11 August 2011

Dear Mr Sarcich

Submission to Department of Primary Industries' Discussion Papers – Victoria- Specific Regulatory Requirements Under the National Energy Customer Framework; and Extending the jurisdiction of the Energy and Water Ombudsman (Victoria)

The undersigned organisations jointly welcome the opportunity to comment on the Department of Primary Industries' (the Department) Discussion Papers – Victoria-Specific Regulatory Requirements Under the National Energy Customer Framework, and Extending the Jurisdiction of the Energy and Water Ombudsman (Victoria). Our organisations represent the interests of all Victorian residential and small business energy consumers – being particularly cognisant of the special needs of low income and vulnerable households – and we have a keen interest in ensuring that they are not worse off after the transition to the National Energy Customer Framework (NECF).

Victoria-specific regulatory requirements under the National Energy Customer Framework

We commend the Department's approach to maintaining Victorian consumer protections, and the considerable work undertaken to date. In particular, we welcome the principlesbased approach taken in relation to securing optimal outcomes for consumers entering contracts and those on contracts (page 5 in the Regulatory Requirements discussion paper). We believe this is an essential framework that underpins the regulatory environment in which Victorian consumers will continue to engage with the energy market, solidly supporting the determination that no consumer is made worse off by the transition to the NECF.

We would also like to encourage the Victorian Government to continue to pursue harmonisation of consumer protections with the other jurisdictions, so that consumers benefit from the efficiency of a single piece of legislation. This will require the Victorian Government to work with the other states that are now privatised at the retail level, to recognise the benefits of more proactive and principles-based regulation at a time of significant change in energy markets.

In the first instance however, our submission takes an approach that seeks to complement the work of the Department by providing further principles to secure the interests of Victorians, and by recommending the retention of additional regulations based on the materiality of the impact of their removal on Victorian consumers.

The Victorian energy market

The Victorian energy market is like no other in Australia. Long disaggregated, largely deregulated, fully privatised, highly competitive: it is unsurprising that energy policy debates have been fiercest in Victoria, resulting in the strongest and most comprehensive consumer protection framework in the nation. Consumer advocates in other states frequently cite the Victorian framework as best practice; and in engaging with the development of the NECF, Victorian advocates have consistently worked to ensure the strong protections enjoyed by Victorians are at least retained, if not extended to consumers in other states. After all, strong consumer protections are an essential ingredient of a healthy, effective, competitive market.1

Victoria is also the state with the biggest commitment to – and highest penetration of – smart meters. When fully implemented, these will unleash a plethora of different ways electricity is bought, sold, priced, and billed in the Victorian market – putting households in an unfamiliar environment where beneficial and detrimental offerings will both be available but the skills and experience to determine which is which may not. These significant changes coincide with increasing energy prices and both general and energy specific affordability issues. Strong consumer protections will be critical if Victorian households are to learn to effectively negotiate this brave new world without being overly harmed by their inevitable mistakes.

To continue to provide and improve consumer confidence in the Victorian market, it is of utmost importance that when developing the ongoing energy consumer policy framework we maintain a clear focus on the role of energy as an essential service for consumers.

Universal protections for all

Electricity is an essential domestic service, unlike any other. Critically, electricity;

  • supports fundamental human needs including safe food (storage, preparation) and safe shelter (hygiene, lighting, temperature control).
  • powers equipment that is critical to wellbeing and independence (health, communication).
  • supports community engagement and family life (social interactions, employment, education).

In most instances there is no alternative to electricity. For most users, it cannot be stored for later use. Except in rare and exceptional circumstances, a regular connection to electricity supply is not discretionary or optional. A reliable, safe, affordable supply of electricity is a right, not a privilege, and access must be guaranteed as far as reasonably possible.

In broader terms, gas is considered not as essential as in domestic applications it is most often a substitute for electricity, for those households that use gas it is indeed as essential and as fundamental as electricity. .In Victoria for most householder gas fuels heating, hot water and cooking

Accordingly, an explicit principle affirming the essential nature of energy and the need to ensure access for all households should underpin this new framework, forming the basis of the Government's approach. 

RECOMMENDATION

The Victorian government should reiterate the policy principle that energy is an essential service for consumers, and that access should not be denied solely due to incapacity to pay.

In addition to reinforcing this universal principle, we have developed a range of principles that we believe will assist the government to achieve a minimum standard. These are presented below in our discussion of the proposed regulatory approaches.

Contracting distribution and retail customers

We support the proposed approach to contracting. In particular, we strongly support the proscription of late payment fees and of merchant service fees and other miscellaneous charges. However the following areas need additional attention.

To uphold and underpin this approach, the Department will need to develop a principle that supports consumer engagement in the process of entering a contract.

RECOMMENDATION

The Victorian Government develop a policy principle that stipulates that consumers should be equipped to make informed choices as active market participants, at a time and place of their choosing and fully cognisant of the terms, conditions, pricing and expected cost of their energy supply.

Retail marketing conduct

While the Department's assessment of the equivalence of the Australian Consumer Law and the NECF“s marketing provisions with the existing state-based marketing regulations is sound, we note that there are still significant problems with energy marketing in Victoria, evidenced by the escalating numbers of complaints to EWOV and the considerable work currently being undertaken by Consumer Affairs Victoria to document and address energy marketing issues. Thus, while we recognise that Victorian consumer protections may not be appreciably diminished by the absence of specific jurisdictional regulation, we seek assurances that Victorians will be adequately protected from aberrant marketing behaviour by energy retailers and their agents, including:

  • forging consumers' signatures or coercing consumers' to sign contracts;
  • attempting to sell to minors;
  • bringing undue pressure to bear, particularly upon vulnerable consumers;
  • attempting to sell where English is not understood, and understanding is not evident
  • sales activity outside certain prescribed times of the day; and
  • continuing an approach after a consumer has requested that it not be entered into, or that it be terminated.

