Executive summary

Purpose

Victoria proposes to implement the National Energy Customer Framework (NECF), a national framework for the regulation of energy distribution and retail activities, on the target date of 1 July 2012 as determined by the Ministerial Council on Energy.

In order to implement the NECF smoothly and ensure that customers are not disadvantaged by the change in regulatory requirements, the Department of Primary Industries (DPI) has undertaken a review of the existing Victorian regulatory framework against the proposed national frameworks, with the intent of determining where Victoria-specific regulation will be necessary following the implementation of the NECF. This paper sets out DPI's proposed approach.

Regulatory review

A review was undertaken of all relevant legislation and regulation, including:

  • The Electricity Industry Act 2000 and Gas Industry Act 2001.
  • Essential Services Commission ("ESC") codes:
    • Energy Retail Code
    • Electricity Distribution Code
    • Gas Distribution System Code
    • Electricity Customer Metering Code
    • Energy Marketing Code of Conduct
    • Public Lighting Code
  • ESC regulatory guidelines
  • Energy retailer and distributor licences

Proposed approach

DPI's proposed approach is to consolidate Victoria-specific regulation to the extent feasible. For the purposes of this paper, Victoria-specific regulation will be collectively referred to as the "Victorian Energy Regulatory Rules" (VERR). The form of the VERR will be determined by DPI as appropriate given the drafting challenges in implementing the national frameworks. In particular the use of the word "rules" is not to be taken as indicating all of the regulation will be in rules similar to those made by the Australian Energy Markets Commission. Depending on nature and content, it may be in acts, regulations, orders or rules.

Proposed Victoria Energy Regulatory Rules

A comprehensive list of proposed Victoria-specific regulation is to be found in Part 4 of this paper but will include:

  • Provisions regarding customer contract terms and fees.
  • Transitional provisions for gas billing cycles.
  • Provisions for billing for bulk gas hot water.
  • Notification provisions concerning changes to standing offer terms.
  • Provision to notify changes to the NMI standing data schedule.
  • Requirements on retailers to deliver community services obligations.
  • Requirements on retailers to include energy audits and appliance assistance in hardship policies.
  • Detailed provisions concerning the installation, activation, billing, access, data, privacy and disconnection of smart meters.
  • Provisions concerning gas meter installation and testing.
  • Benchmarks for unaccounted for gas.
  • Compensation for wrongful disconnection of customers.
  • Distributor service standards for the connection and reconnection of premises.
  • Preserving timeframes for the reconnection of supply following disconnection.
  • Notification requirements on distributors prior to and during disconnection action.
  • Preserving special arrangements for investment in Melbourne CBD security of supply.
  • Regulation of acceptable electricity quality of supply.
  • Regulation of reliability of supply for customers on life support.
  • Transitional arrangements for Victorian Guaranteed Service Levels.
  • Notice requirements for planned interruptions to gas supply
  • Regulation of the provision of public lighting services.
  • Regulation of the provision of power line undergrounding services.

Submissions

Stakeholders are invited to make submissions on the approach to Victoria-specific regulation set out in this paper.

Submissions are preferred in electronic format and should be provided to the Department of Primary Industries by Tuesday 2 August 2011.

Via email: raif.sarcich@dpi.vic.gov.au

Or mailed to:

Raif Sarcich

Principal Policy Officer

Energy Sector Development Division

Department of Primary Industries

GPO Box 4440

Melbourne VIC 3001

The Department encourages respondents to make their submissions available publicly. Unless certain sections of submissions are marked 'IN CONFIDENCE', all sections of the submissions will be treated as public documents and will be placed on the Department's website www.dpi.vic.gov.au for public access. Formal requests for confidentiality will be honoured; however, Freedom of Information access requirements still apply to confidential submissions.

1 Introduction

1.1 Purpose of this paper

This paper proposes DPI's approach to, and seeks comment on, matters of regulatory policy where Victoria may seek to regulate the energy supply industry alongside the national frameworks for energy regulation.

The National Energy Customer Framework (NECF) is a new national regulatory framework for the retail and distribution of electricity and natural gas.

The NECF provides the regulatory and institutional framework for energy retail regulation at the national level. This framework provides:

  • institutional arrangements to support full retail contestability; and
  • an energy specific customer protection framework to ensure that customers have an acceptable level of access to this essential service.

The NECF is a commitment of Governments under the inter-governmental Australian Energy Markets Agreement (AEMA).

The Ministerial Council on Energy (MCE) decided at its December 2010 meeting to a target implementation date of 1 July 2012 for the NECF.

1.2 National framework developments

The national frameworks for energy regulation have been established pursuant to the AEMA, and currently consist of the National Electricity Law (NEL), National Gas Law (NGL), National Electricity Rules (NER), and National Gas Rules (NGR) together with jurisdictions' application acts and instruments made under those acts.

The national frameworks regulate electricity generation, transmission and distribution, and gas transmission and distribution activities, providing for wholesale market operation and economic regulation of monopoly network service providers. Regulation is performed by the Australian Energy Regulator (AER) while the Australian Energy Market Commission (AEMC) has responsibility for administering the NER and NGR through a transparent rule-change process.

Governments under the Australian Energy Market Agreement (AEMA), agreed in 2006 to the transfer of regulatory arrangements for energy retailing and distribution to a national framework. This work was split into two packages – an 'economic' regulatory framework was established in 2007 for electricity through amendments to the National Electricity Law (NEL) and in 2008 for gas through the National Gas Law (NGL). The NECF is the 'non-economic' package, to be enabled by the National Energy Retail Law (NERL) which was passed by the South Australian Parliament in March 2011.

The NECF legal package is available on the MCE website and consists of:

  • National Energy Retail Law
  • National Energy Retail Rules (NERR)
  • Regulations under the NERL
  • Consequential amendments to the National Electricity Law (NEL) and National Gas Law (NGL), National Electricity Rules (NER), and National Gas Rules (NGR).

1.3 Victoria's transition to the national framework

The NECF has now been the subject of a substantial number of consultation exercises conducted by the MCE's Retail Policy Working Group (RPWG), including:

  • Five reports by Allens Arthur Robinson (AAR) in 2006/07 proposing the outline of the framework;
  • A SCO policy response to the AAR reports in 2008;
  • A report by NERA/AAR in September 2008 on the Retailer of Last Resort (RoLR) framework;
  • A Consultation Regulation Impact Statement in October 2008;
  • The first and second exposure drafts of the NECF, released in April 2009 and November 2009; and
  • Separate consultation processes carried out for the development of the national connections frameworks from 2007 – 2009.

The NECF has received intensive and detailed scrutiny at every stage from stakeholders from retail, distribution, customer and regulatory organisations, and this has assisted in making the NECF a robust framework for the future.

Victoria supports the national framework for energy retail and distribution. It is committed to:

  • Supporting the objectives of the NECF to facilitate consistency and efficiencies for consumers and industry across jurisdictions
  • Ensuring that there is a smooth transition for consumers and the industry
  • Ensuring that the technical integrity of the distribution networks is retained

Although the NECF 'completes' the national frameworks by establishing regulation of retail and distribution services to customers at the national level, it does not necessarily mean that there are no areas where State energy legislation is required. This may be necessary in a number of areas:

  • Those matters, such as ombudsman schemes and safety & technical regulation, which are specified by AEMA Annexure 2 as being retained by the States and Territories.
  • Those matters where the NECF specifies the making of a local instrument to determine some aspect of the scheme (e.g. energy efficiency programs for customers in hardship).
  • Those matters which may only be administered by a State body for constitutional reasons, such as access to land.
  • Matters of particular jurisdictional significance in facilitating a smooth transition to the national frameworks, or where customers might be put at a disadvantage in terms of their statutory protections by the move to the national framework.

As a matter of principle it would be unacceptable for Victorian consumers to be materially disadvantaged by the move to the national framework. Against this background, the DPI has undertaken a detailed review of the proposed NECF against the existing Victorian legislation and regulations, to identify any material gaps and differences between the frameworks.

The key objective of the review is to consider the extent to which, if at all, Victoria should supplement the NECF with Victoria-specific legislation and regulations to meet the above objectives.

To reach this decision, DPI identified the key outcomes for consumers in the competitive energy markets and their rights and obligations in relation to electricity and gas distributors, and considered how those outcomes are embodied in the energy legislations and regulations. DPI particularly looked at the implications for small consumers.

DPI then assessed the materiality of the gaps or differences between the current Victorian approach and the NECF.

1.4 Outcomes for consumers

In considering whether Victoria-specific regulation is required to ensure a smooth transition for Victorian consumers, DPI reviewed both distribution and retail regulation.

