Final Decision. Review of Minimum Service Standards and Guaranteed Service Levels to apply in Queensland from 1 July 2015

Transcription

1 Final Decision Review of Minimum Service Standards and Guaranteed Service Levels to apply in Queensland from 1 July 2015 June 2014

2 Queensland Competition Authority 2014 The Queensland Competition Authority supports and encourages the dissemination and exchange of information. However, copyright protects this document. The Queensland Competition Authority has no objection to this material being reproduced, made available online or electronically but only if it is recognised as the owner of the copyright 2 and this material remains unaltered.

3 Table of Contents Table of Contents 1 INTRODUCTION Background GSL arrangements in Queensland GSL review requirements Key considerations for review of GSL arrangements 5 2 GUARANTEED SERVICE LEVELS Submissions QCA considerations Final decision 22 GLOSSARY 23 APPENDIX A : PROPOSED CODE CHANGES 25 i

4 Introduction 1 INTRODUCTION 1.1 Background Under the version of the Electricity Industry Code (the Code) in force when this review commenced, the Queensland Competition Authority (QCA) is required to review the Minimum Service Standard (MSS) and Guaranteed Service Level (GSL) arrangements and associated payments to apply to Energex and Ergon Energy (Ergon) from the beginning of the next regulatory period commencing on 1 July The MSS limits are a set of network reliability standards that establish minimum levels of network performance for the duration and frequency of outages on the electricity distribution networks, while GSL payments are a means of providing some financial recognition to small customers who have received poor reliability or have been otherwise inconvenienced by a distributor or a retailer. The MSS and GSL arrangements in Queensland are included in clauses 2.4 and 2.5 of version 15 the Code. 1 Under the Code, Energex and Ergon must use their best endeavours to meet these standards. In August 2013, we commenced consultation for the review of MSS and GSL arrangements to apply from 1 July 2015 by releasing a discussion paper. In March 2014, we released a draft decision, which presented our analysis and positions, taking into account submissions received on the discussion paper and our own analysis. In the draft decision, we noted that this review is occurring in an environment of uncertainty regarding future policy and regulatory frameworks. We also noted that, depending on how policy decisions are implemented in Queensland, the QCA's role in setting the MSS arrangements to apply from 1 July 2015 may change before the review is completed. On 3 April 2014, the QCA received a letter from the Minister for Energy and Water Supply (the Minister) advising that the Queensland Government had decided to implement three recommendations of the Independent Review Panel on Network Costs (IRP) 2 by 1 July 2014, namely that: (a) MSS be removed from the Code and set into the Distribution Authorities of the distribution businesses so that systemic failures to achieve the MSS limits would result in a higher penalty 3 (b) MSS be set at the levels applying at the start of the current regulatory period (at levels), to reduce upward pressure on network costs and retail electricity prices 4 (c) GSL arrangements be retained as currently specified. 5 1 The MSS will be removed from the Code from 1 July The IRP was engaged by the Queensland Government's Interdepartmental Committee on Electricity Sector Reform (IDC) to investigate the drivers of network costs and providing recommendations to reduce the impact of network charges on retail electricity prices. 3 Independent Review Panel on Network Costs, Electricity network costs review - Final report. p.43 4 Ibid, p.45 5 Ibid, p.47 1

5 Introduction To avoid duplication of MSS regulation when these arrangements are implemented, the Minister requested that the QCA amend the Code to remove all MSS-related provisions, including the requirement for the QCA to review MSS arrangements in future. 6 As this matter had already been the subject of public consultation through the 30 year electricity strategy process and our MSS and guaranteed service level review, we considered the amendments were uncontroversial and could be made without consultation, as allowed under section 120PA of the Electricity Act 1994 (the Electricity Act). The proposed amendments to the Code were approved by the Minister on 13 May A notice advising of the amended Code was published in the Government gazette on 23 May Version 16 of the Code will apply on and from 1 July As a result of these amendments, the QCA will no longer have a role in setting the MSS arrangements for the next regulatory period. Accordingly, the scope of this review has been narrowed to include only our final decisions on the GSL arrangements to apply to distributors for the next regulatory period. 1.2 GSL arrangements in Queensland What are GSLs? The Code sets GSLs that distributors must meet relating to the quality of service received by individual small customers. 8 GSLs apply to the frequency and duration of customer outages as well as other aspects of the services received by individual small customers, including the timeliness of connections, reconnections and notices of planned interruptions. Individual small customers may be eligible for GSL payments when distributors and/or retailers fail to meet the GSLs, although the responsibility for making the payment to the customer lies with the distributor. 9 GSLs are not designed to be a high-powered economic incentive for the networks to improve reliability or customer service performance, or function as means of providing full compensation to impacted customers. Rather, GSLs are a means of providing some financial recognition of poor service and reliability experienced by individual customers. The GSLs are intended to work in combination with the MSS limits to ensure that a minimum level of average network reliability is maintained, while recognising instances when individual customers receive poor service from the distributor History of the GSL arrangements EDSD Review GSL requirements were implemented in 2005, along with the first edition of the Code, in response to recommendations made by the Electricity Distribution and Service Delivery (EDSD) 6 However, the Minister has proposed that the QCA may be directed, under section 120L of the Electricity Act 1994, to conduct a review of the MSS where required. 7 The letter from the Minister proposing amendments to the Electricity Industry Code and a marked-up version of the Code to reflect the amendments can be accessed from our website at 8 Small customers are defined under section 300 of the Electricity Regulation 2006 as those consuming 100MWh or less of electricity per year. 9 A distributor's right to recover a GSL payment from a retailer is provided in its co-ordination agreement with the retailer. 2