Regulators need to have sufficient monitoring and enforcement powers to address these poor marketing practices. We need to be confident the regulators will use their enforcement powers effectively and we also suggest that additional powers be provided to the AER (or an appropriate jurisdictional body) as needed.

We note the NECF does include a requirement for retailers to have a 'do not contact' list; however this operates on an individual retailer basis. In Victoria we have a large number of retailers, placing a significant burden on Victorian consumers who must contact each and every retailer, of which there are several, to ensure they are not contacted for a period of two years. This requires consumers to know who all the retailers are, find their contact details, and invest a considerable amount of time to contact them all. This is a flawed model and as an alternative, a central 'no contact' lists should be coordinated by the AER or a jurisdictional body to ensure that Victorian consumers who wish to exercise their right to opt out of marketing activity can do so efficiently and effectively. This clearly aligns with the policy intent of the 'Do not call' register. 

RECOMMENDATION

The AER, ACCC and CAV should be provided additional powers to monitor and enforce compliance to energy marketing regulations, including development of a central 'no contact' list.

The fairness of contract terms

We support the retention of the regulations in relation to contracting customers and fair contract terms as provided in Table 1 in chapter 4 of the discussion paper. This needs to be underpinned, however, by the overarching principle, for 'Fair Contract Terms'. To achieve this, it is essential that model contract terms and market contract terms are, at least, consistent with the unfair contract provisions in the Australian Consumer Law, to ensure contracts are fair for consumers. 

RECOMMENDATION

Model contract terms and market contract terms must be consistent with unfair contract provisions in the Australian Consumer Law.

Transferring Customers

We strongly support the principles included in the discussion paper (page 5) in relation to customer contracts and have repeated these below as key principles that will support fair and equitable transfer of customers, and their engagement in the market.

  • Consumers are entered into retail contracts properly2, information asymmetry is reduced for both retail and distribution customers and efficient and timely transfers are facilitated.
  • Customers on standing offer or market retail contracts and deemed or negotiated distribution contracts have fair contractual terms to remain connected to supply, continue to receive reliable supply, and have reasonable redress if their suppliers do not meet their obligations.

However we propose an additional principle with regard to customers exiting contracts:

  • Customers exiting contracts are not unfairly penalised for doing so, nor denied access to energy due solely to incapacity to pay.

RECOMMENDATION

In addition to the principles outlined in the Discussion Paper, Victorian regulation must ensure that customers leaving contracts are not unfairly penalised or denied access to energy due solely to incapacity to pay.

Additional assistance to vulnerable customers

We support the proposed regulations to preserve consumer rights under the transitional legislation in relation to requiring energy retailers to enter into agreements for the provision of community service rebates and grants, and requiring hardship policies to include an offer of home energy audits and appliance replacements when appropriate and believe it is essential these regulations be supported by a principle that recognises this. 

RECOMMENDATION

That Victorian regulation is underpinned by a principle that consumer access to essential energy should not be compromised by a household's inability to pay and that stipulates that energy retailers must work with vulnerable customers to help them manage payment difficulties and address inefficient consumption.

Approval of hardship programs

We are concerned about the implications of subtle differences between the NECF and the existing Victorian framework pertaining to the approval of hardship policies by the regulator. Both frameworks spell out a number of provisions that must be included in a retailer's hardship policy; but while the Electricity and Gas Industry Acts hold that the regulator must not approve a policy that does not include the provisions, the National Energy Retail Law states that the AER must approve a policy that does include them. The Victorian approach gives the regulator the capacity to refuse 'lowest common denominator' hardship policies that seek merely to 'tick a box', and encourages best practice – in line with its stated objective "to promote best practice in electricity service delivery to facilitate continuity of electricity supply to domestic customers experiencing financial hardship".

A 'best practice' approach, as articulated, for example, in the Committee of Melbourne's Debt Spiral Project, to hardship policies provides an incentive for energy retailers to go beyond the minimum standards and truly innovate. It encourages them to learn from the experiences of retailers in jurisdictions that already have a requirement for hardship policies, and engenders a culture of continuous improvement whereby policies are further developed and improved over time. It creates an environment where hardship programs are more likely and more able to be responsive and flexible to individual circumstances – an approach that both our research and the reports of financial counsellors, emergency relief workers and others working directly with families in hardship indicates is most effective in fully maintaining customer engagement and achieving sustainable outcomes.

The omission of any transitional regulation in relation to this issue will see an increasing number of Victorian consumers worse off as hardship programs will essentially pursue a race to the bottom.  

RECOMMENDATION

Victorian regulation must provide the AER further powers that stipulates that approval of hardship policies for Victorian consumers is undertaken in accordance with the Electricity and Gas Industry Acts.

Payment plans

Additional regulation must be introduced for Victorian consumers in relation to payment plans as there is no universal right to a payment plan under the NECF. The definition of 'payment plan' in Section 50 of the NERL suggests that only customers who are currently experiencing payment difficulties are entitled to a payment plan. Customers who believe they may have payment difficulties in the foreseeable future (for example, due to changes in their personal circumstances, such as imminent unemployment or the birth of a child) and those who are seeking to avoid payment difficulties by deftly juggling competing expense priorities using as much flexibility as they are able, could be excluded. Limiting customers' ability to be proactive in managing their financial affairs in this way runs counter to the overall objective of the customer framework.

