The AER approves Envestra's amendments to sub-clause 21.5 and clause 23. The AER considers that these amendments make the dispute resolution process clearer and take into account the transition to NECF, once it is adopted in Victoria. This avoids confusion which is in the long term interest of consumers with respect to price, an aspect of the NGO.
Envestra's clauses 21.5 and 23 referred to r. 510 of the NGR. Rule 510 is part of NECF and has not yet been adopted in Victoria. To address this, the AER required Envestra to remove the reference to r. 510 and insert the wording of r. 510 in a new sub-clause 21.7. The AER then proposed that clauses 21.5 and 23 refer to sub-clause 21.7.
These amendments were designed to address the fact that NECF (which includes r. 510) has not yet been adopted in Victoria and its implementation date is as yet unknown. It may not be implemented until after Envestra's access arrangement has commenced.1001
Envestra adopted the substance of the AER's required amendments. However, rather than inserting the wording of r. 510 into a new sub-clause 21.7, it chose to include it in clause 23.
Envestra submitted that this is because clause 23 is headed 'Disputed Statement of Charges' and addresses disputes.1002
The AER considers that Envestra's amendments have exactly the same effect as the amendments it proposed. These amendments clarify the operation of this clause.
Envestra has also proposed some amendments to the text of r. 510. These amendments provide that if the dispute resolution process in Part 15C of the NGR (part of NECF) are not in force, the dispute resolution process in clause 37 applies.
The AER considers that these amendments are consistent with the NGO. They operate to make it clear when and how clause 37 will apply. This avoids uncertainty which is in the long term interests of consumers with respect to price.
Adjustment of charges
The AER approves the inclusion of sub-clause 22.3.
Sub-clause 22.3 provides that no claim for an adjustment will be made by the Network User after the expiration of more than eleven months from the date of the relevant statement of charges.1003
In the draft decision, the AER considered that a Network user's ability to dispute incorrect charges should not be limited and that there is a need to be able to recover incorrectly billed charges when they are identified.
Envestra submitted that the issue of disputes is not relevant to sub-clause 22.3 as it and sub-clause 22.2, apply irrespective of any dispute. Sub-clause 22.3 refers to adjustments. Envestra submitted that it is clear that adjustments refers not to disputes but to adjustments to account for differences between estimated and actual meter readings and to account for errors or corrections of metering data. There may be no dispute about these kinds of adjustments.1004
Envestra further submitted that sub-clause 22.3 is designed to prevent a situation where a retailer accumulates adjustments and does not raise them promptly or raises them as an issue collateral to a dispute or negotiation.1005 Envestra submitted that removing the time limit on adjustments removes an incentive on the parties to act in a timely manner and allows adjustments to be raised long after the relevant events, which could lead to price distortions.
Taking into account Envestra's submissions, the AER now considers that the inclusion of a time limit on sub-clause 22.3 acts as an incentive to seek adjustments. If a Network User knows it has limited time to seek adjustments, it will be incentivised to seek adjustments promptly.
There is a risk that if there was no such time limit, a Network user could accumulate adjustments and raise them all at once. This could potentially cause price distortions, where adjustments are sought after tariffs have been reset. This would not be consistent with the efficient operation of natural gas services or in the long term interests of consumers with respect to price, aspects of the NGO.
The AER considers that Network users will not be disadvantaged by this clause where they discover an error after the time limit for adjustments has expired. In such circumstances they could use the dispute resolution mechanism in clause 23.
Right to suspend services
The AER does not approve sub-clause 26.3, which permits Envestra to cease delivering gas and cease performing any of its other obligations if the Network User fails to pay any amount due. The AER proposes to delete sub-clause 26.3 to make Envestra's access arrangement acceptable.
The AER considers that sub-clause 26.3 should be deleted because:
it allows for responses that are disproportionate to any harm caused and fails to provide adequate protection for Network Users and consumers
the AER maintains its position as set out in its draft decision that the general law, and, once NECF is adopted, r. 503, in conjunction with s. 232 of the NGL, provide adequate remedies in the event that any amount due remains unpaid1006
the sub-clause, as proposed, would be open to interpretation. This raises the possibility of legal disputes over the actual meaning of the sub-clause.
The AER considers that deletion of the sub-clause is reasonable and consistent with the NGO. The AER notes that the terms and conditions of Envestra's 2008–2012 access arrangement do not include a mirror provision to clause 26.3.
In the draft decision, the AER required Envestra to delete sub-clause 26.3.1007
In its revised proposal, Envestra retained sub-clause 26.3. Envestra raised several points in support of its proposed sub-clause.
AGL submitted that this clause does not align with the NGO because it doesn't promote the efficient operation and use of gas services. AGL stated that if a situation warrants termination, a party should terminate the access arrangement under clause 28. AGL submits that this clause has the same effect as termination. AGL also submitted that this clause appears to permit Envestra to randomly target 'innocent customers'.1008
The AER's assessment of each of the issues raised in Envestra's revised proposal and AGL's submission is set out below.
Envestra submitted that it is not in its interests to cease delivering gas. Envestra has a significant commercial interest in ensuring that gas is perceived as a reliable source of energy. It is not in Envestra's commercial interests to take unnecessary extreme action that would damage this perception.1009
The AER considers that whilst commercial constraints may discourage Envestra from acting in a particular way, they do not prevent it from doing so. If Envestra chooses not to enforce or exercise a legal right for commercial reasons, that is a commercial decision for Envestra to make. However, the commercial and practical limitations do not prevent Envestra from exercising its legal rights if it so chooses.
