Domestic contracting arrangements

The results of the most recent reviews showed that of the seven retailers that had not previously achieved a satisfactory level of alignment:

1. Pulse Energy Limited, Just Energy, Energy Direct NZ Limited, Prime Energy Limited and Stewart Island Electrical Supply Authority have improved their contracts and have achieved a high level of alignment with the minimum terms
2. Hunet Limited (Hunet) has not changed its contract and remains poorly aligned.

Of the five new entrant retailers reviewed:

1. Flick Electric Limited and Body Corporate Power Limited have achieved high levels of alignment, consistent with nearly all previously reviewed retailers in the market
2. Ecotricity GP Limited, Giving Energy Limited and Electric Kiwi Limited had lower but satisfactory levels of alignment.

From the alignment reviews we have completed to date, Hunet remains the only retailer that has not achieved a satisfactory level of alignment with our minimum terms. As we alluded to following the 2014 follow-up review, we have summarised Hunet’s results on the Consumers section of our website.

To encourage retailers to continue improving their contracts, we may carry out further alignment reviews in the future.

*New Zealand Energy Limited’s (NZ Energy) contract had also not achieved a satisfactory level of alignment in previous reviews. However, we accepted NZ Energy’s request that its contract not be part of this most recent review. As a smaller retailer supplying an islanded network (Haast), NZ Energy did not consider the minimum terms helpful or applicable to it.

We have completed a further alignment review of eight retailers’ contracts using a similar approach to that followed in previous reviews. The eight retailers reviewed were those that achieved the lowest level of alignment in our 2012 review.

Of the eight retailers reviewed, the 2014 review showed that:

1. King Country Energy Limited’s contract now has a high level of alignment with the minimum terms
2. Pulse Energy Limited and Just Energy have modified their contracts since the 2012 review, but have not reached the high level of alignment achieved by the majority of retailers who were subject to previous reviews
3. Energy Direct NZ Limited, Hunet Limited, Prime Energy Limited, Stewart Island Electrical Supply Authority and New Zealand Energy Limited have not changed their contract, so remain poorly aligned.*

The results of the 2012 review indicated that around 97% of consumers were on contracts highly aligned to the minimum terms. While we are not considering undertaking further comprehensive reviews at this stage, we will be monitoring the contracts of the seven retailers who have not reached the high level of alignment achieved by the majority of retailers. If the seven retailers have not made material improvements to their contracts by 30 September 2014, we will proceed to publish the outcomes of the 2014 review on the ‘Consumers’ section of our website, and consider taking further steps to encourage improvement of their contracts.

* Following the completion of the 2014 review, Energy Direct NZ Limited advised us that it had released its new contract, which came into effect on 14 March 2014. The terms in this new contract were modelled on those of Energy Direct NZ Limited’s parent company, TrustPower Limited, whose contract fully aligned with the minimum terms in the 2012 review. Energy Direct NZ Limited’s new contract will be reviewed in October 2014.

The overall objective of this review is to examine the operational effectiveness of relevant aspects of the domestic contracting arrangements and to identify and recommend alternatives that promote competition in, reliable supply by, and efficient operation of the electricity industry for the long-term benefit of consumers. On 16 April 2013, the RAG published an issues paper seeking feedback on any problems with the operational effectiveness of the domestic contracting arrangements. The RAG currently expects to make its recommendations to us in December 2013.

A follow-up review of the contracts of the eight retailers who did not achieve a high level of alignment will be completed and published during 2013.

The results for the 2012 alignment review are summarised in the report below. The 15 retailers that had their contracts reviewed as part of the 2011 review have improved the alignment of their contracts significantly since their first review. On average, these retailers now achieve "substantial" or "full" alignment with 86% of the minimum terms.

Seven retailers had their contracts reviewed for the first time. With a couple of exceptions, these retailers have not performed as well as the retailers who have been involved in the previous reviews.

A comparison of the two groups suggests the review process has had a positive impact on the extent to which retailers' contracts align with the principles and minimum terms. This conclusion is supported by feedback from retailers during the review process.

In general, consumers should now have much greater certainty that their domestic electricity contracts protect their interests than when this process commenced in 2010.

