Expansion of Energy and Water Ombudsman Queensland access arrangements. Consultation Regulatory Impact Statement

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1 Expansion of Energy and Water Ombudsman Queensland access arrangements Consultation Regulatory Impact Statement

2 Contents Executive summary 3 Issues statement 8 Policy objectives 11 Options and alternatives 11 Impact assessment 13 Consultation 28 Preferred option 29 Consistency with other policies and regulation 30 Implementation, evaluation and compliance support strategy 31 Have your say 31

3 Executive summary High electricity-using small business (HESB) customers are businesses that consume more than 100 megawatt hours (MWh) of electricity per annum, but would be classified as a small business if evaluated by the more traditional metrics of turnover or employee numbers. Examples of HESB customers include bakeries, laundries, small supermarkets, small food production and manufacturing businesses and any small business customer dependent on high use of electricity for their daily operations. Customer definitions in Queensland electricity legislation prevent these businesses from accessing the Energy and Water Ombudsman Queensland s (EWOQ) dispute resolution service. While considered large customers under the Electricity Act 1994, it is understood that many of these businesses are not considered large enough to have a dedicated account manager with their energy retailer. Furthermore, many of these businesses do not have the knowledge, sophistication or internal resources to be able to deal with issues and disputes that may arise with their energy accounts. The Queensland Competition Authority reported 25,516 large electricity customers those consuming more than 100MWh per annum in Queensland at the end of March Approximately 5100 (20 per cent) of these customers consume between 100MWh and 160MWh per annum. This figure is considered indicative of the number of HESB customers in Queensland at present with around 52 per cent based in South East Queensland and 48 per cent based in regional Queensland. The objective of this proposal, reflected in four options discussed throughout this paper, is to provide HESB customers with access to effective dispute resolution services comparable to those enjoyed by other small business customers. About EWOQ EWOQ is a free, fair and independent dispute resolution service for residential and small business customers (that consume less than 100MWh per year) unable to resolve a complaint with their electricity, gas or water supplier. EWOQ works directly with suppliers to investigate and resolve complaints. EWOQ can assist eligible customers with unresolved complaints including: problems with payment account errors/disputes disconnections energy marketing energy contract issues supply quality and reliability extensions to supply connection of supply customer service issues guaranteed service levels.

4 If a matter cannot be resolved via negotiation or conciliation, EWOQ may decide to make a final order against a supplier to resolve the matter. Final orders can include compensation payments of up to $20,000 ($50,000 by the agreement of all parties), or other non-monetary solutions. Preliminary analysis of the Issue Building on previous work, and in response to more recently raised stakeholder concern over the lack of advocacy and dispute resolution services available to small and medium business using electricity, the Department of Energy and Water Supply (the department) conducted a preliminary investigation and found that expanding EWOQ access or otherwise improving HESB customers ability to resolve disputes with their retailer was worthy of further investigation, consultation and analysis. The preliminary investigation took into account work performed in late 2010 which included consultation with electricity distributors, retailers, consumer advocacy bodies and EWOQ. More recently, the department has sought input from a number of stakeholder groups including EWOQ representatives, small business peak bodies, energy brokers, and retail businesses both individually and via consumer and industry strategic forums and working groups. Options summary This document examines four options (summarised in Table 1), aimed at providing HESB customers with access to appropriate dispute resolution and arbitration process for energy matters. The options are outlined below: Option 1: Allow non-residential electricity customers consuming between 100 MWh and 160 MWh of electricity per annum to access EWOQ services. This option does not propose to change existing large and small customer definitions under the Electricity Act 1994, nor does it propose to change the scope of matters that can be dealt with by EWOQ. Options 2: Option 3: Option 4: Allow small business customers consuming more than 100 MWh of electricity but with less than 20 employees or a turnover of less than $2 million per annum to access EWOQ services. Under this option, EWOQ would also be given discretionary powers to accept referrals from small businesses that do not meet the above criteria at a point in time due to seasonal or other circumstances. Maintain current EWOQ access arrangements and utilise existing stakeholder consultation forums and working groups to investigate ways of strengthening the provision of information to large/hesb customers about resolving disputes and the large customer electricity market more broadly. Allow all electricity customers to access EWOQ services similar to the approach taken in Victoria, South Australia and Tasmania. This option also considers the maximum amounts EWOQ can award under final order provisions in the Energy and Water Ombudsman Act