Unrealistic to disconnect every delivery point
Envestra submitted that it is unrealistic to suggest that Envestra can practically cease to supply customers. To achieve this Envestra would need to physically disconnect each customer's delivery point at its own cost. This is not a realistic option.
The AER acknowledges there are practical limitations on actually ceasing to supply customers. However, not all customers would need to be disconnected immediately to cause harm. Further, if Envestra is unable to practically cease delivery of gas, a remedy enabling it to cease delivery is unnecessary and ineffective.
Judicial interpretation
Envestra stated that it doubts that a court would read this clause literally. Envestra submitted that a court is likely to require Envestra to act reasonably in its reliance on this clause.1010
The AER considers that the actual manner in which a court will interpret this sub-clause is unclear. Therefore, the unqualified nature of this sub-clause renders its actual legal meaning ambiguous.
This lack of clarity and ambiguity creates scope for disputes over the meaning of the sub-clause. This is particularly the case if Envestra was to apply the sub-clause to a scenario as set out above. This could lead to protracted and expensive litigation.
The AER considers that this has the potential to lead to litigation. This would not be consistent with the NGO as it may lead to additional costs which are not in the long term interest of consumers with respect to price.
Envestra stated that it disagrees with AGL’s submission that this clause has the same effect as termination.1011 AGL has reiterated this submission.1012
The AER considers that this sub-clause has a different effect to termination. This clause permits Envestra to suspend the delivery of services. While Envestra would not be obliged to provide services, the contract between it and the Network User would continue to apply. This is clearly different to the termination of the agreement, which would bring the contract to an end.
Other remedies are not effective
Envestra submitted that this clause is necessary because other remedies are not necessarily effective.1013 Envestra stated that:
damages are not effective because action through the courts is time consuming and expensive
termination is not an effective remedy. It is impossible to cease gas supplies without physically disconnecting delivery points.1014 Envestra submitted that termination of an agreement is meaningless if customers can continue to withdraw gas.1015
termination will end the Network User's contractual obligation to pay charges under the agreement in relation to gas that is taken after the termination.1016
The AER considers that the cost and delay of action to recover money are practical considerations that need to be taken into account when considering legal action.
Under AEMO's procedures, the Network User will continue to be the Financially Responsible Organisation (FRO) following termination of the Agreement.1017 This means that the Network User will continue to be responsible for paying for gas extracted at delivery points for which it is the FRO. Accordingly, if Envestra terminates its agreement with a Network User, the Network User will continue to be obliged to pay for gas extracted by its customers.
Notwithstanding that customers will continue to be able to extract gas, termination would be a serious sanction against Network Users. Termination would cause serious reputational harm. Envestra could refuse to connect any new customers for that Network User and other Network Users could seek to engage its existing customers. Accordingly, the AER considers that termination of the agreement would have serious commercial repercussions for a Network User. On the other hand, it is unlikely to cause the payment and recovery issues that Envestra has suggested.
Qualifications are unnecessary
Envestra submitted that if qualifications, such as a materiality concept or something similar were included, they would prejudice the effectiveness of the clause.1018
The AER considers this argument to be inconsistent with Envestra's assertion that a court is likely to require Envestra to act reasonably in its reliance on this clause. In making this assertion about how a court would interpret this clause, it is apparent that Envestra considers that the clause contains an implicit 'reasonableness' qualification.
The AER considers that a reasonableness qualification is similar to a materiality qualification. If, as Envestra asserts, a qualification will prejudice the effectiveness of this clause, then the clause's effectiveness is already prejudiced.
The AER considers that this differing views of what the clause does and does not include, adds to the ambiguity of the meaning of the clause.
Current access arrangement
Envestra submits that clause 26.3 has been included in Envestra's standard terms and conditions since 1997.1019
The AER requested Envestra to explain which clause it considered to be analogous to sub-clause 26.3. Envestra submitted that clause 4.4(c) of its 2008–12 access arrangement is analogous.1020
The AER considers that clause 4.4(c) of Envestra's 2008–12 access arrangement is not analogous to sub-clause 26.3. Clause 4.4(c) provides that Envestra is not obliged to provide Distribution Services if the User has not made payment of monies due within 7 days of receipt of a notice of default or has not issued a notice of dispute.
The AER considers that the clauses are not comparable in that clause 4.4(c) requires Envestra to have initiated action for failure to pay monies owing and is limited to ceasing delivery. By comparison, clause 26.3 is significantly broader and allows Envestra to cease delivering gas and cease performing any of its other obligations for failure to pay monies owing. Moreover, under the proposed clause 26.3, there is no requirement upon Envestra to have pursued that debt via a notice of default or a notice of dispute as there is in the existing clause 4.4(c).
Previous review
Envestra submits that this clause has previously been reviewed by several regulators, including the AER in its decision on Envestra's South Australia and Queensland networks.1021
The AER has full discretion when assessing terms and conditions.1022 The AER assesses each access arrangement proposal with reference to the particular proposal and any submission it receives about that proposal. Each access arrangement review is a separate process. The AER takes account of all relevant information, including previous access arrangements and previous AER decisions.
