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REGULATION OF RETAIL SERVICE STANDARDS IN THE NATIONAL MARKET

Utility Regulators’ Forum Position Paper

September 2006

PREFACE

The Utility Regulators’ Forum (URF)1 decided in mid 2004 to review opportunities for achieving greater national consistency in the regulatory instruments relating to energy retailing, and to develop regulatory frameworks for consideration by the URF and individual regulatory bodies.

Further, URF considered it timely to review the experiences of the jurisdictions in developing and implementing energy retail customer protection frameworks against the background of the Ministerial Council of Energy (MCE) national energy reforms. This position paper reflects the outcomes of the work undertaken by URF to:

a. review the current customer protection practices and approaches in each jurisdiction in regulating small retail customers in the competitive markets

b. agree a minimum retail service standards framework for consideration in the consultations on the national energy market reforms.

The review highlighted that there are some key differences in the customer protection frameworks in the different jurisdictions, reflecting the evolution of the competitive energy markets in Australia. Conversely, it was also found there are significant synergies between other jurisdictions, particularly in those states that have progressed towards more mature competitive markets.

Overall the review reached the following conclusions on the development of the competitive markets, which influenced URF in agreeing the framework at this point in time:

Energy is an essential service, for which there continues to be a demonstrated need at this time for energy-specific regulation to supplement general consumer law.

Small customer competition, while beneficial to the long-term interests of consumers, does not currently deliver effective customer protection in the absence of minimum regulatory requirements, particularly for disadvantaged and vulnerable customers.

Small customers, including some small business customers, are not sufficiently informed, experienced or motivated to ensure that their energy market contracts contain efficient, fair and reasonable terms without the support of basic customer protections.

The outcomes in this position paper therefore reflect the regulators’ current views on the most appropriate framework to accommodate the different stages of the competitive market operating in the jurisdictions now, including the costs and benefits of different regulatory approaches. The extent to which these customer protections can progressively be balanced by general consumer law and energy-specific regulation depends on how the market evolves over time.

URF did not engage in public consultation in reaching its conclusions. This was deliberately decided in order to avoid confusion amongst stakeholders in light of the MCE developments and consultations. Consideration, however, was given to the submission made by the Consumer Law Council Victoria (CLCV) to the MCE’s National Framework for Electricity and

1 The Utility Regulators’ Forum (URF) consists of representatives from all State and Territory energy regulators and the ACCC.

Position Paper: Retail Service Standards

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Gas Distribution and Retail Issues Paper released August 2004, and the views expressed in various papers released under the auspices of the MCE over the past two years.

As well, the views expressed by the regulators have been significantly influenced by consultations undertaken over a considerable period of time in their jurisdictions.

This position paper is designed to inform the MCE consultations and to be considered as a basis for consistent harmonisation across the jurisdictions in the short term.

Contents

Page

1 INTRODUCTION .............................................................................................................. 1

1.1 Purpose of this position paper.................................................................................. 1

1.2 Consultation ............................................................................................................. 1

1.3 Jurisdictional context................................................................................................ 1

1.4 Transition to a national energy market..................................................................... 2

1.5 Structure of this paper.............................................................................................. 2

2 APPROACH TO ENERGY RETAIL REGULATION IN A NATIONAL MARKET............ 4

2.1 Overview .................................................................................................................. 4

2.2 Responsibility for, and consistency in, regulation .................................................... 4

2.3 Customers to whom regulation should apply ........................................................... 5 2.3.1 Government policy ............................................................................................... 5 2.3.2 Energy as an essential service ............................................................................ 5 2.3.3 Energy affordability .............................................................................................. 6 2.3.4 Vulnerability of some small business customers ................................................. 6

2.4 Conclusions.............................................................................................................. 7

3 RETAIL SERVICE STANDARDS FRAMEWORK ........................................................... 8

3.1 Overview .................................................................................................................. 8

3.2 Connection to supply................................................................................................ 8

3.3 Basis of bills ............................................................................................................. 9

3.4 Billing information................................................................................................... 10

3.5 Bill payment mechanisms ...................................................................................... 11

3.6 Continuation of supply............................................................................................ 12

3.7 Complaints and dispute resolution......................................................................... 13

3.8 Allocation of liability and risk .................................................................................. 13

APPENDIX 1 Retail Service Standards Framework ........................................................ 14

APPENDIX 2 Steering Committee on Energy Retail Consistency ................................ 31

1 INTRODUCTION 1.1 Purpose of this position paper In mid 2004, the Utility Regulators’ Forum (URF)2 agreed to review opportunities for achieving greater national consistency in the regulatory instruments relating to energy retailing, and to develop regulatory frameworks for consideration by the URF and individual regulatory bodies.

Against this background, URF established a steering committee of jurisdictional representatives 3with accountability to:

1. Ensure jurisdictional reviews of relevant energy retail regulation take account of the objective to achieve national consistency to the greatest extent possible;

2. Provide advice to the URF on the best practice approaches to energy retail regulation in the context of the Ministerial Council of Energy (MCE) reforms.

The full terms of reference and work plan for the steering committee are attached (Appendix 2).

This position paper sets out the outcomes of the steering committee’s work, which have been accepted by URF. While the paper is designed primarily to provide input to the MCE reform process, all regulators will take the outcomes into account when reviewing their jurisdictional frameworks in the transition to national energy regulation.4

This position paper sets out the jurisdictional regulators’ views of the framework for retail service standards in the national market. As discussed below, broader consultation has not occurred in the process of developing this paper.

1.2 Consultation In the current climate of national energy reform, URF did not engage in public consultation in reaching its conclusions. This was deliberately decided in order to avoid confusion amongst stakeholders. Consideration, however, was given to the submission made by the Consumer Law Council Victoria (CLCV) to the MCE’s National Framework for Electricity and Gas Distribution and Retail Issues Paper released August 2004, and the views expressed in various papers released under the auspices of the MCE over the past two years.

It should also be noted that the views expressed by the regulators have been significantly influenced by consultations undertaken over a considerable period of time in their particular jurisdictions.

