30 October Review of Wrongful Disconnection Payment Essential Services Commission Level 2, 35 Spring Street MELBOURNE VIC 3000

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1 Page 1 of 5 Level 2, 172 Flinders St Melbourne VIC 3000 Phone: Fax: ACN October 2009 Review of Wrongful Disconnection Payment Essential Services Commission Level 2, 35 Spring Street MELBOURNE VIC 3000 By fiona.mckenzie@esc.voc.gov.au Dear Ms McKenzie, Re: Review of Victoria s Wrongful Disconnection Payment The Consumer Utilities Advocacy Centre Ltd (CUAC) is an independent consumer advocacy organisation, established to ensure the interests of Victorian consumers, especially low-income, disadvantaged, rural, regional and indigenous consumers are effectively represented in the policy and regulatory debate on electricity, gas and water. We thank the Essential Services Commission (ESC) for the opportunity to provide comments on the Review of Victoria s Wrongful Disconnection Payment (WDP Review). CUAC firmly believes that no one should be disconnected solely because of their inability to pay for energy, an essential service. Disconnections of customers must be a last resort. Victoria currently has a best practice customer protection framework for consumers including specific protections for domestic customers experiencing financial difficulties. A key feature of this framework is that retailers are required to make every effort to ensure that customers experiencing financial hardship are not disconnected and are offered assistance in managing their debts. This is particularly important as Victoria is the only state or territory with retail price deregulation. Victoria has the lowest disconnections across Australian jurisdictions. 1 We opine that this is due to Victoria s regulatory framework and the processes in place to mitigate the 1 See Table 12, Essential Services Victoria, Energy retailers comparative performance report Customer service (December 2008), at 24: Table 12 Comparison of Domestic Electricity Disconnections Across Jurisdictions - Per 100 Domestic Electricity Customers

2 Page 2 circumstances in which consumers are wrongly disconnected. The Victorian Government introduced the WDP legislation in December Section 40B of the Electricity Industry Act 2000 (Vic) and section 48A (1) of the Gas Industry Act 2001 (Vic) requires a retailer to compensate a customer if it disconnects supply without complying with the requirements of the Energy Retail Code (ERC) and the terms and conditions of the customer s energy contract. Following the introduction of WDP, the Energy and Water Ombudsman Victoria (EWOV) reported a substantial drop in disconnection related cases. Recent data, however, suggests that the number of wrongful disconnection cases has risen. During the period , a total of 241 wrongful disconnections were identified by retailers, customers and EWOV resulting in total compensatory payments of $213,542 being made by retailers. The 241 complaints represented an increase of 72.1 per cent from the financial year. In , there were 140 wrongful disconnection complaints and retailers made payments totalling $118,709. The number of wrongful disconnection cases identified by retailers nearly doubled to 51 in while the number of wrongful disconnection cases identified by EWOV, increased by 70 per cent from 104 in to 177 in Wrongful disconnections equated to 1.88 per cent of all disconnections (12,834 disconnections of electricity and gas domestic accounts) in compared with 0.93 per cent (out of 15,113 electricity and gas domestic accounts) in and 1.6 per cent (out of 8963 electricity and gas domestic account disconnections) in Customers are wrongly disconnected from supply for reasons ranging from: Staff incorrectly processing connection, reconnection or disconnection requests; Capacity to pay not being adequately assessed; Address or meter identification number inconsistencies recorded in market operator or local council databases; and Jurisdiction Victoria NSW n/a ACT South Australia Queensland n/a n/a 1.13 Tasmania Western Australia n/a n/a * Data unavailable for WA prior to WA combined residential and business disconnections data for only. Data source: IPART, ICRC, ESCOSA, QCA, OTTER, ERA. 2 Essential Services Commission, Compliance report for Victorian energy retail businesses (October 2008), at Essential Services Commission, Compliance report for Victorian energy retail businesses (October 2008), at

3 Page 3 Delays with utility connection services providing retailers with connection requests, which may result in retailers disconnecting sites where it appears there may be unauthorised consumption. 4 Appropriateness of compensation CUAC believes that it is appropriate, fair and reasonable to compensate consumers who have been wrongfully disconnected. We believe that WDP provides an incentive to industry to ensure that they have proper checks and processes in place to prevent wrongful disconnections. Were it not for this legislated compensation, there is a risk that the number of wrongful disconnection cases would increase significantly. We disagree with the statement The Government considers that retailers should now have established and refined their business processes in order to identify and minimise the potential for wrongful disconnections. 5 The data from the ESC s Compliance report for Victorian energy retail businesses (October 2008) indicates that most of the wrongful disconnections were identified by EWOV and not by retailers. During , retailers identified 51 wrongful disconnection cases while EWOV investigated 143 excluding the 34 which EWOV referred back to the relevant retailer. 6 The ESC acknowledged this in its compliance report. 7 Smart meters will be rolled out across Australia. The roll out of Advanced Metering Infrastructure (AMI) has commenced in Victoria. Smart metering infrastructure allows for remote disconnection and reconnection. The duration between a retailer requesting a disconnection and a distribution business executing a disconnection will be much shorter with remote disconnection. There are also safety concerns with regards to remotely energising and re-energising properties. The ease and expediency of remote disconnection highlights the need for retailers to have effective processes in place to ensure that properties are not disconnected in error. A WDP ensures that retailers have an incentive to improve their processes and minimise wrongful disconnections. Consumer detriment and inconvenience While disconnection results in inconvenience and detriment to all consumers, it is the vulnerable in our society who are more adversely impacted by disconnection. For example: low income households, those experiencing hardship, those who are reliant on medical 4 Essential Services Commission, Compliance report for Victorian energy retail businesses (October 2008), at Essential Services Commission Act 2001, Part 5 Inquiry and Report Notice of Reference Wrongful Disconnection Payment, at 2. 6 See Table 4.1 Wrongful disconnection cases for (excluding EWOV s referral of WDP cases to the Commission), Essential Services Commission, Compliance report for Victorian energy retail businesses (October 2008), at Firstly, the resubmitted data, when compared to previous reporting periods suggests that there may be an over-reliance on EWOV to act as their safety net for the purposes of identifying wrongful disconnections by at least two retailers: Essential Services Commission, Compliance report for Victorian energy retail businesses (October 2008), at 38.