For retail, DPI reviewed the regulations which impact small customers only. DPI sought to ensure that small customers are sufficiently protected when entering contracts with their existing or a new retailer and that the necessary protections continue during the term of their contracts, whether the customers are on a standing or default contract or a market contract.

DPI reviewed the distribution regulation for all customers to determine whether there would be a significant diminution of quality and reliability of supply to which all Victorian customers are entitled, and to ensure that the economic regulation of services in Victoria is robust.

The regulations reviewed to achieve these outcomes are shown in the boxes below.

Box 1 Outcomes for consumers entering contracts

Consumers are entered into retail contracts properly, information asymmetry is reduced for both retail and distribution customers and efficient and timely transfers are facilitated.


Regulatory instruments reviewed:


  • Code of Conduct for Marketing Energy Retail in Victoria
  • Electricity Customer Transfer Code
  • Electricity Distribution Code
  • Gas Distribution System Code
Box 2 Outcomes for customers on contracts

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.


Regulatory instruments reviewed:


  • Energy Retail Code
  • Electricity Distribution Code
  • Gas Distribution System Code
  • Electricity Customer Metering Code

A complete description of these, and other regulations reviewed, is set out in chapter 2.

1.5 The Victorian Energy Regulatory Rules (VERR)

For the purposes of this paper, Victorian specific regulation will be included in legislation if it is of a foundational nature or it is important enduring policy. Otherwise, DPI proposes to continue the practice of establishment of detailed regulatory arrangements through subordinate instruments (such as regulations, orders or rules) to allow for the evolution of the regulatory regime over time.

This is of particular importance to the transition to the NECF, as matters which are considered appropriate Victoria-specific regulation today may be harmonised with the other jurisdictions through the national frameworks at some point in the future.

This paper will speak of the "Victorian Energy Regulatory Rules" (VERR) in referring to a general set of regulatory arrangements designed to sit alongside and supplement the national frameworks where there are identified gaps and issues to be addressed. This does not indicate that the VERR will itself be a single regulatory instrument in effect, but significant rationalisation is anticipated from the framework of codes, guidelines, licences, orders and determinations made by the ESC or Government and (in general) administered by the ESC. In particular the use of the word "rules" is not to be taken as indicating all of the regulation will be in rules similar to those made by the AEMC. Depending on nature and content, it may be in acts, regulations, orders or rules.

1.6 Alternative approaches to regulation

DPI has reached conclusions in this review on the basis that Victoria-specific legislation and/or regulation is required where it has been demonstrated that Victorian customers will be materially disadvantaged in the national framework. We have concluded that competition alone is not sufficient to ensure that the retail services are retained for small customers and in the case of the monopoly distributors, the services are unlikely to be provided without regulatory oversight.

It is proposed to regulate where there are substantive omissions in the national framework which will impact the efficiency of the retailers and/or distributors.

Consideration was given to whether there could be alternative approaches to regulation. That is, where the relevant regulation is not included in the NECF or is less than the existing jurisdictional standards, DPI gave some consideration to use of agreements with the retailers and/or distributors under which they would agree to continue to act as if the present Victorian regulation still held.

This outcome, however, is too uncertain for both consumers and industry participants. Consumers could not be sure that the standards or practices would continue as ultimately there would be no mechanism for compliance and enforcement if the retailer or distributor chose not to maintain the obligations.

For competitive retailers, there may be an uneven playing field if some retailers complied with the agreements while others did not, thus increasing the potential for poor publicity across the industry and the threat of even stronger regulation. This in turn spoke to having to legislate for compliance with the agreements. For distributors, there could be less certainty for the economic regulator in determining revenue requirements in the distribution price determinations.

Moreover, such a regulatory regime is indirect in its operation and with the aim of simplification in mind, appeared suboptimal in comparison with the direct and more straightforward model that DPI sought. Accordingly the agreement model has been put to one side.

It is therefore proposed to regulate the relevant obligations as set out in chapter 4.

1.7 Independent dispute resolution

The NERL Part 4 provides for small customer complaints and dispute resolution and relies on jurisdictional regulation to deal with the establishment of energy ombudsman schemes. Therefore, the current Victorian licence requirements will need to be preserved.

However, the NERL refers only to the Ombudsman scheme dealing with small customer disputes. The current Victorian statutory and regulatory framework requires all licensed retailers and distributors to be members of the Ombudsman scheme, although alternative schemes may be approved for retailers who only sell to very large customers (>750MWh/pa), for example, the Institute of Arbitrators.

Consequently, the large majority of retail customers have had access to the Ombudsman scheme – although in reality, most customers are either residential or small business. The Ombudsman nevertheless has dealt with larger customers with complaints against their distributors and/or the transmission company.

We believe that the current access to the Ombudsman scheme should be preserved for all retail and distribution customers, particularly as many medium sized customers do not have the capacity or the resources to easily resolve these disputes with their supplier.

Currently, sections 28 of the EIA and 36 of the GIA require licensees to be members of an approved dispute resolution scheme, which conforms to various requirements set out in those sections. DPI proposes that this will continue to be the case although not through the indirect means of compliance with a licence condition. Instead the obligation will be directly imposed by the two acts, which will also be amended to clarify that the scheme should be able to hear disputes from all retail customers.

1.8 Submissions

Stakeholders are invited to make submissions on the approach to Victoria-specific regulation set out in this paper.

Submissions are preferred in electronic format and should be provided to the Department of Primary Industries by Tuesday 2 August 2011.

Via email: raif.sarcich@dpi.vic.gov.au

Or mailed to:

Raif Sarcich

Principal Policy Officer

Energy Sector Development Division

Department of Primary Industries

GPO Box 4440

Melbourne VIC 3001

The Department encourages respondents to make their submissions available publicly. Unless certain sections of submissions are marked 'IN CONFIDENCE', all sections of the submissions will be treated as public documents and will be placed on the Department's website www.dpi.vic.gov.au for public access. Formal requests for confidentiality will be honoured; however, Freedom of Information access requirements still apply to confidential submissions.

2 What regulation was reviewed?

A review of existing Victorian customer protection and technical legislation and regulation was undertaken. The review was completed in two stages.

Firstly, obligations in all legislative and regulatory instruments were compared against the NECF to ascertain whether the obligations were included in the NERL or NERR. This stage identified to what extent there were gaps or differences in the regulatory frameworks. A summary of this assessment is available upon request to the Department.

Using this assessment, the substance of the gaps or differences was analysed and the conclusions reached are set out in chapters 3 and 4.

The regulation reviewed, together with a brief summary of the findings, is set out below.

2.1 Legislation

The principal legislative instruments governing the energy supply industry in Victoria are the EIA and GIA.

In broad terms, the review of the EIA has revealed that most of Part 2 – Regulation of Electricity Industry can be repealed as it is redundant in light of the NECF. Exceptions include:

  • Division 2 – Price regulation. This provides for a 'reserve' retail pricing power should a review of the Victorian retail market show that competition is not effective.
  • Division 2A – Special pricing regime for the development of clean energy. This regime provides for cost recovery for specified clean energy projects. This may be retained as a State development prerogative.
  • Divisions 3 & 4 – Licences. These provisions will cease to apply to retailers, while the feasibility of removing this Division entirely has been discussed in DPI's previous discussion paper on this topic1.
  • Division 5A – the "Feed-in Tariff" regimes. This is an important State government policy area, and this division will be retained and the ESC's functions preserved in the transitional period.
  • Division 6A – Advanced metering infrastructure. This division is critical to underpin the advanced metering roll-out, and will be preserved.

Part 3 – Separation of Generation, Transmission and Distribution sectors may also be able to be repealed , as discussed in DPI's licensing discussion paper.

The following Parts of the EIA will be preserved substantially un-amended:

  • Part 4 – Protection of critical electricity infrastructure.
  • Part 5 – Powers of electricity corporations.
  • Part 6 – Electricity supply emergency provisions.
  • Parts 1 & 7 – Preliminary and General.

A similar analysis of the GIA yields a similar outcome, that is:

  • Part 3 – Regulation of Gas Industry – may be repealed with the exception of Divisions 1 – 3.
  • Part 6 – Prohibited interests – may be repealed.
  • Parts 1, 2, 4, 5 & 7 through 11 to be retained.

In addition to these Acts, the functions of the ESC in relation to the energy industry are set out in the Essential Services Commission Act 2001, while electricity and gas safety regulation is performed under the Electricity Act 1998 and Gas Safety Act 1997. DPI expects there to be minimal change to these Acts consequential on the NECF.