Victorian consumers have long been able to use payment plans as a preventative strategy to manage consumption costs to minimise financial stress – with good outcomes for customers, retailers, and community services programs and agencies. Universal access to payment plans helps prevent people from falling into payment difficulties and is an essential part of the Victorian customer framework. Omitting this specific protection from the transitional legislation will make Victorian consumers worse off. style="border:1px solid black;padding:0px 10px;">

RECOMMENDATION

Victorian regulation must ensure payment plans are offered to all new customers and are available to all residential customers throughout the provision of energy.

Metering

We support the proposed regulations relating to metering and specifically to smart metering technology in Victoria, and emphasise that these protections must promote and respect Victorian energy consumers“ entitlements, regardless of the technology being used.  

RECOMMENDATION

The Victorian Government establish a principle that consumers should have the same minimum level of supply quality, information about prices and consumption, and protection from disconnection, regardless of the metering technology used.

There are further issues that we feel have not been adequately addressed.

Supply capacity control retail products

We support the commitment to retain the prohibition on retail supply capacity control products until 1 January 2014. We presume this refers to supply capacity control used for "credit management purposes", and that there is no proposed prohibition on retailers' use of supply capacity control for "non-credit management purposes", in line with the Essential Services Commission's recent determination on the matter.

We have not yet seen any international evidence of supply capacity control products being used for non-credit management purposes, and we remain unconvinced that there is any value for consumers in such a product – or any value for retailers outside of credit management. The understanding that retailers may offer capacity control products to help customers manage their electricity usage – really their bills –is reminiscent of the supposed rationale (long discredited) for prepayment meters: rightfully banned in Victoria for many years. There are already tools to help vulnerable consumers manage energy usage and unaffordable bills – including flexible payment options, bill smoothing, Centrepay, hardship programs, energy efficiency audits, and (for some) appliance replacement – and these methods safeguard (and sometimes enhance) quality of life while dealing with affordability problems. A self-disconnection regime – whether via prepayment or supply capacity control – does neither.

We note that during discussion of supply capacity control products at the ESC's Customer Consultative Committee meeting on 17 March 2011 the Commission agreed to investigate international examples of supply capacity control used for non-credit management purposes. Reporting back at the 16 June 2011 meeting, all examples given were in fact specifically targeting customers who were either currently experiencing, or had a history of, affordability problems. This reinforces our conviction that such products promise only to diminish Victorian consumers' entitlement to affordable access to essential energy, and leads us to recommend that all retailer use of supply capacity control be prohibited permanently (or at a minimum, prohibit it until 1 January 2014), and that this should only be reassessed if a retailer can demonstrate a product that is clearly not aimed at customers in or with a history of hardship or affordability problems.  

RECOMMENDATION

Victorian regulation should contain a prohibition on retailer use of supply capacity control.

Prepayment meters

We strongly support the continuing prohibition of prepayment meters in the Victorian energy market. As noted above, both the current Victorian Energy Retail Code and the NECF contain numerous provisions to ensure customers have opportunities for payment flexibility, including payment in advance of consumption. The prohibition of prepayment meters is designed to prevent a situation whereby customers, quietly self-disconnected when their credit runs out, are effectively excluded from the billing and collection cycles – and all the associated protection against disconnection embodied in the NECF – that they should be entitled to; as well as potentially having limited access to state government funded concessions and other CSO assistance schemes such as the Utility Relief Grant Scheme.

With real-time communications and remote energisation and deenergisation capability, smart meters can function as prepayment meters. Accordingly, we believe the Victorian legislation pertaining to prepayment metering should be clarified where necessary to reiterate the intent of the policy by prohibiting prepayment contracts or billing arrangements that do not deliver the regulated entitlements under the customer framework including the billing, collection, credit, and payment cycle, hardship provisions, flexible payment, and protections from disconnection for incapacity to pay.

RECOMMENDATION

Victorian regulation must reiterate its policy intent in terms of maintaining the ban on prepayment metering to ensure that all customers can access the full suite of protections embodied in the customer framework.

Time of Use Pricing

We note that the ESC is soon to conduct a Regulatory Review of Guideline 19 Energy and Product Disclosure to assess the impacts of Time of Use pricing disclosure. The results of the review will need to be taken into account in any transitional legislation, however we note that at this stage the Department does not intend to include Guideline 19 because of AER Retail pricing information guideline. We would like to highlight that the AER's guideline does not cover time of use pricing. We strongly urge the Department to ensure consumer protections relating to time of use pricing are included in the transitional legislation. 

RECOMMENDATION

Victorian regulation must provide consumer protections in relation to Time of Use pricing.

Consumer advocates have developed a suite of principles to guide consumer-outcome focused work during the progress of the rollout in Victoria and the transition to national laws: this is attached as Appendix 1.

Connecting, disconnecting, and reconnecting customers

We support the Department's proposed approach to disconnection and reconnections. In particular, we strongly support the proposal to maintain compensation for wrongful disconnection. The wrongful disconnection fee is a highly effective compliance tool, as supported by the ESC's recent review, and its removal would have been a significant diminution of the Victorian customer framework.  

RECOMMENDATION

Household connection to an energy supply is an essential requirement. Consumer-requested connections and disconnections should happen as promptly as practicable, while involuntary disconnections should happen only in extreme circumstances and in the prescribed manner.

Security, reliability, and quality of supply

We support the regulations that seek to preserve consumer rights under the transitional legislation, in line with existing consumer rights.

Voltage variation

We do however have significant concerns that no transitional regulations have been included for voltage variation.