6 Introduction review panel. The EDSD review was initiated by the Queensland Government following extended network outages due to storms and extreme heat in The panel made a number of recommendations to address reliability problems in the Queensland networks, including establishing network planning standards, MSS limits and GSL payments. QCA review of MSS and GSL arrangements 2009 In accordance with the Code, the QCA first reviewed the GSL arrangements that will apply to the distributors in April 2009 (2009 Review). In the 2009 Review, we decided to retain the current set of GSL parameters, but increased the GSL payment amounts by inflation to restore the real value of the original payments. Following the 2009 Review, the QCA conducted an additional review of the process that governs the lodgement and assessment of customer claims for GSL payments under the Code. The changes which arose from this review included: (a) (b) (c) the introduction of a definitive timeframe of one month in which distributors must use their best endeavours to process GSL claims lodged by small customers simplification of the claims process, so that for all types of GSL payments: (i) (ii) a distributor must use its best endeavours to automatically give a GSL payment to an eligible small customer a small customer has a time limit of three months within which to lodge a GSL claim. an amendment to the definition of the interruption frequency GSL (clause 2.5.9(a)(ii) of the Code) to allow distributors to make a single, annual assessment of a customer's eligibility for this GSL immediately following the end of each financial year Current GSL arrangements The current GSL arrangements are set out in Table 1. The nominal dollar values of the GSL payments have remained fixed since 1 July Breaches of the GSLs require the distributor to make a payment to the affected customer, up to a cap of $416 per customer per financial year, although this limit does not apply to GSLs paid for wrongful disconnections, which are uncapped. GSL payment amounts vary according to the type of service involved. GSL arrangements are discussed further in the next chapter. 3

7 Introduction Table 1: Current GSL arrangements 1 July 2010 to 30 June 2015 Electricity Industry Code GSL Trigger/threshold for payment GSL Paymenta Clause Wrongful disconnections Applies from date of wrongful disconnection $130 Clause Connections If not connected on the agreed day $52 per day Clause Customer reconnection Various time requirements as set out in of the Code $52 per day Clause Failure to attend a customer's premises within the time required concerning loss of hot water supply By the agreed business day (long rural and isolated feeders); Within 1 business day (all other feeders) $52 per day Clause Failure to attend appointments on time Within an agreed 5 hour period (Energex) $52 Within the agreed day of the appointment (Ergon Energy) Clause Notice of a planned interruption to supply not given At least 2 business days notice $26 for small residential customers and $65 for small business customers Clause 2.5.9(a)(i) Interruption duration GSL CBD > 8 hrs duration Urban/Short Rural > 18 hrs duration $104 Long rural/isolated > 24 hrs duration Clause 2.5.9(a)(ii)b Interruption frequency GSL Energex - CBD/Urban > 10 interruptions per year; Short rural >16 per year. Ergon Energy - Urban >13 per year; Short rural/long rural /isolated > 21 per year $104 Source: Electricity Industry Code (15th Edition), clause 2.5. Note: a. Payments are subject to the terms and conditions prescribed under the respective clauses under the Code. b. A small customer is not entitled to more than one reliability based GSL payment in a financial year once that small customer experiences the relevant number of interruptions as set out in clause 2.5.9(a) (ii) of the Code. 1.3 GSL review requirements Under clause of the Code, the QCA is required to review the GSL arrangements to apply to Energex and Ergon from the beginning of the next regulatory period, which commences on 1 July Clause of the Code states: The QCA must review the guaranteed service levels and GSL payment amounts to apply at the beginning of each regulatory control period. 4