1.3 Jurisdictional context In Australia, six jurisdictions have introduced retail contestability for small retail customers in the electricity and/or gas markets to date. These jurisdictions are New South Wales (NSW), Victoria, South Australia (SA), Western Australia, Tasmania and the Australian Capital Territory (ACT). It is understood that competition for small customers in Queensland is scheduled for mid 2007.

2 The Utility Regulators’ Forum (URF) consists of representatives from all State and Territory energy regulators and the ACCC. 3 The Steering Committee for Energy Retail Consistency (SCERC). 4 This paper is accompanied by a Position Paper on Energy Retail Marketing Conduct and a separate paper on Compliance and Auditing is being drafted.


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All jurisdictions regulate to some degree the terms and conditions of market or deemed contracts5 covering customers in these competitive markets, either through regulation administered by the relevant department or through codes and licences administered by the independent energy regulator. For the purpose of this position paper, these contractual terms and conditions are generally referred to as retail service standards.

An examination of the terms and conditions operating in these markets shows that there are some key differences in retail standards, in line with the differences in the markets themselves. Conversely, there are significant synergies in other jurisdictions, particularly between Victoria and SA, as these states progress towards more mature competitive markets.

In agreeing this regulatory framework, the reasons for the differences and synergies between the jurisdictions were evaluated and an appropriate balance between community and commercial considerations was sought. The interests of low income and vulnerable customers were particularly taken into account.

1.4 Transition to a national energy market Consistency in retail service standards is a key objective of the national energy reform process and was addressed in the consultants’ paper on a ‘National Framework for Energy Distribution and Retail Regulation’ released by the MCE Standing Committee of Officials (SCO) in late 20056.

It is noted that the MCE paper, which was released for public consultation, does not represent a settled view of SCO or the MCE at this time. The MCE communiqué dated 19 May 2006 directed the MCE SCO Retail Policy Working Group (RPWG) to develop recommendations on the national distribution (non-economic) and retail functions, in consultation with a stakeholder reference group, for consideration by the MCE in early 2007. The key reference for the RPWG is to be areas of distribution and retail consumer protection, and other aspects of distribution non-price and retail non-price regulation, identified in the consultants’ paper released in late 2005.

Further, the Ministerial Council on Energy (MCE) has recently announced that a framework for the transfer of economic regulation of distribution networks and enabling legislation to transfer national distribution and retail regulatory functions to the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER) will by set by 1 July 2007. Implementation of the national distribution and retail Rules is scheduled by 1 January 2008.7

This position paper is designed to be incorporated into the MCE’s consultative processes as representing the current views of the jurisdictional regulators.

1.5 Structure of this paper The structure of the paper is as follows:

• Section 1 – Introduction and context for the paper

5 For the purposes of this paper, market contracts means those contracts applying to customers who have entered the competitive market. Deemed contracts means either standing offer or deemed arrangements for those customers who either have never entered the competitive market or who have entered non-market arrangements with their local or incumbent retailer. 6 Prepared by Gilbert & Tobin and NERA Economic Consulting and released for public consultation by the MCE Standing Committee of Officials, 13 October 2005. 7 See Energy Market Reform Bulletin No. 69 at www.mce.gov.au


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• Section 2 – Discussion on the approach to a retail services standards framework in the national market, consideration of the options and the rationale for the option proposed.

• Section 3 – Overview and discussion of the framework, with more detailed information provided in Appendix 1.


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2 APPROACH TO ENERGY RETAIL REGULATION IN A NATIONAL MARKET

2.1 Overview In reaching the conclusions in this position paper, a number of factors were considered, including whether there remained a case for energy-specific regulation in the progression towards a national energy retail market, and whether there should be differentiation between the ‘average’ and more vulnerable customers who choose to enter the competitive market.

Brief discussion on these matters follows.

2.2 Responsibility for, and consistency in, regulation Consideration was given to whether, in the short-to-medium term, the regulation of contract terms for small customers could be adequately provided for under general consumer law. This issue was canvassed in the consultant’s paper released by the SCO in October 20058 and the authors considered that, in a national regime, “the imposition of energy sector specific consumer protection regulation should not duplicate other regulations of general application across the economy…unless the generic regulation is demonstrated to be insufficient.”9

Against this background, the consultants considered whether the federal Trade Practices Act and jurisdictional fair trading legislation provided sufficient protection for energy customers. They concluded that “the scope of energy specific consumer protection regulation is broader [than marketing conduct activities] and in most instances (such as specific regimes to limit the circumstances in which distributors may disconnect an end-customer and the regulation of contract terms for small customers) this additional scope of business regulation is appropriate.”10 This conclusion was also reached by the ESC, Victoria in its 2004 Review of Effectiveness of Retail Competition and Consumer Safety Net in Gas and Electricity.11

Notwithstanding the above, it is noted that some jurisdictions (notably Victoria) have fair trading legislation which provides for protections against unfair contractual terms. However, this legislation is not universal and does not extend to small business customers. Further consumer protection law is not uniform across the jurisdictions and therefore relying on jurisdictional fair trading legislation would not result in nationally uniform protections for energy customers.

Given the nature of energy as an essential service, therefore, and the complexities associated with implementing general consumer law in a national context, it is considered that energy-specific regulation should be retained in at least the short-to-medium term.12

Consideration, however, was given as to whether this regulation should apply to all small customers irrespective as to whether they are on deemed or market contracts. These considerations are discussed in section 2.3 below.

8 The issue was also considered by the ESC in the Final Report: Special Investigation: Review of Effectiveness of Retail Competition in Gas and Electricity, June 2004. 9 ‘Public Consultation on a National Framework for Energy Distribution and Retail Regulation’, p.44. 10 Ibid, p.44 11 See Appendix 2. 12 URF considers that for, low income and vulnerable customers, there may always be a case for energy-specific regulation, but notes that this will be a matter for the MCE.