In their submissions to the National Energy Customer Framework (NECF), consumer groups supported the inclusion of a small claims regime in Part 7 of the National Energy Retail Law (NERL) to ensure that customers are able to seek compensation from their distribution business for loss and damage from voltage variations.  This is especially pertinent given that Part 3 of the NERL envisages a more direct relationship between the customer and distribution business.

Currently, only Victoria has a claims regime for voltage variations – Electricity Industry Guideline No. 11: Voltage Variation Compensation (Version 1, April 2001). During the consultations on the NECF, we were given the impression that Part 7 of the NERL was drafted to enable Victoria to implement the provisions of Guideline No. 11. We now understand (from the meeting with the Department on 6 July 2011) that the Government's intention is, rather than retain Guideline No. 11, to define in its jurisdictional instrument what a "claimable incident" under Part 7 means.

Unfortunately, Part 7 of the NERL has significant deficiencies. The wording is detrimental to consumer interests, weighing too heavily in the favour of distribution businesses and giving them too much discretion to reject consumers' claims.3 We are therefore very concerned that, by not retaining Guideline No. 11, Victorian consumers will be made worse off by the transition to the national framework. Please see supporting arguments from consumer submissions to the second exposure draft of the NECF, attached as Appendix 2

RECOMMENDATION

The Victorian government must enact transitional legislation to retain the provisions of Guideline 11 to ensure that Victorian consumers are not worse off under the NECF.

Discussion Paper – Extending the jurisdiction of the Energy and Water Ombudsman (Victoria)

Before we respond to the questions posed by the Department of Primary Industries' (the Department) Discussion Paper – Extending the jurisdiction of the Energy and Water Ombudsman (Victoria) (hereinafter called discussion paper), we would like to provide an overview of the exempt selling environment in Victoria.

Consumer protections and exempt selling in Victoria

Currently there is little clarity about what consumer protections apply to customers of exempt networks. According to the relevant Order in Council, exempt persons selling metered electricity in embedded networks are required to "observe all applicable provisions of the Retail Code as if that person was a licensed retailer"4; but in the absence of further regulatory definitions, this allows exempt sellers to decide what is or what is not applicable in their contractual relationship with their customers.

Changing urban forms and demographic shifts have led to a steady increase in the numbers of households who are customers of these networks. Thus, it is increasingly concerning that they have far fewer consumer protections than households purchasing energy from authorised retailers. For example, customers of exempt sellers lack guaranteed access to basic elements of the customer framework including:

  • payment plans;
  • hardship programs; and
  • a free, impartial and independent external dispute resolution scheme such as the Energy and Water Ombudsman (Victoria) (hereinafter called EWOV).

In addition, customers of exempt networks frequently do not have access to retail competition (the cost of changing metering infrastructure to access retailer choice being prohibitive) and many, living in retirement villages or caravan parks, have their energy supply and accommodation provided by the same entity. Taken together, these factors place such customers in a vulnerable position where insecurity of tenure, fear of rent increases and retaliatory eviction act as additional barriers to tenants raising utility issues or complaints with their landlords. Many of these customers already experience disadvantage – including social isolation, low income and financial hardship – and it is unacceptable that as one of the most vulnerable groups in our community they are denied basic customer protections.

We have long advocated for customers of exempt networks to have equivalent consumer protections to those purchasing energy from authorised retailers. The transition to the national customer framework is the perfect opportunity for the Victorian Government to address this clear gap in consumer protection. 

Case study on exempt selling

The Consumer Utilities Advocacy Centre (CUAC) has identified this case study in its investigations into exempt selling practices in Victoria. We present this as an example to highlight the uncertainty and inadequacy of protections that apply to exempt customers in Victoria. This case relates to owner-occupiers and private renters.

VicUrban is the developer of a new multi-unit residential property, "The Nicholson" (12-20 Nicholson Street, Coburg). Sixty of the 200 apartments are affordable rental tenancies offered through the federal government's Nation Building Social Housing Initiative. The implications of developments such as these lead to increasing numbers of vulnerable Victorians, via government sponsorship, entering into contracts with exempt sellers that lack the protections enjoyed to other energy consumers, are significant.

VicUrban contracted WINenergy, an exempt seller, to implement an embedded electricity network. VicUrban's 5 July 2011 letter to residents included a WINenergy brochure,5 a letter from WINenergy's customer service representative offering "Discount electricity supply for the Nicholson tenants"6 and an intermediary sale of energy agreement (including terms and conditions).7

We raised our concerns regarding WINenergy to key government and regulatory stakeholders on 21 July 2011. Following this, changes have been made to the content on WINenergy's website. For example; their customer charter has been amended; their brochure is no longer available on their website. Specifically the amendments made to their website include the following:

  • The disconnection time has now been amended to reflect the 2pm cut off time as stipulated under the Energy Retail Code. This provision prohibits customers from being disconnected after 2pm on Mondays to Thursdays.
  • The brochure mentioned that "embedded networks can bulk purchase electricity from a Licensed Energy Retailer, usually at significantly discounted rates," and that the discount is not in the "production cost" ("the cost of generating the electricity") but rather in the "delivery cost" ("the "Network Tariff that [WINenergy is] able to negotiate from a licensed energy retailer"). It is unclear what this means and what the 4% government charges in their brochure referred to.
  • WINenergy's previous version of their customer charter stated that customers "can refer [their] problem – free of charge – to the Energy and Water industry Ombudsman" and that customers will not be disconnected "if any formal complaint [has been] made to an Energy and Water Ombudsman."

While the abovementioned changes are positive, we still have significant concerns about the information presented on their website.

