Purpose of this paper

This discussion paper considers whether it is advantageous for customers of bodies which are exempt from holding an energy licence to be able to have their complaints conciliated by EWOV, and sets out the issues that will need to be confronted in changing EWOV's jurisdiction.

1 Introduction

Victorian customers of licensed energy retail, distribution and transmission companies are entitled to use an Essential Services Commission (ESC) approved dispute resolution scheme to assist in the resolution of complaints with their energy providers. The only ESC approved dispute resolution scheme operating is the Energy and Water Ombudsman (Victoria) (EWOV), which resolves disputes by investigating and conciliating matters independently of the customer and industry member.

Not all customers have access to EWOV. Due to EWOV's jurisdiction and eligibility criteria, only licensed energy providers can be members of EWOV, and as a matter of practice only their customers utilise the scheme. Customers of energy bodies exempt from holding an ESC licence must resolve any disputes directly or use another dispute resolution scheme.

The Council of Australian Governments (COAG), under the Australian Energy Market Agreement (AEMA) agreed in 2006 to transfer the regulatory arrangements for energy retailing and distribution to a national framework. The "non-economic" package is the National Energy Customer Framework (NECF), to be enabled by the National Energy Retail Law (NERL) which was passed by the South Australian Parliament in March 2011.

The NECF replaces the current retailer licensing regime with a retailer authorisation regime1, with distribution licensing under review. As EWOV's Charter and Constitution state that members must hold an ESC issued licence, EWOV will be required to make changes to its eligibility criteria in line with the NECF. Accordingly, the Department of Primary Industries (DPI) considers it timely to evaluate whether further changes to the scheme are warranted, in particular whether previously exempted customers should have access to EWOV.

This discussion paper considers whether it is advantageous for customers of exempt bodies to be able to have their complaints conciliated by EWOV, and sets out the issues that will need to be confronted in changing EWOV's jurisdiction.

1.1 Submissions invited

Submissions are preferred in electronic format and should be provided to the Department of Primary Industries by Tuesday 2 August 2011.

Via email: erin.dempsey@dpi.vic.gov.au

Or mailed to:

Erin Dempsey
Policy Officer
Energy Sector Development Division
Department of Primary Industries
GPO Box 4440
Melbourne VIC 3001

The Department encourages respondents to make their submissions available publicly. Unless certain sections of submissions are marked 'IN CONFIDENCE', all sections of the submissions will be treated as public documents and will be placed on the Department's website www.dpi.vic.gov.au for public access.  Formal requests for confidentiality will be honoured; however, Freedom of Information access requirements still apply to confidential submissions.

2 Background

2.1 Exempt bodies

Under s.16 of the Electricity Industry Act 2000 (EIA) and s.22 of the Gas Industry Act 2001 (GIA), electricity and gas retail, distribution and transmission companies must hold a licence issued by the Essential Services Commission (ESC).

Small scale energy retailers and distributors may be exempted from the requirement to be licensed under s.17 of the EIA or s.24 of the GIA, provided they are named specifically or fit into the class of persons identified in Orders in Council (OIC)2. A small scale body engages in the distribution or selling of electricity from embedded networks, and their customers include, but are not limited to, residents of caravan parks, retirement villages, rooming houses and shopping centres. For the purposes of this paper, small scale retailers and distributors which are exempted from holding an ESC issued licence are referred to as "exempt bodies".

As discussed above, the NECF will replace Victoria's current retailer licensing regime with a retailer authorisation scheme and distribution licensing is currently under review. Current exempt retailers will be exempted from the requirement to be authorised under Part 5, Division 6 of the NERL. The Australian Energy Regulator (AER) will be responsible for developing guidelines to provide information regarding deemed and registered exempt retailers, including maintaining a register of exempt bodies on its website.

2.2 EWOV

EWOV is an independent not-for-profit alternative dispute resolution body that investigates and conciliates disputes between gas, electricity and water companies and their customers, where all previous attempts at resolution between the parties have failed. EWOV is not a government body; it is a private company that operates under the Corporations Act, a Charter and Constitution.