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2.3 Customers to whom regulation should apply All jurisdictions have customer protection regulation that applies to small customers below specified thresholds of electricity and gas consumption and all jurisdictions regulate to some extent both deemed and market contractual arrangements. 13 The threshold for customer protection regulation is a matter for relevant governments (and the MCE going forward), but for the purposes of a retail service standards framework the following options were considered:

1. Applying the framework to all customers on deemed contractual arrangements below the thresholds, with market contracts regulated only by existing consumer law.

2. Applying the entire framework to all customers on deemed contractual arrangements with energy-specific regulation of core standards for customers on market contracts.

3. Applying the framework to all customers on deemed contractual arrangements below the thresholds, subject only to unfair contractual terms legislation being extended across all jurisdictions and to small business customers to cover market contract terms.

4. Differentiating between domestic and small business customers, with minimal or no energy-specific regulation for small business customers, and further differentiation between ‘average’ domestic customers and those more vulnerable or disadvantaged.

The framework proposed is option 2, that is, to apply the entire framework to customers on deemed contractual arrangements under the thresholds of gas and electricity consumption, with energy-specific regulation of core standards for customers on market contracts. The factors taken into account in proposing this option are discussed below.

2.3.1 Government policy

Relevant governments have made policy decisions that customers below specified consumption thresholds require specified customer protections, including the obligation on the local retailers to offer to supply to customers at certain terms and conditions in most jurisdictions open to competition. It is assumed, therefore, that it is intended that those customers who choose to remain on (or choose) these deemed contractual arrangements should be afforded the full set of non-price protections.14

2.3.2 Energy as an essential service

The jurisdictions are at quite different stages of competitive market implementation and maturity. Whilst it may be a desirable objective to reduce energy-specific regulation to the greatest extent possible for customers who choose to enter market contracts, energy nevertheless is an essential service. As discussed in section 2.3.1 above, the essentiality of energy supply is recognised in local retailers’ obligation to offer a retail service to residential and small business customers. At the very least, Victorian stakeholders are generally supportive of this obligation.15

13 Although Tasmanian gas customers may elect to contract out of any customer protection regulations if they so choose. 14 This paper does not address the issue of price protection in the competitive market. 15 See submissions to the Special Investigation: Review of Effectiveness of Retail Competition and Consumer Safety Net in Gas and Electricity, ESC, June 2004.


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In the national market therefore it is considered crucial that both domestic and small business customers are assured that there will continue to be adequate protection against unfair contractual terms relating to key issues such as the basis of billing, disconnection procedures and information provision.

In the absence of consistent and robust fair trading regulation in all jurisdictions, which provides protection for all small customers against unfair contractual terms, it is believed that energy-specific regulation is necessary in the foreseeable future for market contracts (as well as complete coverage for deemed contracts). The aim, however, is to minimise the regulation of market contracts.

2.3.3 Energy affordability

Particular consideration was given to how low income and vulnerable customers, who may experience energy affordability problems and who choose to seek market contracts, could expect to be treated in the competitive market if these contracts are not subject to energy-specific regulation.

Energy affordability problems occur where customers may not be able to afford a sufficient supply of energy essential for daily living, impacted by the level of prices in the energy retail markets. This is in turn partly affected by usage and location of the household.16 Energy services customers could experience affordability problems at two stages of supply: in accessing supply; and in maintaining supply continuity (avoiding disconnection).

The jurisdictional regulators recognise that these customers must be afforded additional protections to optimise their capacity to access and remain on supply. These protections include the obligation to offer to supply, specific assistance to pay accounts and additional steps prior to disconnection action being undertaken as a last resort. Some jurisdictions also require retailers to offer access to hardship programs when serious energy affordability problems are manifest.

These safety net measures do require additional efforts (and costs) from retailers. In a competitive market where margins are relatively small, it is questioned whether retailers would have sufficient incentive to attempt to attract these customers to market contracts or to assist them if energy affordability problems arose during their time on a market contract. Thus, these customers, at least in the short-to-medium term, may not be able to access, or continue to access, the benefits of the competitive market.17

Until more extensive analysis is undertaken across the jurisdictions of the effectiveness of competition, including a more comprehensive understanding of which customers are benefiting from competition, it is proposed that both deemed and market contracts should require additional assistance to be offered, and continue to be offered, to those domestic customers experiencing energy affordability difficulties. These measures are discussed more fully in sections 3.5 and 3.6 below.

2.3.4 Vulnerability of some small business customers

In this model, it is acknowledged that some small business customers will benefit from the suite of protections if they choose to remain on deemed contractual arrangements. There may be a case to argue that these customers do not require the same level of protections considered necessary for domestic customers.

16 It is noted that the level of household disposable income (unrelated to energy market competitiveness) is the key cause of energy affordability problems, but this is a social policy matter and is not addressed here. 17 It is emphasised that it is not suggested that these customers would not pay their accounts. However, additional measures may need to be made available to assist them.


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Conversely, there are some very small business customers who consume large amounts of electricity (for example, fish & chip shop and delicatessen owners,) who may not be any more sophisticated than some domestic customers and, in some areas, may have significant English-language and comprehension difficulties. It is considered that they should be covered to the full extent if they choose to remain on deemed contractual arrangements and that energy-specific regulation of core standards in market contracts, which protect customers in regard to the billing arrangements and some disconnection procedures, should continue at this time.

The energy-specific regulation of small business customers on market contracts should be reconsidered if unfair contractual provisions are incorporated more broadly in general consumer law across the jurisdictions (see discussion in section 2.2).

2.4 Conclusions In its 2004 Review of the Effectiveness of Competition and the Consumer Safety Net,18 the Essential Services Commission Victoria considered at length the safety net arrangements that should apply for small customers in a competitive market.

The Commission concluded that “the current regulatory energy safety net arrangements, including the standing offer, protect small customers by ensuring that, regardless of their circumstances or use patterns they can still access fair price-service offerings. The regulatory energy safety net also assists the orderly transition towards a fully competitive market by protecting customer interests, including in areas of the market where effective competition is yet to emerge.

