Discussion Paper - Report Summary

October 1998

A Comparison of Domestic Electricity Contracts against the Electricity Supply Association of New Zealand Domestic Contracts Code of Practice

Areas for improvement
Comments on the ESANZ Code
What needs to happen

The Ministry of Consumer Affairs has completed a review of existing domestic electricity company contracts against the Electricity Supply Association of New Zealand Code of Practice. Its finding is that all power company contracts comply with more than half of the code rules, but there is room for improvement.
Since the Ministry released its January 1997 report "An Analysis of Contracts, Metering and Disputes Procedures for Domestic Electricity Customers", and following the development of the Electricity Supply Association of New Zealand (ESANZ) Domestic Contracts Code of Practice, some companies have rewritten or amended their contracts.

The Ministry reviewed 34 power company contracts. The review is based on those contracts, whether existing or in draft form, received in response to a letter from the Ministry where we advised companies of the purpose of the review.

For the purposes of the review this report directly compares the power company contracts against the 19 rules stated in the Code.

1. Areas for improvement

Key areas described below require particular attention.

1.1 Liability

While the ESANZ Code recommends that domestic contracts should not purport or attempt to limit liability in certain circumstances, 25 contracts continue to do so. This includes limiting liability to physical damage only, limiting the amount of liability to that which is set out in a separate document and in particular exclusion of liability for indirect or consequential loss. Limitation of liability in this way is quite onerous and harsh on the customer. In addition, four power company contracts limit the customer’s right to claim against third parties.

1.2 Deposits

Twenty two power company contracts comply with the requirements of the ESANZ Code. The Code gives a straightforward formula for determining the level of deposit required, but two companies set bonds at a "reasonable" level without further definition. Given the wording of the Code and the ease with which the majority of companies have complied, it may be difficult to argue that any amount greater than the cost of an estimated two months supply meets the test of reasonableness. Customers of companies that do not comply with the Code are disadvantaged by the lack of certainty regarding the amount of deposit.

Ten power companies do not deposit bonds in a trust account or choose not to operate one. Companies that do operate trust accounts do so in a variety of ways. Companies may benefit by standardising their procedures industry wide.

1.3 Customer information

Companies need to ensure their domestic contracts clearly stipulate the purposes for which they are collecting customer information. Five contracts fail to list the reasons for which the company is collecting information.

Surprisingly, eight contracts fail to provide customers with the opportunity to correct any incorrect information held about them. Power companies which fail to advise customers of this risk breaching information privacy principles under the Privacy Act 1993.

1.4 Consultation and notice

The ESANZ Code requires contracts to entrench the right for customers to be consulted on matters which affect their rights and responsibilities. Three companies have no provision in their contracts for consultation.

1.5 Disconnection procedures

Contrary to the ESANZ Code, four power company contracts do not specifically stipulate that disconnection will occur only where non-payment of a bill by a customer relates to bills associated with the supply of network services and/or electrical energy. This means there is a possibility that the customer’s supply of power may be disconnected for nonpayment of accounts not associated with electricity supply. This is particularly harsh on the customer who may be behind in payments on goods purchased from the power company as part of a separate agreement.

1.6 Dispute resolution

Overall compliance in this area is poor with only six companies fully complying with the ESANZ Code. The Code recommends that contracts outline a dispute resolution procedure in a separate section and/or publication or notice. Instead the dispute resolution procedures of some companies are confusingly interspersed in other sections of the contract. In addition, six contracts fail to state that the power company will be responsible for costs relating to the arbitration process.

2. Comments on the ESANZ Code

While this study is an exercise of comparison between the ESANZ Code and individual power company contracts, a number of issues in respect of the Code need to be highlighted for consideration by the Review Group.
In particular, the following areas need attention.

2.1 General

There are a number of code rules which impose obligations on power companies adhering to the ESANZ Code but which do not require incorporation into the contract. For example, code rule 4.9.4 requires that the power company should state clearly on the bill where an estimate has been used.