2.2 Regulatory codes

The regulatory codes made by the ESC set out the rules that apply to the Victorian market participants and their customers. The codes regulating retail services apply only to small customers – domestic and small business customers. The codes regulating distribution supply or transfer arrangements apply to all customers.
The codes reviewed were the:

  • Energy Retail Code
  • Code of Conduct for Marketing Retail Energy in Victoria
  • Electricity Distribution Code
  • Gas System Distribution Code
  • Electricity Customer Transfer Code
  • Electricity Customer Metering Code
  • Public Lighting Code

2.2.1 Energy Retail Code

This code sets out the contractual terms and conditions which must apply for customers whose energy consumption is below the statutory thresholds. In Victoria the code applies to all domestic customers and small business customers who consume less than 40MWh/pa of electricity and 1000GJ/pa of gas.

The NECF thresholds for electricity customers on standing offer contracts are higher than that which apply in Victoria. That is, all customers on retail standing offer contracts consuming less than 100MWh/pa of electricity are covered by the NECF. The gas customer thresholds are the same. The effect of the differences is that more small business electricity customers on standing offer contracts will receive the customer protections under the NECF.

The threshold for small electricity customers on market contracts will be the same under the NECF, that is, all electricity customers who consume less than 40MWh/pa of electricity will be covered by the customer protections applying to retail contracts. The threshold for gas customers on market contracts is reduced to customers consuming less than 400GJ/pa gas.

The review found that a small number of terms currently in the retail code should be preserved in Victoria-specific regulation. These include the regulation covering the implementation of smart meters, disconnection and reconnection timeframes and ensuring that customers on standing offer contracts were not subject to new fees and charges.

2.2.2 Code of Conduct for Marketing Retail Energy in Victoria

The marketing code was put in place by the ESC in the early 2000s primarily in response to consumer concerns that there were not sufficiently robust protections for consumers against poor marketing practices in the energy sector. The competitive energy market was newly evolving and the existing fair trading laws had not been designed for that market. Consequently, there were some gaps in regulatory coverage, for example, telemarketing, which were addressed by the energy-specific marketing code.

This review has found that there are significant protections for consumers applied in the NECF and general consumer law in relation to marketing conduct, which now obviate the need for additional Victorian energy-specific regulation.

2.2.3 Electricity Distribution Code

This code sets out the rights and obligations of distributors and customers in the supply of electricity, the connection to supply and the connection of embedded generation units. It covers a range of areas, including technical standards and mutual obligations between distributors and customers, including in dispute resolution. The code forms the basis of the deemed distribution contracts between distributors and their customers. Negotiated contracts can be agreed between customers and their distributor.

The NECF includes similar obligations covering the contractual relationship between customers and the electricity distributors, and provides a framework for negotiating contractual arrangements.

There are a small number of obligations on the distributors regarding smart meters which are to be retained, as well as long-standing technical requirements to ensure the reliability and supply of electricity to Victorian customers.

Any differences in dispute resolution rights have been addressed as discussed in section 1.7.

2.2.4 Gas Distribution System Code

This code sets out the minimum standards for the operation and use of the gas distribution system. In some areas, the obligations mirror those for the electricity distribution networks, but in other areas, the obligations reflect the differences in the networks and fuel distribution. The obligations necessary to support the uniqueness of gas billing and disconnection from supply have been preserved.

Some technical obligations are not included in the NECF, but these may be adequately represented in Victoria's Gas Safety Act.

2.2.5 Electricity Customer Metering Code

The metering code was published to regulate customer metering to the extent that the requirements were not regulated by the NER or the National Metrology Procedure which is published by AEMO in accordance with the NER. The majority of the obligations in this code have either been incorporated in these national instruments or now no longer impact the efficiency of the market.

2.2.6 Electricity Customer Transfer Code

This code was published in the early 2000s to facilitate and regulate certain aspects of the customer transfer process. Many of the obligations operate in conjunction with the NER and the Customer Administration Transfer System (CATS) which operate under the NER.

Since the publication of this code, the national market has developed so that many of the obligations have been incorporated in the national instruments.

2.2.7 Public Lighting Code

This code regulates the provision of public lighting by specifying minimum standards and certain obligations of the electricity distributors and their public lighting customers, including VicRoads, the Docklands Authority and local councils.

The extent to which the obligations should be retained in Victoria requires comprehensive consultation with relevant stakeholders, including the distributors, local councils, VicRoads, relevant Government departments and the AER. Consequently, it is proposed to retain the code's substance in the VERR to provide ongoing support for the provision of public lighting services although compliance will be as a direct obligation as distinct from being required as a licence condition.

2.3 Regulatory guidelines

There are a number of guidelines which impact the Victorian distributors and retailers. Some of these guidelines contain rules, which may need to be retained in either the NECF or the VERR. Other guidelines have been, or will be, superseded by guidelines developed under the auspices of the AER.

The following guidelines were considered in this review:

  • Electricity Industry Guideline No. 3: Regulatory Information Requirements
  • Electricity Industry Guideline No 11: Voltage Variation Compensation
  • Electricity Industry Guideline No 13: Greenhouse Gas Disclosure on Electricity Customers' Bills
  • Electricity Industry Guideline No 14: Provision of Services by Electricity Distributors
  • Electricity Industry Guideline No 15: Connection of Embedded Generation
  • Gas Industry Guideline No 17: Regulatory Accounting Information Requirements
  • Electricity Industry Guideline No 17: Ringfencing
  • Energy Industry Guideline No 19: Energy Price and Product Disclosure
  • Energy Industry Guideline No 21: Energy Retailers' Financial Hardship Policies
  • Energy Industry Guideline No. 22: Regulatory Audits of Retail Energy Businesses

>2.3.1 Electricity Industry Guideline No. 3: Regulatory Information Requirements

This guideline relates to the ESC's previous economic regulatory functions. It supports the distributors' licence obligation to prepare separate accounts and deals primarily with the principles and requirements for the preparation of regulatory accounts and the audit of those accounts.

The NEL (Part 3, Division 4) permits the AER to issue general Regulatory Information Orders (RIOs) (which apply to a class of regulated entities) and regulatory information notices (which apply to individual regulated entities). These powers would allow the AER to (among other things) require distributors to prepare regulatory accounts in accordance with the AER's requirements and to have the accounts audited.

The AER issued an Issues Paper concerning distribution businesses' annual information reporting requirements in August 2008, but it has not yet imposed its own annual reporting requirements.

The guideline relates solely to economic regulatory functions and will no longer be required when it is replaced by an AER regulatory instrument made under the NER. The NER, through transitional rule 11.17.4 provides for the continuing effect of this guideline until that time.

2.3.2 Electricity Industry Guideline No 11: Voltage Variation Compensation

NERL Part 7 – Small compensation claims regime enables a mechanism whereby small customers can make claims for compensation to the distributors for damage to their appliances or equipment due to voltage variations. In many respects this regime has similar provisions to the current Victorian scheme as provided for in Guideline No 11, particularly with respect to information to customers and transparency of the scheme.

There are differences between Victoria's scheme and the NECF. On balance, however, the review has concluded that it is preferable for one scheme to apply nationally. Therefore, Guideline No 11 will not apply in the national framework.

2.3.3 Electricity Industry Guideline No 13: - Greenhouse Gas Disclosure on Electricity Customers' Bills

This guideline requires retailers to include on customer bills specified information concerning greenhouse gas emissions connected with the generation of electricity supplied to the customer. There is no equivalent requirement in the national framework.

Part 11 of the NER establishes a regime under which the AER must determine electricity consumption benchmarks. Retailers are required to include a comparison of consumption against those benchmarks on residential customer bills.

Section 40R of the Electricity Industry Act allows electricity retailers to choose whether to put the greenhouse gas emissions information on the bills – in accordance with Guideline No 13– or to provide bill benchmarking information to a customer. In light of the national developments towards bill benchmarking, this review found that the option of allowing retailers to show the greenhouse gas emissions on a customer's bill does not provide additional information to the customer to change behaviour – it instead mirrors the amount of greenhouse gas associated with the consumption value.

DPI has thus concluded that a customer will receive more information from the bill benchmarking approach. Therefore, Guideline No 13 will not apply in the national framework.

2.3.4 Electricity Industry Guideline No 14: Provision of Services by Electricity Distributors

This guideline facilitates efficiency in the following aspects of electricity distribution:

  • The undergrounding of distribution fixed assets
  • The determination of customer contributions to the capital cost of new works and augmentation
  • The contestability of connection and augmentation works
  • The provision of excluded services.

