.

The NECF imposes a civil penalty on retailers and distributors for wrongfully disconnecting a customer (see s 107 of the National Energy Retail Rules (NERR)). In the Report, the ESC did not make any comments with respect to the NECF. Arguably, the penalties imposed under the NECF should be sufficient to alleviate the need to retain the wrongful disconnection payment scheme under the VERR.

Therefore, if the DPI is to retain the wrongful disconnection payment scheme under the VERR, it must implement the ESC's recommendation in the Report and impose a maximum cap on the wrongful disconnection payment scheme.

5. Timeframes for disconnecting customers

The DPI proposes to retain the prohibition that domestic customers cannot be disconnected after 2pm (as opposed to after 3pm under the NECF). APG does not support this proposition to retain the 2pm disconnection prohibition.

The NECF provides restrictions as when a retailer or distributor could arrange for disconnection. Disconnection cannot be arranged if, amongst other things, a disconnection warning notice has not been given to the customer or the retailer has not used its best endeavours to contact the customer (see section 111 of the NERR). Despite these measures, if the customer still does not rectify the matter before the anticipated de-energisation, then the retention of the 2pm disconnection prohibition will be of minimal benefit to that customer as they have foregone the opportunity to avoid disconnection.

In light of the above comments, APG recommends that the DPI does not retain the 2pm disconnection prohibition for domestic customers and for the Department to accept the 3pm disconnection prohibition as proposed under the NECF.

Should you wish to discussion any this submission further, please contact me on (02) 8908 2700.

Yours sincerely

Roman Chan

Regulatory & Compliance Manager
Australian Power & Gas