5 (the EWO Act). Option 4 does not propose to change the scope of matters that can be investigated by EWOQ. Option 1 is expected to provide approximately 5100 additional small business customers with access to EWOQ services at the least cost to the community, business and government (of the proposed regulatory options). The number of HESB customers able to access EWOQ services under Option 2 is not known, however for the purposes of this Regulatory Impact Statement (RIS) it is expected to be similar to Option 1. However, Option 2 is expected to be more costly to implement, difficult to administer and potentially confusing for all parties. From a regulatory perspective, Option 3 would maintain the status quo. However, consistent with the department s PowerQ: a 30-year strategy for Queensland s electricity sector, this approach aims to empower HESB customers to become more informed and proactive in the electricity market. Providing HESB customers with more timely information about the large customer electricity market, existing dispute resolution mechanisms, energy efficiency measures and the National Metering Identifier (NMI) reclassification process may raise awareness of the options available to HESB customers should they be unable to resolve a dispute with their retailer, help customers avoid disputes in the first place and build customer confidence to engage in the market. Option 4 would place no restriction on the eligibility of large customers to access EWOQ services. Given this approach would capture all Queensland electricity customers, it has the potential to be the most costly to implement. Furthermore, concerns have been raised about the benefits of expanding EWOQ access to large and very large customers generally. These concerns are detailed under section 5. Table 1 Options summary Options Government (including EWOQ) Community (electricity customers) Business (retailers) 1 Access based on consumption (threshold increased to 160MWh per year) Costs No direct cost to the Queensland Government or EWOQ Benefits Possible reduced workload for other dispute resolution mechanisms (i) Costs $93,200 per year expected to be amortised across the customer base (ii) (iii) EWOQ implementation costs (if any) and retail implementation and ongoing complaint management costs also expected to be amortised across the customer base (iii) (iv) EWOQ lacks experience conciliating large customer electricity issues and may be restricted in outcomes it can conciliate for large customers Benefits 5100 additional HESB customers gain access to EWOQ services Less likelihood of HESB customers paying for alternative dispute resolution mechanisms Costs Possible sub-optimal resolution outcomes due to EWOQ s inexperience dealing with large customer issues Three retailers are expected to become scheme participants at a cost of $5000 each per year ($15,000 total) Benefits Retailers protected from possible customer debt and non-payment issues by EWOQ s policy regarding payment of undisputed amounts 5

6 2 Access based on small business metrics 3 Status quo Costs No direct cost to the Queensland Government Increased risk of legal/indemnity issues for EWOQ Benefits Possible reduced workload for other dispute resolution mechanisms (i) Costs No cost to government or EWOQ The department to coordinate discussion and investigate improvements to current information provisions via existing stakeholder forums and working groups Benefits Possible reduced workload for other dispute resolution mechanisms (i) EWOQ is set up to handle electricity-related complaints More time for HESB customers to get on with running their businesses Possible improved retail service levels Costs $93,200 per year expected to be amortised across the customer base (ii) (iii) EWOQ implementation costs and retail implementation and ongoing complaint management costs also expected to be amortised across the customer base (iii) (iv) EWOQ lacks experience conciliating large customer electricity issues and may be restricted in outcomes it can conciliate for large customers Customer confusion when determining their eligibility for EWOQ access Possible delays to investigation of complaints while EWOQ verifies customer eligibility Benefits 5100 (approx.) additional HESB customers access EWOQ services Less need for customers to pay for alternative mechanisms EWOQ is set up to handle electricity-related complaints More time for HESB customers to get on with running their businesses Potential for improved retail customer service levels Costs No cost to the community Small businesses, advocates and peak bodies would be invited to contribute ideas and discussion about how best to deliver relevant information to HESB customers Benefits Increased awareness of dispute resolution issues and the large customer market generally leading to greater ability to resolve/avoid disputes HESB customers that have their NMI reclassified gain access to EWOQ Greater confidence to engage in the market Costs Retailer confusion about who is required to become a scheme participant Possible sub-optimal resolution outcomes due to EWOQ s inexperience dealing with large customer issues Three retailers are expected to become scheme participants at a cost of $5000 each per year ($15,000 total) Benefits Retailers protected from possible customer debt and non-payment issues by EWOQ s policy regarding payment of undisputed amounts Costs No cost to business Industry would be invited to contribute ideas and discussion about how best to deliver relevant information to HESB customers Benefits Possible reduced number of HESB customer complaints 4 Access for all electricity customers Costs No direct cost to the Queensland Government or EWOQ Benefits Possible reduced workload Costs $93,200 per year expected to be amortised across the customer base (ii) (iii) EWOQ implementation costs and retail implementation Costs Retailers providing retail services to very large customers only may incur costs unnecessarily Possible sub-optimal 6