Further, the Commission found:

• Small customer competition alone is unlikely to deliver effective customer protection and balanced contract terms in the absence of minimum regulatory requirements.

• Because access to electricity and gas services is essential for residential and small business customers, effective customer protection arrangements should be retained for those customers both during the period of transition to effective competition and after it has been fully established.

• Because access to electricity and gas services is essential to the basics of daily life for residential customers, and their essentiality is different in character for small business customers (as commercial risk takers), residential customers should be the principal focus of the price and non-price protections of the regulatory energy safety net in future.

• Small business customers are not sufficiently informed, experienced or motivated to ensure that their energy market contracts contain fair and reasonable terms without the support of basic customer protections.”

Although this review was undertaken two years ago, its findings are still considered relevant and applicable to the national energy market especially when taking into account differences in market maturity between and within jurisdictions. These Victorian findings are generally endorsed by the utility regulators and have strongly influenced the proposed national energy retail regulatory arrangements outlined in this paper.

18 Special Investigation: Review of Effectiveness of Retail Competition and Consumer Safety Net in Gas and Electricity, ESC, June 2004


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3 RETAIL SERVICE STANDARDS FRAMEWORK 3.1 Overview A retail service standards framework for small customers should be developed against agreed outcomes for customers and retailers in the energy market. The proposal is that these outcomes are:

Fair and reasonable connection to supply for consumers, with credit and other risk reasonably able to be managed by retailers.

Flexibility for retailers in billing and fair and efficient reconciliation processes for customers.

Relatively simple and cost-reflective billing obligations on retailers and transparent and simple account information for customers.

Accessible mechanisms for bill payment for customers and cost-effective and appropriate cost-recovery mechanisms for retailers.

Fair and reasonable opportunities for customers to maintain access to supply, with affordable options for vulnerable or low income customers, and appropriate debt management for retailers.

Fair and reasonable review and dispute resolution processes for customers and retailers.

Fair allocation of liability and risks for customers and retailers.

Each outcome and the proposed minimum standards underpinning these outcomes will now be discussed in turn.

3.2 Connection to supply Outcome - Fair and reasonable connection to supply for consumers, with reasonable credit and other risk able to be managed by retailers.

Currently all jurisdictions set obligations on customers when they seek initial connection to supply, for example, customers are required to produce acceptable identification and provide personal details relevant to their application.

It is considered that these minimum obligations should remain, subject to compliance with the Federal Privacy Act, particularly as retailers are increasingly at risk in the competitive market that customers may transfer to other retailers without meeting their existing payment obligations. Retailers should have capacity to check customers’ credentials and credit history, and customers should be assured that the requirements are in accordance with relevant privacy and credit laws.19

Retailers should have the capacity to require customers with previous outstanding debts to make arrangements to meet those debts prior to being connected to supply. Retailers must offer fair and reasonable payment arrangements to meet the debt liability.

Notwithstanding the above, those customers who may be assessed as credit risks due to income insufficiency should not be subject to increased financial obligations that may

19 It is reiterated that certain retailers have obligations to offer to sell, irrespective of the competitive

market.


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exacerbate their debt burden. This objective is particularly relevant in setting prescriptions on how credit risk is assessed and the provision of security deposits.

The framework proposes an approach to managing credit risk which aims to provide sufficient protection for these vulnerable customers.

If customers wish to enter market contracts, it could be considered reasonable that retailers set their own credit risk and debt recovery requirements. There is a risk that more vulnerable customers may be subject to onerous credit assessment criteria which acts as a barrier to them benefiting from a competitive offer. It is considered, however, that this potential barrier to competition should be assessed through the effectiveness of competition reviews, rather than these provisions being regulated in market contracts at this time.

It is proposed that no customers, whether on deemed contractual arrangements or offered a market contract, can be required to use a prepayment meter.20

Once the prerequisite requirements are met, an obligation should be placed on retailers to connect customers in a timely manner.

3.3 Basis of bills Outcome - Flexible options for the basis of bills and efficient reconciliation procedures for customers

As a general rule, retailers should base bills on an actual meter read. This is required elsewhere in the competitive energy market21 and enhances efficiency and accuracy of bills for customers. However it is also acknowledged that alternative options on which customers may be billed, for example, bills based on estimated readings and bill smoothing arrangements, result in cost savings that can be passed on to customers in a competitive market. A regulatory framework that facilitates these options for retailers, subject to effective and timely reconciliation procedures to avoid large bill ‘shocks’ for customers, is therefore supported.

The key components supported for the regulation are:

Retailers must be able to enter customers into alternative options on which the bill is based, subject to customers fully understanding and agreeing to the implications.

Timely and efficient reconciliation procedures are in place.

Retailers’ capacity to recover undercharged amounts generally is limited to 12 months. However, incentives should also be placed on retailers to improve systems and billing efficiency. Therefore, if the reason for the undercharge is related to retailer systems inefficiency, the period to which the undercharge applies is restricted to 6 months.

Retailers must offer customers assistance, including payment arrangements, if they experience difficulty in meeting their payment obligations due to late bills from retailers.

Retailers should be required to have refund arrangements in place in case of overcharging.

20 This requirement is based on the assumption that the legislative and regulatory regime allows prepayment meters to be implemented. 21 These are contained in electricity and gas metrology and/or transfer regulatory instruments.


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It is considered necessary to impose these obligations on both deemed contractual arrangements and market contracts given the complexity of billing arrangements and the need for efficiency in meter reading and billing to ensure a smooth competitive market.

3.4 Billing information Outcome - Relatively simple and cost-reflective billing obligations on retailers and transparent and simple account information for customers.

Currently, all retailers are required to place a large amount of information on customers’ bills, with additional information to be included for more vulnerable customers. In a competitive market, retailers are likely to seek to make their accounts as user-friendly and transparent as possible, if only to avoid customer complaints.22 It is therefore reasonable for retailers to expect regulation to include prescribed information on bills to be minimised.

