Full retail competition in Queensland: Changes to regulatory regime for electricity

By Rebecca Carroll and Dan Howard.

Key Points:
Full retail competition will be regulated by way of legislation, regulations, licences and an Electricity Industry Code.

Queensland is set to introduce full retail competition ("FRC") into its gas and electricity retail markets from 1 July 2007. This will mean that the last tranche of franchise tariff customers for gas and electricity will be able to choose their electricity retailer. For electricity this will be entities using less than 100 MWh per annum and for gas those entities using less than 1TJ per annum.

The Queensland Government has appointed the Energy Competition Committee ("ECC") to oversee the implementation of FRC in these markets.

The ECC has released draft versions of the regulatory instruments to apply during FRC. Similar to regimes operating in other jurisdictions that have implemented FRC, the FRC environment in Queensland will be regulated by way of legislation, regulations, licences and an Electricity Industry Code. The Code imposes customer service obligations and certain service standards on distributors and retailers, including by setting out minimum terms of retail contracts. It regulates the marketing of electricity, imposes data reporting obligations on retailers and regulates metering (to the extent metering is not dealt with under the National Electricity Rules). The Code also regulates the relationship between distributors and retailers, and provides for rules regarding customer transfers and consents.

Changes to legislation and regulatory instruments

The changes to the legislation (predominantly the Electricity Act 1994 (the "Act")) and regulatory instruments include the mechanical changes and changes in terminology necessary to effect FRC, such as removing the distinction between contestable customers (those eligible to choose their electricity retailer) and non-contestable customers, and regulating the relationship between retailers and distributors.

The legislative changes and changes to regulatory instruments also include the introduction of a range of customer protection provisions, with particular emphasis on protecting small domestic electricity customers. As in other states, these customers (along with certain larger customers classed as "non-market customers") will have the right to be supplied under standard contracts at regulated prices.

Key elements of proposed regulatory regime

Some of the more contentious aspects of the regulatory regime as currently drafted include:

Small customers and large move-in customers (ie. customers who move into a premises and start taking electricity) will have a "right of reversion" to a standard contract. A "right of reversion" exists in varying forms in other jurisdictions that have implemented full FRC. However the Queensland model includes some "policy innovations" such as:

• a right of "large non-market customers" (essentially large customers who have not "entered the market" by signing a negotiated contract) to be supplied at a regulated tariff, as well as small customers;
• the ability of the regulator to put in place prescriptive regulation regarding the terms of retailers' standard large customer contracts by prescribing by regulation whether particular contract terms are "fair and reasonable"; and
• whereas in other jurisdictions the "right of reversion" is to the "host" retailer for that area (ie the retailer who had an exclusive monopoly on supply in that area prior to FRC), in Queensland the right of customers to be supplied on standard terms and conditions and at regulated prices is imposed on the "financially responsible" retailer (that is, the retailer who is responsible for that meter in the National Electricity Market).

This reversion policy means that new retailers entering the Queensland market will be required to conduct analysis of likely numbers and types of customers they will be obliged to supply at regulated prices, and implement appropriate financial risk management strategies in respect of those customers. It also means that all retailers operating in Queensland will have a vested interest in all future retail price determinations in Queensland.

The draft regulatory regime does not make any change to the Community Ambulance Cover Act 2003. This Act currently requires that any payment received by a retailer for an electricity account must first be applied to the payment of the ambulance levy. This scheme will effectively require new non-government owned retailers to act as revenue collectors for the Queensland Government. It will operate to further reduce the attractiveness to new retailers of any customers who present a credit risk (eg. those who require payment plans) because the amount recovered on payment plan must first be applied to the "collection" of the levy before amounts can be allocated in payment of electricity already supplied.

Retailers will have to allow customers a 10 day cooling off period in which to change their minds after signing a negotiated contract. Importantly, for any contracts entered into from before 1 July 2007 but expressed to apply from the commencement of FRC, the 10 business day period starts at 1 July 2007.

The proposed Electricity Industry Code prevents visits and telephone marketing after 6pm on weeknights. (This is consistent with the provisions of Queensland's Fair Trading Act which currently prevents both door-to-door sales and telephone marketing after this time.). In other jurisdictions these sales are allowed until 8pm on weeknights. A cut-off time of 6pm may impact on the ability of new retailers to effectively win new customers in Queensland.

The Code is currently unclear as to which distribution charges are able to be passed through by retailers to their customers under both standard and negotiated contracts. On the present wording of the Code it is arguable that it prohibits retailers from passing through to consumers charges that aren't specifically dealt with by the Code or in the "notified" (regulated) prices. There are various different types of distribution charges that aren't mentioned in the Code or in the notified prices, but which should not have to be absorbed by a retailer (eg. charges for meter relocation at a customer's request).

The Code sets out certain data reporting obligations that go beyond the obligations in other jurisdictions that have implemented full retail competition. In particular, new retailers in Queensland will be required to implement systems enabling them to provide to the regulator information on customer transfers, move-in customers, disconnections, reconnections, instalment plant disconnections and customer complaints.

Timeline for implementation

Legislation is expected to be introduced into Queensland Parliament late October or early November. The legislation may differ from the current draft in response to issues raised in public consultation on the draft. Further drafts of the Codes and Regulation will be published late October and early November respectively, and interested parties will have opportunity to comment on these drafts before they are released in final versions.

Next Issue: Standard customer contract

In the next issue of Insights we will consider some of the terms of the standard customer contract applicable to small customers who exercise their right of reversion to standard contracts and standard tariffs.

For further information, please contact Dan Howard and Rebecca Carroll.