These relate to the ESC's previous economic regulatory functions and all matters, except for undergrounding, have been, or will be, addressed in the NECF framework or through AER guidelines.

The matters relating to the undergrounding of the distribution fixed assets need to be retained until such time as they can be addressed through the national rules.

2.3.5 Electricity Guideline No 15: Connection of Embedded Generation

This guideline was developed to provide clarity and transparency about arrangements for connecting embedded generating units to distribution systems, in particular in respect of the way in which distributors negotiate connection agreements, charges and terms and conditions of connection agreements, avoided system costs and avoided transmission use of service costs.

The NECF will insert a new Chapter 5A into the NER, which provides for a national framework covering connection of retail customers and embedded generators, including a detailed negotiation framework for connection contracts and a connection charging regime. It is considered that Chapter 5A will effectively cover the field of regulation covered by Guideline 15, and the guideline will therefore not be needed under the NECF.

2.3.6 Electricity Guideline No 17: Ringfencing

This guideline sets out ring-fencing requirements that apply to distributors and retailers under their distribution and retail licences. It includes provisions dealing with non-discrimination, information sharing, operational separation and branding, marketing and customer communications. The specific harm that the guideline was designed to address was the potential that a distributor would discriminate in favour of its integrated retail business.

Rule 6.17 of the NER requires distributors to comply with Distribution Ring-Fencing Guidelines made by the AER in accordance with rule 6.17.2. The AER has not yet made Distribution Ring-Fencing Guidelines.

There are no integrated retail and distribution businesses in Victoria. Therefore it is not considered necessary to retain this guideline, whether or not the AER publishes its guideline in the forseeable future.

2.3.7 Gas Industry Guideline No 17: Regulatory Accounting Information Requirements

This guideline relates to the ESC's previous economic regulatory functions. It is a general accounting guideline under section 4.2 of the Access Code, and also supports the distributors' licence obligation to prepare separate accounts. Under the National Gas (Victoria) Act 2008 (Vic), the AER is given the power to enforce Guideline 17 in place of ESC (ss 30 and 31) by deeming it to be a regulatory information order until the revision of the Victorian access arrangements. The AER may request the ESC to amend the Guideline (s32). The guideline therefore will be retained via the aforementioned provisions.

2.3.8 Energy Industry Guideline No. 22: Regulatory Audits of Retail Energy Businesses

This guideline sets out the requirements for electricity and gas retailers to conduct independent audits of:

  • their compliance with licence obligations, including obligations to comply with industry codes and guidelines;
  • the reliability and quality of information reported to the ESC.

Part 12 of the NERL authorises the AER to require regulated entities to carry out compliance audits with respect to their compliance with the NERL, the National Regulations and the NERR. Compliance audits must be carried out in accordance with the AER Compliance Procedures and Guidelines. Guideline No 22 therefore will not apply in the national framework.

2.3.9 Energy Industry Guideline No 19: Energy Price and Product Disclosure

This guideline specifies the minimum requirements for retailer to assist customers to access relevant information in relation to retailers' market contracts and prescribes the manner in which retailers must enable customers to easily compare offers between retailers.

This guideline requires the retailers to meet their statutory obligations to publish standing offers and certain market offers on the internet. The AER is similarly empowered under the NECF.

The guideline also sets out the process for retailers to provide information to the ESC on their published market offers for publication on the ESC's Yourchoice website. It also requires an easy link between the ESC's Yourchoice website and the retailers' websites for customers to access certain offers.

Under the NECF, the AER is required under Part 2 Division 11 of the NERL to publish Retail Pricing Information Guidelines and to operate a "price comparator" with similar functionality to the Yourchoice website. Therefore, this guideline will not be required in future.

2.3.10 Energy Industry Guideline No 21: - Energy Retailers' Financial Hardship Policies

This guideline requires the retailers to meet their statutory obligations in respect to financial hardship policies in accordance with guidelines published by the ESC. The AER is similarly empowered under the NECF.

The guidelines do not contain rules; they outline the regulatory process for approving the retailers' financial hardship policies2. The AER has published guidance on its own approach to approval of retailer hardship policies. Consequently, it is not necessary for this guideline to be retained under the NECF.

2.4 Regulation not reviewed

Some regulation was not included in the review that informs this paper. In particular, matters relating to transmission, generation and system operation such as:

  • Electricity System Code
  • ESC Guideline 18 – Augmentation and Land Access.

In addition, some highly technical requirements of the Electricity Distribution Code and Gas Distribution System Code are not addressed directly by this paper.

Matters relating to transmission, generation and system operation (that is to say, "technical regulation") will be reviewed and addressed through a targeted stakeholder engagement process, including EnergySafe Victoria and AEMO. DPI's objective will be to ensure that no important technical regulatory arrangements are lost in the move to the national frameworks and the exit of the ESC from its overarching energy regulatory role.

3 Basis for Victorian Energy Regulatory Rules

This chapter summarises the regulation which it is proposed to include in the VERR. We set out the regulation which, when compared against the national framework, was not included in the NECF and the omissions were significant. Alternatively the national approach resulted in service standards which are substantively different to those currently enjoyed by Victorian consumers. Our reasons for reaching our decisions are set out below.

Chapter 4 details the proposed regulation with reference to the existing regulatory instrument.

3.1 Overview

The review and analysis of existing Victorian regulation leads to the conclusion that the VERR should apply:

  • to ensure that customers on retail standing offer contracts are not materially disadvantaged in the transfer to the national framework;
  • for a transitional period until the national rules are amended to incorporate the VERR, for example, to support the operation of smart meters;
  • to retain the current service standards for customers who may be disconnected from supply, or
  • to ensure that the distribution network technical standards are maintained.

The regulation proposed for the VERR meets at least one of these tests.

Some distribution technical obligations are not included in the NECF, but consultations with EnergySafe Victoria revealed that they may be adequately covered in Victoria's Electricity Safety Act or Gas Safety Act. Therefore, it is not necessary to duplicate these requirements in the VERR.

The relevant regulation was reviewed under the following categories:

  1. contracting distribution and retail customers
  2. transferring electricity and gas customers
  3. assistance to vulnerable customers
  4. electricity and gas metering
  5. connecting, disconnecting and reconnecting customers on basic meters
  6. security, reliability and quality of electricity supply
  7. planned interruption to the delivery of gas
  8. public lighting and undergrounding of distribution assets

Sections 3.2 to 3.10 below discuss all the issues arising under these categories and the proposed approach to regulation.

3.2 Contracting distribution and retail customers

Currently, all small customers in Victoria are either on a competitive market contract or a standing offer or default contract. The majority of small distribution customers are on deemed contracts, although they may negotiate an alternative contract with a distributor subject to the contract being fair and reasonable. Large customers usually negotiate contracts with their distributors.

There were some significant issues considered in determining whether the VERR should apply to small protect customers entering these contractual arrangements, namely:

  • Retail marketing conduct
  • The fairness of distribution and retail contract terms
  • The maintenance of retail standing offer terms.

The findings of our review and proposed regulatory approach are set out below.

3.2.1 Retail marketing conduct

The Victorian energy retail market is highly competitive, with considerable marketing activity, including door-to-door marketing and telemarketing, being undertaken by the retailers. This activity has largely contributed to the high degree of customer switching in Victoria, which in 2009-10 was approximately 25 per cent of all electricity and gas customers3.

The Victorian Government supports the retailers undertaking this marketing activity against a framework of strong marketing conduct laws and industry compliance.

Energy-specific marketing conduct regulation was enacted in the early 2000s, primarily in response to consumer concerns that there were not sufficiently robust protections for consumers against poor marketing practices in the energy sector. The competitive energy market was newly evolving and the existing fair trading laws had not been designed for that market. Consequently, there were some gaps in regulatory coverage, for example, telemarketing, which were addressed by the energy-specific Marketing Code.

Since that time, the consumer laws have been strengthened and the relevant enforcement agencies have been exposed more directly to energy marketing matters. In Victoria, amendments were made to the Fair Trading Act 1999 which recognised energy as an essential service. Consumer Affairs Victoria (CAV) increased its enforcement activities and the information to consumers on door-to-door marketing and telemarketing.

The new Australian Consumer Law (ACL), which came into effect on 1 January 2011, the Telecommunications Act 1997 and the Do Not Call Register Act 2006 also govern marketing activities. As well, the NERL and the NERR address some energy marketing activities, continuing the energy-specific marketing conduct regulation.

DPI's review, therefore, concludes that the existing energy-specific marketing conduct regulation is adequately covered by the national general consumer laws and the NECF.