7 Table notes: for other dispute resolution mechanisms (i) and ongoing complaint management costs also expected to be amortised across the customer base (iii) (iv) EWOQ lacks experience conciliating large customer electricity issues and may be restricted in outcomes it can conciliate for large customers Very large customers are unlikely to use EWOQ services Benefits 25,516 additional customers gain access to EWOQ services Less need for HESB customers to pay for alternative dispute resolution mechanisms EWOQ is set up to handle electricity-related complaints More time for HESB customers to get on with running their businesses Possible improved retail service levels resolution outcomes due to EWOQ s inexperience dealing with large customer issues Seven retailers are expected to become scheme participants at a cost of $5000 each per year ($35,000 total) Benefits Retailers protected from possible customer debt and non-payment issues by EWOQ s policy regarding payment of undisputed amounts i. Benefits accruing through decreased demand on other dispute resolution mechanisms have not been accounted for. ii. The expected increase in complaints as a result of expanding EWOQ access to HESB customers will require the EWOQ to employ (a maximum of) one additional investigation officer at a cost of approximately $93,200 per year. This cost will be recovered from scheme participants via user-pays fees. iii. In addition to user-pays fees, retailers are expected to incur additional costs to implement systems (in the case of new scheme participants) and manage additional complaints. For the purposes of this RIS it is assumed 100 per cent of user-pays fees and additional costs incurred by retailers will be passed through to the customer base. iv. Costs incurred by EWOQ to implement this approach (in addition to costs to employ an investigation officer) will be recovered from scheme participants via user-pays fees. Preferred option Based on the available evidence, Option 1 is preferred because it is considered to provide the greatest benefit to HESB customers at the least cost to business, government and the community. While Option 1 is preferred at this stage, Option 3 may still represent a viable alternative if a clear net benefit cannot be established for Option 1 following feedback obtained through consultation. Introduction The department welcomes submissions from interested stakeholders about the options put forward in this RIS and the data and analysis underpinning them. The RIS also contains a number of direct questions to stakeholder groups for consideration and response in addition to, or as part of, their submissions. These 7

8 questions are aimed at eliciting more specific information/data about certain matters discussed in the document and will help inform the final recommendation. Issues statement The department recorded a total of 253 complaints from electricity customers consuming more than 100 MWh per annum in (approximately 33 per cent of all complaints received). This is an increase of approximately 14 per cent from the previous two financial years (217 complaints in and 218 complaints in ) and an increase of approximately 66 per cent from (85 complaints). The department received 175 large customer complaints in As an indication, the 253 large customer complaints represent only about 1.1 per cent of Queensland s large customer market. This figure represents the total number of large customer complaints received by the department and may not be representative of the HESB customer complaints. Furthermore, it is not clear that all of the issues raised would fall within the remit of EWOQ to address. The majority of complaints received by the department are billing-related (approximately 85 per cent), with complaints centring on incorrect and late bills. Other issues include: account issues such as incorrect information connection issues such as wrongful disconnection customer service issues contractual issues. Both EWOQ and the Energy and Water Ombudsman New South Wales (EWON) report similar information with billing, credit and customer service issues topping the list of complaints. It should be noted that HESB customers can access EWON dispute resolution services. While the department does not collect specific data about what proportion of large customer complaints are made by small businesses, the rise in electricity-related large customer complaints to suggests that business customers are increasingly encountering issues that they are unable to resolve with their retailer. Anecdotal evidence provided by peak industry bodies including the Chamber of Commerce and Industry Queensland (CCIQ) supports the above assessment. For example, findings from the CCIQ 2013 Energy Survey pointed to growing concern that small business customers receive less attention and support compared to large business and residential customers. Specifically, the survey found that respondents experienced difficulty speaking to their energy retailer, poor understanding of business contracts and tariffs, long waiting times when making phone calls and delays in attending to enquiries and disputes over services and bills. Another issue raised is that, where small businesses are unable to resolve disputes with their retailer in the first instance, they often don t pursue the matter via other dispute resolution mechanisms. This is evidenced by the minimal numbers of disputes fielded by other available mechanisms such as the Queensland Civil and Administrative Tribunal (QCAT), which has heard around 30 electricity-related 8

