Library: Departments of Premier & Cabinet Treasury & Finance Level 5, 1 Macarthur Street East Melbourne Victoria 3002 . „ / DX 210759 MM0 ° Ph: 03 9651 5660 Fax: 03 9651 5659 Email: [email protected] • /v'iiMMMnii
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Office of the Regulator-General,*
Vic. JOINT DEPT. INFO. CENTRE 2 7 NOV 1997
LEVEL 3 1 MACARTHUR STREET E. MFI BOURNE VIC. 3002
ANNUAL REPORT
1996-1997
* * ** Office of the Regulator-General,* Victoria ISSN: 1327-6964 © 1997 Office of Regulator-General, Victoria. 13 October 1997
The Hon Roger M Hallam, MLC Minister for Finance Parliament House MELBOURNE Vic 3002
Dear Minister
Annual Report 1996-97 I have pleasure in presenting the Office of the Regulator-General's Annual Report for the year ended 30 June 1997. The year presented a number of challenges which the Office's executives and staff met in a most professional manner. I know the outgoing Regulator-General would wish me to acknowledge their contribution and to publicly thank them for it. The report has been prepared in accordance with the Government's guidelines and is an accurate account of the Office's third year of operation.
Yours sincerely
JOHN C. TAMBLYN Regulator- General CONTENTS
Page
1. The Year Under Review by the Outgoing Regulator 8 New Regulator-General 8 New mandate 9 Other mandates 9 Anticipated mandate 9 Focus on electricity 9 Positive outcomes Need for regulatory vigilance Risk of regulatory dependency Water 14 Operational audits Licensing of non-metropolitan urban water authorities Grain handling and storage 17 Port services 18 Rail 18 APEC Regulators' Forum 20 Acknowledgments 20 Customer input Industry input Other agencies The Office's staff 2. Divisional Reports 22 Major challenges/realignment 22 Pricing and Performance Division 23 Responsibilities Achievements Electricity Industry Guideline No. 3 : Regulatory Information Requirements Electricity Industry Guideline No. 5: Connection and use of System Agreements Distribution loss factors System security VicPool monitoring AFL Park incident Page
Camberwell surge incident Half hourly metering charges Metering solutions for 160MWh/yr customers Preparation for the post-2000 distribution network charges review Electricity customer service indicators and performance reports Water industry performance indicators Electricity Tariff Order and Port Pricing Order approvals Retailer of last resort Compliance audits December pool prices Customer Relations Division 38 Responsibilities Achievements Supply and Sale Code Electricity Industry Guideline No. 4 : Accounts Collection Cycle Electricity Industry Customer Charter Customer charters information campaign Trade Practices Act - implied conditions and warranties Tenants' obligations Water customer contract and customer charter reviews Customer Consultative Committee Memorandum of Understanding with the Electricity Industry Ombudsman A utilities ombudsman Customer information Prepayment schemes Competition & Market Conduct Division 46 Responsibilities Achievements Electricity Licensing Electricity access to distribution networks and customer initiated augmentation Amendment of Electricity Industry Guideline No. 2 : Distribution Systems Augmentation Own works augmentation review National electricity market Mutual recognition of electricity licences Land Access Code Page
Policy and Planning Division 52 Responsibilities Achievements Strategic review of economic regulation Information technology strategic review Long term strategic planning Regulatory Plan Contract management Human resources and recruitment The Office's Structure 56 The Regulator-General 56 Appointment and qualification The individuals and their terms
Associate Regulators-General 56 Staff 57 The Executive Team 57 Ian Wilson, Divisional Manager, Pricing and Performance Karen Chalmers, Divisional Manager, Customer Relations Velu Ramasamy, Divisional Manager, Competition and Market Conduct Fiona Delahunt, Project Director, Pricing and Performance Cameron Anderson, Acting Divisional Manager, Policy and Planning The Regulatory Framework 59 Establishment of the Office 59 Regulated industries and relevant legislation 59 Key legislation and other documents 60 Light handed 61 Objectives 61 General Industry specific Statements of government policy Objectives versus powers Page
Statements of government policy 62 Independence of the Office 63 Functions 64 Powers 64 Price regulation Other regulatory powers Information gathering powers Inquiries and reports Enforcement powers 65 Appeals 65 Appeal panel Appeals to the courts Customer Consultative Committee 67 5. Financial Statements 69 Statement of Financial Position Operating Statement Statement and Cash Flows Notes to and forming part of the Financial Statement Certification of the Financial Statement Auditor-General's Report 6. Appendices 86 A. The Office's publications B. Legislation and amendments C. Office of the Regulator-General Act 1994 Part 3A Report D. External consultancies E. Human resources F. Freedom of Information G. Pecuniary interest declarations CHAPTER I THEYEAR UNDER REVIEW BY THE OUTGOING REGULATOR
THIS IS THE OFFICE'S THIRD ANNUAL REPORT
It reports the Office's activities in the period 1 July 1996 to 30 June 1997. Separate publications, detailed in Appendix A, report on particular aspects of the regulated industries for which the Office has responsibility.
New Regulator-General
On 18 June 1997, the Treasurer and Acting Minister for Finance, the Hon Alan Stockdale, MP, announced the appointment of Dr John Tamblyn, a senior adviser to the Australian Competition and Consumer Commission (the ACCC), as the new Regulator-General.
In announcing the appointment, Mr Stockdale said -
"... Dr Tamblyn would bring to the position wide ranging experience and expertise in public utility regulatory practice and in competition policy and law. As a senior officer with the v4CCC and with a strong background in regulation of utilities, Dr Tamblyn is an excellent candidate to fill this position. In particular, his experience in structural reform, pricing and regulation of the electricity and gas industries will be invaluable in light of Victoria's continuing Government business enterprise reform program."
There is no doubt that Dr Tamblyn brings a wealth of knowledge and experience to the position and is well placed to lead the Office in the challenges facing it over the next five years.
The outgoing Regulator-General, Robin Davey, resigned with effect from 30 June 1997. His appointment as Regulator-General would have otherwise expired on 30 June 1999. In the year 2000, the Regulator-General is scheduled to set electricity distribution network charges to apply from 1 January 2001. The Office is also scheduled to make major decisions in relation to other regulated industries in the year 2000.
He did not consider it appropriate that he be re-appointed to set the post- 2000 distribution network charges or to make the other major decisions required to be made in the year 2000. Preparations to set the post-2000 charges and to make the other decisions has commenced. He took the view that his replacement needs to satisfy himself as to the adequacy of the preparations and that he should have the opportunity to influence them. He informed the Government accordingly in October 1996 while at the same time indicating that he would remain until a replacement was found.
The outgoing Regulator-General is confident that the Office will, under the leadership of Dr Tamblyn, go on to bigger and better things. New mandate
During the year, provision was made in the Rail Corporations Act 1996 for that Act to be relevant legislation for the purposes of the Office of the Regulator-General Act 1994 and for the railways and rail infrastructure managed by Rail Track to be a regulated industry.
Rail Track manages the non-suburban rail infrastructure in Victoria, including access and signalling issues.
The Office's objective under the Rail Corporations Act 1996 is to ensure that users have fair and reasonable access to declared railway infrastructure (ie-declared by the Governor in Council on the recommendation of the Minister for Transport).
Other mandates
The relevant provisions in the Rail Corporations Act 1996 bring to five the number of regulated industries within the ambit of the Office. Other industries within the ambit of the Office are -
• the electricity industry (the Electricity Industry Act 1993);
• the Melbourne water and sewerage industries (the Water Industry Act 1994);
• the industry of facilitating export shipping of grain (the Grain Handling and Storage Act 1995); and
• certain services in the ports of Melbourne, Geelong, Portland and Hastings (the Port Services Act 1995).
Anticipated mandate
The Office is also preparing itself for a role in relation to the gas industry similar to its role in relation to the electricity industry. It anticipates receiving a mandate in relation to the gas industry in the first half of the 1997-98 financial year.
Focus on electricity
As in previous years, the Office's main focus has been on the electricity industry.
