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13 May 2011

Dear Raif

ENERGY CUSTOMER CONTRACTS TRANSITION ISSUES

Thank you for the opportunity to comment on transitioning customer contracts to the national retail framework.

Transitioning customers onto contracts consistent with the requirements of the national framework should seek to minimise costs and disruption to customers and retailers. It should also seek to respect recognised legal precedence, such as contract law and ensure that retailers can bring themselves into and maintain compliance with the new national requirements.

Our comments against the questions you have raised in the Discussion Paper are framed against these considerations.

Small customer standing offer contracts

The Discussion Paper queries whether it is appropriate to transfer customers on existing standing offers to the corresponding standing offer under the NECF.

While this is desirable, Simply Energy does not believe that this would be possible without obtaining the customer's consent to do so. While there are no explicit informed consent requirements specified in the national retail framework, contractual law would require retailers to obtain a customer's consent before an existing contract can be varied.

Obtaining each standing offer customer's consent would be a very costly and time consuming exercise. More importantly, it has the potential to create risks for both the customer and the retailer where the customer does not agree to the proposed variation of contract. Where this happens, there is the potential that retailers may have a large group of standing offer customers on old standing offer contracts that do not comply with the new national requirements. Retailers would be in violation of the new national requirements but powerless to correct the situation.

In our view, a cleaner and less risky approach to standing offer contracts would be to allow existing standing offer contracts to continue but the enabling legislation would specify that the contracts were invalid to the extent that they are inconsistent with the NECF. Where there are inconsistencies, the provisions of the NECF would prevail.

As you have noted in relation to market contracts, inconsistencies between existing contracts and the NECF could lead to disputes over contract terms.

We suggest that the likelihood of this occurring with standing offer customers is very small. The differences between the NECF model terms and the existing Victorian standing offer requirements are minimal. Small customers will also be able to use the support structures that have been set up to assist them in disputing issues with retailers — the retailer's own dispute resolution procedures and the Ombudsmen arrangements.

Existing Ombudsmen arrangements should be sufficient to resolve disputes over contract terms where they arise. However, the Ombudsmen will require recourse to the AER from time to time to obtain a determination on whether an existing standing offer contract provision is consistent or not with the NECF requirements. The AER has carriage of the responsibility for determining whether standing offer contracts meet the requirements of the Law/Rules and it should retain this responsibility where there is a non-resolvable dispute between a retailer and customer over contract terms. Where the Ombudsmen cannot resolve a dispute over contract terms through conciliation, they should be referring the matter to the AER for determination.

In summary, Simply Energy would prefer to have all standing offer contracts varied to match the terms and conditions set out in the NECF. However, contract law would suggest that this would not be possible without obtaining the consent of the customers concerned unless the enabling legislation could be used to override existing contract law. Obtaining consent would be costly and risks leaving a large group of customers on old standing offer contracts where they do not respond to the retailer's request for consent or customers refuse to give that consent. Retailers would not be able to achieve compliance with the new requirements.

The next best and Simply Energy's preferred option is to allow existing standing offer contracts to continue but where there are inconsistencies with the national requirements, the provisions of the national framework would prevail.

Small customer market contracts

Our views on transitioning small customer market contracts are the same as those expressed on standing offer customer contracts. The only realistic option for transitioning small customer market contracts is to allow existing contracts to continue but be invalid to the extent that they are inconsistent with the Law and Rules. Obtaining customers' explicit informed consent to vary the existing contract would be confusing, time consuming and costly, and would likely result in a large group of market customers remaining on the old market contract because they either don't or refuse to give their consent to the variation. As with standing offer contracts, this would leave retailers in a position where they are not compliant with the national requirements but can do nothing to correct this situation.

As noted above, Ombudsmen arrangements should be sufficient for conciliating a dispute over contract terms and conditions but Ombudsmen will require recourse to the AER to determine the legitimacy of a contract term where conciliation cannot achieve an outcome.

Dual fuel contracts

Simply Energy does not have any comments in relation to dual fuel contracts.

Energy only contracts

Simply Energy does not have any comments in relation to energy only contracts.

ROLR

The Discussion Paper queries how customers of a failed retailer should be treated if a retailer fails prior to the commencement of the national retail framework.

As the Discussion Paper notes, these customers are effectively placed on standing offer contracts. Simply Energy cannot see any reason why these customers should be treated differently to other standing offer contracts. The existing contract would remain but the national Law/Rules would prevail where there are inconsistencies.

Deemed contracts

Our views on transitioning deemed customer contracts are the same as those expressed on standing offer customer contracts.

Large customers

The Discussion paper queries how the contracts of 'small market offer customers' should be handled in the transition from the Victorian arrangements.

As with standing offer and small customer market contracts, Simply Energy believes the only realistic option is to allow small market offer customers to remain on their existing market contract but allow the Law and Rules to prevail where there are inconsistencies.

Conclusion

The Discussion Paper addresses each type of contract separately. We understand that this was necessary for the purposes of commencing consultations on the issue. However, Simply Energy does not believe there is any reason to treat different types of contracts differently in the transition and adopting one approach for all contract types would be preferable. It will lead to less confusion, less disruption and less chance of customers feeling they have been disadvantaged compared to others.

Simply Energy's preferred approach to all contracts would be to move them onto the new national requirements as of 1 July 2012. However, we do not believe this will be possible without engaging in an expensive, risky and time consuming process of obtaining customers' consent to vary the contracts.  It is also difficult to see what benefit customers would get from engaging in the process even where they did. So it appears unnecessary to inconvenience customers by requiring them to go through a consent process.

As a result, the only real option is to retain all existing contracts as they are but for the enabling legislation to specify that the national Law/Rules will prevail where any inconsistencies arise. Any disputes about the content of a contract can then be dealt with on a case by case basis through the retailer's existing dispute resolution mechanisms and/or existing Ombudsman arrangements.

Dianne Shields
Senior Regulatory Manager
Simply Energy