9 matters in the minor civil disputes jurisdiction since its establishment in Other mechanisms such as the Department of Justice and Attorney General s (DJAG) Dispute Resolution Centers (DRC), has advised anecdotally that it facilitates the resolution of minimal disputes, if any. Advice to the department from a Queensland-based energy broker claims that it facilitates the resolution of 20 to 50 billing disputes per month on behalf of its clients. This indicates that incidences of disputes between small business customers and their retailers may be more significant than current data suggests. However, one retailer suggested that the rise in large customer complaints in is attributable to the removal of notified prices for large customers in South East Queensland in 2012 and issues resulting from one retailer adopting a new billing system around the same time. This argument may have some merit given the decline in complaints received by the department in Current dispute resolution mechanisms and other available services HESB customers have a number of dispute resolution mechanisms and services available to them if they are unable to resolve a dispute with their retailer. 1. QCAT provides small businesses with an avenue to resolve energy disputes and can issue interim orders preventing disconnection while a case is being heard. It can also deal with issues of law and the application fees are reasonable, though not inexpensive (up to $569.20). However, QCAT officers may not have the specialised knowledge required to effectively and efficiently conciliate or resolve energy-related disputes. Furthermore, the process can be lengthy and requires customers to have an understanding of court-type processes in order to effectively present a case. 2. DRCs provide voluntary mediation between the energy entity and customer. The advantage of this is that it allows for improved understanding of the issues between both parties, however the process is voluntary and can be costly for the customer. An intake and assessment of a dispute costs $ A mediation session with two mediators costs $ per hour for up to four hours. Under this process, no binding decisions can be made. 3. Court is considered a last resort option by the majority of stakeholders. There are concerns from customers that going to court may inflame a situation and result in disconnection or debt collection from their retailer. Additionally, the cost of legal fees and court expenses is likely to be prohibitive for many small business customers. Energy entities also identified that court is not a preferred option because it is expensive and time consuming. 4. Energy brokers also provide a range of services to assist HESB customers. For example, energy brokers can check the accuracy of bills and review/negotiate market contracts on behalf of customers to ensure they are on a suitable deal and being correctly charged. Engaging an energy broker may benefit customers that have difficulty understanding complex energy tariffs and contracts. It may also prevent disputes arising in the first place. However, these services come at a 9

10 cost and HESB customers would need to make a business decision about how appropriate engaging a broker would be for their business needs. 5. The department s Consumer Policy team also provides information, and where possible, assistance to HESB customers who are unable to resolve a dispute with their retailer. Currently, when approached by HESB customers, the department attempts to resolve disputes by facilitating a discussion between the customer and the retailer. This approach is dependent on the nature of the dispute and is considered on a case-by-case basis. It is important to note that retailers are not obliged under legislation to participate in the facilitation process. If facilitation is unsuccessful, the department refers customers to the most appropriate dispute resolution mechanism and provides information about energy efficiency measures and the NMI reclassification process, which if successful, would reclassify HESB customers as a small customer and give them access to EWOQ services and the protections afforded to small customers under the regulatory framework. Question 1: Are existing dispute resolution mechanisms restrictive/prohibitive in terms of cost, time and ability to deal appropriately with electricity-related disputes? Does the time and cost involved in seeking resolution to a dispute via these mechanisms deter customers from progressing issues if they are unable to resolve them with their retailer in the first instance? Ombudsman access for HESB customers in other jurisdictions All other jurisdictions, except for the Northern Territory and Australian Capital Territory, have an energy ombudsman scheme that handles customer disputes with energy entities. States have different rules regarding who can access their schemes: Western Australia limits the application of its scheme to small customers (noting that small electricity customers are those that use less than 160 MWh per annum). South Australia, Victoria and Tasmania's schemes are open to any retail customer (with the exception of those customers who are on-supplied electricity), regardless of consumption. In New South Wales, small customers, on-supply customers and small business customers defined as businesses with less than 20 employees or a turnover of less than $2 million have access to EWON services. Although customers in other jurisdictions have access to their respective ombudsman s services, there are some limitations with respect to the level of assistance that can be provided to large customers. For example, the Energy and Water Ombudsman Victoria (EWOV) is able to take complaints from any Victorian 10