4 Page 4 equipment/life support, those with disabilities etc. Low income households, and consumers with payment difficulties, for instance, may be unable to pay the reconnection charges and therefore remain disconnected for a prolonged period. Consumers who are experiencing hardship must be recognised through appropriate processes and given access to advice and support that allows them to remain connected while they deal with their utility bills in a more manageable and affordable way. In the ESC s regulatory audit of AGL, the auditor found that AGL was in significant noncompliance with six obligations of the ERC including requirements to review the accounts of customers on hardship plans, ensuring that third-party debt collectors complied with relevant obligations and contacting customers in hardship prior to disconnection. 8 There are 13 performance indicators on how retailers implement their hardship policies to assist customers with financial difficulties. To be considered compliant, a performance indicator has to be both accurate and reliably reported. The auditor used a two-part scale to rate reliability and accuracy. For example, A1 would be the highest possible score while DX would be the lowest possible score. 9 The auditor reported significant non-compliance in 12 of the 13 performance indicators in the financial hardship category: Four indicators were rated as DX by the auditors because AGL advised that the data was not reliable or accurate. These indicators provided information on customers entering and exiting a hardship program, levels of debt and those denied access. Those indicators which give information on the number of participants in a hardship program, and the assistance provided on energy audits, were rated between B4 and CX. The remaining 4 performance indicators were graded as C1. These provided information on customers leaving the program by agreement, those who were disconnected whilst in the program and those who were excluded because they did not comply with the requirements. The auditor found that the data was accurate, but not reliable. 10 Since data was found to be unreliable and inaccurate in relation to four indicators (rated DX), this means that there were no accurate records on customers entering and exiting a hardship program, levels of debt and those denied access. Further, data was unreliable in relation to customers leaving the hardship program by agreement, those who were disconnected whilst in the program and those who were excluded because they did not comply with the requirements. We do not, therefore, know how hardship customers fared. This failure is a clear example to government and regulators that strong rules, monitoring 8 Essential Services Commission, Summary Audit Report: Regulatory Audit of AGL Energy Limited (August 2009), at Essential Services Commission, Summary Audit Report: Regulatory Audit of AGL Energy Limited (August 2009), at Essential Services Commission, Summary Audit Report: Regulatory Audit of AGL Energy Limited (August 2009), at 10.

5 Page 5 and enforcement are vital to ensure that customers have proper access to essential services and are treated fairly in the process. Period off supply We agree that the period customers are off supply should be taken into account in compensation. There should, generally, be no cap in the amount of WDP payable. While we support the current payment of $250 (or part thereof) each day a customer is off-supply, we recommend that this figure be adjusted to take into account the consumer price index and the rate of inflation. While the same disconnection process should apply to all properties, we are not against a cap or a different compensation amount if the property wrongfully disconnected is not the principle residence of the customer, but a holiday house in which no one was residing at the time of disconnection. National Energy Customer Framework (NECF) CUAC supports best practice consumer protection in essential services, including regular updating of regulatory frameworks so that they remain responsive to consumer protection needs and emerging compliance issues. A robust customer framework is especially important in a deregulated energy market. Victoria has a robust regulatory framework for compensating customers who have been wrongly disconnected. As we move to a national energy framework and the desire to harmonise regulations across the National Energy Market (NEM), there is the risk that Victorian consumers will lose key protections which they currently enjoy. It is essential therefore that the National Energy Customer Framework (NECF) has strong and robust consumer protection provisions including provisions to ensure that industry adheres to strict procedures before disconnecting customers - assessing a customer s capacity to pay in offering payment plans, issuing proper reminder and disconnection notices within the prescribed time frames, making personal contact with customers (including those experiencing financial hardship) before disconnection, as well as compensating customers in the event that they are wrongfully disconnected. We believe that WDP is an important regulatory tool that protects consumers by ensuring continuity of supply to consumers and compensating them when they are wrongfully disconnected. With the expediency and ease of remote disconnection in a smart meter environment, WDP ensures that retailers have an incentive to improve their processes and minimise wrongful disconnections. If you have any queries on the above, please do not hesitate to contact the undersigned. Jo Benvenuti Executive Officer Deanna Foong Senior Policy Officer