Positive outcomes
Outcomes to date of the Government's restructuring and re-regulation of the Victorian electricity industry auger well for the future -
• available capacity factors of three of the brown coal generators (Hazelwood,Yallourn and LoyYang A) have improved significantly (from under 70% to over 90%); THE YEAR UNDER REVIEW BY THE OUTGOING REGULATOR
• as a result, spot prices in the wholesale market have been significantly lower than anticipated - on a twelve monthly average of $20-25, compared to estimates of $35-40; • a measure of the competition of the retail level may be obtained by reference to the number of retail licences (nine) that have been issued by the Office since the initial five retail licences issued by it in October 1994; • another measure of the competition at the retail level may be obtained by reference to the significant actual reductions (an average of 10%) that the latest tranche of customers who are eligible to shop around are receiving on their bills; • prices for residential customers (consuming 5,500kWh/pa) who are not yet eligible to shop around have been reduced by 6.9% in real terms since the Government froze prices in July 1993 and will continue to reduce by 1% per annum in real terms under the price path set by the Government until the end of the year 2000 when all customers will be eligible to shop around; • standards have generally been maintained and in some cases improved - disconnections for non-payment reduced significantly in 1996 compared to 1995 (by 30% for residential customers and 29% for business customers) and minutes off supply per customer have reduced from 266 minutes in 1993-94* under the SEC to 218 minutes in 1996; • residential and small business customers are better off than they were under the old SEC by virtue of a new contract (known as the Supply and Sale Code) that the Office negotiated on their behalf in consultation with its customer committee; • three of the distribution businesses now provide free no fault power surge cover to all residential customers (Eastern Energy provides unconditional cover while CitiPower and United Energy provide cover to residential customers who pay on time);
*There are difficulties in making direct comparisons between the SEC and the Jive distribution businesses; if for no other reason that the SEC's figures do not include the Municipal Electricity Undertakings (MEUs) which were incorporated into the distribution businesses. The MEUs added approximately 300,000 customers to the SEC customer base of approximately 1.7m. Had minutes off supply figures for the MEUs been available, the State-wide minutes off supply result in 1993-94 would have been lower, perhaps 240-250 minutes. Even compared with this lower figure, the 1996 minutes off supply figure is significantly lower. • two of the distribution businesses (Powercor and Solaris) voluntarily doubled the payments that all businesses are required to make where they fail to meet guaranteed service levels for such things as keeping appointments on time; and • an Electricity Industry Ombudsman scheme has been established and the Ombudsman is resolving disputes between customers and electricity retailers. The outcomes are all the more meritorious considering - • the comparatively short time frame in which they have been achieved - the Government only commenced to restructure and re-regulate the industry in October 1993;
• the complexity and disruption involved in moving from a publicly owned vertically integrated monopoly through a period of Government owned disaggregated corporate entities (which included merging eleven Municipal Electricity Undertakings into three of the five distribution businesses) to the privatisation, by way of trade sales, of the five distribution businesses and the three major brown coal stations; and • the Victorian regulatory regime administered by the Office only commenced in October 1994.
Need for regulatory vigilance
While the outcomes do auger well for the future, the need for regulatory vigilance on the part of the Office remains -
• The Office referred to the Australian Competition and Consumer Commission for investigation as possible breaches of the Trade Practices Act 1974 certain clauses in the agreements for the sale of Yallourn and Hazelwood power stations that had the effect of limiting Hazelwood's output pending the commencement of the national electricity market.
• With record summer temperatures testing system security (which is the responsibility of Victorian Power Exchange), the Office has requested VPX to review the Pool Rules, the System Code and current arrangements for the provision of ancillary services to determine whether they are sufficiently robust to deliver appropriate market based responses. THE YEAR UNDER REVIEW BY THE OUTGOING REGULATOR
• Although the number of complaints to the businesses and to the Electricity Industry Ombudsman are small relative to customer numbers (some 1,032 : 2 million), it is perhaps significant that many express concern about quality and reliability of supply. Such concerns are increasingly being reported in the media.
The reports reflect customer concerns with -
hot spots (localised areas of poor reliability);
some instances of long response times to restore supply;
the increased impact on customers of even small interruptions to supply; and
a reluctance by some businesses to compensate customers for power surges.
The Office has been, and is, addressing those concerns by-
undertaking a review of relevant performance standards in consultation with the businesses, customers and other interested parties;
developing in consultation with the distribution businesses a revised reporting regime;
developing a program to audit the integrity of the reporting regime; and
working with the Australian Competition and Consumer Commission and taking its own initiatives to make consumers (as defined in the Trade Practices Act 1974) aware of their rights under that Act's implied conditions and warranties. The Office and the Commission take the view that a business is liable to compensate a consumer for damage caused by a power surge irrespective of the cause of the surge.
Risk of regulatory dependency
Ironically, while the need for regulatory vigilance on the part of the Office remains, one of the great challenges facing the Office is how best to facilitate innovation and avoid regulatory dependency or a narrow black letter law approach by participants to customer issues.
For example, while the Government's arrangements for a smooth and orderly transition to open competition in the year 2001 limit the scope for tendering of public lighting, the Office was supportive of, and facilitated, a tendering proposal by the Municipal Authority Purchasing Service. MM?
The Service was well aware that the Government's arrangements gave the distribution businesses exclusive rights to supply electricity for unmetered public lighting in their areas. It was nevertheless, hopeful that the businesses would innovate and, in responding to the tender, offer some trade qffs such as a discount off the regulated rate for electronic payment, or other payment options that may enhance a business' cash flow - such offers building goodwill which would endure post-2000 when the exclusive rights are terminated.
One of the distribution businesses which took issue with the Service's approach was encouraged by the Office to respond to the tender accordingly, rather than depending on the black letter of the regulatory framework. Another of the distribution businesses which complained that the Office had singled it out for criticism over its level of disconnections for non-payment was met with the response that it was not the Office that had singled it out for criticism, but the business itself and that it would continue to do so for as long as it exhibited the degree of regulatory dependency shown in its letter of complaint. That is, the community's sensitivity to the disconnection issue is such that it calls for innovation that has been shown by other businesses in reducing their levels, not just simple compliance with approved procedures that the business put in justification of its levels. The procedures are minimum procedures only. In the transition to customer choice, innovation above and beyond the minimum will distinguish one business from another and will result in positive statements, such as the Office has made about other businesses which have reduced their disconnection levels.
It is pleasing to note that more recently the business has reduced its disconnection levels and has been reported to the effect that while its first priority after privatisation had been cost cutting, customers have now become its main focus. It is not only the supply side participants that exhibit regulatory dependency. There is also a tendency on the part of some customers that suggests they too may become regulatory dependent if the Office does not guard against it. Thus, in order to encourage innovation in retail contracts for contestable customers, the Office has resisted requests to establish a standard form of such contracts; preferring to deal with the requests by way of guidelines on matters that should be considered by customers in negotiating such contracts. THE YEAR UNDER REVIEW BY THE OUTGOING REGULATOR
That is not to say that the Office is unsympathetic to the requests for standard form contracts. Their development is, however, a matter for industry associations. The associations are better placed than the Office to develop contracts tailored to meet their members' needs. This will be particularly important for the next tranche of customers (those with a consumption of 160MWh/year per annum) that will become contestable on 1 July 1998. Individually, those customers' bargaining power may not match the retailers. They will need assistance from their industry associations. For its part, the Office will need to assist the associations to empower their members.
Water
In October 1995, the Government informed the Office that water pricing and water pricing policy will, for reasons outlined in last year's annual report, remain under the Governments control until at least 1 July 1998.
Accordingly, the Office's work in relation to the water industry has focused on the following non-pricing issues -
• the development of operational audits to assist the three Melbourne metropolitan retail licensees to identify and address areas of potential non-compliance with their licence obligations and to assist the Office to carry out its compliance, enforcement and comparative reporting roles; and
• participation in the development of a licensing regime to apply to the three major non-metropolitan water authorities.
Operational audits
The Office has developed in consultation with representatives of the three Melbourne metropolitan retail water licensees (City West Water, South East Water and Yarra Valley Water) and the Department of Natural Resources and Environment's Water Agencies Branch, A Framework for Approving, Conducting & Reporting Operational Audits.