8 Introduction Objectives in setting GSL arrangements Clause of the Code does not include any explicit requirements or limitations on the nature of the review that the QCA is to conduct regarding the GSL arrangements. However, the potential range of options for additional GSL parameters is limited by the intended nature of the GSL arrangements as indicated in the Code. Specifically, clause (b) of the Code states that the scope of the Code is to: set guaranteed service levels which require a distribution entity to provide a payment to a small customer where those service levels are not met. This clause indicates that GSLs are intended to apply to the level of service received by individual small customers, with GSL liabilities accruing to distributors. Beyond these specific references, the only other guidance in the Code for the review of GSL arrangements is the overarching Code objective in clause 1.1.1, which states: The objective of this Code is to promote efficient investment in, and efficient use of, electricity services for the long-term interests of Queensland customers about: (a) price, quality, reliability and security of supply of electricity; and (b) the reliability, safety and security of the Queensland electricity system. The various factors outlined in the Code objective may need to be balanced against each other in certain circumstances. For example, improved service reliability may be desirable in some cases but not if the cost outweighs the benefit to customers. 1.4 Key considerations for review of GSL arrangements In preparing this Final Decision, we have examined whether the current GSL arrangements in the Code remain appropriate and whether any changes should apply from 1 July The Code affords the QCA significant discretion in the scope of the review that it conducts and the matters which it should have regard to. While we will have regard to the broad objectives of the Code (as discussed at section of this report), we have also considered the following factors as potential key considerations when setting the GSL arrangements to apply from 1 July 2015: (a) (b) (c) (d) the performance of Energex and Ergon against recent GSL requirements GSL arrangements in other jurisdictions the relevance of the existing GSL parameters and whether there is a need for additional, or different, measures of performance any other matters considered relevant in recommending GSL arrangements to apply to Energex and Ergon for the next regulatory period. These matters are explored in more detail in Chapter 2. Process for this review In August 2013, we released a Discussion Paper introducing the key issues relevant to the review. Five submissions were received in response to the Discussion Paper. In March 2014, we released a Draft Decision outlining the QCA's proposed MSS and GSL arrangements to apply to Energex and Ergon for the next regulatory period commencing 1 July 2015, and inviting stakeholder comment on those proposals. Four submissions (including one confidential submission) were received in response to the Draft Decision. 5

9 Introduction All papers released and non confidential submissions received are available from the QCA's website at This Final Decision sets out our final decisions on the GSL arrangements to apply from 1 July 2015 and also serves as a notice that the QCA proposes to amend the Code to reflect these conclusions. The proposed amendments to the Code are contained in Appendix A. This addresses the requirements of section 222O(b) of the Electricity Regulation 2006 (the Electricity Regulation). This Final Decision also constitutes a final report about the material issues as required under section 222O(a) of the Electricity Regulation. 6

10 2 GUARANTEED SERVICE LEVELS In preparing this Final Decision, we have considered whether the current GSL arrangements, including the values of individual GSL payments, remain appropriate for the next regulatory period. We have also considered stakeholder suggestions to introduce new or amended GSL parameters and definitions. Table 1 in section sets out the GSL arrangements applying during the current regulatory period, including payment amounts and the thresholds that trigger payment to customers. 2.1 Submissions Matters raised by stakeholders in the course of this review are summarised below. These issues are addressed in more detail in later sections, where appropriate. GSL parameters and definitions Energex proposed the following changes to the GSL arrangements: the application of GSLs in the Code should be modified to distinguish between GSLs for distributors and those for retailers distributors should not incur GSL liabilities arising from interruptions occurring on Major Event Days (MEDs) parameters for planned interruption GSLs should allow for shorter notice periods, subject to customer agreement automatic payments for planned interruption GSLs should be removed, with an option to manually raise a claim for GSL payment remaining available to customers a new provision should be introduced for customers to receive a GSL payment for a wrongful disconnection where the error giving rise to the GSL was caused by a retailer other than the financially responsible market participant (FRMP). Ergon suggested the following amendments to the GSL arrangements: GSLs should not be payable if a customer agrees to, or requests, a delayed restoration GSLs should not be payable if Ergon uses every endeavour to restore supply but still fails to meet prescribed time frames due to factors beyond its reasonable control. Ergon suggested that consideration should be given to: providing customers with card-operated meters access to automatic GSL payments, rather than requiring them to make an application whether there are benefits in the distributor paying the GSLs through the application of a credit against the customer s retail bill rather than directly to customers. Ergon noted that it would be necessary to consider the benefits and costs of any changes before any amendments are made to the GSL arrangements. The Queensland Government suggested that the QCA should consider amending the changes to clause of the Code as proposed in the Draft Decision (planned interruptions GSL) to align with its derogations to section 90 of the National Energy Retail Rules (NERR). It suggested that 7

11 this would reduce implementation costs for distributors when the National Energy Customer Framework (NECF) commences in Queensland. GSL payment amounts Energex and Ergon supported the QCA's proposal of escalating GSL payments, and the annual cap, in line with inflation and fixing the GSL payment amounts for the duration of the regulatory period. In contrast, the Queensland Consumers' Association called for a substantial increase in the GSL payment amounts, at least in line with the real increase in electricity prices, as an incentive to drive better performance. The Queensland Consumers' Association argued that the proposed payments are too low to adequately compensate consumers, especially for wrongful disconnections. Other issues The Chamber of Commerce and Industry Queensland (CCIQ) expressed concern that GSL payments are recovered by distributors through regulated network charges, and suggested that the distributors should be made to absorb these costs to provide an incentive to improve performance. The Queensland Consumers' Association also suggested a number of changes related to publication of GSL performance data and improving customer awareness of the GSL arrangements. 2.2 QCA considerations In reviewing the GSL arrangements for the next regulatory period and considering stakeholder suggestions, we have considered: the historical performance of the distributors against the GSL obligations GSL arrangements in other jurisdictions whether the existing GSL parameters remain relevant whether the value of the GSL payments and annual cap remain relevant GSL Performance of Energex and Ergon Energy Energex Figure 1 presents the breakdown of GSL payments Energex made to customers for the period 1 July 2006 to 30 June During this time Energex paid a total of 26,269 GSL payments at a cost of around $2.5 million (nominal). Most of the GSL payments made by Energex were for insufficient notice of residential planned interruptions (41%), failure to complete new connections on time (17%) and interruption duration (14%), although the composition of payments by category has changed over the period. 8