There is one exception, that is, the Marketing Code prescribes in detail the content of retailers' training programs. It is not intended to include this requirement in the VERR. Retailers must ensure adequate training for their marketers so that they adhere to the conduct and information provisions of both the NECF and the ACL marketing provisions. Otherwise systemic non-compliance issues will become apparent through a number of mechanisms, including complaints to the retailers and the Ombudsman and the retailers' compliance reporting regimes.

Consequently, in DPI's view, it is unnecessary to regulate the inputs for retailers' training programs, as the consequences for retailers are obvious under the law.

Proposed regulatory approach – retail marketing conduct

There will be no Victoria Energy Retail Rules for retail marketing conduct.

3.2.2 The fairness of contract terms

Both the ACL and the NECF provide strong protections for consumers in relation to contractual terms. There are statutory provisions requiring retailers to ensure that consumers provide explicit informed consent to contractual terms and conditions, which will be enforced by the AER. The ACL also strengthens the enforcement powers of the relevant consumer agencies.

The NECF prescribes many of the terms to be included in market and standing offer contracts. There are however a small number of material differences between the current Victorian contract terms and those applying in the NECF. These are discussed for both distribution and retail below.

Retail fees and charges on standing offer contracts

Retailers cannot charge Victorian customers on standing offers credit card fees4 and additional retail charges unless provided for under the Retail Code. The code currently allows the retailer to recover charges for a small number of services provided to the customer. 5DPI recognises that, under the NECF, these customers may have new fees imposed on them simply because they transfer to the national framework. They may therefore be materially disadvantaged, particularly those customers on low incomes. Therefore, retailers will still not be allowed to charge credit card fees for customers on standing offer contracts at the date of transition to the NECF. This is to preserve the protection for customers who may have remained on these standing offer arrangements since the inception of full retail competition.

Further, retailers will be allowed to only impose a charge on a standing offer contract where it is expressly allowed for in the NERR to ensure that standing offers present a fair and accurate representation of the cost of supply through an energy tariff.

Finally, retailers are explicitly precluded from applying fees for late payment of bills against small customers under sections 40C EIA and 48B GIA. Victorian energy customers have historically been afforded this protection against fees which may unduly impact on customers experiencing payment difficulties, and it is proposed that this continue under the NECF.

Gas billing cycle for customers on standing offer contracts

The NERR requires both electricity and gas bills to be issued at least every 3 months. This is consistent with the current Victorian requirements for electricity, but not gas billing cycles. In Victoria, gas bills are required to be issued at least every two months. Market customers can negotiate their billing cycle terms, but they are fixed for customers on standing offer contracts.

The synchronising of electricity and gas billing cycles in the NECF is supported. However, the different gas and electricity billing cycles have been in place in Victoria for customers on standing offers for at least two decades. The impacts on these customers of a change in these arrangements are unknown.

Therefore DPI considers that standing offer customers should retain their existing gas billing arrangements until they choose to enter a different arrangement in a market contract or for a transitional period under the NECF, whichever first occurs.

The existing gas billing cycle will therefore be preserved in the VERR until 31 December 2014, to provide the retailers sufficient time to inform their customers of the new arrangements and for customers to make alternative contract choices.

Bulk hot water billing

The Retail Code sets out in some detail the requirements on retailers when charging for the energy used in the delivery of bulk hot water. The regulatory requirement to clarify these billing arrangements arose from statutory amendments to make the billing for electric and gas bulk hot water more transparent and consistent, which are important principles to retain in the regulatory framework.

Therefore, the existing requirements for the retailers to bill for bulk hot water in accordance with the specified formula will be retained.

Material changes to standing offer terms

DPI proposes to continue regulation which requires that all customers on standing offer contracts are directly advised of any material changes to their terms and conditions.

Electricity deemed distribution contract terms

In Victoria, an electricity distributor and customer may agree to vary their rights and obligations. The customer's explicit informed consent to these variations is required and the distributor may not reduce the rights or increase the obligations of the customer without giving benefits of equal value.

The NECF sets out the model terms and conditions for deemed standard distribution contracts and some requirements for negotiated terms and conditions for both gas and electricity distribution customers. The NERL allows for variations to the deemed contract and the distributor must explain the differences between a negotiated distribution contract and the standard terms, and the implications of those differences. The distributor therefore will not be subject to the same energy-specific regulation as currently apply for Victorian electricity customers.

The objective of the Victorian regulation is to ensure that a small customer is sufficiently protected in their negotiations with an electricity distributor, particularly given the potential disparity in knowledge and bargaining power. However, DPI believes that the strengthening of the unfair contract provisions in the ACL provide sufficient protection for customers and perhaps offer increased protection because of the clarity of the provisions. As shown in the box below, the ACL terms provide strong protections in this regard.

Box 3 Part 2-3 – Unfair contract terms

24 Meaning of unfair


  1. A term of a contract is unfair if:
    1. it would cause a significant imbalance in the parties' rights and obligations arising under the contract;
    2. it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
    3. it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

    Source: Australian Consumer Law

Therefore, in DPI's view, the ACL and the NECF sufficiently protect small distribution customers from potentially unfair contractual terms and Victoria-specific regulation is not required for distribution contracts.

Proposed regulatory approach –fair contract terms
The proposed Victoria Energy Retail Rules will supplement the NECF with the regulation as set out in Table 1 in Chapter 4 of this paper.

3.3 Transferring electricity and gas customers

The transfer of customers in the national market is primarily governed by national instruments – the National Electricity Rules (NER), the National Gas Rules (NGR), the Consumer Administration and Transfer Solution (CATS procedures), which operate under the NER, and the Victorian Gas Retail Procedures (the Retail Rules), which operate under the NGR. These instruments and procedures are administered and overseen by AEMO.

To facilitate the orderly transfer of customers in the early stages of the competitive market, some Victorian-specific regulation was put in place. Our review has shown that most of these obligations are now either incorporated in the relevant national instruments or are no longer necessary.

The exceptions are detailed below.

Victorian NMI standing data requirements (clause 3.1 of the Transfer Code)

The NER (clause 3.13.12(a)) enables the authority responsible for administering the jurisdictional electricity legislation (currently the ESC) to provide AEMO with a Jurisdictional Standing NMI Standing Data schedule. This schedule provides sufficient detail to facilitate efficient customer transfers in the market. AEMO sets out the rules for market participants to access this standing data, including confidentiality provisions.

The NER assumes an on-going jurisdictional role in overseeing the standing data schedule. Appropriate arrangements will be put in place to ensure that this role continues to be performed for as long it is required.

Jurisdictions also specify where certain codes can be used to object to customer transfer requests. From a customer protection perspective, the ESC has restricted (Clause 5.1 of the Transfer Code) objections on the basis of outstanding debt to amounts greater than $200, while other jurisdictions preclude the use of this code for small customers entirely. The MCE's stated policy for the NECF is to preclude all objections on the basis of debt for small customers6. Therefore, it is not proposed to specifically regulate this matter in Victoria.

Proposed regulatory approach – transferring customers
The proposed Victoria Energy Retail Rules will supplement the NECF with the regulation as set out in Table 2 in Chapter 4.

3.4 Assistance to vulnerable customers

Part of the regulatory role of Government in the provision of essential services is to ensure that customers in particular circumstances of need are given direct assistance toward managing energy affordability.

In this regard the NECF provides for a hardship assistance regime through retailer-developed hardship policies under Part 2 Division 6 of the NERL. This regime is broadly comparable to that established under Part 2, Division 6 of the EIA and Part 3, Division 4A of the GIA. Review of the Acts leads us to consider that there are two areas where Victoria should regulate in respect of customer assistance:

  • Requirement to enter into community service agreements; and
  • Provision of energy audits and appliance assistance.

3.4.1 Community service agreements

Licence conditions under section 21 EIA and Section 29 GIA require retailers to enter into agreements with the State, administered by the Department of Human Services (DHS), for the provision of community services to customers. These take the form of several grants and rebates that are available to customers with low incomes and are otherwise in need of assistance with the affordability of energy.

Part 2, Division 7 of the EIA and Part 3, Division 5 GIA provide for the determination of, and resolution of any disputes surrounding these agreements.

The NECF itself requires retailers to provide information on and access to any applicable rebates and government assistance available to small retail customers.

DPI considers it essential to facilitate continued access to these services by retaining an obligation on retailers to enter into community services agreements. However, arbitration of disputes between DHS and retailers by the ESC may no longer be appropriate, and recourse to commercial arbitration appears more appropriate.