Some of the information currently prescribed by jurisdictions would be put on the bill by retailers without the need for regulation, for example, supply address and meter identifier. However, there is certain information that aids consistency and clarity that may not be voluntarily supplied as retailers attempt to contain costs, for example, meter reading dates, the basis of the bill, or certain fees and charges. Therefore, it is considered that the obligations on retailers to provide certain information on the bill should be retained.

Consumer research has shown that removing some of the level of detail on the bill would result in 60% of domestic customers feeling a major impact. The same level of concern was expressed by a smaller proportion of domestic customers on market contacts and business customers23. More flexibility with respect to this obligation therefore could be allowed for retailers entering customers into market contracts.

Retailers should be given the flexibility to negotiate the frequency of billing with customers, whether or not a customer is on a market contract or deemed offer. However, information on concessions, interpreter services, complaints and independent dispute resolution procedures, and fees and charges should be provided to assist all customers.

Consumer research showed that over 67% of domestic customers and 50% of the business customers surveyed stated that the removal of energy consumption graphs on the bill would have a major impact on them.24 Given that retailers may be inclined to remove the graphs as a cost-saving initiative, and in light of increasing community and political pressure for consumers to be provided information on demand management and energy-saving initiatives, the inclination is to continue the regulation of this component for both deemed contractual arrangements and market contracts. This information may assist consumers in making market choices.

On balance, therefore, the approach is to regulate these requirements for all contracts. The obligations for information on the bill do not appear to be unnecessarily onerous and in fact differentiating requirements for customers on deemed and market contracts is likely only to add to the cost and complexity of retailers' billing obligations.

Information on the bill regarding Government initiatives (for example greenhouse gas emissions) is a matter for government policy and has not been addressed here.

22 It is noted that the largest majority of complaints to EWOV are about billing matters. 23 Wallis Consulting, February 2004. Essential Services Commission Report into the Effectiveness of Full Retail Competition and Safety Net Measures. 24 ibid


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3.5 Bill payment mechanisms Outcome - Accessible mechanisms for bill payment for customers, including payment arrangements for domestic customers with affordability difficulties, and cost-effective and appropriate cost-recovery mechanisms for retailers.

The consumer research undertaken on the safety net protections in Victoria found that the removal of payment by means of debit or credit cards would have the greatest impact on domestic customers (56%). Domestic customers were evenly divided on the impact of no longer being able to pay bills in person and nearly half felt that removing the option of paying by mail would have no impact at all25. Only 20% of all customers would be concerned if they were not able to pay their bills by mail.

Importantly, the profiles of customers for whom the withdrawal of the different payment options would have a major impact were quite different. That is, the research showed that those affected most by the removal of being able to pay by debit or credit card would be higher income, professional workers who were aged between 25 – 54 years, and who displayed a propensity to switch supplier.

Those for whom withdrawing the ability to pay in person (for example, through the post office) would have a major impact were lower income earners, most often over 55 years, and paying a concession rate for their energy. Nearly 60% of concession card holders or low income persons, and 54% of regional Victorians, said that not being able to pay their energy bill in person would have a major impact on them. This experience is likely to be reflected across all Australian jurisdictions.

The profile of those customers more likely to require direct debit or credit card facilities suggests a capacity to negotiate market contracts; given that most retailers offer discounts for direct debit arrangements it is more likely these customers will benefit. Those retailers who penalise customers who pay by credit card on market contracts may find that these customers prefer other suppliers. This would also appear to be the case for those who do not provide the option to pay in person (for example, through the post office) given this is the preferred option for a high proportion of concession card holders and regional customers.26

It is concluded from this consumer research, therefore, that all payment mechanisms must continue to be made available for customers on deemed contractual arrangements, but that the regulation should not apply to those on market contracts.

Some customers experience difficulty in paying their accounts in full. Nearly half (47%) of domestic and four in ten (38%) business customers felt that the removal of access to flexible payment arrangements when difficulties arose in paying bills would have a major impact on them. This proportion is high and suggests that a retail service standards framework must recognise that a significant number of energy customers may continue to experience difficulties in bill payment.

Further as the regulatory focus moves away from retail price regulation there is likely to be a need for greater emphasis to be given to energy affordability within the regulatory framework. In particular, retailers need to develop and implement best industry policies and practice in tackling debt and disconnection and assistance needs to be provided to vulnerable customers

25 ibid 26 There is no evidence to support the view that concession card holders as a category are not accessing competitive market offers. Indeed, it is a generally held view that the large majority of concession card holders promptly pay their accounts and are valued customers.


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who may not initially benefit from the introduction of retail competition. At this stage of the competitive market, it is considered essential that this area is subject to regulation.

Therefore as discussed in section 2.3.3, the obligation to make available payment assistance options to all domestic customers, whether on deemed or market contractual arrangements, must continue, with additional obligations provided for more vulnerable customers, for example, referral to assistance under the retailer’s hardship policies. No regulatory obligation should be placed on retailers to assist small business customers with payment difficulties as it is expected that competitive market forces and good customer service would ensure that reasonable assistance is provided.

It is generally believed that fees and charges (including late payment fees and early contractual termination fees in some jurisdictions) should be allowed in a competitive market, subject to be being fair and reasonable and cost-recovery only. It is also crucial that customers with financial difficulties are sufficiently protected. However, it is considered that the type of fees and charges is outside the scope of this paper.

3.6 Continuation of supply Outcome - Fair and reasonable opportunities for customers to stay connected to supply, with affordable options for vulnerable or low income domestic customers, and appropriate debt management by retailers

A framework for retail service standards must deal properly with the customer’s right to remain connected to an essential service, subject to these customers fulfilling their obligations. Over 60% of all domestic and small business customers previously surveyed stated that the removal of strict controls over disconnection practices would have a major impact on their household or business.