The Framework has been designed to -
• foster a culture of compliance, by providing licensees with an opportunity to rectify non-compliance before the Office gives consideration to enforcement action;
• ensure that the audits are conducted independently and yield rigorous, timely and comparable results, thereby facilitating competition by comparison and an effective and consistent approach to industry regulation; • minimise the probability that significant non-compliance will go undetected by the licensees and the Office;
• maximise the cost effectiveness of the audits by taking a risk based approach to defining their scope;
• produce comparable audit approaches and outcomes across the industry by specifying a minimum audit requirement and a standard reporting framework; and
• be readily adapted to future audit requirements for the purposes of the price reviews that the Office anticipates it will undertake when it is given a responsibility for pricing issues.
In accordance with the Office's assessment of the adverse consequences of non-compliance, the audits will focus on -
• the reliability and quality of water and sewerage services;
• access to services for customers experiencing difficulties in paying their water bills;
• complaint handling, escalation and resolution and the handling of customer feedback generally; and
• liability in respect of implied contractual obligations.
Each licensee is free to extend the scope of the audit, for example, to assess compliance with innovative conditions in its customer contract that provide benefits to customers greater than those in the Office's benchmark contract - the Office has previously indicated its willingness to highlight such innovations in its comparative reports, provided it has independent verification that the licensee is delivering its particular innovations.
While the time taken to establish the operational audit framework has delayed the publication of the Office's comparative report on the performance of the three Melbourne metropolitan retail licensees in 1996, it does provide the opportunity to bring forward a planned move to financial year reporting. That is, the Office's initial Customer Service Indicators Report for 1995 was, consistent with the licensees' then reporting, on a calendar year basis. The licensees have, however, moved to financial year reporting and the Office's future performance reports will align themselves with that time frame. This move will also make the reports more relevant to the Office's anticipated role in relation to pricing issues. Thus, the first operational audit in accordance with the newly developed framework, to be conducted in July/August 1997, will cover the full 1996 calendar year plus the six months to 30 June 1997. THE YEAR UNDER REVIEW BY THE OUTGOING REGULATOR
Licensing of non-metropolitan urban wafer authorities In November 1996 the Office accepted an invitation from what was the Water Bureau (now the Water Agencies Branch) in the Department of Natural Resources and Environment to participate in the development of operating licences for the three major non-metropolitan urban water authorities (Barwon Water, Gippsland Water and Coliban Water). At the time, it was envisaged that the licences, to be issued by the Government, would be effective from 1 July 1997.
The main focus of the Office's participation in that process was to - chair and resource a working group to develop a benchmark customer contract and performance standards for the proposed licensees; and • develop a set of performance indicators by which the proposed licensees would report customer and technical performance to the Office from 1 July 1997. The invitation to the Office to take the lead role in the working group was made in recognition of the expertise gained by the Office in reviewing the Melbourne metropolitan retail licensees' customer contract and performance standards, as reported in last year's annual report. In March 1997, the Office was informed by the Department of Natural Resources and Environment that - • the Government was, in the context of the national framework for water reform set by the Council of Australian Governments (COAG) and the Neal Reports, undertaking a substantial analysis of key issues related to metropolitan water reform; • while there are significant differences between metropolitan and regional areas, it was from the analysis apparent that there are a number of policy issues with a high degree of commonality; • key decisions need to be synchronised in many areas of the water policy framework and further adjustments may need to be made; • work is being carried out by the Government in a number of areas including - analysis of appropriate asset valuation mechanisms and impacts of a tax equivalent dividend regime; and boundary reviews to identify opportunities for further customer benefits; and • the Government has therefore decided to defer licensing of non-metropolitan urban water authorities for the present time.
The Department's advice concluded that the efforts towards developing a licensing regime for non-metropolitan urban water authorities would not be wasted and that many benefits of licensing can be achieved, or partly achieved, without having a formal licence. In this regard the Department urged the Office to continue to develop customer contracts and to take any other actions to deliver immediate customer benefits.
The Office is, as suggested by the Department, continuing to -
• develop customer contracts for such authorities in conjunction with its Customer Consultative Committee; and
• take appropriate action to deliver benefits to customers of such authorities.
Grain handling and storage
The Office's mandate in respect of the industry of facilitating the export shipping of grain involves, amongst other things -
• monitoring Vicgrain's compliance with the price path set by the Government forVicgrains on its acquisition of the Grain Elevators Board; and
• ensuring thatVicgrain provides access to port facilities on fair and reasonable terms and conditions.
In April 1997 the Regulator-General travelled to Horsham to meet with representatives of grain growers and traders who expressed concern to the effect that Vicgrain charges the one price for handling grain in the ports of Geelong or Portland irrespective of whether it or the growers/traders deliver the grain to the port.
It was suggested that the representatives should endeavour to negotiate an unbundled price with Vicgrain, relying on sections 17 and 18 of the Grain Handling and Storage Act 1995,
Section 17 provides, in effect, thatVicgrain must provide access to the port facilities on fair and reasonable terms and conditions and specifically provides that -
"a condition that other services must be acquired in order to have access ... is not a reasonable term or condition." THE YEAR UNDER REVIEW BY THE OUTGOING REGULATOR
Section 18 provides, in effect, that if Vicgrain and the growers/traders cannot agree, the growers/traders may apply to the Office for a determination specifying the terms and conditions on which access is to be provided.
The Office emphasised that a commercially negotiated outcome is to be preferred to a bureaucratically imposed one and the meeting concluded on the basis that the growers/traders would consider their options and endeavour to negotiate a commercial outcome with Vicgrain.
The Regulator-General subsequently met with the Chief Executive Officer ofVicgrain and was given an assurance to the effect that if the growers/traders were to deliver grain in commercially viable quantities, Vicgrain would negotiate fair and reasonable unbundled terms and conditions.
Port services
The role of the Office in relation to port services involves -
• access issues; and
• overseeing initial price paths set by the Government on the sale of each of the ports of Melbourne, Geelong, Portland and Hastings.
No port access issues arose during the year under review.
Overseeing the initial price paths includes approving the prices that may be charged by the Victorian Channel Authority and the ports of Melbourne, Geelong, Portland and Hastings. In performing this role, the Office's objectives include protecting the interests of users of prescribed services by ensuring that prescribed prices are fair and reasonable whilst having regard to the level of competition in, and efficiency of, the industry. Giving effect to this objective involves, amongst other things, evaluating submissions from the regulated entities seeking approval of their prices as being in accordance with the price path set by the Government. Approvals are not given as a matter of course; nor are they routine.
Applications by the Victorian Channel Authority and the Port of Geelong for approval of the prices that they may charge in 1997-98 were rejected by the Office as not complying with the price path set by the relevant Pricing Orders and were required to be re-worked before being approved.
Rail
As at 30 June 1997, no railway infrastructure had been declared under the Rail Corporations Act 1996. Accordingly, the Office has not had occasion to exercise its powers under that Act. The Office's budget, staffing and resources
The Office's budget of $8m was adequate to enable the Office to fulfil its mandates during the year under review. Indeed, the Office underspent its budget.
Whether a budget of $8m will remain sufficient in the coming years will turn on, amongst other things -
• the extent of the resources and finances necessary to prepare for, and undertake, the review of post-2000 distribution network charges and the other major tasks that the Office must prepare for and undertake in the years 2000-2002;
• the scope of the mandate to be given to the Office in relation to the gas industry;
• the extent to which rail infrastructure may be declared and the Office called on to exercise its mandate under the Rail Corporations Act 1996; and
• whether the Office is given any other mandates in relation to other industries.
Another factor that will affect the adequacy of the Office's budget is the continued difficulty that the Office is experiencing in recruiting and retaining key personnel.
As in previous years, staff numbers were held to a figure commensurate with -
• the retention within the Office of a corporate knowledge and understanding of the industries it regulates; and
• a skills base necessary to manage outside consultants or experts who may assist in meeting peak demands, such as a major price review.
The number of staff employed by the Office at 30 June 1997 was 37. THE YEAR UNDER REVIEW BY THE OUTGOING REGULATOR
APEC Regulators' Forum During the year, the Regulator-General attended, as Australia's representative, two meetings of the APEC Regulators' Forum.