12 Figure 1: Energex GSL payments by category 1 July 2006 to 30 June % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Reliability - Interruption frequency Reliability - Interruption duration Missed scheduled appointment Hot water complaint - Failure to attend Failure to reconnect Wrongful disconnection New connection - Failure to complete Non-notification of planned interruption - Residential Non-notification of planned interruption - Business Source: Distributors' MSS and GSL reports; QCA analysis Ergon Energy Figure 2 presents the breakdown of GSL payments Ergon made to customers for the period 1 July 2006 to 30 June During this time, Ergon paid a total of 26,005 GSL payments at a cost of around $1.6 million (nominal). Most of the GSL payments made by Ergon were for insufficient notice of residential planned interruptions (49%) and interruption duration (28%). Figure 2: Ergon Energy GSL payments by category 1 July 2006 to 30 June % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Reliability - Interruption frequency Reliability - Interruption duration Missed scheduled appointment Hot water complaint - Failure to attend Failure to reconnect Wrongful disconnection New connection - Failure to complete Non-notification of planned interruption - Residential Non-notification of planned interruption - Business Source: Distributors' MSS and GSL reports; QCA analysis GSL arrangements in other jurisdictions While there are some different GSL parameters in other jurisdictions, the way the GSL requirements are applied and the value of the GSL payments made to customers are similar to the arrangements in Queensland. 9

13 The GSL arrangements for distributors in most states, including Queensland, tend to focus on connection performance, the timeliness of services, reliability of supply and the provision of notice to customers for planned interruptions. The levels of GSL payments are generally similar to those in Queensland, ranging from $20 to $60 for failing to meet various customer service standards and between $50 and $370 maximum for excessive duration or frequency of interruptions. Table 2 illustrates the various GSL parameters currently applied in other jurisdictions. Table 2: GSL parameters for distributors in other jurisdictions GSL parameters SA ACT NSW Vic a Tas Qld AER Notice of planned interruption Timeliness of new connections STPIS Wrongful disconnection Hot water complaints Timeliness of reconnections Missed scheduled appointment Reliability - Interruption duration Reliability - Interruption frequency Timely repair of faulty streetlights Time to respond to complaints Time to respond to notification of a problem a. The Essential Services Commission (ESC) also runs a retailer-based 'wrongful disconnection compensation scheme' in parallel with a distributor-based GSL scheme. The retailer-based compensation scheme requires retailers to pay small customers whose supply was disconnected wrongfully, compensation of $250 for each day the customer was without electricity, or a pro rata amount for any part of a day that the supply is disconnected. However, this payment is capped at $3,500 if the customer does not notify the retailer of the disconnection within 14 days after the disconnection. The GSL arrangements for distributors in Queensland are the most comprehensive of all NEM jurisdictions, based on the number of parameters included. However, different jurisdictions may capture measures of performance through other regulatory instruments (such as MSS or other consumer protection obligations, with or without payments for non-compliance) and this should be considered when making direct comparisons. Based on this high-level comparison there is no reason to conclude that the existing GSL arrangements are deficient compared to other jurisdictions Proposed changes to the GSL parameters Submissions received proposed a range of amendments to the GSL parameters. These are discussed below. Separation of retailer and distributor GSL liabilities Energex's proposal to differentiate between GSLs for distributors and retailers would place the responsibility for the investigation, management, payment and reporting of GSL events with the entity responsible for the GSL event. Energex suggested that making this distinction would: 10