WINenergy has a customer charter which claims to be "based on the Energy Retail Code (August 2004) of the Essential Services Commission of Victoria."8 An examination of their customer charter reveals that not all the provisions are in fact based on the Energy Retail Code (as of April 2011, at Version 8); many are less favourable. We understand that each resident at The Nicholson will have a smart meter. However, there are no smart meter specific provisions in their customer charter or intermediary sale of energy agreement (with the terms and conditions).9 Some of the terms and conditions of their intermediary sale of energy agreement could also be unfair under unfair contract terms law.

The customer charter also refers to the exempt seller "first follow[ing] the rules set out in the Energy Retail Code" before disconnection.10 The "disconnection and reconnection" provisions in the customer charter, however, indicate otherwise. For example: the customer charter does not refer to the issuance of disconnection notices prior to disconnection, which is a requirement under the Energy Retail Code (Version 8, April 2011). Further, the customer charter allows exempt customers to be disconnected after 2pm Mondays to Thursdays, while under the Energy Retail Code (Version 8, April 2011) domestic customers cannot be disconnected after 2pm on those weekdays.

There is a lack of transparency regarding how much an exempt customer would be paying for their energy. According to the customer charter, "legislation restricts the tariff that can be applied to your energy to that specified from time to time by the appropriate regulatory body in each state."11 This does not apply in Victoria, with the exception of network tariffs. As mentioned above, the letter from WINenergy's customer service representative mentioned "Discount electricity supply for the Nicholson tenants"; the brochure refers to discounts of up to 10%.12 There is a reference to "general service charge pricing schedule" in their current customer charter (absent from the version of the customer charter accessed from WINenergy's website on 21 July 2011). However, no information on tariff rates, fees or charges are included on WINenergy's website.

WINenergy literature suggests to customers that they are getting an attractive energy offer with all the Energy Retail Code's protections. WINenergy's webpage with the codes and guidelines governing energy supply in Australia13 suggests that WINenergy is obliged to comply with them as an exempt seller.

In practice, customers may experience difficulties finding out whether the WINenergy offer is better than energy offers they might be able to get from authorised retailers. As a customer's meter identification number (NMI) is required before a retailer can confirm if they are able to proceed with arranging connection in an exempt network, it appears that residents at The Nicholson will experience difficulties if they seek a connection with a retailer other than WINenergy. In these circumstances, access to free retailer choice seems constrained.

Relevant to this discussion paper, is the fact that WINenergy's customer charter states that customers "can refer [their] problem – free of charge – to the Energy and Water industry Ombudsman" and that customers will not be disconnected "if any formal complaint [has been] made to an Energy and Water Ombudsman."14 This is inaccurate; the whole basis of the discussion paper is to discuss the possibility of extending the EWOV scheme to customers of exempt networks, such as WINenergy.

Please see documents accompanying this submission for more information.

AER exempt selling framework

Consumer groups have already been involved in the Australian Energy Regulator's (AER)'s consultations on exempt selling. We have raised the critical need for exempt customers to have equivalent consumer protections to other energy customers, including; protections that include access to redress through an accessible, free and effective external complaints handling system, as well as a compliance and enforcement regime to ensure accountability on the part of exempt sellers.

In its June 2011 draft exempt selling guideline, the AER acknowledged that, while it did not have jurisdiction over the extension of jurisdictional ombudsman schemes to exempt customers, "there is a need for impartial and independent external dispute resolution for exempt customers. Ideally, exempt customers will have access to ombudsman schemes."15 We agree, and welcome the opportunity to respond to this discussion paper. As Victoria transitions to the National Energy Customer Framework (NECF), it is critical that the transitional arrangements address any gaps in the AER's exempt selling framework and specifically empower the AER to ensure the interests of all Victorian consumers are protected.

Dispute resolution for exempt bodies

Customers must have access to a free, impartial and independent external dispute resolution system to ensure consumer redress. EWOV is the most appropriate entity to assist customers of exempt networks resolve their complaints for the reasons set out in the discussion paper.16

EWOV offers a free, independent and impartial external dispute resolution service. Its complaints process is much less cumbersome than the Victorian Civil and Administrative Tribunal (VCAT). For example:

customers need not attend a hearing if they use EWOV's services, unlike VCAT;

  • the complaint is resolved based on what is "fair and reasonable" (having regard to law and good industry practice) – this is much more appropriate when dealing with an essential service;
  • there are a wider variety of remedies available through EWOV than VCAT;
  • complaints are generally resolved faster at EWOV than at VCAT; and
  • EWOV conciliators have industry knowledge and experience that assists in complaint resolution.

Given that, as discussed above, exempt customers are in a more vulnerable position than other customers (especially when they lack retailer choice and when both accommodation and energy are provided by the same entity), we find a compelling case to offer them the advantages of EWOV as a dispute resolution mechanism in the first instance. While consumers must also retailer the right to have their case heard by VCAT if they are dissatisfied with an outcome received from EWOV.

Funding

As EWOV is be the most appropriate forum for resolving disputes and complaints in exempt network complaints, exempt bodies should be obliged to become members. We do recognise the complexities involved in appropriately funding this expansion. We consider the fee-for-service model most appropriate, since it creates an incentive for exempt sellers to satisfactorily resolve disputes before they are brought to EWOV.

We note, however, that such a model would not pay for the start-up costs of extending the scheme. We suggest that the cost be spread across the larger for-profit entities, having a larger customer base and greater financial capacity. A sliding scale of fees, dependent on customer numbers, may be the most equitable approach. Alternatively, the Government could provide the initial funding as part of its commitment to ensuring Victorian energy consumers are adequately and equitably protected as we transition to the NEM.

