Australian Power and Gas logo5 August 2011

Dear Ms Dempsey,

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

Australian Power and Gas (APG) welcomes the opportunity to comment on the Department of Primary Industries' (DPI) discussion paper: Extending the jurisdiction of the Energy and Water Ombudsman (Victoria) (Discussion Paper).

As part of the changes under the National Energy Customer Framework (NECF), the DPI is examining whether the Energy and Water Ombudsman (Victoria)(EWOV) should extend its jurisdiction to include energy bodies. In relation to this proposal, APG wishes to make the following submissions:

1. What is the most appropriate forum to assist in the resolution of energy complaints between exempt bodies and their customers?

APG is of the view that the most appropriate forum for complaints between exempt bodies and its customers would be the Victorian Civil and Administrative Tribunal (VCAT).

VCAT is a statutory body that has a history of dealing with disputes between exempt bodies and its customers. VCAT determinations are binding on all parties and enforceable under law. Their determinations would also set precedence for future disputes – therefore ensuring that the Tribunal would handle disputes consistently and efficiently. It would also provide customers with a level of expectation if they choose to further an unresolved dispute with the Tribunal.

Mediation or compulsory conference may occur prior to hearing which will provide the parties with the opportunity to settle the dispute before it reaches the hearing stage. Also, the parties are permitted to be represented at all stages of the proceedings if they choose to do so.

Also, as discussed in detail below, there are some fundamental issues with EWOV hearing complaints by exempt body customers – in particular, the funding structure for and enforcement of exempt bodies under the EWOV scheme.

2. Are there advantages for customers and exempt bodies in having complaints heard by EWOV rather than VCAT?

APG is of the view that there are some advantages for EWOV rather than VCAT to hear exempt body customer complaints. These are:

  • EWOV deals primarily on energy and water services-related disputes and complaints.
  • EWOV may be considered to be informal and less confrontation.

However, there are disadvantages for EWOV to hear exempt body customer complaints.

EWOV is formed by licensed energy market participants as part of its regulatory obligations. The experience that EWOV currently has will predominantly relate to issues that a licensed participant faces under a highly regulated environment. Exempt bodies are not on the other hand, subject to the same level of regulatory rigour.

For example, the service levels, standards and expectations of a licensed energy provider do not apply – to a large degree – to exempt bodies. This is due to the fact that licensees are subject to the restrictions and requirements of the relevant energy laws, codes, rules and regulations, whereas exempt bodies are generally bound by the conditions that are attached to their class of exemption. These exempt conditions are considered to be less stringent or onerous than those conditions attached to a licensed energy provider.

Therefore, it is arguable that EWOV may not have the necessary experiences or resources to deal with exempt body customer complaints because the regulations and standards that currently apply onto licensee-related complaints will be significantly different to that of exempt body complaints.

Furthermore, the inclusion of EWOV as an avenue for exempt customers to resolve a complaint may inevitably lead to forum hopping by these customers. This may be of concern to exempt bodies if a customer receive an unfavourable outcome from EWOV and then subsequently commence an action with VCAT.

3. If EWOV's jurisdiction was extended, should exempt bodies be obligated by to become members of EWOV?

APG does not support the view that if EWOV's jurisdiction is extended then exempt bodies should be obliged to become members of EWOV.

We are concerned that exempt bodies, especially small operators, may not have the capacity to meet the membership obligations under EWOV's Constitution. If this is the case, this would then have deferential impacts on the scheme as a whole. In particular, the current fee obligations may create affordability issues for some exempt bodies which would in turn, force these exempt bodies to pass on such costs to its customers. Consequently, this may lead to more customer complaints to EWOV.

Also, with the upcoming changes under the NECF with respect to retail authorisation exemptions, the estimated number of exempt bodies in Victoria is unknown at this stage. As such, it is unclear how the inclusion of exempt bodies will impact upon the membership base as a whole and potentially create undesirable biases within the scheme.

The DPI examined the option for exempt bodies to be a contracting participant of the EWOV scheme. This option is favourable as it will give EWOV with some flexibility in determining the level of participation and access for exempt bodies and its customers. However, as the DPI has observed in its Discussion Paper, the issues of cost recovery and contractual enforcement may become problematic where smaller exempt bodies are experiencing financial difficulties.