Electricity and gas retail and distribution licences issued by the ESC contain provisions that require membership of an external ESC approved dispute resolution scheme, which is EWOV 3. Accordingly, if a licensed energy body does not adhere to these provisions, they are at risk of having their licence revoked by the ESC, and this effectively assists EWOV in enforcing its policies, resolutions and binding decisions.

According to EWOV's Charter and Constitution, in order to be a member of EWOV, energy scheme participants must be licensed4. Due to the removal of retail licensing requirements with the introduction of the NECF in 2012, EWOV will need to amend its Charter and Constitution. Therefore, it is timely to consider making further changes to the scheme, including extending its jurisdiction to include previously exempted bodies.

As outlined in its Charter, EWOV does not have jurisdiction to investigate complaints relating to:

  • the setting of prices or tariffs;
  • the content of Government policies;
  • complaints which are under investigation by a court or tribunal or which have been considered by any of those bodies previously;
  • any matter specifically required by legislation;
  • customer contribution to the costs of capital works;
  • events beyond the reasonable control of the scheme participant; and
  • actions taken by a scheme participant and their consequences in execution of a direction, notice or other like instrument received by the participant in relation to facilitating the security of water, gas and electricity supply and services issued by a person or entity having regulatory or administrative power to issue the direction, notice or instrument.

Where a conciliated outcome has not been reached at the completion of an investigation, the Ombudsman has the power to resolve the complaint by making a binding decision, as per Paragraph 6 of EWOV's Charter5.

The Ombudsman can make a binding decision for an amount up to $20,000, or if the scheme participant consents, $50,000. While there are financial restrictions on the remedy that may be awarded through a binding decision, the option for a conciliated outcome still exists.

2.3 AER and ESC reviews

The benefits to customers from introducing exempt bodies into EWOV's scheme have been considered both by the ESC in 20066 and the AER in 20107 as part of their reviews of the small scale licensing framework.

2.3.1 ESC review

In response to a request from the then Minister for Energy Industries, the ESC commenced a review into the licensing exemptions framework and considered what regulatory framework should apply to small scale energy distribution and retailing.

As part of this review, the ESC released an issues paper which, in addition to other matters regarding small scale bodies, considered whether exempt customers should have access to EWOV8. Stakeholder responses to the issues paper from industry and consumer groups supported the extension of EWOV's jurisdiction9.

In its response to the ESC's review dated 25 August 2006, EWOV noted that it had amended its Constitution to provide for non-licensed water, gas and electricity bodies to join the scheme as "contracting parties" under section 7.210. EWOV also noted that its Constitution provided flexibility regarding the amount of annual levy to be paid, with the amount being determined on the basis of what is equitable with consideration of the number of customers and cases brought to EWOV11.

Accordingly, the ESC came to the conclusion that exempt bodies should be obligated to join EWOV and inform their customers of their right to access the service. The ESC suggested that the small scale bodies should not be liable to pay an annual membership fee, and instead EWOV should apply a fee-for-service arrangement. This would provide an incentive for small scale bodies to minimise complaints and accordingly this would minimise the impact on EWOV's resources.

While the ESC noted the benefits of allowing exempt customers to access an energy ombudsman, no further action was taken in anticipation of the national framework. The ESC also noted in its final decision that EWOV would be required to undertake a feasibility study to determine the best way to allow currently exempt bodies to join the scheme12.

2.3.2 AER review

EWOV's jurisdiction over exempt bodies was again considered as part of the AER's consultation process regarding the development of Exempt Selling Guidelines for exempt retailers13sup>.

In its December 2010 consultation paper, the AER noted that extending the jurisdictions of energy ombudsman schemes are the responsibility of the States and Territories. Under Annexure 2, Clause 17 of the AEMA, small customer dispute resolution is a State and Territory function. As a national regulator, the AER cannot make changes to the jurisdiction of energy ombudsman schemes unless the AEMA is amended to expressly provide for this.