Scope of jurisdiction

As a matter of principle, all customers (residential, small and large business customers, including exempt customers in all these categories) should be able to access a free, impartial and independent specialist external dispute resolution body such as EWOV to resolve their energy complaints, and as previously mentioned, customers should also have the option of accessing the court or tribunal system if they prefer, or if they are dissatisfied with the outcome of their complaint at EWOV.

If for practical purposes access to EWOV needs to be limited to certain classes of customers, residential customers and small businesses should be guaranteed access. The cost and complexity barriers to VCAT are much more significant obstacles to households than to businesses.

Enforcement

There is currently no obligation upon an exempt seller to be a member of an energy ombudsman scheme or to comply with the requirements of the scheme under the National Energy Retail Law (South Australia) Bill 2010. Neither are these obligations a condition of an exemption granted by the AER under their exempt selling guideline. Most of the deemed and registrable class of exemptions under the AER draft exempt selling guideline (June 2011) contains a reference to energy ombudsman scheme in their conditions, but in a different context. At the start of their residency, the exempt seller has to inform the customer of "any right" that they have to access the energy ombudsman scheme or any other relevant external dispute resolution body. In the event of a dispute, the exempt seller also has to advise the customer of "any right" they have to access the energy ombudsman scheme or any other relevant external dispute resolution body.17

In view of the above, it appears unlikely that EWOV's conciliated decisions and binding decisions can be enforced on an exempt seller through revoking an exemption.

Consumer groups' recent joint submission to DPI's Discussion Paper – Energy Customer Contracts (Victoria) Transition Issues and the Victorian Licensing Arrangements- Issues Paper recommended further empowering the AER to regulate the exempt selling regime:

Without a robust monitoring and enforcement regime there is no means to drive or assess exempt operators' ongoing compliance with their obligations. Strong regulatory oversight is especially important in this situation as customers of exempt sellers are unable to access, or encounter difficulties in accessing, the competitive retail market and the consumer protections other Victorians can take for granted. We believe that the AER needs to be further empowered to regulate the exempt selling framework under the OIC. 18

We therefore submit that if EWOV has power to refer exempt body complaints to another body for enforcement, the appropriate body should be the regulator, that is, the AER. We had, in the same response to DPI's paper mentioned above, urged the government to transition regulatory responsibility for Victoria-specific regulatory requirements to the AER. This will ensure that the regulation of consumer protections is seamless. We are concerned that a division of regulatory functions between different regulators could dilute the effectiveness of the overall framework and risk having issues fall through the gaps.

We believe that EWOV's upgrade policy should also apply to exempt sellers. We acknowledge that there are difficulties in enforcing EWOV resolutions or case handling policies against exempt bodies. However, this should not make it less beneficial for customers to take their matter to EWOV over VCAT, especially if EWOV is empowered to refer these matters to the AER for enforcement. Enforcement should include the imposition of fines as well as revocation of the business' exemption in serious cases. Further, we envisage that most exempt customers would benefit as we have the expectation that, the majority of exempt sellers would act in good faith and comply with EWOV resolutions and case handling policies.

These issues need to be addressed as a priority for a successful transition to a national framework that preserves and prioritises the interests of consumers.

Yours sincerely,

Consumer Action Law Centre - Janine Rayner, ph: 03 8554 6907, email: janine@consumeraction.org.au

Consumer Utilities Advocacy Centre - Jo Benvenuti, ph: 03 9639 7600, email: jo.benvenuti@cuac.org.au

Council on the Ageing - Debra Parnell, ph: 03 9655 2106, email: policy@cotavic.org.au

Kildonan UnitingCare - Joanna Leece, ph: 03 8401 0100, email: jleece@kildonan.org.au

St Vincent de Paul - Gavin Dufty, ph: 03 9895 5816, email: gavind@svdp-vic.org.au

Victorian Council of Social Service - Dean Lombard, ph: 03 9654 5050, email: dean.lombard@vcoss.org.au

Appendix 1

Smart Meter - DRAFT consumer policy principles

Universal protections

In pursuing the use of smart meter products and services (including Home Area Networks), Government bodies, Energy Regulators, Energy Retailers and Distributors should have regard for the following universal principles

  1. All consumers (including low income and vulnerable consumers) have a right access electricity with regard to its nature as an essential service.
  2. All consumers must be able to access a supply to meet their full household needs. Technology should not allow for essential services to be rationed, or penalise households experiencing financial difficulties.
  3. All information in relation to tariff and smart meter enabled products and services should be accessible and easily understandable for all consumers.
  4. Governments must ensure that robust measures addressing privacy, data security and data access and use are in place to guarantee consumer information is protected.
  5. Protocols of standardisation in use in other aspects of energy regulation, should also be adopted in relation to smart meters
  6. These principles apply to all market participants. Consumer rights
  7. Regulators must ensure businesses gain explicit informed consent in a time variant pricing environment.
  8. Consumers should be able to access their consumption information free of charge, easily and securely; at an appropriate level of granularity; and in a format suitable to the needs of different energy users.
  9. Consumers must be provided with information which facilitates an understanding of their individual consumption patterns, and the options available to them, prior to making a decision to enter in to a time of use tariff contract.
  10. The explicit informed consent of a consumer is required at the time of entering a new contract in relation to energy supply.
  11. Consumers must be provided with assistance to ensure they have the capability to utilise the functionalities of smart meters. In particular, support such as financial assistance and education should be given to vulnerable and disadvantaged consumers.
  12. Subject to Principle 1, consumers should be able to choose how their consumption data is used and by whom.
  13. In the transition to the National Energy Retail Law, Victorian legislation must ensure development and maintenance of consumer protections in relation to smart meters.
  14. The National Energy Retail Law and Rules must include provisions that ensure consumer interests are prioritised in relation to smart meter functionality.
  15. Social protections (eg concession arrangements, social security, income support, consumer protections) must adequately address changes to energy use, costs and services due to the introduction of time variant tariffs and smart meter enabled products and services.
  16. Regulators must ensure that retailer products and services ie market offers maximise benefits for consumers, minimising split incentives.
  17. Retailers mush ensure that consumers are not unduly penalised for any re-assignment of tarriffs