Disconnection of customers in financial hardship, and who want to pay their energy bill but cannot afford to, should be avoided and must be a last resort. Therefore, additional obligations should be placed on retailers to ensure that prior to disconnection, best endeavours are undertaken to contact customers who are known to have insufficient income to attempt to avoid their disconnection. Protection against disconnection should also be continued for those customers particularly disadvantaged, that is, customers on life support, those who have made an application for a utility relief grant, or those who have made a complaint to the Ombudsman.

Against this background, these obligations should be available to all small customers, including those on market contracts, and retailers should be obliged to take extra steps for domestic customers who are assessed as experiencing payment difficulties.

Further, as the market progresses with respect to dual fuel contractual arrangements (that is, customers have one contract for both electricity and gas and pay one amount which is subsequently allocated to each fuel), procedures need to account for disconnection of both fuels simultaneously. The framework provides for gas to be disconnected first, as this may be a fuel of choice, and then a reasonable period of time prior to the disconnection of electricity.

Consistent reconnection procedures are proposed, and distributors and retailers should be required to co-ordinate their respective roles so as to reconnect customers as soon as possible in accordance with their regulatory obligations.


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3.7 Complaints and dispute resolution Outcome - Fair and reasonable review and dispute resolution processes for customers and retailers

The framework provides for information to customers to ensure that they are aware of their key rights, entitlements and obligations, and a complaints handling process which provides for escalation through the business to an independent Ombudsman as a last resort. These obligations may be better placed in a legislative or licence provision.

The framework enables billing and metering disputes to be provided for in contractual terms.

3.8 Allocation of liability and risk Outcome - Fair allocation of liability and risk for customers and retailers

This relates to a small number of areas where the retailer is subject to some commercial risk, through the customer not providing timely access to the meter to allow for meter reads or illegal use of energy. It also considers elements of customer risk, for example, life support mechanisms, to ensure the customer is protected with respect to reliability of supply. The conclusion is that most of these matters are legislative matters that do not belong in a retail service standards framework.


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APPENDIX 1 Retail Service Standards Framework

Outcome 3.2 - Fair and reasonable connection to supply for consumers, with credit and other risk reasonably able to be managed by retailers.

Deemed Contractual arrangements

Market Contracts

Other

Application requirements If a customer wishes to be connected to a supply address, the retailer may require that the customer first apply to the retailer (in person or by telephone) and, if requested by the retailer: - provide acceptable identification in accordance with relevant privacy laws; - pay any relevant fees and charges applicable; and - provide contact details for the owner or agent of the supply address if the property is a rental property.

X

Customers’ obligation to pay outstanding debts

Customers are liable to enter into payment arrangement in relation to outstanding debt owed to the retailer. Retailers are obliged to ensure that the payment arrangement allows for fair and reasonable payments at fair and reasonable intervals.

X

Assessing credit risk In deciding whether a customer has an unsatisfactory credit rating, a retailer may only have regard to any relevant utility related default by that customer.

X

Use of prepayment meters

A customer cannot be required to use a prepayment meter.27 X X

27 To avoid doubt, this does not mean that retailers cannot use prepayment meters if the legislative and regulatory requirements provide for this use. The emphasis is on not allowing retailers to impose prepayment meters on customers involuntarily.


15

Deemed

Contractual arrangements

Market Contracts

Other

Applying security deposit

A retailer may require a security deposit from a customer prior to connection only if that customer: (a) has left a previous supply address with debt owed to the retailer or another retailer, the debt remains outstanding and the customer has refused to make an arrangement to pay that debt; or (b) has been responsible for the illegal use of relevant energy within the previous two years; or (c) does not have a satisfactory credit history in the reasonable opinion of the retailer or cannot demonstrate satisfactory credit history with another retailer to the reasonable satisfaction of the retailer, and the customer has refused an instalment plan.

X

Information to customer on credit assessment

If a retailer requires a security deposit from a customer because it has decided that the customer has an unsatisfactory credit rating, the retailer must inform the customer: (a) that the retailer has decided that the customer has an unsatisfactory credit rating; (b) the reasons for the decision; (c) of their rights to raise a complaint; (d) if the decision: • was based wholly or partly on information provided by a credit reporting agency, the name, address and telephone number of the agency and that the customer has the right to obtain access to the credit information file maintained by that agency; or • was based wholly or partly on information in the possession of the retailer, that that is so and that the customer has the right to obtain details of the information.

X


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Deemed Contractual Arrangements

Market Contracts

Other

Amount of security deposit

The maximum amount for the security deposit shall be linked to the profile of the class of customer and must be fair and reasonable. As a general rule, the security deposit should be no greater than - 1.5 times the average quarterly account; - 1.75 times the average 2-monthly account; or - 2.5 times the average monthly account.

X

Use of security deposit A retailer must account to the customer for any use of the security deposit within a reasonable period of time (proposed 10 business days of use).

X

Interest Interest paid must be in accordance with the Reserve Bank of Australia cash rate target.28

X

Repayment of security deposit to the customer

A customer who is required to pay a security deposit is eligible for that deposit to be refunded when they have completed: (i) for residential customers - on time payment of bills for one year from the date of the first bill; or (ii) for business customers - on time payment of bills for two years from the date of the first bill and the maintenance of a satisfactory credit rating in the reasonable opinion of the retailer.

X

28 This implies no capitalisation and no administrative deduction.


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Deemed Contractual

Arrangements

Market Contracts

Other

Retailers’ obligation to connect in a timely manner

A retailer must arrange to connect a customer at the customer's supply address as soon as practicable after the customer applies for connection in accordance with the applicable requirements. The retailer must make a request to the relevant distributor to connect the customer's supply address to the distributor's distribution system by no later than the next business day after the application is made or the customer's energy contract commences to be effective (whichever occurs last).

Performance standard which should be incorporated in legislation


18

Outcome 3.3- Flexible options for the basis of bills and fair and efficient reconciliation processes for customers.


Market Contracts

Other

Bills based on meter reads

Unless otherwise allowed, a retailer must base a bill on the metering data provided by the distributor or responsible person determined in accordance with applicable regulatory instruments. A retailer must use its best endeavours to ensure that at least one bill in each six month period is based on actual metering data.