However, the AER noted that it hopes that energy ombudsman membership could be extended by the jurisdictions, to at least include larger exempt bodies that are specialist external providers.

2.4 Dispute Resolution under the NECF

The NERL requires that retailers and distributors must be a member of, or subject to, an energy ombudsman scheme for each jurisdiction in which it sells energy to small customers, or each jurisdiction where it has customers connected to its distribution system. There is also a requirement that the members comply with the requirements of the scheme.

There is nothing in the NECF that restricts the extension of EWOV's jurisdiction to exempt bodies. Dispute resolution and customer complaint provisions are contained in the NECF under Part 4 of the NERL.

Section 84(1) of the NERL outlines the powers and functions of the energy ombudsman, which are:

  1. to receive small customer complaints and disputes;
  2. to investigate those complaints and disputes;
  3. to resolve those complaints and disputes; and
  4. to identify and advise on systemic issues as a means of preventing complaints and disputes.

Section 84(2)(b) of the NERL provides that the energy ombudsman's powers are to be performed and exercised in accordance with its constitution provisions, including but not limited to procedures for receiving, investigating and facilitating the resolution of customer complaints and any relevant monetary limit.

EWOV can currently assist in the resolution of complaints regardless of the customer's usage classification. Issues regarding the classification of exempt customers to be included in EWOV's jurisdiction are discussed further in section 3.2 of this paper.

3 Issues

3.1 Dispute resolution for exempt bodies

If an exempt customer has a dispute with an exempt body, and is unable to resolve the matter directly, the schedule to the general exemption OIC states that the customer may take the matter to the Victorian Civil and Administrative Tribunal (VCAT).

3.1.1 VCAT vs. EWOV

While VCAT is a highly effective dispute resolution body, submissions to the ESC and AER as part of their reviews into small scale frameworks noted that EWOV may be a more appropriate forum for customers seeking to resolve their energy disputes.

The table below provides a comparison of the VCAT and EWOV:

Table 1: Comparison of VCAT and EWOV dispute resolution

Characteristic VCAT EWOV

Success of alternative dispute resolution

VCAT can resolve disputes via mediation before the matter goes to a hearing. In 2009/10 VCAT finalised 84,806 cases and had a mediation success rate of 57 per cent14. This rate was higher for the Residential Tenancies List and Civil Claims List, which had a success rate of 71 per cent and 70 per cent respectively15.

EWOV facilitates the resolution of complaints mostly through conciliated outcomes. In 2009/10 EWOV finalised 38,261 complaints, with 7,780 conciliated outcomes and no binding decisions 16.

Hearings

VCAT requires hearings including compulsory attendance at conferences and mediations.

Parties do not attend a hearing. All contact is made through a Conciliator informally over the phone or in writing.

Fees

VCAT's application fees are lower than court costs, and can be waived if the applicant is experiencing financial hardship. For example, the application fee for a dispute in the Residential Tenancies List (matters under $10,000) is $37.

EWOV is free for all customers to utilise and customers will not be charged any costs incurred during an investigation (for example a meter test or financial counsellor report).

Representation

Section 62 of the Victorian Civil and Administrative Tribunal Act 1998 provides for circumstances where representation is permitted.

EWOV is not a legal forum. Most customers contact EWOV on their own behalf, without the involvement of a solicitor but with Ombudsman permission in certain circumstances.

Evidence

During a hearing, VCAT will hear evidence, which in most cases is sworn, from both parties and make a decision based on the balance of probabilities.

EWOV will obtain information from both parties which is not sworn nor in the form of an affidavit or statutory declaration. EWOV will assist in conciliating an outcome based on a "fair and reasonable" assessment of the complaint, having regard to the law and good industry practice.

Should a customer take their dispute to VCAT, it would be likely that the matter would fall under VCAT's Civil Claims List.

In 2009/10, most disputes in VCAT's Civil Claims List were resolved within 32 weeks. Depending on which list the customer's complaint falls under, they could experience a lengthy delay to have their matter finalised.

