Origin Energy Limited logo2 August 2011

Dear Ms Dempsey,

RE: DISCUSSION PAPER EXTENDING THE JURISDICTION OF THE ENERGY AND WATER OMBUDSMAN (VICTORIA)

Thank you for the opportunity to provide input to the Department of Primary Industry's discussion paper: Extending the jurisdiction of the Energy and Water Ombudsman (Victoria).

Origin agrees with the principle that consumers should have a right to access timely and affordable dispute resolution regardless of whether they have their energy needs met by an energy retailer or another party, such as a caravan park proprietor, nursing home, or a range of other exempt sellers.

However, significant problems arise if we extend the existing Energy and Water Ombudsman of Victoria (EWOV) scheme to these exempt sellers: meeting the above principle via EWOV could be extremely impractical. Origin believes that there must be more comprehensive analysis of the issues before decisions are made.

We also strongly disagree with any notion that the energy industry and its customers should cross-subsidise the regulatory costs of non-energy industry businesses. These are matters of social policy and should be transparently funded by government. We discuss the detail of these views below.

DPI's intention with the discussion paper

The nature of DPI's role on this matter and the outcomes it is seeking through its discussion paper are not clear. Origin is responding to the discussion paper on the understanding that DPI is potentially to take action on bringing exempt sellers into EWOV, and that this may include instruction to EWOV about high level cost recovery. The scope of the paper and the questions within it would appear to support this interpretation.

Origin will only support DPI's involvement in this matter if DPI first funds a comprehensive analysis of the issues, as discussed below. This should be carried out by an independent consulting service, with input from EWOV about its scheme and resources. The point is that no decision can be taken about what to do with exempt sellers without first understanding the size of the problem to be addressed.

Timing

We have been advised that the government has waited for the right time to address the issue since the ESC's final recommendations on small scale licensing in 2007. As outlined in the discussion paper, DPI believes that now is the right time because the NECF requires EWOV to make changes to the scheme's eligibility criteria, and so further amendments can be made at the same time.

This view is concerning for two reasons.

First, this issue is not actually NECF-related and is using up the very limited resources currently available both in DPI and within the industry and consumer sector (and EWOV) that could better be spent managing NECF and other policy matters.

Second, the government has had a few years since the ESC's final decision to test and analyse the issues. DPI could have, and should have, prepared for this consultation. The lack of analysis in the paper is a real problem, as discussed below.

Origin disagrees that the time is right to bring exempt sellers in to EWOV. This is too significant and complex an issue to roll in to NECF transitional work. There must be a more comprehensive, independent assessment of the issues, and timing considerations are likely to require this to wait until after the NECF transition work is complete.

The need for analysis

The analysis of the issues in the discussion paper is limited and does not support any informed conclusion. The following information is lacking at even a high level:

  • Who are the exempt parties we are talking about, their characteristics and their numbers.
  • Expectations of complaint volumes based on current Victorian data. * Assessments of EWOV resourcing and administrative costs that will need to be recovered.
  • Issues with fundamentally changing the nature and constitution of EWOV to embrace exempt parties.
  • What has happened in this space since the ESC carried out its consultation – any significant changes to the exempt seller environment or relevant parties.
  • Government's view about the other elements of the ESC's 2007 report and any dependencies of the EWOV proposal on these other elements.
  • Any view of EWOV about the proposal, including work it carried out as part of the feasibility review it said it would undertake over four years ago.

It is interesting to note that the ESC stated in its final decision on the small scale licensing framework that even through its consultation process it had not been able to develop a significant knowledge of the sector to inform its decisions: "Despite the efforts of the Commission, the extent to which small scale activities are undertaken and the types of protections that customers within these arrangements require remain unclear" (ESC 20071, page 2). The ESC formed its recommendations given its terms of references at the time, but it also clearly considered that more work was necessary.

EWOV's response to the ESC during the consultation process confirmed this view: In every previous instance where it has been suggested that EWOV's jurisdiction be expanded to accept a new class of members, a feasibility study has been undertaken to fully explore the pros and cons of such a change.  Such a feasibility study is particularly important in this case because the number and nature of the potential members are not known. It is therefore hard to estimate the possible number of cases and the impact on workload. (EWOV, 16 February 2007, p. 1)

EWOV stated that the following was required for the EWOV Board to fully inform itself about the issue at hand:

  • the full number and nature of entities expected to become members of EWOV
  • a suitable charging basis for their entry into EWOV
  • a suitable membership category basis for such entry
  • estimated complaint and enquiry numbers
  • potential impact on the financial and operational stability of EWOV
  • policies, processes and systems needed for complaint handling
  • human and other resource impacts on EWOV
  • the possible range of services to be offered to the entities and their cost
  • voting rights and company representation
  • Charter and Constitution changes. (EWOV, 16 February 2007, p. 2)

Origin understands that EWOV did carry out a feasibility study at the time, and we would expect that the outcomes of that work should inform DPI's approach. It is a significant omission that the DPI discussion paper does not refer in any way to EWOV's further analysis.