11 energy and water customer (with the exception of on-supply customers). However, small business customers consuming more than 40 MWh are not covered by the customer protections available to small customers under the Victorian Retail Energy Code. While this does not prevent a customer consuming more than 40 MWh from making a complaint, EWOV is only able to investigate complaints that fall under its Charter. Queensland s Electricity Industry Code extends to all small customers. This means that small business customers consuming up to 100 MWh per year not only have access to EWOQ services, they are also protected by provisions in the Electricity Industry Code. Conclusion EWOQ was always intended to be available to those customers that need the most support (residential customers and small businesses). Many small businesses do not have comparable access to dispute resolution services because of their energy consumption requirements. The apparent gap in the level of assistance available to small businesses may be impacting an increasing number of HESB customers and this number may continue to grow if action is not taken to address the issue. Policy objectives In its response to the Interdepartmental Committee on Electricity Sector Reform report, the Queensland Government recognised the need for strong and equitable customer protections. This proposal complements the work being undertaken as part of the government s broader electricity sector reform agenda. HESB customers have similar resources and expertise to resolve their disputes as other small business customers but are not afforded the same right of access to EWOQ. The objective of the preferred approach is to provide HESB customers with access to dispute resolution services comparable to those enjoyed by other small business customers. Expanding EWOQ access to HESB customers is expected to provide these customers with greater confidence to engage/participate in the market and potentially, enjoy the benefit of better service outcomes. Options and alternatives Option 1: Expand access using a HESB customer definition based on consumption Under Option 1, the EWO Act would be amended to include a new category of customer high electricity-using small business customers (or similar). These customers would include non-residential customers that consume between 100 MWh 11

12 and 160 MWh of electricity per annum. The same investigation, dispute resolution and enforcement processes as currently employed by EWOQ would apply to these customers. This proposal is not intended to alter the operational arrangements or funding structure of the EWOQ, nor is it intended to change other regulatory obligations for the protection of small electricity customers, such as those set out in the Electricity Industry Code. The proposed action requires a minor legislative amendment and utilises existing infrastructure, systems and processes to provide around 5100 additional small businesses with access to dispute resolution services not currently available to them (but available to other small businesses). A small business customer definition based on consumption rather than small business metrics is expected to make it easier for HESB customers to determine their eligibility for access to EWOQ services and for retailers to determine if they are required to be a scheme participant. Option 2: Expand access using a HESB customer definition based on small business metrics Under Option 2, the EWO Act would be amended to include a HESB customer definition base on small business metrics. This would include non-residential customers consuming more than 100 MWh per annum, with less than 20 full-time equivalent staff or less than $2 million annual turnover. The EWO Act would also be amended to give the Ombudsman discretionary powers to accept referrals from small businesses that may not meet the above criteria at a point in time due to seasonal or other circumstances that may affect eligibility. Option 3: Status quo and investigate ways to strengthen the provision of information to HESB customers Under Option 3, the existing EWOQ access arrangements would be maintained i.e. customers consuming more than 100 MWh per annum would not have access to EWOQ services. Currently, when approached by HESB customers unsuccessful in resolving a dispute with their retailer, the department: attempts to resolve disputes by facilitating a discussion between HESB customers and their retailer on a case by case basis refers customers to the most appropriate dispute resolution mechanism provides information about energy efficiency measures and the NMI reclassification process. Utilising existing stakeholder forums and working groups such as the Consumer and Industry Reference Group, the department would investigate ways of strengthening the delivery of information to HESB customers about dispute resolution and the large customer electricity market more broadly. In particular, the department would look at informing HESB customers about relevant issues in a more timely way so that 12

13 customers would not have to be in dispute with their retailer in order to know what options are available to them should they find themselves in a dispute situation. It is anticipated that providing HESB customers with more relevant and timely information about the large customer energy market, existing dispute resolution mechanisms, energy efficiency measures and the NMI reclassification process will help raise awareness of these issues, help HESB customers avoid disputes in the first instance and ultimately, build customer confidence to engage in the market. Option 4: Expand EWOQ access to all electricity customers Under Option 4, the EWO Act would be amended to provide all electricity customers in Queensland with access to EWOQ services. In addition, existing provisions setting out the maximum amounts that can be awarded to a customer under a final order may also need to be adjusted to ensure they adequately capture potential monetary disputes made by HESB customers against their service providers. This proposal is not intended to alter the scope of matters EWOQ can investigate. Question 2: Are the current restrictions on amounts that the ombudsman can award under a final order (i.e. $20,000 or $50,000 by agreement) set at an appropriate level? Please provide details. Impact assessment To assess the costs and benefits of each option on relevant stakeholder groups, it is important to first understand EWOQ s funding model. Each year EWOQ s budget is approved by the Minister for Energy and Water Supply. This effectively limits EWOQ s expenditure to the approved amount. If any additional funds are necessary, supplementary Governor-In-Council approval is required. Once the budget for a given financial year is approved, funds are collected from industry via participation and user-pays fees. Participants providing connection and/or retail services to small customers pay $5000 each year for each service they provide. User-pays fees are collected in advance of each quarter and vary depending on the level of investigation required to resolve a given dispute. EWOQ s user-pays fee schedule for the financial year is set out below: Billable case types Price per complaint for advance invoicing only Referral back to supplier $ Referral to higher level $ Investigation Level 1 $