In 2009/10, EWOV's average timeline for the conciliation and finalisation of an investigated complaint was 7 weeks17. However, most cases were not resolved through an investigation but rather by referring a customer to a higher level staff member at the scheme participant, or another body. In contrast to the 7,946 complaints investigated by Conciliators, 30,481 were referred and resolved either to the scheme participant or another body and resolved18.

EWOV's less complex complaints (for example, delayed billing) do not progress to a full investigation and are attempted to be resolved within two weeks. In 2009/10, 2,969 complaints were resolved through this process which significantly reduced the timelines for resolution19.

In contrast to VCAT's tribunal members, the Conciliators who handle the complaints at EWOV have energy industry knowledge. This includes not only the relevant laws and regulations, but also good industry practice and precedents from similar complaints. In addition, as disputes brought to EWOV are mostly settled through a conciliated outcome, there is a wider variety of remedies available, as long as both parties agree. The Conciliator can assist this by providing a range of options to both parties, which are informed by their industry knowledge. Due to the legal and adversarial nature of VCAT, tribunal members make enforceable decisions based on the evidence of the parties, and therefore it is limited in the remedies it can enforce.

Box 1: VCAT Case Study: Billing in contravention of the Residential Tenancies Act 1997

Most customers do not have the legal background or expertise to make legal arguments in an adversarial forum such as VCAT hearings. This means that unless a customer has access to legal representation they may be disadvantaged.

One example of a customer of an exempt body taking their matter to VCAT is a 2005 dispute between a resident of a high-rise apartment building and the body corporate (Chen v Mulholland (Residential Tenancies) [2005] VCAT 2912 (15 December 2005)).

In that complaint, the body corporate (through a billing agent) charged the customer for usage in contravention of sections 52 and 53 of the Residential Tenancies Act 1997, by charging the customer for gas usage that was not separately metered. In this instance, it was found that the customer was only liable for usage that was metered and his bills were adjusted accordingly.

The customer was represented by the Tenants Union of Victoria. An understanding of the Residential Tenancies Act 1997 was essential in arguing that the charges put forward by the body corporate were unlawful.

Questions

  1. What is the most appropriate forum to assist in the resolution of energy complaints between exempt bodies and their customers?
  2. Are there advantages for customers and exempt bodies in having complaints heard by EWOV rather than VCAT?

3.2 Funding

Should EWOV's jurisdiction be extended to include exempt bodies, EWOV would need to make a number of operational decisions, including how investigating these complaints would be funded. While funding is an EWOV operational matter and not the responsibility of DPI, consideration needs to be made as to how Government may assist EWOV in successfully setting up a fee structure that is enforceable.

3.2.1 Current funding structure

EWOV is funded through fees paid by its scheme participants and these fees are paid six-monthly following approval from EWOV's Board of the Annual Budget. An annual levy is paid by the scheme participants based on customer numbers as outlined in EWOV's Constitution. Included in the annual levy are fees per complaint registered with EWOV. Each complaint attracts a fee depending on the stage of the complaint, with higher stage complaints attracting an additional higher fee in recognition of the time and resourcing put into investigating and conciliating the case.

3.2.2 Funding options for exempt bodies

Some exempt bodies do not have the same financial capacity as the current large scheme participants and are in many cases not-for-profit. For example, rooming houses and caravan parks have low financial resources as opposed to shopping centres and large residential aged care facilities. Accordingly, some exempt bodies may have difficulties affording the current fee structure currently in place at EWOV, and in turn EWOV may experience difficulties in collecting these fees. If exempt bodies join the scheme under section 7.2 of EWOV Constitution as a contracting party, they would be under a contractual obligation to pay EWOV's fees. In practice, enforcing the contractual obligations may be problematic where small scale bodies are having financial difficulties.

In considering the applicable fee structure for exempt bodies, an example of current policies in place is at the Energy & Water Ombudsman NSW (EWON). EWON is the only energy ombudsman in Australia that has jurisdiction to investigate and conciliate complaints against exempt retailers20.