The Forum has been established by the Asia Pacific Economic Cooperation Energy Working Group. The Group is engaged in a major work program to identify the policies, institutional arrangements and legislative and administrative regimes most conducive to business investment in power projects and to prepare a cooperative plan of action to address them. The aim of the Forum is to provide a mechanism to pool expertise and compare experience in managing the regulatory changes required to reduce the risks faced by private sector participants in power projects in the region. As the Australian nominee, the Regulator-General's role is to bring an Australian perspective to the work of the Forum. The Forum has decided that its next meeting is to be in Melbourne in November 1997. The decision recognises Victoria's leadership in electricity industry reform within APEC member economies. Acknowledgments
Customer input As in previous years, the Office continued its commitment to its customer stakeholders through its Customer Consultative Committee. This Committee and its working groups make an invaluable contribution to the Office's deliberations. Again the Office is indebted to the Committee members and to those who participated in working group activities. Their time and effort is much appreciated and the Office's outputs the better for it.
Industry input Also as in previous years, the Office continued its commitment to consultation with its industry stakeholders. The goodwill on the part of the regulated industries engendered by this commitment continued during the year. The Office is once again most appreciative of the time and effort that individuals and the companies that they represent have made available for the purposes of consultation. As with the input by the Office's customer stakeholders, the Office's outputs are the better for the time and effort spent in consultation with its industry stakeholders. Other agencies
The Office has continued to have a close and productive working relationship with the following departments and agencies and is most grateful for their contribution to the Office's work -
the Australian Competition and Consumer Commission (the outgoing Regulator-General was an Associate Member of the Commission).
• the Department of Treasury & Finance, in particular -
its Energy Projects Division, Water Reform Unit and Ports Reform Unit; and
its Corporate Resources Agency, which provides human resources and financial management services under instructions from the Office;
• the Department of Natural Resources and Environment, in particular its Water Bureau/Water Agencies Branch;
• the Department of Human Services;
• the Electricity Industry Ombudsman;
• the Environment Protection Authority;
• the NSW Independent Pricing and Regulatory Tribunal; the Office of the Chief Electrical Inspector; and
• the Office of Fair Trading & Business Affairs. The Office's staff Again, the Office s achievements reflect an effort beyond that normally made by those employed in the public service. As in previous years, it gives great pleasure to publicly acknowledge their effort and to publicly thank all members of the Office's staff for it. CHAPTER 2 DIVISIONAL REPORTS
Major challenges/realignment
Major challenges faced by the Office over its next three years include -
• in the electricity industry -
the determination in the year 2000 of distribution network charges to apply post-2000 - as outlined below, preparation for this task has commenced with the publication of Electricity Industry Guideline No. 3: Regulatory Information Requirements;
ensuring a smooth and orderly transition to open competition involving, amongst other things, major education programs to enable customers to make an informed choice of supplier and resolving metering versus deemed load profile issues;
developing and implementing an operational audit regime similar to that developed in relation to the water industry;
the review of relevant standards and, where appropriate, clarification and restatement of quality and reliability standards.
• in the water industry -
the possible expansion of the Office's mandate (currently limited to non-price aspects in relation to the three Melbourne metropolitan retail water and sewerage companies) to non-metropolitan urban authorities and rural water authorities.
• in grain handling and storage -
the completion of the review by 30 June 2000 to decide whether the facilities used in the ports of Geelong and Portland for grain handling and storage have ceased to be significant infrastructure facilities within the ambit of the Grain Handling and Storage Act 1995.
• in port services -
the completion of a review by 1 January 2000 to decide whether prescribed services within the meaning of the Port Services Act 1995 are to be the subject of price regulation and, if so, the form of that price regulation. • in the railways -
anticipating the possible declaration of railway infrastructure and dealing with the access issues that may flow from such a declaration. • in the gas industry -
anticipating the Office receiving a mandate in relation to the gas industry similar to that currently held by it in relation to the electricity industry and all that will entail. While the Office's structure over the past three years was appropriate to meet the challenges it faced, experience in meeting those challenges suggested the need for a realignment of the structure not only to meet the major challenges outlined above but also to manage its routine continuing tasks.
The major features of the realignment are - • combining in one Division (Pricing and Performance) the roles of three former functional groups, namely, the Business Analysis, the Pricing and the Performance Standards groups and giving the new Division responsibility for performance monitoring and reporting; and
conferring responsibility for strategic planning and internal policy co-ordination on a Policy Planning Division, based on the former Corporate Resources Group. The Divisions that resulted from the realignment are described below at the commencement of their reports on their activities during the year under review.
Pricing and Performance Division
Responsibilities
The responsibilities of the Pricing and Performance Division are to -
• provide strategic advice to the Regulator-General; • develop and conduct the post-2000 electricity distribution network charges review; DIVISIONAL REPORTS
As foreshadowed in last year's annual report, the Division developed a guideline outlining principles, consistent with the regulatory regime and good electricity industry practice, against which the Office may decide whether connection or use of system agreements are fair and reasonable.
The guideline is designed to assist distribution businesses, retailers and customers understand the principles upon which the Office will decide whether the terms and conditions of connection and use of system agreements are fair and reasonable.
Distribution loss factors
The Pool Rules that govern the operation of Victoria's wholesale electricity market provide, in effect, that -
• Victorian Power Exchange (VPX) must allocate distribution losses to second tier customers (ie - a non-franchise customer which buys electricity from a retailer other than the host retailer) by applying relevant distribution loss factors listed in a schedule to the Rules; and
• distributors must perform an annual review of the distribution loss factors for their business and submit them to the Pool Consultative Committee by 31 March in each year for approval to take effect from 1 July each year.
Prior to 1 July 1996, the Pool Rules required VPX to calculate loss factors on an average basis at each of four supply/voltage levels. There was no differentiation to take account of variations in losses attributable to the length of a customer's supply line.
In October 1995 VPX convened a Distribution Losses Working Group, consisting of representatives of each distribution business for the purposes of reviewing the distribution loss factors to be applied from 1 July 1996.
The Working Group's output consisted of a paper containing two tables of distribution loss factors - one showing distribution loss factors averaged across all customers at each connection voltage level and the other showing loss factors for short and long subtransmission lines and high voltage distribution lines. The Working Group's paper was submitted to the Pool Consultative Committee after it had been considered by the Contestable Market Steering Committee which had reviewed an earlier version of the paper and endorsed the use of loss factors for short and long subtransmission lines and high voltage distribution lines. The Pool Consultative Committee includes a wide cross section of the electricity industry - it has representatives fromVPX, the generation sector, pool customers including distribution businesses and retailers, and PowerNet Victoria. The Contestable Market Steering Committee was comprised of representatives of VPX, the distribution businesses and retailers and was established to ensure a smooth and orderly transition to the competitive market for the 750MWh/yr tranche of customers that became contestable on 1 July 1996.
The Pool Consultative Committee voted 8 to 1 (with 1 abstention) in support of the de-averaged loss factor alternative.
It was not until 5 July 1996 that the proposed amendments to the Pool Rules to give effect to the Pool Consultative Committee were received by the Office for its consideration and, if appropriate, its approval.
The necessity to consult with interested parties delayed the Office's decision whether to approve the amendments until October 1996 when it amended the Pool Rules to allow for the introduction of de-averaged distribution loss factors with effect from 1 Julyl996.
In January 1997 Powercor issued a Supreme Court challenge to the Office's amendment of the Pool Rules. As the Office understands it, Powercor does not challenge the merit of the Office's decision but focuses on the Office's procedures and, in particular, the Office's power to make the amendment effective from 1 July 1996.
The Office is defending the challenge.
System security
Hundred year high temperatures during the 1996-97 summer tested the ability of Victoria's restructured and privatised electricity industry to cope with higher than expected peak electricity demands.
While the system did cope with demand, a number of other matters also emerged which have potential to significantly impact the overall supply /demand balance in the Victorian system. These matters include -
• developments at the national level leading to the termination of the inter-State Interconnection Operating Agreement and a commitment by Victoria to supply more electricity to South Australia if called upon to do so; DIVISIONAL REPORTS
• Ecogen's decision to temporarily mothball its gas fired Newport Power Station; and
• a higher than predicted underlying growth in electricity sales during the year.