4. What is the most appropriate model for funding the costs of resolving disputes raised by customers of exempt bodies (e.g. fee-for-service)?

The appropriate funding model will depend upon whether or not exempt bodies will become EWOV members and other mitigating factors such as cost recovery and enforcement.

If exempt bodies are obliged to take up membership with EWOV, then those bodies should be subject to the fee structure that is currently in place.

The DPI has identified in the Discussion Paper, that the current fee structure may not be suitable for smaller exempt bodies as these operators may experience difficulties with the payment of EWOV fees and liabilities. As such, there is also the risk that the smaller operators may be forced to pass those costs onto its customers. However, we would argue that in order to maintain equality between all members to the scheme, the current fee structure must apply. Furthermore, APG does not support a different membership class or fee structure specific to exempt bodies.

(EWON) approach of cost spreading across other scheme participants in the event that the fees levied on exempt bodies are unrecoverable.

Currently, the ramifications for a licensed member for non-compliance with the Constitution, the Charter or any rules of EWOV could be severe, i.e. a licensee could face expulsion from EWOV which would lead to a breach of their energy licence condition and subsequently may lead to the revocation of their energy licence.

In contrast, an exempt body does not have such condition and as such, expulsion from membership does not necessarily lead to the loss of its licence exemption status. Arguably, exempt bodies may not have any incentive to comply with its membership obligations as there are no real consequences for non-compliance – with the exception of any financial debt or obligation acquired. Therefore, it would be considered to be inequitable for current scheme participants to cross-subsidise funding to exempt bodies who cannot meet their membership requirement.

If exempt bodies are contracting participants in the EWOV scheme, APG proposes that an upfront fee plus a fee-per-service be levied on all contracting participants. The upfront fee would assist EWOV with the initial costs of extending its services to these participants. The fee-per-service would be reflective of the costs for EWOV to handle the complaint. However, as discussed above, EWOV may experience difficulty in recovering fees from some exempt bodies that are experiencing financial difficulties. This is a concern as it would have consequential impacts on the scheme. We cannot have the situation where the ongoing viability of the scheme is jeopardised through the non-payment of fees and charges by one classification of scheme users.

Given the structure and nature of the operations of exempt bodies we believe this to be an issue of serious concern.

Irrespective of what fee-structure is adopted, APG recommends that the adopted funding structure should be reviewed after a 12 month post-implementation period. This will enable EWOV to assess the effectiveness of the fee structure against the costs of handling an exempt body complaint, and then adjust the fee structure accordingly. Also, licensed participants would not be disadvantaged by the potential cross-subsidisation of the costs and risks associated with exempt body complaints.

5. Should only certain classifications of exempt customers have access to EWOV?

6. If yes, what classifications of exempt customers should have access to EWOV?

Assuming that EWOV's jurisdiction would be extended to apply to exempt bodies, APG will support the proposition that only exempt customers who

As discussed in the Discussion Paper, it would be more beneficial for vulnerable customers to be able to access the services of EWOV than say larger business customers. Accordingly we would consider that those vulnerable customers would fall under the "small customer" definition of the NERL. A "large customer" (as defined under the NERL) would still have the benefit of the VCAT or court of law to deal with their disputes.

7. 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?

APG does not the support the proposition that the Government should empower EWOV with any enforcement powers (either statutory or delegated powers or otherwise) in the event that an exempt body does not comply with EWOV's policy or resolution.

EWOV is an independent private organisation with the purpose of servicing its member participants. By empowering EWOV with various powers would inadvertently convert EWOV into a quasi-tribunal or court – this is contrary to the role and purpose in which EWOV was formed. If this was the case, then VCAT would be the more appropriate body to handle exempt body complaints as it already have statutory powers to enforce its decisions.

8. 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?

For the reasons discussed above, VCAT would be the logical candidate to have matters referred.

9. 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?

Yes. Customers would be more inclined to take their matter to VCAT than with EWOV if the customers receive a favourable outcome from EWOV but the exempt body does not comply, the customers will be left out because EWOV are unable to enforce their policies and resolutions.

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