For this 'alignment review' we adopted a similar approach to that followed by the Electricity Commission for the June 2010 'baseline review'.

The results for the 2011 alignment review are summarised in the 2011 alignment review consolidated report below. Three retailers, TrustPower, Genesis Energy and Powershop, substantively amended their domestic electricity retail contracts in line with the minimum terms and conditions over the 12 month period between the 2010 baseline review and the 2011 alignment review, and achieved full or substantial alignment with between 89% and 99% of the applicable minimum terms and conditions.

These matters, and the intention to address them, were signalled to retailers by the Electricity Commission in September 2010.

We completed our consideration of the submissions received on the proposed amendments and prepared and published a revised set of principles and minimum terms and conditions for domestic retail contracts in June 2011. These are published below.

At a high level, the baseline review was carried out on the following basis, (the assessment methodology contains more detail, and retailers were written to about the baseline review process):

• The review used only published or publicly available information as at 15 June 2010;
• Assessment was qualitative in nature and indicated the extent to which each clause in the minimum terms and conditions was met by retailers' published terms and conditions and any associated documents. Ratings range from Full alignment, through Substantial, Moderate, Low, to None, and included a Not Applicable (N/A) rating for some terms;
• The output of the baseline review was an individual report for each retailer (which was not published) and a non-attributable, consolidated, high-level report (Consolidated Report) that has been made publicly available. In addition, a second more detailed report was prepared for retailers (Retailers' Report) to help them consider what changes they may wish to make before the planned first formal alignment review in June 2011;
• Individual reports and the consolidated report were finalised in September 2010; and
• The GIC also carried out its baseline review of retail gas contracts at the same time. This provided an opportunity for sharing information to help minimise effort required on the part of dual-fuel retailers.

The need to intervene in the market in the area of domestic retail contracting arrangements was considered, and various options ranging from taking no action (i.e. relying on general consumer protection law) through to a fully regulated domestic retail contract were explored.

A draft set of Reasonable Consumer Expectations (RCEs) was identified for domestic electricity consumers and proposed for consultation, and the extent to which the options identified could assist in meeting those expectations was assessed. It is important to emphasise that the set of expectations was written from the consumer perspective and related to matters wider than just the retailer contracting relationship.

In its consultation paper, the Electricity Commission proposed a voluntary approach to retail contracting arrangements based around a comparatively narrow set of suggested minimum terms and conditions, supported by a set of good contracting principles. The RCEs were used to develop the draft set of principles and terms for consultation. It should be noted that the RCEs were not intended to be the performance standard for assessing compliance per se; rather, they provide a framework for identifying terms and conditions that reflect the reasonable expectations of consumers (as referred to in paragraph 38 of the Government Policy Statement).

Having considered submissions, the Electricity Commission:

• remained of the view that there is a need to take some action to protect the interests of consumers in their domestic retail contracting arrangements; and
• considered that there is reasonable support for its proposed approach (even though some of that support comes from parties who are not convinced of the need to intervene at all).

In finalising the domestic retail contracting arrangements, the Electricity Commission:

• made some amendments to the set of RCEs; and
• made some amendments to the set of contracting principles and minimum terms.

We concluded the review of the alignment of domestic electricity contracts with the suggested minimum terms and conditions that was initiated as a two-year process in 2010. The 2012 alignment review report is available from this page (together with the results of the June 2010 baseline review and the July 2011 alignment review).

The report sets out the results of the 2012 review and comments in general terms on the extent of alignment with the minimum terms across retailers and the improvement in alignment since the baseline review. The key findings were that:

• Most retail contracts are now highly aligned with the minimum terms
• Retailers whose contracts have not previously been reviewed generally have a lower degree of alignment
• The review process appears to have positively influenced domestic retail contracts

The monitoring of retailers' adoption of the proposed arrangements took place over a two-year period. At the end of the two-year period, an assessment will be made as to whether the voluntary approach is achieving satisfactory outcomes, or whether alternative approaches are warranted.

Monitoring starterd in June 2010 with a baseline review of the level of alignment between each retailer's own contracting documents, and the published set of suggested minimum terms and conditions. The baseline review was relatively informal and individual results were not made public.

The first formal review took place at the end of the first year (in July 2011), with the final review; one year later (in July 2012).