The above factors, combined with the summer peak gave rise to concerns -
• about system security generally; and
• whether the Pool Rules governing the operation of the wholesale market are sufficiently robust to deliver appropriate market based responses to any system security shortcoming.
System security is the responsibility of the Victorian Power Exchange (VPX). Section 41C of the Electricity Industry Act 1993 provides, amongst other things, that the functions of VPX are to -
• control the security of the electricity system;
• operate the electricity transmission system;
• plan, and direct the augmentation of, the electricity transmission system; and
• provide information and other services to facilitate decisions for investment and the use of resources in the electricity industry.
It is the Office's preferred position that where practicable, market forces address system security issues. Where it is not practicable for market forces to address system security issues or in the event of the market failing to do so, it is the function of VPX to address and resolve the issues. It is for the Office to monitor VPX's performance in those regards.
To assist the Office m performing its functions, the Office has engaged an independent consultant to review -
• the wholesale marketing arrangements (including the Pool Rules, the System Code and current arrangements for the provision of ancillary services) with regard to managing system security and to recommend any necessary improvements;
• the long term financial incentives for wholesale market participants to manage peak demands and, to the extent that the review identifies any deficiencies in that regard, to recommend how such deficiencies might be addressed; and • the operation of the wholesale market during times of system restraint and peak demand periods to determine whether it is sending appropriate signals to market participants on system security issues and to the extent it is not, to recommend appropriate changes.
The outcome of that review will assist the Office in its oversight of VPX's administration of the wholesale market and will also contribute to further necessary work on refining the Pool Rules and the administration of the system security arrangements. VicPool Monitoring There is a risk that unless the Office is ever vigilant, pool participants may seek to game the pool (ie - take advantage of unintended consequences of Pool Rules) or, even worse, act in concert to fix pool prices.
To minimise such risk, the Office has established a protocol with Victorian Power Exchange (VPX) which provides forVPX to monitor, and report to the Office on, the behaviour of pool participants. The protocol describes -
• matters to be monitored by VPX relating to the competitive efficiency of the wholesale market for electricity including, but not limited to, four areas of concern, namely, participant behaviour, market conduct, market design adequacy and wholesale market outcome;
• ranges and levels of activities which, if exceeded, will require VPX to notify the Office accordingly. The monitoring is managed by a Pool Monitoring Protocol Working Group with membership consisting of representatives from the Office and VPX. It is proposed that responsibility for the Pool Monitoring Protocol Working Group will transfer to the National Electricity Code Administrator on the commencement of the national electricity market.
AFL Park incident
On 8 June 1996 a night football match between Essendon and St Kilda was halted when the electricity supply to AFL Park was interrupted.
The Office immediately sought and obtained from United Energy particulars of its initial investigation of, and response to, the cause of the interruption. After seeking further information from United, the Office sought the advice of two major independent consulting engineer firms on the cause of the incident and the adequacy of United's response. DIVISIONAL REPORTS
Based on the advice of the independent consultants, the Office concluded that -
• United was not in breach of its licence; and
• the interruption may, in part, be due to the AFL connecting additional load which resulted in equipment at AFL Park operating at above its design capacity.
Following the Office's investigation -
• essential works at AFL Park, identified by United Energy, have been completed;
• several night matches have been played at AFL Park without incident; and
• the Office requested the Chief Electrical Inspector to address the Office's concerns relating to the state of the AFL's assets at AFL Park.
Camberwell surge incident
On 16 September 1996 a 240V powerline owned by CitiPower in Camberwell came in contact with the Public Transport Corporation's 600V, dc tram line cable resulting in a power surge damaging a number of nearby properties.
The Office obtained advice from two major independent consulting engineer firms on the cause of the incident and CitiPower's response to it.
Based on the advice from the independent consultants, the Office concluded that the incident was caused by a retaining nut in CitiPower's system working loose and a bolt falling out thereby releasing the low voltage strain insulator assembly and allowing the low voltage wires to contact the Corporation's 600V DC cable.
The Office also concluded that the following factors contributed to the incident -
• the absence of a retaining nut or spring washer on CitiPower's strain insulator assembly;
• CitiPower's maintenance program failing to detect that the retaining nut was loose; and
• CitiPower's use of uninsulated 240V aerial wires where they crossed the Corporation's cable.
The Office understands from enquiries of the Electricity Industry Ombudsman that CitiPower has no outstanding claims in respect of damage caused by the incident. A number of issues emerged from the Office's investigation of this and other incidents which will be addressed in the Office's current review of the Distribution Code.
The Distribution Code contains, amongst other things, standards which a distribution business, such as CitiPower, must observe in supplying electricity to its customers.
Half hourly metering charges
The Office published its decision on half hourly metering charges for 1996-97 in October 1996.The decision was based on advice from an independent consultant and extensive consultation with the distribution businesses and with Victorian Power Exchange.
In preparing its advice the independent consultant -
• developed an activity based methodology for the purposes of gathering cost information from the distribution businesses; • obtained cost information from the businesses in accordance with the activity based methodology; • reviewed the information and consulted with each business on its form and content; • amended the information in light of the consultations with each business; • standardised the information received from each business. That is, each business presented its information in a different way and it was necessary to recast the information to - reflect the cost per meter, rather than the cost per customer;
attribute costs to specific activities, eg - some businesses pool all installation costs and it was necessary to attribute those costs to the meter or to the communications equipment; and
remove inconsistencies between the businesses in their approaches to classifying installations as high, medium or low cost installations;
• refined the initial activities upon which information was sought from six categories to three major cost drivers, namely -
meter provision, including the capital cost of the meter, its installation and maintenance; DIVISIONAL REPORTS
communications, including the capital cost of communication equipment, its installation, its maintenance and the annual rental of the communications link; and meter reading charge, ie - Victorian Power Exchange's charge for reading the meter; • identified variables within the major drivers which have significant impact on cost included - the standard of the meters for 1 MW+ and 750MWh/year customers (a meter built to the standard applicable to a 1 MW+ customer's needs costs approximately $600 more than a meter built to the standard applicable to a 750MWh/year customer); labour rates (the labour rates submitted by the businesses ranged from $50 - $79 per hour); the number of personnel and time taken to install the meters (figures submitted by the businesses ranged from 2 to 4 people and from 1 to 6 hours per person); telecommunications equipment costs (which vary according to whether a fixed or mobile link is used and whether a high voltage line isolation unit is required); and • allocated costs to each of the major drivers reflective of good industry practice (as distinct from industry best practice) which is not at this point realistically achievable). While the decision on 1996-97 half hourly metering charges represents a reduction on 1995-96 charges and suggests a downward trend, as at 30 June 1997 the Office had yet to determine half hourly metering charges for 1997-98.
Metering solutions for 160 MWh/year customers The next tranche of customers to choose from whom they acquire their electricity, the 160MWh/year customer tranche, become eligible to exercise that choice on 1 July 1998. Where such a customer chooses to buy electricity from a retailer other than the retail arm of its host distribution business, an issue arises as to how best to measure that customer's load so that it may be netted off payments made by the host distribution business to Victorian Power Exchange and charged to the appropriate retailer. Basically, there are two methods for measuring such a customer's load, namely - • half hourly metering; or
the application of deemed load profiles to data from existing standard meters (standard meters are designed to record the information necessary to charge the maximum uniform tariffs and network tariffs and are capable of enabling the charging of either -
a single rate for total energy purchases; or
a rate for peak energy and a rate for off peak energy, but are not capable of charging at rates which vary every half hour).
In May 1997 the 160MWh/year Contestable Market Steering Committee submitted to the Office a draft report which analyses several variations on the two options and includes costings of those options
While the Office's preference is for an industry driven solution, the Division's preliminary analysis of the draft report suggests that if the choice of option were to be left solely to industry, it may not give sufficient consideration to load profiling options which may be more economic than half hourly metering solutions, particularly for smaller customers.