X X

Estimated bills Where: metering data is not provided to the retailer by the distributor; or metering data is provided but is not reliable; or the customer has agreed with the retailer,

the retailer may issue an estimated bill, including under a bill smoothing arrangement, based on:

a. the customer’s reading of the relevant meters; or b. the customer’s prior energy usage history at that supply address; or c. where the customer does not have a prior energy usage history at

that supply address, the average usage of energy by a comparable customer over the corresponding period

X X


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Market Contracts

Other

Reconciliation of estimated billing

Retailers must re-estimate consumption and make adjustments to the payment arrangements based on the actual consumption at least every six months.

X X

Procedures when customers’ undercharged

The retailer may recover the amount undercharged or under-estimated, but must: (a) limit the amount to be recovered as follows: - 6 months prior to notifying the customer of the undercharging or under-estimation if the result of a failure of retailer's billing systems; and - otherwise, 12 months prior to that date. (b) list and explain the amount as a separate item on customer's next bill or on separate bill; (c) not charge interest on the amount; (d) offer the customer a payment arrangement period at least equal to the period of the recoverable undercharging.

X X

Procedures when customers overcharged

Retailers must put in place appropriate refund arrangements depending on the amount overcharged.

X X

Tariff information A retailer must provide relevant information prior to tariff changes. X X


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Outcome 3.4 - Relatively simple and cost-reflective billing obligations on retailers, and transparent and simple account information for customers

Deemed Contractual

Arrangements

Market Contracts

Other

Frequency of bills At least every 3 months X

Information on the bill

Consumption-related Supply address Meter identifier Date of meter readings or estimated date of readings The date on which the account period begins and ends, and calendar days to pay Consumption, or estimated consumption, in units used Relevant fees, charges (including late payment fee, if appropriate) and tariffs Pro-rata billing information (if applicable) Any amount deducted, credited or received under: - a Government sponsored rebate or concession scheme; or - an instalment plan which applies to the customer Amount of any security deposit

X X As well as through legislation, given the increasing tendency of Governments to mandate certain information on bills.


21

General assistance in bill payment and other enquiries

A list of the available payment methods The telephone number for account and fault enquiries Contact details for complaints If the bill is a disconnection notice, contact details for the independent complaint handling process (Ombudsman) Relevant notification of any late payment fees that may be imposed.

X X

For customers with payment or language difficulties

In relevant languages, details of interpreter services The name of, and details of the availability of, any Government funded concessions or relief scheme

X X

Comparative energy consumption information

Energy consumption information should as a minimum show average daily usage over the current billing period compared to the same billing period in the previous year, in graphical form.

X X

Greenhouse gas emissions information

Dependent on Government direction


22

Outcome 3.5 - Accessible mechanisms for bill payment for customers, including payment arrangements for domestic customers with affordability difficulties, and cost-effective and appropriate cost-recovery mechanisms for retailers

Deemed Contractual

Arrangements

Market Contracts

Other

Payment of initial account

Payment due not less than a prescribed period (for example, 16 - 21 calendar days) after the date on which the bill is sent out

X

Methods of account payment

The retailer must accept payment by any of the following payment methods: - in person at a network of agencies or payment outlets; - by mail; and - by direct debit or credit card arrangement; and - if available, by direct debit from Centrelink

X

Retailers’ obligations where customer is not paying their bills

A retailer must offer a domestic customer a prescribed instalment plan or some other appropriate payment arrangement when a customer informs the retailer that the customer is experiencing payment difficulties, or the retailer believes or ought to be aware that the customer is experiencing payment difficulties29.

X X

29 Reference ESC’s Interim Procedure – Wrongful Disconnection Compensation for guidance on how retailers can assess customers’ bill payment difficulties.


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Market Contracts

Other

Negotiation of instalment plan arrangements

Retailers must offer payment plans to domestic customers which: - enable customers to make payments in instalments, allow arrears and/or future consumption, according to their capacity to pay; - where applicable, provide the customer with information on amount and number of instalments the customer must make, and how the amount is calculated; and - make provisions for re-calculating the amount of the instalment where significant variation exists between actual and estimated consumption.

X X

No obligation to offer an instalment plan

A retailer does not need to offer an instalment plan if the domestic customer has had 2 instalment plans cancelled due to non-payment in the previous 12 months.

X X

Information to customers with payment difficulties

A retailer must inform the customer where appropriate: - about the right to have a bill redirected to a consenting third party; - about, and referral to, State Government assistance programs; and - of independent financial and other relevant counselling services. The retailer must provide such information and referral free of charge.

X X


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Deemed Contractual

Arrangements

Market Contracts

Other

Retailers’ obligation to domestic customers in chronic or temporary hardship

If the customer’s payment history and behaviour demonstrate chronic or temporary financial hardship, the retailer must consider the customer for assistance through its hardship program.

X X

Fees and charges Any fees and charges must be fair and reasonable, and cost recovery only

Subject to powers and government policy direction.


25

Outcome 3.6 - Fair and reasonable opportunities for customers to stay connected to supply, with affordable options for vulnerable or low income customers, and appropriate debt management by retailers

Deemed Contractual

Arrangements

Market Contracts

Other

Right of retailers to disconnect A retailer may arrange to disconnect a customer's supply address if a customer has not: - provided acceptable identification; or - paid a bill; or - agreed to an offer of an instalment plan or other payment option to pay a bill; or - adhered to the customer's obligations under an agreed instalment plan or other payment option.

X X

Obligations on retailers prior to disconnection

Prior to disconnection, the retailer must have: -- given the customer a reminder notice; - after expiry of the period referred in the reminder notice, given the customer a written disconnection warning with 7 calendar days' notice of intention to disconnect (counted from day notice received). - offered the domestic customer alternative payment options, including an extension of time to pay on agreed terms and conditions, - on the disconnection notice, advised the customer of the Industry Ombudsman scheme.