3.4.2 Energy efficiency assistance to hardship customers

The level of energy consumption of a household can significantly affect the affordability of energy for a household under financial stress. To alleviate affordability pressure, the hardship regime under the EIA and GIA requires retailers to offer as part of their financial hardship policies:

  • free or subsidised home energy consumption audits; and
  • flexible options for the purchase or supply of appliances.

These measures can assist in pinpointing where excessive amounts of energy may be consumed by ageing appliances, and provide for replacement of those appliances.

The NECF does not place these requirements directly on retailers. It does, however require retailers to include in their policies any assistance that is required by jurisdictional regulation (s. 44(g) NERL). DPI considers it appropriate to continue the existing requirements on retailers mentioned above under this local instrument provision.

Proposed regulatory approach – assistance to vulnerable customers
Victoria will legislate to require the matters set out in Table 3 in Chapter 4.

3.5 Electricity and gas metering

There is a considerable amount of regulation which currently covers electricity and gas metering in Victoria. This regulation was considered necessary because meter reliability is integral to the accuracy of customers' bills and promotes customer confidence in the utilities' efficiency. In the electricity sector, a separate metering code was published to regulate customer metering to the extent that the requirements were not regulated by the NER or the national metrology procedures. In gas, specific detail was included in the Gas Distribution System Code to ensure that the provision, testing and reading of meters were adequately addressed for this jurisdiction.

This review has concluded that the majority of these obligations have either been incorporated in the relevant national instruments or now no longer impact the efficiency of the market.

The following exceptions apply.

3.5.1 Implementing advanced metering infastructure in Victoria

There is a significant amount of regulation which was put in place by the ESC in early 2011 to support the operation of advanced metering infrastructure (AMI) in Victoria.

The ESC consulted widely in 2010 in making its determination. DPI believes that the community and interested parties had many opportunities to input the Commission's decisions and it is not intended to replicate that consultation in this draft report7.

The regulation impacts both the retailers and the distributors and our conclusions are set out below.

Retailers' obligations

DPI is concerned to preserve the regulation that ensures that sufficient information is provided so that customers can make informed decisions about their energy consumption and price signals, and that they are treated fairly when sAMI is in operation.

Therefore, DPI intends to preserve the regulation that:

  • requires that specific information is provided on customer bills so that customers can reconcile and understand their accounts, including use of graphs and In-Home displays
  • requires the retailers to obtain a customer's informed consent to tariff structure changes, for example, to change from a peak/off-peak tariff to a time-of-use tariff, and to provide advice of price variations in a timely manner
  • requires disconnection notices to indicate that the disconnection may occur remotely
  • ensures that customers in financial difficulties are not remotely disconnected without adequate assistance from the retailer to avoid that outcome
  • requires that, once the customer has met their obligations and request reconnection in accordance with the law, the retailers use their best endeavours to have customers remotely reconnected within two hours if it is safe to do so, and
  • retains the current approach to only requiring the customer to pay for meter testing if they dispute their bills and the meter is found to be accurate.

Distributors' obligations

There are a small number of obligations on the electricity distributors in relation to the installation of AMI at customers' premises. These include information to customers and the procedures to apply when connection, disconnection and reconnection occur remotely. The following regulation will be preserved to require the distributor to:

  • advise the customer prior to AMI being installed that the installation may result in a time-of-use tariff being charged in the future, and that their retailer will advise them of the implications of this change
  • remotely disconnect a customer at either a customer's or retailer's request within two hours of the request if it can safely do so
  • ensure that the distributor's telephone number is accessible on the smart meter for a customer whose premises are disconnected remotely, and
  • remotely reconnect a customer at either a customer's or retailer's request within two hours of the request if it can safely do so.

The Victorian regulation also clarifies that the customer does not have proprietary interest in the metering equipment. This clarification will be retained in the Victoria-specific framework.

Retailers' and distributors' obligations to customers

Enabling customers to access their metering data in a manner which increases their understanding of their energy consumption is crucial to assist them to understand the price signals and make informed decisions about their energy use. Therefore, the following regulation will be retained so that the distributors and retailers:

  • on request, provide interval data electronically, or in some other way, which makes the information understandable and accessible to the customer, and
  • comply with the energy-specific confidentiality requirements, which supplement the Federal Privacy Legislation.

The VERR will also clarify that the metering data collected by the distributor, retailer or customer is the property of the distributor, retailer or the customer respectively.

Proposed regulatory approach – implementing AMI in Victoria
The proposed Victoria Energy Retail Rules will supplement the NECF with the regulation as set out in Table 4 in Chapter 4.

3.5.2 Pre-payment meters

The NECF provides a regime for the regulation of supply via meters which operate to provide energy which is paid for in advance – "pre-payment meters", which may be permitted by a local instrument per S. 56(2) of the NERL. Currently, Victoria does not permit the use of these meters, per S. 40E of the EIA. As Victoria is rolling out advanced metering infrastructure, DPI sees no reason to change the current prohibition on pre-payment meters.

3.5.3 Gas metering and billing

There are a number of obligations on the gas distributors which are not incorporated in the NECF. DPI's review has concluded that the majority are imposed on the distributors through the NGR and/or the AEMO procedures.

Two outstanding matters are those relating to meter installation and testing and the benchmarks for unaccounted for gas.

Meter installation and testing

There are a number of metering obligations imposed on the distributors in the Gas Distribution System Code. DPI's review has concluded that the majority of these technical obligations are either covered by AEMO's procedures or are adequately addressed under the National Measurement Regulations 1999 (made under the National Measurement Act 1960).

There are two obligations on the distributors which impact the accuracy of the meters and subsequently customers' bills which are not included in the NECF, and which are considered sufficiently important to include in the VERR. This regulation requires the gas distributors to:

  • treat data from non-compliant meters in a certain way; and
  • put in place a correction methodology in certain circumstances when reading the meter at a customer's premises.

Benchmarks for unaccounted for gas

Gas distributors are required to use reasonable endeavours to ensure that the quantity of unaccounted for gas in their distribution systems for any year meets certain requirements as prescribed in the current Victorian regulations8. These requirements rely on benchmarks published for this purpose, and require reconciliation by the retailers or the distributors if the unaccounted for gas in any one year is different to the relevant benchmark.

The NECF has not addressed this matter. The determination of the benchmarks has implications for customers' bills and therefore must be retained in Victoria.

Proposed regulatory approach – gas metering and billing
The proposed Victoria Energy Retail Rules will supplement the NECF with the regulation as set out in Table 5 in Chapter 4.

3.6 Connecting, disconnecting and reconnecting customers

DPI's review has highlighted four key issues relating to the connection, disconnection and reconnection of customers for customers with basic (as well as smart) meters (noting that the regulation where disconnections and reconnections of electricity customers are performed remotely on AMI is addressed in 3.5.1 above). These issues are:

  • compensation for wrongful disconnection,
  • service standards for connection and reconnection,
  • the timeframes for carrying out the functions, and
  • the obligations on the distributors when they intend to implement their powers and disconnect customers directly.

These matters are discussed below.

3.6.1 Compensation for wrongful disconnection

In late 2004, the Victorian Government put in place a statutory scheme to require an electricity or gas retailer who wrongfully disconnects one of its household customers to make a $250 per diem payment to that customer. This scheme was principally intended to place an additional incentive on retailers to guard against disconnecting relevant customers who are willing, but who do not have the capacity, to pay their energy bills9.

This regime was subject to a directed review by the ESC in 2009-10 which recommended some changes be made to the regime, but concluded that there was no evidence to support a repeal of the scheme. Taking on board these recommendations, it is proposed that the wrongful disconnection payment regime be retained as a Victoria-specific customer protection.

3.6.2 Service standards for connection and reconnection

The Distribution Codes impose timeframes by which distributors must carry out the connection (energisation) of premises, or reconnection following disconnection. While the NECF places obligations around responding to enquiries and applications for new connections, it defers to jurisdictional service standards in other respects10. To ensure that the requirements to respond to connection/reconnection requests in a timely way are not lost, it is proposed to establish these timeframes as service standards under the NECF.

3.6.3 Timeframes for connecting, disconnecting and reconnecting customers

Customers are always physically connected, disconnected and reconnected to supply by the distributor (who owns and is responsible for the meters). The processes depend on the function to be carried out. Most connections, disconnections and reconnections are initiated by the retailer to the distributor, even if the customer requests the function. However, distributors may disconnect and reconnect directly, in accordance with their powers.

DPI's review concludes that comparable procedures for small customer connection, disconnection and reconnection will mostly apply in the NECF. There are, however, notable differences in the timing of these functions.