In EWON's submission dated 30 July 2010 in response to the AER's Issue Paper titled "AER approach to retail exemptions, June 2010", EWON confirmed that the number of complaints against exempt bodies is relatively low, with only 38 registered in the first half of 201021. Despite this, EWON emphasised the particular vulnerability of customers of exempt bodies that requires them to have additional protection. For example, residential customers of caravan parks are often facing financial hardship.

EWON noted that there are difficulties in charging exempt bodies the same fees and levies borne by the larger scheme participants. Should exempt bodies be subject to fees, there is a risk that they may pass the costs onto consumers by increasing their rent.

Due to the low numbers of exempt body complaints, and the difficulties in charging fees, EWON's fees for investigating disputes against exempt bodies are spread across the other scheme participants. This may be an efficient option for EWOV, however it may also be unequitable, and in addition it does not provide exempt bodies with a financial incentive to resolve the matter before it is brought to EWOV.

One of the ESC's final recommendations following its review into small scale licensing was that EWOV charges exempt bodies on a fee-for-service basis. While this would cover the costs of individual investigations, it would not assist EWOV in financing start up costs of extending the jurisdiction of the scheme.

Questions

  1. If EWOV's jurisdiction was extended, should exempt bodies be obligated by to become members of EWOV?
  2. What is the most appropriate model for funding the costs of resolving disputes raised by customers of exempt bodies (e.g. fee-for-service)?

3.3 Scope of jurisdiction

If EWOV were to extend its scheme, it could decide to include all customers of exempt bodies or certain classes that are considered vulnerable.

Vulnerable customers include, for example, long-term residents of low-income housing such as caravan parks who often experience financial hardship, and may be afraid to raise an energy complaint for fear of eviction or an increase in their rent. In addition, vulnerable customers may be intimidated by the adversarial and litigious nature of VCAT.

It is arguable that these customers would benefit from accessing EWOV more than business customers of exempt bodies. In addition to this, larger business customers may prefer to take their matter to a court or tribunal rather than EWOV, due to EWOV's financial limit on binding decisions. Commercial tenancy disputes involving energy may also be more complex than residential disputes.

Accordingly, EWOV's jurisdiction over exempt bodies could be limited to only small customers as defined within the NECF, while disputes involving large business customers could continue to be dealt with via VCAT or court22.

However, it may also be argued that all customers should have the same access to dispute resolution, regardless of their classification. Currently EWOV does not restrict access to customers based on their usage class or whether they are residential or business, therefore it would be equitable to extend the same dispute resolution avenues to large business customers of exempt bodies.

Questions

  1. Should only certain classifications of exempt customers have access to EWOV?
  2. If yes, what classifications of exempt customers should have access to EWOV?

3.4 Enforcement

3.4.1 Enforcement difficulties

If EWOV could investigate exempt customer complaints, it would need to be empowered to enforce (or have enforced by another body) its conciliated resolutions and binding decisions in order to be an effective dispute resolution body. As discussed above, if a scheme participant does not participate in EWOV's scheme, they are in breach of their ESC licence, which may lead to the ultimate sanction of revocation. As exempt bodies are not licensed, neither EWOV nor any other body has powers to enforce conciliated resolutions or binding decisions on exempt bodies other than by revocation of their exemption, which may not be practical or effective, especially where the exempt body operates under a class or deemed exemption.

EWON's submission to the AER noted that despite legislation stating that exempt bodies must comply with a decision of the Ombudsman, EWON does not have any way of enforcing a decision or resolution. As a result, EWON often refers unresolved matters to the NSW Consumer, Trader & Tenancy Tribunal, due to its enforcement powers23.

Breaches of EWOV case handling policies by scheme participants leads to an upgrade of the complaint's level or stage, and subsequently further costs are incurred by the scheme participant. There are also additional costs if a scheme participant agrees to a resolution, but subsequently fails to act in accordance with the conciliated outcome. These costs provide incentives for scheme participants to maintain EWOV's case handling policies at all times during an investigation. Due to the funding issues discussed at section 3.2 of this paper, EWOV's upgrade policy may not be appropriate to apply against exempt bodies, which in turn would create difficulties for Conciliators trying to reach a resolution.