Mandated rollout

  1. Use of load control via the Home Area Network is subject to certainty of network integrity (security and reliability) and consumer protection.
  2. The government is responsible for clearly developing responsibility and accountability guidelines for efficient market operation that maximises benefits to consumers as a result of the mandated smart meter rollout.
  3. Costs associated with the mandated smart meter rollout/project must be transparently displayed on a customer's electricity bill.
  4. Future additions of water and gas metering to the existing electricity smart meters, must undergo extensive cost benefit analysis clearly identifying benefits and costs to consumers and must not compromise/undermine the integrity of the electricity smart meter system .
  5. Where companies generate additional revenue through other/non-mandated rollouts (eg gas or water meters), the regulator must ensure benefits are shared with consumers appropriately.

Products and Services

  1. Before new functionalities are operationalised, appropriate consumer protections must be developed and in place, eg direct load control.
  2. Basic standing offers must be universal, comparable and easy to understand.
  3. The HAN must have open standards and protocols and be technology neutral.
  4. Retailers must recognise and register all HAN devices, unless an exemption is granted from the regulator.
  5. Any messaging via the HAN must be opt in only, with the exception of those messages from emergency services (in relation to an emergency event), and disconnection warning messages (note that this is not in lieu of other regulatory requirements in relation to disconnection warnings).
  6. Where a consumer has previously opted in, no barriers should exist for timely resolution of instances where they have subsequently chosen to opt out.
  7. Any HAN products or services must address the Consumer HAN Policy Principles document as tabled to the NSSC and MCE by the Alternative Technology Association and as endorsed by consumer organisations.

Appendix 2

Voltage variations - consumer concerns with Part 7 of the NERL.

Part 7 of the NERL is unsatisfactory from a consumer protection perspective. Specifically, these issues need to be addressed by the Victorian Government if the intention is to use the regime set out under Part 7 of the NERL rather than Guideline No. 11:

  • By giving distributors a seemingly carte blanche discretion to reject claims for compensation, section 195 of the NERL undermines the entire intent of Part 7and the integrity of the small claims regime. This section is at complete odds with the intent of having a voltage variation scheme which is to allow small customers to be compensated by the distribution business without having to prove fault or liability.
  • Part 7 covers small customers. That means; a residential customer or a business customer who consumes energy at business premises below the upper consumption threshold which is 100 MWh per annum. Clause 1.1.1 of Guideline No. 11 "applies to any person whose property is damaged due to an unauthorised voltage variation affecting an electrical installation where the aggregate consumption of electricity which is taken from the relevant customer's point of supply is, or is reasonably expected to be, less than 160 megawatt hours in any year." Therefore, some small businesses which are covered by Guideline No. 11 would be excluded from Part 7.
  • In relation to section 183 and 193 (repeat claimants), there are some localities which have lower supply reliability and may therefore be more susceptible to voltage variations. Therefore, there is the likelihood that consumers living within such localities would submit more voltage variation claims within the relevant period/periods than someone residing elsewhere. Any parameters regarding what constitutes a repeat claimant need to take this into consideration.
  • Section 176(2) provides that "fault, negligence, or bad faith on the part of a distributor" need not be established in order to receive compensation from the distributor. The reference to "it is established"19 in section 185 (when compensation is payable) could be interpreted to require the customer to establish the matters listed in sub-sections (i) to (iv), that is, the distributor is liable for the claimable incident. Under Guideline No. 11, a claimant is not required to "establish" anything as the claim is payable upon proper completion of the claims form and the provision of relevant information.
  • A customer is only allowed to make one claim as indicated in section 187(3). On this basis, if they make any mistakes in that claim, or if further property damage comes to light after they have made the claim they cannot revise their claim without the "concurrence of the distributor", which is at the distribution business' complete discretion. In addition, if the customer makes more than one claim on the same day, the distributor has under section 187(4) complete discretion as to which of those claims they accept. Complete discretion to the distribution business without any guidance about the exercise of that discretion is unreasonable given that they have an interest in minimising the claim.
  • A distribution business should not be able to simply reject the whole of the claim if it exceeds the "maximum amount". Section 189 permits this. Rather, the claim should be automatically revised down to the "maximum amount" without the claimant having to request it of the distribution business.
  • Under section 187(2)(f) a claimant is already obliged to provide "quotes, receipts and other evidence" when making a claim for property damage. The claims process should not be onerous for claimants and a statement from a suitably qualified person should be sufficient for any claim submitted under Part 7, regardless of whether the amount claimed is within the "mandatory range" or "discretionary range."20 A statement from a qualified person is sufficient evidence for any claim submitted under the Guideline No. 11.

Further, in terms of drafting, section 196 does not relate well to section 199.

Section 196(b) provides that "[i]f the amount paid is less than the amount claimed" the distribution business has to inform the person that he/she has a right of recourse to the energy ombudsman if dissatisfied with the decision. This suggests that customers, if dissatisfied with the compensation amount received, can approach the energy ombudsman.