14 (a) (b) (c) reduce confusion and inconvenience experienced by customers where a retailer is responsible for a GSL improve customer awareness of their eligibility for a GSL payment reduce the risks of customers not being compensated due to the retailer providing inaccurate or incomplete customer details to the distributors. The existing provisions of the Code place the responsibility for making all GSL payments on the distributor, regardless of whether the distributor was responsible for the event. If a payment is found to be triggered by the retailer's actions rather than the distributor's (for example a wrongful disconnection initiated by the retailer), the distributor may recover the GSL payment from the liable retailer. Clause (d) of the Code states: A distribution entity s obligation to give a GSL payment under clauses to applies notwithstanding that a retail entity may have caused the event giving rise to the GSL payment. These costs are recovered through a 'Coordination Agreement' between the distributor and retailers. Energex submitted that it processes approximately $15,000 in retailer-related GSL payments annually. Energex argued that the existing arrangement is burdensome and confusing for customers, as well as inefficient and costly, as the onus is on the distributor to investigate, confirm and recover these costs. It also noted that the coordination agreements could be removed when the NECF is introduced in Queensland, which could leave the distributors unable to recover these costs. While distributors' GSL reimbursement provisions for retailer-triggered GSLs may not be captured under the NECF arrangements, we understand that they will be retained under the Code, which should remove the uncertainty surrounding distributors' future GSL reimbursement arrangements. In its submission in response to the Draft Decision, Energex also argued that while the coordination agreement provides for the reimbursement of GSL payment amounts, it gives no allowance for the recovery of the associated administrative costs of processing these payments. However, based on the information submitted by Energex, we are not convinced that the administrative costs associated with processing retailer-related GSL payments are large enough to justify a change to this parameter. Furthermore, we note that these costs are unlikely to be material and would presumably have been implicit in the distributors' forecast overheads or other operating cost allowances, as we understand these forecasts are typically based on historical costs. While the existing arrangement may not be the most administratively simple or efficient approach from the perspective of the distributors and retailers, clause of the Code limits the application of GSL arrangements to distributors only. Clause 1.1.2(b) states: The scope of this Code is to: (b) set guaranteed service levels which require a distribution entity to provide a payment to a small customer where those service levels are not met As the nature of the services provided by distributors and retailers are quite different, we consider the obligations placed on retailers under the Code differ from those applying to distributors. While GSLs do not apply directly to retailers, the Code includes a range of other consumer protections and obligations that govern the behaviour of retailers and their interactions with customers and distributors. Where retailers fail to satisfy these obligations, action can be brought against them for contravention of the Code. 11

15 Consistent with our views noted in the Draft Decision, we consider that implementing GSL measures to place a direct payment liability on retailers would represent a fundamental change to how the Code deals with retailers and distributors on matters of customer service and is therefore beyond the scope of this review. We consider that code changes of this nature would represent a broadening of the existing scope of the Code and would need to be considered through a separate process. We maintain our Draft Decision that clause (b) of the Code also precludes the application of GSL payments to customers indirectly through retail accounts, as proposed by Ergon. While it may be possible to implement an arrangement that allows the distributor to make a GSL payment through the retail bill, rather than directly to the customer, it is not clear how this would work in practice. We consider that an arrangement of this nature would need to be developed and agreed amongst the retailers and distributors in the first instance. If changes to the Code or other instruments were required to give effect to the proposed arrangement, these would also need to be considered through a separate process. Planned interruptions GSL Energex proposed two changes to the provisions regarding notification of planned interruptions. The existing obligations are set out in clause of the Code, which states: (a) Except in the case of emergencies, if a distribution entity does not give a small customer at least two business days notice of a planned interruption to that customer s premises, then the small customer is eligible for a GSL payment (applying on the date of the planned interruption) from the distribution entity. (b) A notice may be given by mail, letterbox drop, press advertisement or any other means which are appropriate and reasonable in the circumstances. (c) If a notice is sent by post, a small customer is taken to have received it on the second business day after posting. Reduced customer notification time Energex noted that the rigidity of the existing notification time frame limits its operational efficiency and flexibility. For example, Energex stated that interruptions to supply are often needed at very short notice while performing other works and are not always foreseeable at commencement of the job. It also noted that severe weather events can create the need to reschedule planned interruptions. Energex pointed to the NSW National Energy Retail Law (Adoption) Regulation 2013 which permits shorter notice periods for planned interruptions if there is agreement in writing between the customer and the distributor. Energex recommended that the parameters for planned interruption GSLs in the Code be similarly modified. Energex argued that this amendment would reduce resource constraints and increase efficiencies with minimal negative impact for affected customers. It noted that it has access to customer contact details which allows it to contact customers directly to confirm their acceptance of an interruption. The National Energy Retail Rules (NERR) establish a notification period of four business days before the planned interruption under section 90(1), which states: In the case of a planned interruption, a distributor must notify each affected customer by any appropriate means of the interruption at least 4 business days before the date of the interruption. The NSW derogations, at section 90A of the NSW National Energy Retail Law (Adoption) Regulation 2013, reduce this time frame, stating: 12