Accordingly, an appropriate compliance regime will need to be in place in order to enable EWOV to enforce:

  • binding decisions made by the Ombudsman;
  • conciliated outcomes; and
  • case handling policies and procedures.

Questions

  1. What avenues of enforcement could the Government empower EWOV to utilise in the event that an exempt body does not adhere to EWOV's case handling policies or resolutions.
  2. If, like EWON, EWOV has the power to refer exempt body complaints to another body for enforcement, which body should the matter be referred to?
  3. Does the difficulty in enforcing resolutions or case handling policies against exempt bodies make it less beneficial for customers to take their matter to EWOV over VCAT?

Conclusion

DPI agrees with the ESC and AER regarding the benefits for exempt customers in having access to EWOV to assist in the resolution of their energy complaints. It is important that exempt customers are not disadvantaged because they are not customers of a larger licensed body. As EWOV is free for customers to utilise, resolves disputes quickly, and is accessible, exempt customers should be able to benefit from its services rather than lodge a dispute with VCAT.

There are, however a number of issues regarding the feasibility of extending EWOV's jurisdiction and concerns about the enforcement of resolutions and case handling policies that need to be resolved.

DPI welcomes any feedback from stakeholders regarding this matter

Footnotes

1 Part Five NERL.  
2 Essential Services Commission (Victoria). Order specifying general exemptions. May 2002, for example: Victorian Government Gazette s.73, 1 May 2002.  
3 See s.28 of the EIA and s.36 of the GIA.  
4 See clause 8 of EWOV's Constitution. May 2010.  
5 See EWOV's Charter. May 2006.  
6 Essential Services Commission (Victoria). Small Scale Licensing Framework Issues Paper (Review of the Exemption Framework for Small Scale Activities). July 2006.  
7 Australian Energy Regulator. AER approach to retail exemptions, June 2010
8 See footnote 6 above. pp 27 -28
9 Essential Services Commission (Victoria). Small Scale Licensing Framework Draft Recommendations. December 2006. pg.36.  
10 Energy and Water Ombudsman (Victoria). EWOV comments on ESC Small Scale Licensing Framework Issues Paper. March 2006.  
11 EWOV's submission to the ESC states that section 9.2(c) and 9.2(d) of the May 2006 version of EWOV's Constitution outline the financial payments of contracting parties. These provisions are no longer contained in the the Constitution, but flexible payment options still exist on a "user pays" basis.  
12 Essential Services Commission (Victoria). Small Scale Licensing Framework Final Recommendations. March 2007. pg. 41.  
13 See footnote 7 above. pp 22-23.  
14 Victorian Civil and Administrative Tribunal. VCAT 2009/10 Annual Report. September 2010, pg.5.  
15 See footnote 14 above, pg.23.  
16 Energy and Water Ombudsman (Victoria). EWOV 2009/10 Annual Report, December 2010, pp 11 and 12.  
17 See footnote 16 above, pg.11.  
18 See footnote 16 above, pg.12.  
19See footnote 16 above, pg.10.  
20 Exempt bodies are included in EWON's jurisdiction under s.70 of the Electricity Supply (General) Regulation 2001, with a specific jurisdiction over the owners of residential parks under clause 1.2 of the Customer Service Standards for the Supply of Electricity to Permanent Residents of Residential Parks.
21 Energy and Water Ombudsman New South Wales. Response to AER approach to retail exemptions, June 2010. July 2010.  
22 The NERL and National Energy Retail Regulations define "large customers" as business customers who consume more than 100 megawatt hours of electricity or one terajoule of gas annually. "Small customers" are defined as residential customers, or business customers who consume less than 100 megawatt hours of electricity or one terajoule of gas annually
23 See footnote 21, above.