X X


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Deemed Contractual

Arrangements

Market Contracts

Other

Additional obligations on retailers prior to disconnection for domestic customers in payment difficulties

As well as the general obligations, prior to disconnection, the retailer must have: - assessed the information it has to determine if the customer has demonstrated payment difficulties; - ensured adequate assistance has been provided, including referral under the hardship policy if appropriate; - given the customer information on government funded concessions and financial counselling referral; and - used best endeavours to contact the customer30.

X X

Where retailers must not disconnect A retailer must not disconnect a customer: (i) for non-payment of an account: - where the amount payable is less than set by the regulator; - where an unresolved complaint regarding the disconnection exists; - where the customer has formally applied for payment assistance from relevant agencies and approval is pending; - where outstanding payment relates to other goods or services provided by the retailer: (ii) if: - where life support equipment involved (electricity); - where the address is a registered medical exemption address (gas).31

X X

30 Reference ESC’s Interim Procedure – Wrongful Disconnection Compensation for guidance on how retailers can refer customer under hardship policies and use best endeavours to contact before disconnection. 31 Exemptions for customers requiring life support or medical exemptions should be made consistent for gas and electricity customers in the national market.


27

Deemed Contractual

Arrangements

Market Contracts

Other

Disconnection for domestic customers on a dual fuel contract

If disconnection is permitted, a retailer must ensure that a customer on a dual fuel contract is initially disconnected from gas supply and that disconnection from electricity supply occurs within a prescribed period (for example, no sooner than 22 business days) after the disconnection notice.

X X

Restricted times for disconnection A retailer must ensure that a customer is not disconnected on a Friday, over a weekend, or on the day before a public holiday.

X X

Advice from retailers about reconnection

A retailer must notify a customer of the arrangements they will need to make for reconnection, including any costs payable.

X X

Customer’s right of reconnection Retailers are obliged to ensure that any payment arrangements for reconnection allow for fair and reasonable payments at fair and reasonable intervals. If customers are on market contracts, and they either pay the outstanding amount or make arrangements to do so within 10 business days of disconnection, then their existing contract continues. Relevant provisions must be included to enable reconnection of supply in the case of dual fuel contracts

X X

Times for reconnection A retailer must make appropriate arrangements with the distributor to ensure that reconnection occurs as soon as possible for the customer.

X X


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Outcome 3.7 - Fair and reasonable review and dispute resolution processes for customers and retailers

Deemed Contractual

Arrangements

Market Contracts

Other

Customers’ rights to information

A retailer must set out for a customer how they can receive information on their rights, entitlements and obligations.

X X This may not be necessary if there is a legislative or licence obligation to provide information

Complaints handling

A retailer must set out for a customer their complaints handling process, including their right to have the matter escalated to senior levels in the business and to the independent Ombudsman as a last resort.

X X As above

Review of bill A retailer must review a customer’s bill when asked by that customer in accordance with normal complaint handling procedures. Where, after conducting a review of the bill, a retailer is satisfied that it is: - correct, the customer must pay that amount outstanding; or - incorrect, the retailer must adjust the bill accordingly and refund any fee paid in carrying out any metering test.

X X

During the review, the retailer may require the customer to pay: - that portion of the bill that is agreed not to be in dispute, or an amount equal to the average amount of the customer’s bills in the previous 12 months (whichever is the greater); and - any future bills that are properly due.


29

Deemed

Contractual Arrangements

Market Contracts

Other

Historical billing information

A retailer must provide historical billing information for the previous 12 months without charge. Any information prior to that period could be subject to a charge.

X


30

Outcome 3.8 - Fair allocation of liability and risk for customers and retailers

Deemed Contractual

Arrangements

Market Contracts

Other

Illegal use of energy

A retailer may disconnect the supply to a customer's premises if the retailer suspects on reasonable grounds that the customer has committed an offence relating to energy safety or the illegal use of energy.

This does not appear to be a retailer contractual matter. Should be a legislative provision or a distribution issue.

Access to supply address

A customer must allow the retailer or the retailer’s representative safe, convenient and unhindered access to their supply address and meter to allow meter reading and connection, disconnection and reconnection activity.

As above

Denying meter access

A retailer may disconnect a customer where meter access is denied for more than 6 months, provided the retailer has: - given opportunity to offer alternative access; - given written notice requesting access on each of the occasions access denied; - used best endeavours to contact the customer; - given the customer written disconnection warning 5 business days prior to disconnection.

X

Life support registration

If a retailer is provided with information from the customer confirming their requirements for a life support machine or continuous supply of energy due to a medical condition, the retailer must provide that information to the distributor.

This does not appear to be a retailer contractual matter. Should be a legislative provision or a use of system agreement issue.


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APPENDIX 2 Steering Committee on Energy Retail Consistency

UTILITY REGULATORS FORUM

Steering Committee on Energy Retail Consistency (SCERC)

Terms of reference

1. To review opportunities for achieving greater national consistency in regulatory instruments relating to energy retailing, and to develop model regulatory instruments for consideration by the URF and individual regulatory bodies.

2. To provide advice to the URF and individual regulators, after consultation with relevant stakeholders where appropriate, on the National Framework for Electricity and Gas Retail Regulation in accordance with the Ministerial Council of Energy (MCE) objectives and time frame.

3. To report to the URF on progress and outcomes in accordance with the agreed work plan and timetable.

Participants

The committee comprises jurisdictional regulators and relevant departments. These are the Independent Competition and Regulatory Commission (ACT), the Economic Regulation Authority (WA) IPART (NSW), Department of Energy, Utilities and Sustainability (NSW), Essential Services Commission (Vic), Essential Services Commission (SA), Office of the Tasmanian Regulator, the Department of Energy (Qld). The The Essential Services Commission (Vic) will convene the steering committee and relevant jurisdictions will take responsibility for achieving work stream outcomes as detailed in the relevant workplans.

Stakeholder consultation

The Utility Regulators’ Forum will approve all stakeholder consultation undertaken by the SCERC in accordance with the terms of reference, including any documentation that is the subject of that consultation. Such approval processes may occur out-of-session.

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