16 (1) The period of notice of a planned interruption of supply of energy specified by rule 90 (1) may be varied by agreement in writing between the distributor and a customer. (2) The agreement must (a) specify that the customer consents to the varied notice period either generally or in a particular specified case or class of case; and (b) notify the customer of the right to at least 4 business days notice of an interruption to supply if the period is not so varied. Queensland is yet to adopt the NECF and we understand that any Queensland specific derogations to the NECF would be considered through a separate process, similar to that undertaken in NSW. 10 However, in our Draft Decision we considered that Energex's proposal appeared reasonable and could be implemented through the Code as an immediate measure. This proposal was supported by the Queensland Consumers' Association. In the Draft Decision, we considered that the current notification time frames may create some inefficient GSL liabilities for distributors, particularly when a customer is at the premises (or contactable by phone) when the need to disconnect arises, and gives consent for this to occur. In these cases, the distributor would still incur a GSL liability to the customer, even though the customer agreed to forgo the full notice period. Where customers give consent to an outage it would be reasonable to conclude that they did not expect to be significantly inconvenienced by the planned interruption. Therefore, providing a GSL to these customers would appear to be unwarranted. We were also of the view that reducing the notice period with agreement by the customer may also allow some jobs to be completed immediately, during a single visit to the site, instead of requiring a second visit in order to satisfy the required two business days notice period. We considered that reducing the notice period (subject to customer agreement) would have potential benefits to the distributors and customers through improved operational flexibility and ability to complete works in a more timely and efficient manner, that would more than outweigh any potential detriment to customers. As the reduced notice period would only apply with explicit agreement of the affected customer, we considered that there would not be any erosion of the rights currently afforded to customers regarding prior notice of planned interruptions. If customers do not agree to a shorter period, they would continue to be given the required two business days notice and be paid a GSL if the distributor fails to comply with that notice period. In its submission to the Draft Decision, the Queensland Government agreed with the general intent of the proposed change to clause of the Code (planned interruptions GSL), but suggested that the proposal be closely aligned with the Government's intended derogations to section 90 of the NERR regarding planned interruption notifications. The Queensland Government has indicated that it will derogate from section 90 of the NERR to allow customers and distributors to agree to a reduced notice period for planned interruptions, subject to explicit informed consent from the customer. The Government was of the view that aligning the GSL provisions for planned notifications under the Code with this intended derogation would reduce implementation costs for distributors when the NECF commences in Queensland. 10 The Queensland Government has recently introduced legislation to apply the National Energy Customer Framework (NECF) to the sale of electricity and gas to retail customers in Queensland, although the target implementation date is not expressed in the legislation. 13

17 We consider the Government's proposal is reasonable. Aligning the planned interruption notification provisions under the Code with those of the NERR would benefit distributors and customers through improved operational efficiencies as well as minimising administrative costs associated with complying with two different provisions aimed at achieving a similar outcome. On this basis, we propose to align the planned interruption GSL provisions under clause 2.5.8(a) of the Code with the Government's intent for planned interruption notifications under the NECF to allow distributors to undertake planned interruptions with less than four business days' prior notice, subject to explicit informed consent from the affected customer. In the event that a customer agrees to a shorter notice period, the distributors would not be liable for a GSL payment under clause 2.5.8(a) of the Code. Appendix A sets out the drafting of the Code amendment to give effect to this provision. Removal of automatic payment requirement In its submission on our Discussion Paper, Energex also proposed that the requirement for automatic payment for planned interruption GSLs under clause be removed. Energex noted that it paid $67,000 in planned interruption GSLs during , 90 per cent of which were raised automatically. Energex submitted that it is frequently contacted by customers querying payments they have received and the reasons for the payment. Energex suggested that this supports the removal of the automatic payment requirement. Planned outages are often scheduled for times that will create the least inconvenience and discomfort for customers. Automatically providing a GSL payment to customers who are unaffected by a planned outage (or even unaware that the outage has occurred) is an inefficient outcome. However, some customers who are unaware of their rights to a GSL payment under clause may be negatively affected by removing the automatic payment requirements. In the Draft Decision, we considered that automatic payment for all GSL parameters should be retained for a number of reasons that were discussed in our Review of GSL Claim Procedures in Specifically, we considered there are benefits from a standardised claim process for all GSL payments as it would be simpler to administer and hence would reduce the long-term administrative costs of distributors in having to manage GSL claims, rather than imposing three different separate GSL claim processes, with different time limits and conditions of eligibility 12. We also considered that automatic payments create significant benefits for customers due to increased community awareness of the GSL scheme. While these views were supported by the Queensland Consumers' Association, Energex disagreed that a standardised process would reduce the long-term administrative costs of distributors. Specifically, Energex submitted that in , it cancelled 472 planned interruption GSL payments due to customers not banking their cheques within a required period of time and that the administrative costs associated with processing and issuing these cheques would have been avoided in the absence of the automated payment requirement. While we acknowledge that the requirement does involve some costs for distributors, we consider that the potential benefits of automatic payment would outweigh the administrative costs incurred by distributors, particularly in terms of providing greater community awareness 11 QCA, Final Decision, Proposed amendments to the Electricity Industry Code regarding customer claims for Guaranteed Service Level (GSL) payments. October Prior to 2009, three slightly different processes apply, with different time limits and conditions for eligibility, depending on the GSL type. 14