14 Investigation Level 2 $ Investigation Level 3 Investigation Level 2 price + price per minute (approximately $8) while investigated at Level 3 Final order Investigation Level of the case when the investigation ceased + $4000 Note: the fee schedule is indicative and used for the purposes of advanced invoicing only. Actual costs per complaint will vary depending on EWOQ s approved budget and the number of complaints received (see below). Before the end of each quarter, EWOQ must work out each participant s user-pays fees for the upcoming quarter and invoice the participant accordingly. In order to calculate the user-pays fees in advance, a forecast of each participant s likely performance is undertaken. In preparing the forecast, factors such as participants user-pays fees for the current and previous quarters are taken into account. User-pays fees are reconciled at the end of December and June each year to reflect actual participant complaint numbers (including the level of investigation required) and EWOQ s actual expenditure. The fees charged for Level 3 and final order cases are only calculated and billed to the scheme participant in the reconciliation process and not as part of the advance billing process. Reconciliation includes an adjustment to the price per complaint to ensure revenue collected does not exceed actual expenditure as by law, EWOQ cannot collect a surplus. The amount of user-pays fees paid by a scheme participant therefore will depend on its performance and EWOQ s expenditure during the financial year. There is no set fee for a complaint. If EWOQ s jurisdiction is expanded to include HESB customers it is likely that there will be an increase in complaints, however, because the amount of fees EWOQ can collect is limited by the size of its approved budget, the costs to industry will not necessarily increase. For example, if EWOQ received 50 per cent more complaints than predicted for a given financial year, the total amount recovered from scheme participants via user-pays fees would remain the same but the fee for each complaint would be reduced. Option 1 expand access based on increased consumption threshold (160MWh) Economic impacts Government There are no economic impacts on the Queensland Government as a result of this approach. However, for the purposes of this analysis, the impacts of Option 1 on EWOQ will be considered under the Government heading. Based on current available data, a number of scenarios have been developed to estimate the likely increase in customer complaints resulting from Option 1: 14

15 Scenario 1 (23 additional complaints per year across industry) there are approximately 205,000 non-residential electricity customers (small businesses) in Queensland who can access EWOQ services. Approximately 0.28 per cent of these (565) made a complaint to EWOQ in If the threshold limit is increased to 160 MWh per annum, around 210,100 small businesses (including an additional 5100 small businesses) would then have access to EWOQ services. If 0.28 per cent of these additional customers made a complaint, this would add about 23 complaints per year to EWOQ s case load. Scenario 2 (190 additional complaints per year across the industry) while large customer complaints received by the department increased between and , these numbers declined in This scenario is an average of large customer complaints fielded by the department from to (inclusive). Scenario 3 (213 additional complaints per year across the industry) the addition of Scenarios 1 and 2. Based on current data, this seems the most reasonable estimate of additional complaints per year resulting from implementation of Option 1. Scenario 4 (695 additional complaints) approximately 0.6 per cent of eligible electricity customers (residential and small businesses) in Queensland made a complaint to EWOQ in If 0.6 per cent of the 210,100 small businesses that would have access to EWOQ services under Option 1 make a complaint to EWOQ, this would result in approximately 700 additional complaints per year. This a worst case scenario estimate. Question 3: Are the above scenarios a reasonable estimate of additional customer complaints? Please provide details. Under Option 1, EWOQ would need a maximum of one additional intake or investigation officer to manage the expected 213 additional complaints (Scenario 3) at a cost of around $93,200 per year. EWOQ may also incur some implementation and training costs, however these are expected to be minimal (if any) given access is already based on consumption and existing processes could be easily applied to a new consumption threshold. The costs incurred by EWOQ to implement Option 1 will be recovered from scheme participants via user-pays fees. Therefore, there will be no economic impact on the EWOQ if Option 1 is implemented. Business The total cost to business under Option 1 is expected to be around $93,200 per year (divided amongst all EWOQ scheme participants and collected by EWOQ via userpays fees). In addition, it is believed that three additional retailers not currently EWOQ scheme participants would be required to become scheme participants at a cost of $5000 each ($15,000 in total). 15