The Division has held discussions with industry on the issue and the Office is awaiting the final report of the \ 60MWh/year Contestable Market Steering Committee. On receipt of the final report the Office will seek its own expert advice. The Office is also - • working with NEMMCO (the National Electricity Marketing Management Company) to establish an inter-jurisdictional forum to explore the uniform approach to standards for contestable market metering; • exploring whether metering provision services should be made contestable and, if so, on what terms; and • developing a project plan for the year 2001 when all customers will become eligible to choose from whom they buy their electricity. DIVISIONAL REPORTS
Preparation for the post-2000 distribution network charges review
The Division has undertaken a number of tasks relating to the development of an economic framework for the purposes of the Office's determination of post-2000 distribution network charges.
The principal task, known as the Economic Framework Phase 1 Project, included engaging consultants from the UK to assist the Office in identifying and discussing, through detailed reports and intensive in-house workshops, the economic principles and feasible economic options to be considered in conducting the review.
Accordingly, the Division is now moving to establish a full consultation process with all interested parties on the Office's approach to the 2000 price review. This will include the early development of an issues paper dealing with the Office's general interpretation of the regulatory framework and the consultation processes it will follow in conducting the review.
The purpose of this initial issues paper is to invite comments from interested parties on -
• the scope of the inquiry that the Office proposes to conduct prior to setting electricity distribution network charges that will apply from 1 January 2001 and the processes that might be followed by the Office in undertaking the inquiry; and
• the issues that the Office has identified as relevant to its inquiry.
The paper will be the first in a series of issues papers that the Office proposes to circulate in the course of its inquiry. Some issues listed in the paper are of such magnitude that they will be the subject of separate papers in the course of the Office's inquiry.
Electricity customer service indicators and performance reports
In January 1997, the Office released the third in a series of reports aimed at encouraging competition by comparison amongst the five electricity distribution businesses (CitiPower, Eastern Energy, Powercor, Solaris and United Energy). The report provides a business by business comparison against key customer service indicators, assesses their performance in the period January to June 1996 and draws comparisons with the same period in 1995. The Division was also responsible for the preparation of the Office's June 1997 Electricity Industry Performance Report which- • compares the performance of the five distribution businesses in July to December 1996 with the same months in 1995; and • analyses supply reliability from January 1995 to February 1997 and provides comparisons with the performance of the SEC and outlines the Office's strategy on supply reliability issues. The Report concluded that overall there had been some good performances by the businesses - • disconnections for non-payment were down by 47% for residential and 36% for business customers; and • but for a glitch in September 1996 due to storm activity, overall minutes off supply figures show an improvement in system reliability - minutes off supply per customer reduced from 510 minutes in 1989-90 under the SEC to 218 minutes in 1996. As observed in Chapter One, there are, however, indications that some of the businesses can do better. Measures being taken by the Office to address its concerns in those regards are also canvassed in Chapter One. Water industry performance indicators Following extensive consultation with its customer committee, the three Melbourne metropolitan water retail licensees and the Water Agency Branch in the Department of Natural Resources and Environment, the Office completed a comprehensive review of the indicators by which the companies are to report to the Office for the purposes of - • the Office monitoring each licensee's compliance with its licence and in particular, its compliance with the customer contract in Schedule 1 of the licence and its compliance with the performance standards in Schedule 2 of its licence; • the Office periodically reviewing and further developing the customer contract and performance standards; • the Office publishing comparisons of the water companies' performances to inform and empower customers and facilitate competition by comparison; and • how best the Office might benchmark each company's performances against other water and sewerage companies within Victoria, inter-State and internationally. DIVISIONAL REPORTS
Electricity Tariff Order and Port Pricing Order approvals
Monitoring compliance with, and giving approval to prices that may be charged in accordance with, the Government's Electricity Tariff Order and the Pricing Orders applying to the ports of Melbourne, Geelong and Portland have been a core function of the Division.
The Electricity Tariff Order requires, in effect, that the transmission company (PowerNet Victoria), the five distribution/retail businesses and Victorian Power Exchange (which operates the wholesale market and is responsible for system control and dispatch), submit their tariffs and fees to the Office for its approval on an annual basis.
Likewise the Pricing Orders that apply to the abovementioned ports require the providers of the various services covered by the Pricing Orders to submit their charges to the Office for its approval.
Approvals are not given as a matter of course; nor are they routine. Indeed, four of the five distribution businesses had their initial applications rejected, as did providers of services subject to the Port Pricing Orders.
The work involved calls for a high degree of skill and understanding of the relevant Order. It is pleasing to note that the Division has developed the necessary expertise and continues to be regarded as an authority on issues arising under the relevant Orders.
Retailer of last resort
During the year, the Electricity Industry Act 1993 was amended to empower the Office to vary the licences issued to the five distribution businesses to require them, on terms and conditions approved by the Office, to supply and sell electricity to emergency customers. Emergency customer means a non-franchise customer whose retailer of choice has been suspended from trading in the wholesale electricity market.
The amendment provides that in determining the terms and conditions, the Office must have regard to the risks and costs associated with the requirement. The obligation of the licensee to supply and sell electricity to an emergency customer ends after three months or when the emergency customer advises the licensee in writing that the supply and sale is no longer required.
The objective of the retailer of last resort scheme is to ensure to the maximum extent practicable that any disruption to electricity customers is minimised and that where appropriate the retailer of last resort will endeavour to settle any financial consequences of the disruption directly with the suspended retailer. The Division is liaising with the Department of Treasury and Finance's Energy Projects Division, the distribution businesses and Victorian Power Exchange to implement the necessary licence variations.
Compliance audits
Potential bidders for the power stations that were offered for sale by the Government during the year under review (Hazelwood, Energy Brix and LoyYang Power) sought from the Office certainty in respect of the degree to which the various power stations complied with their licences and, in particular, the extent to which they complied with the various industry codes which have been approved by the Office. Responding to these requests involved the Office undertaking quite detailed clause by clause audits of the power stations' compliance with their licences and the various industry codes.
The audits revealed that the overall level of compliance was good. Where non-compliance was identified and it was in the licensee's power to take corrective action, the licensee did or undertook to do so within a time frame acceptable to the Office.
Other areas of non-compliance involve either derogations to or amendments of the codes to ensure that the individual power stations, or the power stations generally, are in a position to comply.
As with previous compliance audits while they are time consuming and resource intensive, they do assist the Office to identify areas where the codes might be improved.
December pool prices
As observed above, the Office monitor's pool prices and market behaviour to identify possible instances of anti-competitive conduct and outcomes. As a result of this monitoring, the Office identified an increasing trend in system marginal prices during the first three weeks of December 1996 compared with the previous two months which had -
• been characterised by relatively predictable maximum demand and available capacity; and • generally evidenced a direct relationship between short term changes in available capacity and system marginal price. Having identified the increasing trend in system marginal prices, the Office sought from pool participants and Victorian Power Exchange their comments on the reason for the increase. DIVISIONAL REPORTS
While the Office was generally satisfied with the responses to the effect that the increasing trend in December pool prices was the result of market forces, the Office's inquiries did result in the Office referring to the Australian Competition and Consumer Commission for investigation as possible breaches of the Trade Practices Act 1974 certain clauses in the agreement for the sale ofYallourn and Hazelwood Power Stations that had the effect of limiting the operation of Hazelwood pending the commencement of the national electricity market.
The Office also identified the possibility that some generators were changing their commitment status or available capacity later than 37 hours before the start of the date of dispatch by taking advantage of a Pool Rule which allows them to do that in certain circumstances. This apparent gaming of the Rules was drawn to Victorian Power Exchange's attention and the requirement of the Rules subsequently applied more vigorously by Victorian Power Exchange has removed the Office's concern in those regards.
Customer Relations Division
Responsibilities
The Customer Relations Division is responsible for the Office's customer affairs, public affairs and publications activities, including -
• implementing the Office's community and customer consultation strategies;
• the Office's Customer Consultative Committee and its working groups;
• the annual review of electricity and water industry customer contracts;
• liaison with dispute resolution bodies to monitor customer complaints for the purposes of identifying and addressing systemic issues;
• researching and developing policy on customer service issues;
• the conduct of customer information programs, including seminars, information forums and media campaigns;
• the Office's media liaison and communication strategies, including the Office's Internet site; and
• production and dissemination of the Office's publications. Achievements
Supply and Sale Code
The Division's major achievement was the finalisation of a review of the electricity industry Supply and Sale Code. The Supply and Sale Code is the customer contract which franchise customers (ie - those customers not yet eligible to choose their electricity supplier) have with their distribution business.