18 of the GSL scheme. For this reason, we have decided to retain the automatic payment requirement, consistent with our Draft Decision. Wrongful disconnection In its submission on the Discussion Paper, Energex suggested expanding the wrongful disconnection GSL arrangements so that customers receive a GSL payment when a disconnection is caused by a retailer other than the FRMP. Energex noted that if a customer transfers to an alternative retailer, but that retailer does not initiate a transfer request in the market to become the FRMP for that customer, the current FRMP can rightfully request a disconnection and the distributor may rightfully perform that disconnection. Energex submitted that, while this scenario does not represent a 'wrongful' disconnection, the customer may still be inconvenienced and provisions should be added to the Code to cover this scenario. This proposal was also supported by the Queensland Consumers' Association in its response to the Draft Decision. In its submission to the Draft Decision, Energex submitted that, in the past 12 months, it investigated 31 GSL claims related to this issue and all claims were subsequently rejected due to them not meeting the 'wrongful disconnection' definition under the Code. Energex indicated that expanding clause to account for this situation would provide an incentive for retailers to improve their processes for reconnection and transfer requests. It argued this would also reduce its administration costs and reduce the number of customer complaints to the Energy and Water Ombudsman Queensland (EWOQ). Based on information submitted by Energex, we are not convinced that the problem is material or widespread and therefore question whether there is a real need to implement such a parameter at this stage. In the absence of strong arguments for change, we have decided not to expand the wrongful disconnections GSL parameter in this instance, but may investigate this matter further during the next review of GSL arrangements if it can be shown that the problem is material. Interruption duration parameter In its submission on the Discussion Paper, Ergon proposed two changes to the interruption duration parameter (clause 2.5.9(a)(i) of the Code). Specifically, Ergon proposed that GSLs should not be payable when the customer agrees to a delayed restoration time, or when a distributor uses best endeavours to restore supply within the required time frame, but is unable to, due to factors outside of its control. With regard to the first proposal, we noted this is a similar theme to the idea put forward by Energex for more flexible planned interruption notification time frames under clause of the Code. In this case, if a customer agrees to have supply restored at a time which is beyond the time frames set out in the Code, no GSL would be payable. As discussed, where a customer gives explicit consent to an arrangement for interruption/disconnection which differs from that contemplated under the Code, this brings into question the basis for paying a GSL payment to that customer. Where a customer is willing to accept a longer period for supply restoration, this would suggest that the value that a customer places on being resupplied as soon as possible is less than the value of the GSL payment. It therefore seems reasonable that they should forgo the GSL payment. In principle, we considered that this idea may have some merit. However, we questioned how frequently this scenario would arise and whether it's realistic to assume that customers would willingly waive their right to a GSL payment if they were aware it was available to them. In the 15

19 absence of information to justify the need for this change and the benefits it may provide, our Draft Decision was to not implement it at this stage. We maintain this view. We did not accept Ergon's proposal to exclude GSL payment liability where the distributor is unable to restore supply due to factors beyond its control. While this idea might at first appear reasonable, we had two concerns with the proposal. Firstly, and most fundamentally, we were of the view that the suggestion did not recognise one of the key reasons for GSLs, which is to acknowledge that eliminating all instances of poor performance would never be achievable at a reasonable and efficient cost. On this basis, GSLs should still apply to events that are beyond the control of the distributors, as the cost of totally mitigating the effects would likely be unjustifiable. In any event, we noted that we would expect that GSL payments should almost always arise from factors that are beyond the control of the distributor, or unavoidable at reasonable cost, if the distributor is operating efficiently. Secondly, we were of the view that the process of establishing whether an event was beyond the control of the distributor would likely be administratively costly and time consuming. Each event would need to be considered on its own merits and subject to assessment criteria, and the costs of this process would most likely outweigh any potential benefits of marginally lower GSL costs being passed on to customers. As submissions did not present any new information regarding this issue, we maintain our position to retain the interruption duration parameter as it stands in the Code. GSL liabilities arising from Major Event Days (MEDs) In its submission to our Discussion Paper, Energex requested that the QCA consider including a provision which permits exclusion of GSLs that occur on Major Event Days (MEDs). Energex noted that, while distributors are exempted from paying GSLs for interruptions that occur during a period where Natural Disaster Relief and Recovery Arrangements (NDRRA) are declared, these provisions do not recognise interruptions occurring outside of the time frame, but which are also a result of the natural disaster event. The provisions which permit exclusion of GSL payments due to natural disaster events are set out in clause (b)(vi), which states that distributors are excluded from paying GSLs due to: (vi) an interruption to a small customer s premises within a region in which a natural disaster has occurred, where: (A) the Queensland Minister for Police and Community Safety has notified the Commonwealth of the occurrence of an eligible disaster under the Natural Disaster Relief and Recovery Arrangements in respect of that natural disaster for that region; and (B) the interruption occurred during the period for which the Natural Disaster Relief and Recovery Arrangements have been notified. As Energex noted, this provision may not cover all outages associated with an event that leads to the declaration of NDRRA. It is quite possible that a significant storm event could give rise to GSL liabilities before NDRRA is declared and, under the current provisions, the distributors would be liable for these GSL payments even if the day constituted an MED. This is in contrast to the MSS arrangements, which permit the exclusion of interruptions occurring during NDRRA declared periods as well as MEDs. We note that a number of other jurisdictional schemes, including the Australian Energy Regulator's (AER) service target performance incentive scheme (STPIS), allow the exclusion of GSL payments where the GSL event occurs on a MED. In its submission to our Draft Decision, Energex suggested that although MEDs are infrequent, their financial implications can be considerable, noting that it incurred around $467,600 in GSL 16