We note that DPI has referred to the experience of EWON, which currently hears complaints from customers of exempt sellers. DPI refers to the EWON submission to the AER's retail exemption consultation last year, where EWON confirmed only 38 complaints were registered in the first half of 2010 for exempt entities. The inclusion of this information could be seen to imply that this could be the expected volume experienced in Victoria. However, we would suggest that this example may not be relevant, as so much of the detail is not available. Before assuming the validity of the NSW experience for Victoria we need to have a much better view of the nature and number of the exempt sellers in each state. Perhaps more importantly, there should be a sense of how the relevant schemes are publicised. It may well be that low complaint numbers in NSW reflect more the lack of understanding that customers of exempt sellers have about their ability to complain.

We note that EWOV said in its submission to the ESC's consultation process in 2007: If, as has been suggested as a possibility, thousands of new entrants may eventuate, this would constitute the largest and most fundamental change to the scheme's operations since its inception in 1995. (EWOV, 16 February 2007, p. 1)

In summary, the position of EWOV is important to understand, including any feasibility analysis it carried out in previous years on this issue. NSW is not an appropriate proxy for information in this area.

The basic funding question

The direction the DPI paper seems to be taking is that the current members of EWOV would fund the fixed costs of the new exempt entities participating in the scheme. We believe that this proposal is not only impractical but fundamentally unpalatable to the industry. We cannot support this direction in any way, and particularly not with the current lack of analysis of the issues, including the lack of clarity about enforcement and funding.

Some exempt sellers will also be well positioned to pay for their own fixed costs: there is no reason to expect that for-profit operators cannot pay the full costs they incur, particularly larger entities such as shopping centres. These parties cannot have their costs of external complaints handling funded by energy retail customers. EWOV itself stated in its response to the ESC's consultation in 2006-2007 that such a decision could not be taken without further analysis, and that:

The recommendation would mean that EWOV's current members are subsidising the new members. If the fee-for-service level only meets the incremental costs, these members are making no contribution to EWOV's fixed costs. This is an unacceptable arrangement, and it is difficult to see how it could be equitable for EWOV's existing members. (EWOV, 16 February 2007, p.2)

If it is determined that customers of non-energy and water businesses require a more accessible dispute resolution service than VCAT, this is a social policy question. It is not an industry issue, by definition. Sensible public policy outcomes could include an enhanced dispute resolution service through Consumer Affairs under the Residential Tenancies Act, and this would seem a more logical and fruitful direction to take than using an existing industry funded dispute resolution scheme for specifically non-energy industry complaints handling.

If for practical or political reasons EWOV is still the most likely body to hear complaints, then we would argue that funding for the issues related to non-energy industry participants – whatever the membership and fee structure – should come from either the new participants (such as the larger entities) or government. Smearing these as yet unknown costs across existing customers via the energy industry perpetuates an inequitable cross-subsidy that just increases the energy bills of the rest of the community.

The role of EWOV

EWOV is best able to provide information about its scheme and the impact of including exempt sellers on the scheme's operations; however, we want to highlight some points that come immediately to mind when considering EWOV in this role.

The first issue is to scope out is the potential fundamental change to the nature of EWOV by bringing in exempt sellers, as noted by EWOV in the quote at the top of the page. The notion of having caravan park and shopping centre operators (for example) on the Board is at odds with the whole point of having a specialised industry body. Even if these parties were not formal members (and we cannot see how they can be) EWOV could be made fundamentally different if exempt seller complaints were able to be heard. The expectation for EWOV to handle what might end up being disputes over living arrangements and non-energy commercial agreements means that EWOV's capacity will be stretched, potentially beyond capacity. The worst outcome for all consumers will be if the integrity of the existing scheme is undermined.

A second issue, and also as noted by DPI, relates to enforcement. There are no apparent means of enforcing the EWOV programme on non-licensed entities, at least not the full range contemplated by DPI. While some will be linked in to an enforcement regime via the AER's exempt selling guideline, the likelihood of this being a way to enforce payment of EWOV fees is slim. It may well be that the fees and compensation awarded to customers are never seen.

The third matter leads from the previous two points and relates to the day to day operations of EWOV. EWOV's billing arrangements will be problematic in an environment with fee-for-service exempt sellers, and administration across many small entities is likely to also be taxing. EWOV notes in its submission to ESC in 2007:

EWOV's current billing arrangements involve six-monthly billing in advance with a reconciliation taking place in the following six months. This has worked well and EWOV has never had to worry about bad debts. The ESC's recommendation would involve setting up a parallel billing system that involved monthly billing in arrears and would almost certainly involve EWOV in issues of debt collection and bad debts. (EWOV, 16 February 2007, p. 3) As discussed above, we do not support the notion that the current EWOV members should subsidise the bad debts of others, whether this is in the form of higher fixed charges or some other funding mechanism.

I would be happy to discuss any aspect of this submission further with DPI, and at your convenience. If you have any queries about this submission please contact me on the number below.

Yours sincerely

[signed]

Dr Fiona Simon Regulatory Policy Manager 03 8665 7865 – fiona.simon@originenergy.com.au