The review was undertaken in conjunction with the Office's Customer Consultative Committee, the distribution businesses that supply franchise customers and other interested parties.
The new Supply and Sale Code became effective from 1 February 1997.
The new Code is a significant improvement on its predecessor, setting out clearly the rights and obligations of the distribution businesses and franchise customers in respect of, amongst other things -
• information provision;
• guaranteed service levels;
• connection to supply;
• disconnection of supply;
• paying the bill;
• complaints handling;
• refundable advances;
• privacy and confidentiality;
• reliability and quality of supply; and
• access to the supply address.
The Code was further amended by the Office in April 1997 to make clear that consumers (as defined in the Trade Practices Act 1974) may also have rights under that Act.
The service standards in the Supply and Sale Code are minimum standards only and the Office has encouraged the distribution businesses to innovate above them to differentiate themselves and offer higher levels of customer service. For example, Powercor and Solaris have doubled the payments under the guaranteed service levels in the Code. DIVISIONAL REPORTS
Electricity Industry Guideline No. 4 - Accounts Collection Cycle
As part of the review of the Supply and Sale Code, the Office, after extensive consultation with customer groups, the distribution businesses and other interested parties, issued a guideline which sets the minimum periods which a distribution business must observe -
• in the issuing of notices in relation to the collection of accounts; and
• in taking action to disconnect a customer's supply address.
The guideline also sets the minimum outstanding amount for which a distribution business may proceed to disconnect a customer.
Customers will benefit by the guideline mandating reasonable periods in the distribution businesses' collection cycles before they may disconnect a customer. It will be of particular benefit to pensioners and other customers on fortnightly allowances because a distribution business must observe a collection cycle that embraces two fortnightly payment periods.
The guideline also does away with an "unsatisfactory payment" concept that may, without cause, have tainted a customer's credit rating.
Distribution businesses will benefit from a reduction in the number of disconnections and re-connections. Disconnections and re-connections cost distribution businesses money. Allowing customers who might not otherwise pay, time to organise their affairs and meet their obligations should lead to a reduction in the number of disconnections.
Consistent with Freedom of Information Act 1992 principles, certain time frames and the amount below which a distribution business must not disconnect a customer have been deleted from the copy of the guideline released to members of the public - disclosure of the information would be likely to expose the distribution businesses to disadvantage.
A customer who is concerned whether a distribution business has observed the time frames or the amount approved by the Office, may raise the issue with the Electricity Industry Ombudsman. The Ombudsman holds a copy of the Guideline with details of the time frames and the amount. '"
Electricity Industry Customer Charter
The Supply and Sale Code provides that a distribution business must send to each of its customers a customer charter in a form approved by the Office. The charter is a summary of the rights and obligations under the Supply and Sale Code and other key codes and rules. It is a first for Victoria, and indeed, Australia. The Office developed the concept of the customer charter during the Code review process, to meet the information needs of customers. To ensure that the charters sent to customers by the distribution businesses contained a minimum common level of key information, the Office developed a Benchmark Customer Charter. Each distribution business developed its own charter based on the Office's benchmark and submitted it to the Office for approval before it was mailed to all residential and eligible business customers from April to June, 1997. Customer Charters Information Campaign If customers are to use the customer charters to take advantage of their new rights and be aware of their obligations under the Supply and Sale Code, it is important that they retain their copy of the charter. Accordingly, the Office developed and conducted an information campaign to raise awareness of the charters and to encourage customers to retain their copy as a reference document. The State-wide print and radio campaign was conducted from April to June 1997. Particular emphasis was placed on suburban and regional media. Two themes were used - • Your electricity company is about to deliver power through your letterbox; and • By rights every power customer should be happy. The campaign also encompassed media for special interest groups (eg - Radio for Print Handicapped). In addition, the Office liaised with community groups, financial counsellors, citizens advice bureaux, industry associations and the Electricity Industry Ombudsman to get the message about the charters out to customers. Trade Practices Act - implied conditions and warranties The Office has been working closely with the Australian Competition and Consumer Commission (the ACCC) on the issue whether the Trade Practices Act's implied conditions and warranties apply to the contract between a consumer (as defined in that Act) and an electricity supplier. The Regulator- General is an Associate Member of the ACCC and Office staff have assisted Commission staff understand the issues. On the basis of legal advice on the application of the Trade Practices Act's implied conditions and warranties, the Office and the ACCC take the view that an electricity supplier is liable to compensate consumers for damage caused by power surges irrespective of the cause of the surge. DIVISIONAL REPORTS
This is a significant breakthrough - many power surges are caused by events beyond a supplier's control, such as lightning strikes or cars hitting power poles. While in the past the suppliers have paid for damage caused by their negligence, they have resisted paying for damage due to causes outside their control.
Customers are now better off than they were under the old SEC. The Office has been active in ensuring that customers get this message.
The customer charters mentioned above make it clear that consumers have rights under the Trade Practices Act's implied conditions and warranties, as do other publications produced by the Office. One example of these is a recently released community brochure entitled Electricity Supply Interruptions - The Facts which explains customer rights and obligations.
Tenants' obligations
In the course of the Office's revision of the electricity industry Supply & Sale Code, community groups raised the issue whether obligations imposed on a tenant as an electricity customer should more properly be the responsibility of the landlord. The original Supply & Sale Code was silent on the issue.
The Office took the matter as far as it could by inserting the following clause in the revised Supply & Sale Code -
"1.13.1 Where, because a customer is not the owner of the customer's supply address, the customer is unable to fulfil an obligation under this Code, the customer must seek to have the owner or other person responsible for the supply address fulfil the obligation pursuant to the agreement, arrangement or undertaking by which the customer occupies the supply address."
To take the matter to the point where it would satisfy the community groups would appear to require amendment to legislation for which the Office of Fair Trading & Business Affairs has responsibility, namely, the Residential Tenancies Act 1980 and, perhaps, other like legislation such as the Caravan Parks and Moveable Dwellings Act 1988. The Office has written to the Office of Fair Trading & Business Affairs formally advising it of the issue.
Water Customer Contract and Customer Charter Reviews
During the year the Office undertook its first annual review of its Benchmark Water Industry Customer Contract and its Benchmark Customer Charter. It is significant to note that neither the water companies nor the customer representatives suggested any amendments or additions to the benchmarks. Indeed, there appeared to be general agreement that the documents were working well. It is, however, open to each company to innovate and include in its own contract terms and conditions that provide benefits to its customers greater than those in the Office's benchmark to reflect the company's specific circumstances and the needs of its customers. Examples of innovations in the companies' contracts include -
• the extension by South East Water of the payment period for accounts from 14 days to 28 days and a decrease in its response time to written enquiries (from 12 to 10 days); • Yarra Valley Water's expansion and improvement of its performance guarantee scheme and the extension of the 5 hour limit on unplanned interruptions to planned interruptions; and • City West Water's production of its customer charter in the five languages, other than English, most commonly spoken in its area and the overall expansion of its customer information activities.
Customer Consultative Committee
The Office established its Customer Consultative Committee in early 1995. Two years on, the Committee continues to play a vital role in advising the Office on customer issues and needs. It also provides a forum in which customer representatives may exchange information on their needs and, through the Office, make those needs known to the regulated industries.
Committee members are -
• Australian Chamber of Manufactures;
• Consumers' Federation of Australia; • Environment Victoria;
• Financial & Consumer Rights Council;
• Property Council of Australia; • Victorian Employers' Chamber of Commerce and Industry;
• Victorian Council of Social Service; and
• Victorian Farmers Federation. DIVISIONAL REPORTS
To assist in the resolution of issues beyond the Office's mandate, the following departments and agencies serve as observers on the Committee -
• electricity and gas - Energy Projects Division, Department of Treasury & Finance;
• water - Water Agencies Branch, Department of Natural Resources and Environment;
• electricity and water concessions - Department of Human Services;
• environmental issues - Environment Protection Authority; and
• electricity and water customer complaints - the Electricity Industry Ombudsman, the Office of Fair Trading & Business Affairs and the Australian Competition and Consumer Commission.