20 payments as a result of four MEDs during As these costs are ultimately borne by customers, Energex suggested that the QCA give further consideration to the potential benefits to customers given the current sensitivity to increasing electricity prices. Energex was also of the view that as GSLs are intended to work in conjunction with MSS arrangements, a consistent approach would be reasonable. As discussed in the Draft Decision, although it appeals to common sense to maintain consistency between GSL and MSS exclusion criteria for MEDs, the existing distinction is justified. While the MSS arrangements are designed to ensure distributors maintain a minimum level of average reliability, GSLs are designed to provide some recognition of poor performance experienced by worst-served individual customers. As discussed above, we consider that distributors should still typically be liable for GSL payments arising from events that are beyond their control (including on MEDs), as customers still experience poor reliability and this should be recognised. We also consider that, while GSL costs are ultimately being recovered from electricity customers through higher network charges, the impact of GSL payments relative to total network costs is relatively minor. For these reasons, we maintain that distributors should be required to pay GSL liabilities arising from MEDs, as required in the Code. We also note that, while the outages and delayed restoration times associated with significant weather events may not represent instances of poor service directly attributable to the actions of the distributors, maintaining GSL liabilities for these events may provide a stronger incentive to restore supply as soon as reasonably possible in these circumstances, because GSLs are, after all, intended to encourage distributors to maintain a minimum and guaranteed level of service to individual small customers. Customers with card-operated meters Under clause of the Code, small customers with card-operated meters are required to make a manual claim for payment of a GSL. This is distinct from all other small customers who receive GSL payments automatically. Ergon suggested that consideration be given to allowing small customers with card-operated meters to also be eligible for automatic GSL payments. Ergon noted that further analysis of the costs and benefits of this change would be needed. We understand that there would be a number of complications in administering automatic GSL payments to customers with card-operated meters. Most notably, it is often difficult for Ergon to confirm the name of the customer occupying a particular property during a GSL event due to the inherent limitations of administering card-operated accounts. 13 Given these difficulties, it appears that automatic payment of GSLs for these customers would not be feasible GSL payment levels The current amounts for GSL payments have remained constant since they were last set by the QCA in During the 2009 review, we concluded that the level of GSL payments should be increased at least in line with inflation, in order to maintain the real value intended in the original GSL arrangements. In the 2009 review, we escalated payment amounts by measuring the effect of inflation up until the middle of the next regulatory period (31 December 2012) so that, on average over the next 13 Where the customer's details can be confirmed following a manually raised customer GSL claim, Ergon Energy will make out a check payable to the customer. 17

21 regulatory period, the nominal GSL amount would be equal to the real value as envisaged in the original Code (as at 1 January 2005). The GSL payment amounts were fixed at this level for the duration of the period, rather than being escalated by inflation annually. The annual cap was escalated using the same approach applied to individual GSL payments. During the current regulatory period, the maximum total value of GSL payments a distributor must make to an individual customer is capped at $416 dollars per year (not including payments for wrongful disconnection, which are uncapped). In the Draft Decision, we considered a number of options for escalating GSL payments and the annual cap, but considered it appropriate to use the approach applied in the 2009 review, which is to escalate the GSL amounts by inflation up until the middle of the next regulatory period. Energex and Ergon Energy supported this proposal. In contrast, the Queensland Consumers' Association maintained that GSL payments should be increased significantly, as the current levels (particularly for GSLs relating to wrongful disconnections) were too low to adequately compensate customers or provide a reasonable incentive for distributors to drive improved service levels. It suggested that the GSL payment for wrongful disconnections should be increased significantly to align with the Victorian 'wrongful disconnections compensation scheme'. 14 As discussed in section of this report, when comparing the GSL arrangements between states, it is important to note that each jurisdiction may capture measures of reliability and customer service performance through other regulatory instruments in parallel with a GSL scheme. On this basis, it is worth noting that the Victorian arrangement is not entirely comparable to the Queensland scheme as it is a retailer-based scheme, which places a direct payment liability on retailers, as opposed to the distributor-based GSL scheme in Queensland. Furthermore, there is a clear distinction between the intent of both schemes the Victorian scheme is intended to provide monetary compensation to customers for their disruption arising from wrongful disconnection caused by retailers, while the intent of the Queensland GSL scheme is to provide a form of financial recognition of poor service received by customers, not full compensation. Incentive properties of the GSL arrangements In the Draft Decision we noted that, while GSLs probably provide distributors with some operational incentive to avoid delivering poor service and reliability where possible, in practice these are likely to be weak due to the limited financial impact of GSL liabilities relative to total revenues. It is important to remember that the Queensland GSL scheme, like other jurisdictional GSL schemes, is not designed to be a high-powered incentive mechanism to drive performance improvements. Rather it has a quite different role in the suite of regulatory instruments. We also noted that GSLs are a means of providing some recognition of poor service experienced by worst-served individual customers only. GSL schemes also acknowledge that, in many cases, it is more efficient for a distributor to incur some level of GSL liability than to try and completely avoid instances of poor service and reliability, which would be prohibitively costly and inefficient. 14 Under this scheme, retailers provide small customers a compensation payment of $250 per day per wrongful disconnection, and an annual cap of $3,500 if the customer does not notify the distributor of the disconnection within 14 days after the disconnection. 18