16 It should be noted that scheme participation fees do not add cost to EWOQ s approved budget. The fees collected from new participants may reduce the financial impact of Option 1 on existing scheme participants because the $15,000 in fees collected from new participants are part of EWOQ s approved budget. This means that these fees may reduce the overall impact of user-pays fees on scheme participants. Scheme participants are also expected to incur administrative and/or other costs to put systems in place to become compliant with their new responsibilities under the EWO Act (for those entities that aren t already scheme participants) and to manage an increased number of disputes. Initial discussions with retailers indicate that these costs would be reasonably low, however the department is seeking further clarity around these costs (please see question 4 below). For the purposes of this analysis, it is assumed that the costs incurred by industry to implement Option 1 will be passed through to electricity customers. Therefore, there will be no direct economic impact on industry if Option 1 is implemented. Question 4: Where relevant/appropriate, please provide an estimate of the cost to your organisation of becoming an EWOQ scheme participant (if not already a participant) and/or managing the expected increased case load as a result of expanding EWOQ access to HESB customers? Community As noted above, scheme participants are expected to pass implementation costs through to customers. As such, the cost to electricity customers (the community) to implement Option 1 is expected to be $93,200, plus any additional costs passed through as a result of additional EWOQ implementation costs recovered via userpays fees or retailer implementation costs. Under Option 1, around 5100 businesses will benefit from access to EWOQ s free dispute resolution service. This means HESB customers will no longer face the time and cost imposts associated with seeking resolution to a dispute via alternate mechanisms such as QCAT, which can be as much as $ or a DRC which could be upward of $1000. Question 4: What is the indicative cost for a HESB customer to have a dispute resolved via an existing mechanism such as QCAT, DRC or the courts? Please provide an example if possible, including a cost estimate of time spent preparing for a hearing or mediation process etc. In , EWOQ reported securing $902,059 in financial outcomes for customers around five per cent of which were small businesses. Based on this information, it is expected that HESB customers will also benefit from financial compensation as a 16

17 result of disputes brought to EWOQ. However, the extent of any financial compensation will be determined on a case by case basis and is therefore difficult to quantify. Competition impacts Government The expansion of EWOQ access to HESB customers under Option 1 may reduce the workload of other dispute resolution mechanisms given complaints that might otherwise be handled by these agencies could be referred to the EWOQ. However, the benefits of decreased demand on other dispute resolution mechanisms have not been determined. Business Option 1 may be viewed as a potential barrier to new retail market entrants in Queensland because it would add to the existing regulatory framework and is therefore likely to add cost to the retail operating environment. However, ombudsman scheme participation requirements in other jurisdictions (with the exception of Western Australia) are arguably more prohibitive for industry from an administrative, compliance and cost perspective because all retailers trading in those jurisdictions are required to become ombudsman scheme participants. Any retailer already trading in one of these jurisdictions with plans to expand operations into Queensland could reasonably be expected to have some level of involvement in dealing with a jurisdictional ombudsman scheme (which operate similarly) about large customer issues and therefore possess a level of familiarity with associated processes and responsibilities. As such, the administrative, compliance and financial impacts that may act as a barrier to potential new entrants as a result of this approach are not expected to be significant. Community Option 1 is not expected to impact competition for customers. Expanding EWOQ access arrangements will provide HESB customers with another avenue to escalate and resolve disputes and as such, service levels may improve as retailers seek to reduce the number of complaints referred to EWOQ by HESB customers. Compliance impacts Government A higher threshold limit approach will maintain EWOQ staff s ability to make immediate and consistent decisions about whether to accept a referral because they can draw on existing processes to verify customer eligibility. There is also less risk of EWOQ being exposed to legal and indemnity issues as a result of challenges made by customers and/or scheme participants unhappy with the application of confusing eligibility criteria or discretionary powers to give a customer access (as per Option 2). 17

18 Business To comply with EWOQ legislation, scheme participants must cooperate with EWOQ to resolve complaints and pay the annual membership and user-pays charges. There are no reporting requirements for scheme participants. Initial discussions with retailers suggest that up to three additional retailers would need to become scheme participants as a result of this proposal and that the associated costs and administrative impacts would be reasonably low. Given most retailers providing services to HESB customers are already scheme participants and compliant with the EWOQ legislation, the resulting impact on business is expected to be minimal. Community Option 1 provides a single point of reference for customers to determine their own eligibility for access to EWOQ services the consumption data reported on their bill. If evidence to support a referral is required, EWOQ can easily verify a customer s eligibility by looking at their bill, as per current processes. Social impacts Government Option 1 is not expected to have any social impacts on the Queensland Government or EWOQ. Business Retailers have expressed initial concern that, given EWOQ s experience lies in dealing with small customer issues, it may take time for EWOQ to develop an understanding of the dynamics of the large customer electricity market to appropriately conciliate the resolution of HESB customer disputes. In addition, it has been suggested that some HESB customers may complain to the ombudsman to delay paying their bill and that this would result in these customers accumulating debt while their case is being investigated. This also has implications for energy retailers that may be forced to continue supplying significant amounts of energy to customers with a risk of not receiving payment from the customer. However, in January 2014, EWOQ implemented a policy requiring customers to pay the undisputed amount of a bill while a complaint is being investigated to address issues such as debt accumulation in the small customer market (i.e. customers avoiding paying their bill by bringing a case to EWOQ). This policy would also apply to HESB customers should they be granted access to EWOQ services and that this would mitigate the risk to retailers of debt accumulation and supplying customers unable to pay their bills. Community Providing customers with access to EWOQ services means HESB customers have access to a service set up specifically to resolve electricity-related disputes. It will also allow customers to save time by avoiding the potentially lengthy processes involved in seeking resolution via alternate mechanisms that may not have as much 18