The NERR provides that a domestic customer:

  • must be provided with connection services in energised premises by a distributor as soon as practicable after the retailer notifies the distributor that it has a supply contract with the customer; the retailer must give this notice promptly
  • can be disconnected between 8.00am and 3.00pm except for exclusion periods (which are comparable to current Victorian exclusions). Reconnection must be in accordance with the distributor's service standards.
    The current Victorian regulation is that:
  • the distributor must use their best endeavours to energise previously connected premises within one business day
  • unless a different time is requested by the customer, a domestic customer cannot be disconnected after 2.00pm and a business customer after 3.00pm on a weekday (except Friday)
  • if the customer makes a request for reconnection before 3.00pm on a weekday, the customer must be reconnected on that day
  • if the customer makes a request for reconnection after 3.00pm on a weekday, the reconnection must occur the next business day (unless the customer is prepared to pay the applicable afterhours reconnection charge for that same day).

DPI supports the NECF objective to facilitate consistency in the connection, disconnection and reconnection functions across the national market. However, implementing the national approach to allow disconnections up to 3.00pm for domestic customers will diminish customer protection standards in Victoria.

The current timeframes were designed to provide customers who were disconnected with maximum time to remedy the situation while at the same time enabling the energy business to operate with some efficiency. Prescribing the reconnection timeframes also placed obligations on the businesses to assist customers to get back on to supply in a timely way.

To retain consistency and certainty for customers in ensuring access to their essential service DPI therefore proposes to retain the existing Victorian standards for electricity and gas distributors and retailers.

3.6.4 Notification by distributors of disconnection action

Currently, electricity distributors are required to adhere to a process prior to disconnecting a customer for non-compliance with distribution-related obligations. Specifically, the distributor is required to advise the customer in writing and plain English of:

  • details of the non-compliance and its implications
  • actions that the customer can take to remedy the non-compliance
  • a reasonable time period in which compliance must be demonstrated
  • any consequences of non-compliance, including the disconnection procedure, and
  • the distributor's procedure for handling complaints.

If the customer does not remedy the non-compliance in accordance with the above procedure, the distributor must provide the customer with five business days' written notice of disconnection.

The NERR enables a distributor to disconnect a customer for a number of reasons, but only requires the distributor to provide a customer with a disconnection warning.

Disconnection from supply for whatever reason has material implications for customers. Retailers are required to provide sufficient opportunity for customers to remedy their non-compliance with retail obligations, specifically non-payment of their bills. It is considered that similar obligations should apply to the distributors.

For these reasons, DPI proposes to retain the existing obligations on the distributors to inform small embedded generators of their technical obligations and the circumstances in which the distributor has the right to disconnect unsafe small embedded generators.

DPI also proposes to require both the electricity and gas distributors to provide sufficient information in a timely manner to customers prior to issuing a disconnection warning for distribution-related reasons11.

Proposed regulatory approach – connecting, disconnecting and reconnecting customers on basic meters
The proposed Victoria Energy Retail Rules will supplement the NECF with the regulation as set out in Table 6 in Chapter 4.

3.7 Security, reliability and quality of electricity supply

There are some obligations placed on Victorian electricity distributors in response to specific circumstances arising in this jurisdiction.
These matters are discussed below.

3.7.1 Melbourne CBD - security of supply

In March 2008, an obligation was imposed on CitiPower to take certain steps to strengthen the security of supply in the Melbourne CBD. Its security of supply upgrade plan is approved by the independent regulator. Allowance was made by the AER for the 2011-2015 distribution price period for CitiPower to implement projects to continue to enhance the security of its network. These obligations will need to be preserved to ensure that the distributor continue to meet its obligations, which also will be monitored by the AER for future price determinations.

3.7.2 Quality of supply

Part 4 of the Electricity Distribution System Code sets out standards for quality of supply to connection points on the Victorian electricity distribution networks. These quality of supply standards set out the acceptable quality that can be expected by Victorian customers and are important to underpin
a service that is usable by customers for a range of modern appliances. These standards also help to underpin the arrangements to compensate customers for damage caused by voltage variations under ESC Guideline 11. DPI considers that it will be important to retain regulation of these standards in future
as customer quality of supply standards are not fully covered by the NER.

3.7.3 Reliability of supply, including for customers on life support

A review undertaken in 2009 of the distributors' communications in extreme supply events, including widespread power outage, led to a number of new obligations being placed on the electricity distributors12. These obligations were considered essential to ensure that:

  • all customers are clear about the distributors' roles and responsibilities in maintaining supply in emergencies and widespread power outages
  • there is a co-ordinated approach to informing the public and other key parties in extreme supply events
  • customers on life support are supported by the relevant agencies to maintain supply and safety
  • there is a proper process for disconnecting supply for health, safety or emergency reasons.

These obligations are not included in the NECF and will be retained in the VERR or the relevant safety laws.

3.7.4 Guaranteed Service Levels (GSLs)

The Victorian framework specifies the GSLs required to be provided by the electricity distributors. These GSLs cover appointment times, payments for failure to supply and supply restoration and low reliability payments. The AER also sets GSLs for the national market and, in future, Victorian distributors
will be subject to these nationally-consistent GSLs.

However, as the current GSLs were used as the basis for the 2011-2015 regulated distribution price period, they must be retained in Victorian regulation for this period.

Proposed regulatory approach – security, reliability and quality of electricity supply
The proposed Victoria Energy Retail Rules will supplement the NECF with the regulation as set out in Table 7 in Chapter 4.

3.8 Planned interruption to the delivery of gas supply

The Victorian regulation requires gas distributors to provide 10 business days' notice of planned interruptions to the supply of gas. The NERR only requires 4 business days' notice, consistent with the notice required for planned interruptions to electricity supply.

While it is preferable to achieve consistency with the notice requirements for electricity customers, DPI believes that a longer period of notice for gas customers is required due to the safety impacts of adjusting to such interruptions (particularly if they are sustained and require maintenance of
pipeline pressure). Therefore, the standards which currently apply in Victoria will be retained.

3.9 Public lighting

The extent to which the obligations should be retained in Victoria requires comprehensive consultation with relevant stakeholders, including the distributors, local councils, VicRoads, relevant Government departments and the AER. Consequently, it is proposed to retain the substance of the entire code
to facilitate the continued provision of public lighting services.

Proposed regulatory approach – planned interruptions to the delivery of gas supply
The proposed Victoria Energy Retail Rules will supplement the NECF with the regulation as set out in Table 8 in Chapter 4

3.10 Undergrounding of distribution fixed assets

There are certain requirements in the Victorian regulatory framework on distributors with regard to proposals to underground distribution fixed assets. These requirements, which are currently set out in the ESC's Electricity Guideline No 14: Provision of Services by Electricity Distributors, require
the distributors to:

  • Co-operate with proposals to underground distribution fixed assets and, subject to safety and other key issues being addressed, participate and make an offer for undergrounding
  • Make fair and reasonable offers in such circumstances
  • Contribute toward the costs of the undergrounding an amount equal to the distributor's avoided costs, using a prescribed methodology set out in the regulation
  • Provide sufficient information to customers about the costs of the project.

These rules will be preserved until such time as they are superseded by national rules.

Proposed regulatory approach – undergrounding of distribution fixed assets
The proposed Victorian Energy Retail Rules will supplement the NECF with the regulation as set out in Table 10 in Chapter 4.

4 Proposed Victoria Energy Retail Rules

The tables below reflect the discussion of issues in chapter 3 and set out the proposed Victorian regulation to be retained in the VERR.

Table 1 Contracting customers – fair contract terms

Issue Regulatory instrument Reference Regulation to be preserved
Retail fees and charges on standing offer contracts Energy Retail Code 7.5(b) Prohibiting retailers for imposing fees and charges for merchant service fees (credit card fees) on customers on standing offer contracts
  Energy Retail Code 30 Prescribing that the fees and charges which are allowed to be charged for standing offer contracts are only those explicitly allowed for under the NERR
Late payment fees Electricity and Gas Industry Acts 40C EIA and 48B GIA Proscribing application of late payment fees to small customers.
Gas billing cycle for customers on standing offer contracts Energy Retail Code 3.1 Retaining the two month billing cycle for gas customers on standing contracts until 31 December 2013
Bulk hot water billing Energy Retail Code 3.2 Retaining the formula for billing customers for bulk hot water

Table 2 Transferring customers

Issue Regulatory instrument Reference Regulation to be preserved
Victorian NMI standing data requirements Electricity Customer Transfer Code 3.1 Retaining jurisdictional requirements for data to facilitate efficient customer transfers in the market through AEMO

Table 3 Assistance to vulnerable customers

Issue Regulatory instrument Reference Regulation to be preserved
Community service agreements Electricity and Gas Industry Acts S. 21(f) & Part 2, Division 7 EIA and S. 29(f) & Part 3, Division 5 GIA Requiring retailers to enter into agreements for the provision of community service rebates & grants.
Energy audits and appliance assistance Electricity and Gas Industry Acts 43(2) EIA and 48G(2) GIA Requiring retailers to offer home energy audits and flexible options for the purchase of appliances in their hardship policies.

