Lumo

Dear Mr Sarcich,

RE: Discussion Paper - Victoria Specific Regulatory Requirements under the National Energy Customer Framework

Lumo Energy, (Lumo), thanks the Department of Primary Industries for the opportunity to comment on the proposed regulatory framework that Victoria would maintain post the National Energy Customer Framework (NECF) transition.

Lumo is largely supportive of the proposed changes, yet recognise that some of the legislative and regulatory instruments that have proposed to remain have no material benefits and appear strictly political in nature.

For example, the retention of the requirements of Sections 43 (2), (c) and 48G (2) of the Electricity Industry Act 2000 (EIA) and Gas Industry Act 2001(GIA) acts respectively, requiring retailers within their hardship programs to replace inefficient appliances, has no merit in terms of regulatory obligations and is strictly social policy with no conclusive evidence of its benefits. This raises the question why, if beneficial, was the Homewise Grants Scheme removed, which was a primary source of appliance replacement for no/low income households.

Had the introduction of the above obligations been so crucial, the Homewise scheme would not have been closed as a government support mechanism for appliance replacement. If retailers are to retain such an obligation, the cost to serve consumers will inevitably increase and cross subsidies will exist between groups of consumers to fund the replacement of appliances where it is not clear to what extent there is a gain.

It is these non-material derogations that impose costs on retailers to comply and also provides for a regulatory mechanism imposed on retailers to enter consumers' homes and provide advice and or appliances where the benefits are generally only realised in combination with behavioural change. This also removes the consumers' choice in terms of appliance types and standards and further implies that consumers are unable to effectively choose the appliances that suit their needs therefore they must use the type and brand which their retailer has a contract for the supply of.

The overarching assumption is that replacement of a single inefficient appliance is likely to reduce consumption to the point of benefiting the consumer, yet without understanding how the appliance is used and or what the inefficiency is, it could simply compound the problem.

Other concerns relate more specifically to the interpretation of the existing regulations and how they correspond to the NECF. Such as the Energy Retail Code (ERC) Clause 20, Variations require customer's agreement, where the discussion paper explicitly indicates that this only operates in a Smart Meter environment.

It raises the question of consultation as Clause 20 has not expressly dealt with variations in relation to Smart Meter tariffs and is a blanket rule associated with all changes to structure and or nature of the customer's tariff. Although amended, effective 1 April 2011, there is no mention of Smart Meters being the specific source of that change and that change was not widely consulted on by the Essential Services Commission (ESC).

This creates complications, not because consent is required, but because it now conflicts with the changes made to Guideline 21: energy industry – energy retailers' financial hardship policies, which contains rules associated with changing a customer's tariff, if required, upon entry to the retailers' hardship program taking into account the supply characteristics.

Clause 2.2 (b) of Guideline 21 sets out all the requirements of a retailers hardship program on the basis that they are required to comply with Section 45 (2) of the EIA and Section 48G (2) GIA that require the approval of the ESC based on the guidelines that the ESC set. Lumo views these requirements as being the equivalent rules as issued by the ESC that subsequently require approval and are audited and monitored against.

While the NECF requires that the equivalent policy to be developed by the Australian Energy Regulator (AER) and retailers are to seek approval on the basis that it meets requirements of the National Energy Retail Rules (NERR) which differ from Guideline 21 specifically in relation to tariff re-assignment on entry to a retailers' hardship program.

Lumo also wishes to take this opportunity to encourage the adoption of the ESC's 2010 recommendation that Wrongful Disconnection Payments (WDP) be capped at 10 business days in liability, and that WDP also be limited to those who, by definition, are willing to but fail the necessary means in which to pay their invoices.

In aligning the compliance obligations to the NECF with the associated risks of WDP, we are concerned that decisions made regarding a retailers compliance with the proposed Victorian Energy Retail Rules (VERR), NERL and NERR may be difficult to make and subsequently prose increased and uncontrolled exposure to retailers.

This exposure can be reasonably controlled through adoption of the recommendation providing reasonable certainty that in the worst case, a customer that is deemed to be disconnected wrongfully, the maximum liability would be $3,500.00, making the risk more practical to manage.

The need for compensation where a consumer has been disconnected, whether wrongful or not, without the appropriate controls and monitoring of that compensation in place, contradicts the objective to establish efficiency and investment in the long term interests of consumers by simply increases costs to consumers.

Having analysed the impacts on Lumo as a business, we identified that the cost of investigation, associated administrative and Ombudsman costs outweigh the overall benefits that individual consumers experience. We have estimated that approximately 80% of costs, that are attributed to a retailers cost to serve, are directly associated with the Ombudsman investigation costs and only 8% in total are payments made for compensation.

Further to that, less than 1% of payments were made to customers identified as potentially being in hardship, which were willing but did not have the capacity to make payments, all of which received payments no greater than $1,000.00. This is likely the result of a heightened dependence on energy meaning that they are more likely to respond in a short time frame.

Lumo largely supports the transitional arrangements, however suggest that items such as the WDP, hardship arrangements and Smart Meter regulatory changes be reviewed in greater detail to determine whether they, as rules, offer more or less protection than the NECF.

Most importantly, we believe that the associated costs be carefully considered in this time or regulatory transition and consider whether the regulatory framework can support the costs of transition and or whether matters such as the WDP be reconsidered or capped to ensure financial stability while retailers manage the appropriate system, procedural and educational changes throughout their businesses.

If there are any questions regarding this matter please contact Ross Evans on 03 8680 6426 or via email at Ross.Evans@lumoenergy.com.au

Regards,

Ross Evans
Regulatory Compliance Analyst