Section 199 however, provides that "[i]f a small customer is compensated....", "the customer cannot make any further claim" or "commence or maintain proceedings for damages" and that the "distributor has no further liability." This suggests that once the customer receives a payment from the distributor, the customer is barred from making any other claim even though he/she may be dissatisfied with the amount received.

Secondly, it is unclear what the reference to "a decision of the relevant energy ombudsman" means in section 199. Most cases at the energy ombudsman are resolved by conciliation. Conciliated outcomes are generally not binding on the disputing parties, unless there is a formal agreement signed between them (in this case, customer and distributor) that it is a full and final settlement of the claim, which would release the responsible party (distributor) from further liability. Otherwise, the claimant (customer) is free to pursue the matter in other forums which may include "commencing' or maintain[ing] proceedings for damages" in court. However, if the energy ombudsman makes a "binding decision", while the decision would be binding on the scheme participant, the customer has the option to accept or reject the decision. If the customer accepts the decision, the scheme participant is released from all claims, actions etc with regard to the complaint. If the customer rejects the decision, he/she can pursue alternative remedies such as court, and the scheme participant no longer remains bound by the energy ombudsman's decision. As an example, see clause 6.1 of EWOV's Charter.21

Thirdly, section 199 (a) to (c) denies a claimant the right to seek redress for a claimable incident once compensation had been made even though the claimant may be dissatisfied with the amount received. This is unfair and unreasonable. Further, it also prevents a claimant from making claims for matters which fall outside Part 7 (such as, claims for personal injury, economic loss or damage to intangible property) even though such claims could have arisen from the same voltage variation incident. We agree that claimants who have accepted compensation as full and final settlement of their claim for a claimable incident should not be allowed to make further claims against the distributor. However, claimants who have not or who are claiming for matters which fall outside Part 7 must not be denied redress.

  • Section 199 prevents a claimant from seeking alternative remedies once compensation has been made for a claimable incident regardless of whether the claimant has accepted or rejected the amount. The reference to section 199 in section 200(1) renders this section "other remedies" superfluous. This is because no one would be able to institute court proceedings for damages for a claimable incident under section 200(1) once compensation has been paid under section 199.

Section 200(2) is unfair and unreasonable as it denies small customers, access to Part 7 if they are enforcing or attempting to enforce other rights they may have outside Part 7 (such as, claims for personal injury, economic loss or damage to intangible property).

Footnotes

1 L Sylvan, „Activating Competition: the Consumer-Competition Interface“, Competition & Consumer Law Journal, 2004 (12); R Bannerman, Trade Practices Commission Annual Report 1983-1984, AUSTRALIAN GOVERNMENT PRINTING SERVICE, Canberra, 1984, p. 184
2 This must be based upon a consumer's full understanding of the offer they are signing, dependent upon the provision of information relevant to the offer (including price, fees, and terms and conditions) prior to signing, and in the absence of pressure tactics or misinformation (as discussed in the section on energy marketing above).
3 Ministerial Council on Energy Standing Committee of Officials, Responses to key issues raised by stakeholders on the second exposure draft of the National Energy Customer Framework, Attachment 1, at 6-8 (10 September 2010).  
4 Electricity Industry Act 2000, Exemption order under section 17, Order in Council, Victorian Government Gazette No S73, 1 May 2002, schedule Part A, paragraph 3.  
5 http://www.winenergy.com.au/brochures/winenergy_brochure_v1-00.pdf
6 Separately attached to this submission is the relevant page from VicUrban's 5 July 2011 letter and accompanying WINenergy literature (the WINenergy literature is available on their website).  
7 http://www.winenergy.com.au/brochures/winenergy_agreement_v1-00.pdf
8 http://www.winenergy.com.au/brochures/winenergy_customer_charter_v1-02.pdf at 3.  
9 http://www.winenergy.com.au/brochures/winenergy_agreement_v1-00.pdf
10 http://www.winenergy.com.au/brochures/winenergy_customer_charter_v1-02.pdf at 7.  
11 http://www.winenergy.com.au/brochures/winenergy_customer_charter_v1-02.pdf at 3.  
12 http://www.winenergy.com.au/brochures/winenergy_brochure_v1-00.pdf
13 http://www.winenergy.com.au/node/49
14 http://www.winenergy.com.au/brochures/winenergy_customer_charter_v1-02.pdf
15 AER, Notice of draft instrument – exempt selling guideline (June 2011), at 9.  
16 DPI, Discussion paper – extending the jurisdiction of the Energy and Water Ombudsman (Victoria), at 5-6.  
17 AER, draft exempt selling guideline (June 2011), attachments 1 and 2.  
18 http://new.dpi.vic.gov.au/energy/policy/national-energy-customer-framework/submission-joint-organisations
19 See also section 191(1)(c) & (d), National Energy Retail Law.  
20 See sections 190(3) & (4), 192(1a)(ii), National Energy Retail Law.  
21 Clause 6.1 of EWOV“s Charter provides that: „All decisions by the Ombudsman under paragraph 6.1 shall be automatically binding upon Participants. However, the complainant may elect whether or not to accept the decision of the Ombudsman within twenty-one (21) days of the Ombudsman's decision. If the complainant accepts the decision of the Ombudsman, the complainant shall fully release the Participant from all claims, actions etc in relation to the complaint. In the event that the complainant does not accept the decision of the Ombudsman, the complainant may pursue his or her remedies in any other forum the complainant may choose and the Participant is then fully released from the Ombudsman's decision.'