On the other hand, there are certain code rules which may be unnecessary or have no meaning if incorporated into the contract. For example, at code rule 4.10.1 the requirement that new customers be given a copy of the new contract has no meaning until the customer is actually given a copy of the contract.

It is suggested that the Code be restructured into two parts.

Part A should contain those requirements of power companies which should be incorporated into the contract.

Part B should contain operating procedures which may be driven by:

• a clause in the contract required by Part A
• a statutory requirement, or
• a policy/procedure requirement which is convenient to the customer.

Further revision of the Code may be necessary following the restructuring of the electricity supply industry.

2.2 Deposits

The wording of the relevant code rule is clear. However, it is suggested that the industry may benefit by standardising trust account procedures, for instance by agreeing to trust account rules, or by considering a pooled trust account in order to share administrative costs.

2.3 Customer information

The code rule regarding customer information is confusing. The ESANZ Code has tried to incorporate too many concepts into one paragraph. All of the concepts relate to issues covered by the Privacy Act. The code rule should be separated into paragraphs for clarity.

The code rule on the one hand requires the company to set out what the information collected will be used for (and includes debt collection purposes) but then the rule requires the customer’s express consent to disclose information in certain circumstances. The Privacy Act does not require the customer’s express consent to disclose information where the power company’s intended use of the information is set out clearly to the customer.

It is recommended that the Code require each company to set out in its contract all of the purposes for which it will use the information collected from an individual.

2.4 Dispute resolution

The dispute resolution processes outlined in the ESANZ Code could be improved to reflect the requirements of the Arbitration Act 1996.

Some companies appear to have overlooked the requirements of the Arbitration Act 1996. If arbitration is to be included as an option for resolving disputes, the Act requires the customer and power company to enter into a separate written agreement agreeing to the terms of the arbitration.

There have been concerns raised that such a requirement may be unworkable because domestic contracts are not signed by both parties. It is suggested that this area be amended to provide a workable solution.

3. What needs to happen

The study has identified that, although a number of companies are well on the way to complying with the ESANZ Code, there is still room for improvement.

3.1 Immediate further improvements to contracts

The domestic electricity contract provides an important interface between power companies and their customers. The proposed reforms to the industry will ultimately allow customers to choose between power suppliers. The terms of a company’s domestic contract will have a significant impact when a customer is deciding on a supplier.

The Ministry recommends that power companies take immediate action to ensure that their contracts are in line with the industry’s Domestic Contracts Code of Practice.

The ESANZ Code is an industry initiative designed to act as a guide and benchmark for the development of fair and balanced contracts between power companies and domestic consumers.

If the industry is serious about improving the standards of its contracts and ensuring that the contracts reflect the customer’s legitimate rights and interests, compliance with the Code must improve.

3.2 Review of the ESANZ Code

The ESANZ Code is due to be reviewed by November 1999 by the Review Group made up of five power company representatives, one representative of the Ministry of Consumer Affairs, and two other persons representing customers, as referred to in the Code at clause 5.2.

The Ministry recommends the Review Group consider the comments made about the Code in this report.

The Ministry notes that a power company contract may not comply fully with the Code because the power company takes issue with a certain part of the Code. If this is the case, then any comments a company may have regarding the Code itself should be forwarded to the Electricity Supply Association of New Zealand. The Review Group should take these comments into account when undertaking the biennial review of the Code.

3.3 Government reform of the electricity industry

On April 7 the Government announced its intention to reform the electricity industry. A package of reforms has been developed which includes plans to split the Electricity Corporation (ECNZ) in three, to separate the local power companies into line and energy businesses, and to steer industry participants towards an agreement on deemed profiling which would make it feasible for domestic consumers to switch electricity suppliers.

The reforms have significant implications for the industry and consumers. Regardless of the ultimate outcomes for the industry, this report and its observations on the current Code and consumer contracts should provide a useful basis for further development of the standards of consumer contracts, dispute resolution procedures, and metering practices.

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