19 knowledge of the electricity market to effectively and efficiently conciliate and resolve cases. However, as noted above, retailers have raised concern that EWOQ s experience lies in dealing with small customer issues, therefore it may take time for EWOQ to develop an understanding of the dynamics of the large customer electricity market to appropriately conciliate the resolution of HESB customer disputes. In addition, EWOQ may be limited in the outcomes it can conciliate because the regulatory framework is set up to protect small customers, with little prescription for large customers. For example, the lack of regulatory guidance around large customer issues means that many complaints become legal matters. Issues of this nature would fall outside the scope of the EWOQ to investigate. Therefore, even if HESB customers have access to EWOQ, other dispute resolution mechanisms such as QCAT may be more appropriate vehicles to resolve escalated large customer issues. Summary Option 1 The known cost of implementing Option 1 is approximately $93,200. This cost will ultimately be passed through to all electricity customers on market retail contracts. Key additional costs that remain unquantified (which are also expected to be passed through to customers) include: EWOQ implementation costs (if any) retailer implementation costs. The known benefit of implementing Option 1 is that around 5100 HESB customers gain access to a free dispute resolution service for electricity-related complaints. Key benefits that have not been quantified include: time and cost savings accruing to HESB customers as a result of EWOQ access (as opposed to alternative mechanisms which have the potential to cost upwards of $1000 not including associated time costs) financial compensation resulting from disputes successfully conciliated by the EWOQ possible improved retail service levels retailers will have a degree of protection from customer debt and non-payment issues due to EWOQ s policy regarding payment of undisputed amounts possible reduced workload for alternate dispute resolution mechanisms reduced risk of legal challenges and indemnity issues for EWOQ (compared to Option 2). It should be noted that HESB customers will not enjoy the identified benefits if a complaint falls outside the scope of EWOQ to address. Furthermore, customer outcomes may be limited given large customers (as defined in the Electricity Act) have little access to protections under the current regulatory framework. While the benefits are not easily quantified at this time, it is expected that Option 1 will ultimately result in a net benefit to HESB customers and the wider community. However, submissions on any of the costs and benefits identified, or any other impacts are welcomed through the consultation process and would assist to provide a more comprehensive discussion in the final decision RIS. 19

20 Question 6: What impacts (costs and/or benefits) to the community, business and government not considered above should be discussed when considering Option 1? Please support with relevant data/details. Option 2 expand access based on small business metrics Economic impacts Government Similar to Option 1, EWOQ is expected to need a maximum of one additional investigation officer to manage the increased case load (at a cost of approximately $93,200) under Option 2. EWOQ is also expected to incur additional costs to develop and implement appropriate systems/processes to: collect and verify evidence (of staff numbers or turnover) supplied by HESB customers seeking assistance train investigation staff in the new systems, processes and procedures guide investigation staff in the consistent application of discretionary powers. The approach taken to implementing these systems/processes will ultimately be a decision for EWOQ. The specific costs of any system and process changes and/or costs to train and educate staff will depend on what EWOQ determines to be most appropriate. Any implementation costs are likely to be factored into the EWOQ budget. The costs incurred by EWOQ to implement Option 2 will be recovered from scheme participants via user-pays fees. Therefore, there will be no direct economic impact on EWOQ if Option 2 is implemented. Question 7: (For response by EWOQ only) How much might it cost for the EWOQ to implement Option 2? Business The economic impacts on business of Option 2 are expected to be broadly similar to Option 1. For the purposes of this analysis, the economic impacts on business presented for Option 1 should be applied similarly to Option 2. However, given EWOQ is expected to incur additional implementation costs that may put upward pressure on its approved budget, scheme participants can expect to incur some additional cost to the extent that implementation costs increase EWOQ s approved budget. As with Option 1, it is assumed that the costs incurred by industry to implement Option 2 will be passed through to electricity customers. Therefore, there will be no direct economic impact on industry if Option 2 is implemented. 20

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