Table 4 Implementing smart metering technology in Victoria

Issue Regulatory instrument Reference Regulation to be preserved
Information on the bill Energy Retail Code 4.2(e) How the retailer must show estimated readings from smart meters on customers' bills
  Energy Retail Code 4.2(h) Requirement for retailer to show accumulated end reads and the energy usage by tariff segment, the actual tariffs and the total energy use for the period
  Energy Retail Code 4.2(r) Requirement for retailer to show the average daily cost for each smart meter tariff component over the billing period
  Energy Retail Code 4.4(a), dot point five How the retailer must show the graphical information on the bill for customers with smart meter tariffs
  Energy Retail Code 4.7 Requirement for the retailer to assist the customer to compare their bills with the information on a In Home Display
  Energy Retail Code 5.2 The methodology to be used by the retailer for deriving estimated (or substituted) readings from smart meters and using the information as the basis for the bill
Information on disconnection Energy Retail Code 13.1(c), dot point three The retailer must include on all disconnection notices that customers with a smart meter could be disconnected remotely
  Electricity Distribution Code 9.1.13.1 Requirement for the distributor to have its telephone number on meters so that customers have a contact point if the premises are de-energised
Disconnection of vulnerable or low-income customers Energy Retail Code 13.2(b) The additional steps that the retailer must take prior to remotely disconnecting customers
Timeframe for remote disconnections Electricity Distribution Code 12.3 and 12.4 The distributor must remotely disconnect a customer at either a customer's or retailer's request within two hours of the request if it can safely do so
Timeframe for remote reconnections Energy Retail Code 15.2(a) The retailer must use best endeavours to remotely reconnect a customer within 2 hours if it can safely do so
  Electricity Distribution Code 13.1.2 The distributor must use best endeavours to remotely reconnect the customer within 2 hours of the request if it can safely do so
Costs of meter testing Energy Retail Code 6.1 Obligations on retailers to require customers to only pay for meter testing costs if meter is not faulty and after the test has been carried out
Variation to tariff structure, terms and conditions of contract Electricity Distribution Code 9.1.14 Requirement for the distributors to send notices to customers to advise of potential tariff changes by their retailer after the installation of the smart meter
  Energy Retail Code 20 To obtain the customer's explicit informed consent prior to a change to the structure and nature of tariff for an existing contract after the introduction of smart meter tariffs
  Energy Retail Code 26.4(b) Advice to customers on smart meter tariffs of any variations to those tariffs at least 20 business days before the variation is to take effect
Access to billing and metering data Energy Retail Code
Electricity Customer Metering Code
27.2(c) and (e)
7.1
Requirement on retailers and distributors to provide historical billing and metering data within 10 business days to customers with smart meters. Data to be provided electronically or in some form which makes the information understandable and accessible to the customer
Confidentiality of metering data Electricity Customer Metering Code 7.2 Requirement on retailers and distributors to maintain confidentiality of the data in accordance with the relevant laws
Supply Capacity Control Product Energy Retail Code 12A Not allowing retailers to offer these products to customer before1 January 2014

Table 5 Gas metering and billing

Issue Regulatory instrument Reference Regulation to be preserved
Non-compliant meters Gas Distribution System Code 7.2 Requirement on gas distributors to treat non-compliant meters in a certain way, to ensure the accuracy of the meters for billing purposes
Correction factor Gas Distribution System Code 7.4 Process for distributors to apply correction factors if adjusting meter readings for pressure, temperature or supercompressibility

Table 6 Connecting, disconnecting and reconnecting customers on basic meters

Issue Regulatory instrument Reference Regulation to be preserved
Compensation for wrongful disconnection Electricity and Gas Industry Acts   Requiring retailers to pay compensation for wrongfully disconnecting customers.
Timeframes for connecting customers Electricity Distribution Code
Gas Distribution System Code
2.2, 2.4, 2.5
3.1(b)
Obligation on distributors to use their best endeavours energise customers' premises within one business day
Timeframes for disconnecting customers Energy Retail Code
Electricity Distribution Code
Gas Distribution System Code
14(d)
12.6.1
4.1(b)
Obligations on retailers and distributors to not disconnect domestic customers after 200pm
Timeframes for reconnecting customers Energy Retail Code
Electricity Distribution Code
Gas Distribution System Code
15.2(a)
13.1.2
4.2(b)
Obligations on retailers and distributors to reconnect customers within certain timeframes
Notification by distributors prior to disconnecting customers for distribution-related reasons (other than in an emergency) Electricity Distribution Code
Gas Distribution System Code
11.2 & 12.1
9.2
Process that distributors must follow prior to disconnecting customers from supply for non-compliance with the distribution obligations
Written communications to owners of small embedded generators Electricity Distribution Code 9.1.3A Requirement on distributors to notify embedded generators of their obligation, including their rights to disconnect unsafe small embedded generators

Table 7 Security, reliability and quality of electricity supply

Issue Regulatory instrument Reference Regulation to be preserved
Melbourne CBD – Security of supply Electricity Distribution Code 3.1A Obligations on CitiPower to strengthen the security of supply in the Melbourne CBD
Quality of Supply Electricity Distribution Code 4.2 – 4.8 All obligations setting out acceptable standards for quality of supply.
Support for customers on life support during widespread outages Electricity Distribution Code 5.7 That the electricity distributors notify Department for Human Services and Department for Health about sustained outages during widespread power outages
Co-ordinated efforts during widespread power outages Electricity Distribution Code 8.2 Requirement on distributors to co-operate with AEMO in supporting a single industry spokesperson for significant supply events
Notification to customers Electricity Distribution Code 9.1.2A Requirement on distributors to send a notice to customers yearly about the distributor's role in maintaining supply in emergencies and widespread outages
Guaranteed Service Levels Electricity Distribution Code 6 To retain the GSLs for the regulated 2011-2015 distribution price period

Table 8 Planned interruption to the delivery of gas supply

Issue Regulatory instrument Reference Regulation to be preserved
Notice to be provided for customer for planned interruptions Gas Distribution System code 9.1(3) Requirement on gas distributor to provide 10 business days notice

Table 9 Public lighting

Issue Regulatory instrument Reference Regulation to be preserved
Setting minimum public lighting standards and other matters relating to the provision of public lighting Public Lighting Code All Requirements on distributors in relation to public lighting

Table 10 Undergrounding of distribution fixed assets

Issue Regulatory instrument Reference Regulation to be preserved
Process to be followed in assessing proposals for undergrounding of distribution fixed assets Electricity Industry Guideline No 14: Provision of Services by Electricity Distributors 2 Requirements on distributors to co-operate in assessing proposals and determining costs for undergrounding distribution fixed assets

Footnotes

2 See: http://www.aer.gov.au/content/index.phtml/itemId/741773

3 Energy Retailers' Comparative Performance Report – Pricing, 2009-10, Essential Services Commission, Victoria, December 2010

4 These charges are described as Merchant Service Fees in the code.

5 The code allows the retailer to impose charges on standing offer customers for customer-requested billing cycle changes, instalment plans if so requested by business customers, special meter readings if the customer does not allow access, the provision of hard copies of the code and billing
information requested from a previous retailer.

6 Explanatory Material to Second Exposure Draft at http://www.ret.gov.au/Documents/mce/_documents/Explanatory%20Material.pdf . November 2009. p. 23.

7 Smart meters regulatory review

8 Unaccounted for gas means the difference between the amount of gas injected into the distribution system at all transfer points and the amount of gas withdrawn from the distribution system at all distribution supply points, but not limited to leakage or other actual losses, discrepancies
due to metering inaccuracies and variations of temperature, pressure and other parameters.

9 Essential Services Commission. Victoria's wrongful disconnection payment review – Final report. January 2010.

10 See definition of "distributor service standards" in the NERL.

11In other words, these are not customers for whom the retailers have requested disconnection for non-payment of accounts.

12 Final Decision: Communications by distributors in extreme supply events, Essential Services Commission, December 2009 at

http://www.esc.vic.gov.au