During the year, the Committee continued its practice of inviting key participants in the regulated industries to address its meetings. These included the Chief Executive Officers of a number of electricity companies, the Chief Electrical Inspector, the Chief Executive Officer of Gascor and representatives of the Department of Treasury and Finance's Energy Projects Division on the Government's gas industry reforms.
Committee members participated in working groups to review the electricity industry Supply and Sale Code, the Distribution Code and the Retail Tariff Metering Code. Representatives of the Committee also participated in the working groups convened by the Water Agencies Branch of the Department of Natural Resources and Environment to consider issues in respect of the licensing of the non-metropolitan water authorities.
Committee members contributed to the Office's review of water customer service performance indicators, to the review of Electricity Industry Guideline No. 2: Systems Augmentation, to the development of guidelines for water quality reporting and to the development of customer considerations in respect of metering technology options.
A number of information sessions were conducted to brief Committee members and gain their feedback on key customer issues. For example, Committee members met with the Chief Executive of the Australian Gas Association to discuss the draft Gas Customer Service Code. Committee members were also instrumental in raising awareness generally on matters of the liability of electricity companies in respect of power surges and external disputes resolution and debt collection issues in the water industry. Memorandum of Understanding with the Electricity Industry Ombudsman
In recognition of the need to avoid duplication of effort between the Office and the Electricity Industry Ombudsman, and to ensure a consistency of approach between the two offices, the Office worked with the Ombudsman to establish a Memorandum of Understanding.
The Memorandum addresses areas including -
• referral of complaints within the differing mandates of the two offices;
• regular briefings and meetings;
• public reporting;
• the inclusion of the Ombudsman as an observer on the Office's Customer Consultative Committee; and
• joint research and seminar opportunities.
The Office has an excellent working relationship with the Ombudsman's office and looks forward to the continuation of that relationship.
A utilities ombudsman
The Office is liaising with- • the Department of Conservation & Natural Resources'Water Agencies Branch on the establishment of an independent dispute resolution body for water complaints; and
• the Energy Projects Division, Department of Treasury & Finance on the need for a similar body in the gas industry.
The Office has, for reasons stated in earlier annual reports, expressed the view that the Electricity Industry Ombudsman provides a foundation for a utilities ombudsman scheme that might apply across the electricity, water and gas industries.
Customer information
Cognisant of the importance of customer information as a market force, the Office has expanded its customer information activities. Its activities in this regard include - • the development of an Internet site;
• the production of a range of attractive and easy to read customer information brochures; and • the wide distribution of the brochures through community groups and Members of Parliament. DIVISIONAL REPORTS
The Office has also arranged, through the Braille & Talking Book Library, to have its fact sheets, the electricity industry Supply & Sale Code and the Office's Benchmark Electricity Customer Charter recorded on audio tape for customers who are sight impaired.
Prepayment schemes
As reported in last year's Annual Report - • the Office has indicated to the electricity distribution businesses that if a business were to approach it to seek approval for the introduction of a prepayment scheme, the Office will consult with its customer committee; and
• to that end, the Office has conducted a series of information forums on payment technologies to assist it and its Committee members to understand the issues involved.
Further to that end, during the year under review, the Office gave formal notice to the businesses requiring them to participate in the development and issue of standards and procedures relating to the introduction of debit or prepaid meter cards and other prepayment schemes that they might introduce.
This notice is but another example of the Office identifying an issue and addressing it before it becomes a problem. Competition & Market Conduct Division Responsibilities
The Competition & Market Conduct Division is responsible for - • providing economic analysis and advice on competition, market conduct and access issues; • processing, issuing and amending licences and guidelines; • monitoring compliance with licences, codes and guidelines; • reviewing and analysing the policies, practices and procedures of regulated businesses; and • providing advice on national market and inter-jurisdictional issues. Achievements
Electricity Licensing
During the year, the Division provided assistance to the Regulator-General in issuing the following retail licences -
• ETSA Power Corporation (Victoria) Pty Ltd (30 July 1996)
• ACTEW Energy Limited (23 August 1996)
• NorthPower Energy Services Ltd (3 December 1996)
• Great Southern Energy Victoria Pty Ltd (25 February 1997)
The Division also assisted the Regulator-General in issuing or transferring the following licences -
• a trader licence to Snowy Hydro Trading Pty Limited (18 April 1997).This licence was issued as a transitional arrangement to accommodate the development of the first phase of the National Electricity Market.The company, which is jointly owned by the NSW Government and the SECV, trades the SECV's entitlements from the Snowy Mountains Hydro-Electric Scheme into the Victorian wholesale market on behalf of the SECV Trader;
• a generation licence to Edison Mission Energy Australia Pty Limited (8 May 1997). This licence was issued as a consequence of the sale of the Government's interest in Loy Yang B and also involved the revocation, by agreement, of the SECV's Loy Yang B Trader Licence;
• a generation licence to Hazelwood Power Partnership (23 June 1997). This licence was issued as a consequence of the Government's sale of the Hazelwood Power Station; and
• a generation licence to Loy Yang Power and Loy Yang Power Management Pty Ltd (17 April 1997). The licence was transferred as a consequence of the Government's sale of Loy Yang Power Station.
Electricity Access to Distribution Networks and Customer Initiated Augmentation
To ensure compliance with the Office's Electricity Industry Guidelines No.l and 2, (Access to and Use of Distribution Systems, Statements of Approved Charges and Charges for other Services and Distribution Systems Augmentation, respectively) each distribution business is required to -
• publish a statement of the policies, practices and procedures the business applies in relation to persons seeking access to and use of its distribution network, and DIVISIONAL REPORTS
• provide the office with particulars of its augmentation work in order that the Office may monitor the extent to which work is carried out by the business or by third party contractors on behalf of customers .
The Division is responsible for monitoring each distribution business' compliance with the guidelines.
Monitoring undertaken during the year suggested that it was common practice for a distribution business to require that a contractor undertaking augmentation work on behalf of a customer must acquire material for that purpose from the distribution business.
The practice not only conflicted with the Office's objectives but also had the potential to constitute a contravention of the Trade Practices Act 1974.
Following consultation with the Australian Competition and Consumer Commission, the Office sought and obtained from the distribution businesses assurances that a contractor undertaking augmentation work on behalf of a customer is free to acquire the necessary material from suppliers other than the distribution businesses. Of course, the businesses are free to specify the standard of material to be used, provided that the standard specified is consistent with relevant codes or rules authorised by the Office.
The Division is continuing to consult with the businesses to ensure that their policies, practices and procedures comply with the Office's objectives and the Trade Practices Act 1974.
Amendment of Electricity Industry Guideline No. 2: Distribution Systems Augmentation
The licences issued to the five distribution businesses provide safeguards against a business abusing its de facto monopoly over its distribution system by requiring, amongst other things, that as a general rule the business should -
• call tenders for augmentation work; and
• in calling such tenders, comply with guidelines published by the Office of the Regulator-General.
The relevant guideline is Electricity Industry Guideline No. 2: Distribution Systems Augmentation. The guideline provides, amongst other things, that -
• each business must submit to the Office for its approval the business' policies, practices and procedures on the calling, evaluation and awarding of tenders;
• a licensee need not call a tender for customer initiated augmentation work where the total value of labour and plant is less than $5,000 - a customer may, however, still call a tender for augmentation work under that amount; • a business need not call a tender for augmentation work initiated by it (as distinct from augmentation work undertaken in relation to an offer to connect a customer) - this relaxation of the requirement to call a tender was subject to the CPI-X regime embodied in the Government's Tariff Order delivering efficiencies and to a review in October 1996 (as to which see below); and
• to facilitate the Office's monitoring of the effectiveness of its approach to augmentation work, each business must provide the Office with a quarterly report on its tendering activities.
In order to -
• provide greater clarity where there may have been uncertainties about the application of the guideline; and
• to enhance the quarterly reporting to the Office and the Office's monitoring of the business' approach to tendering of augmentation work, the Office instituted a review of the guideline. Consistent with its commitment to consultation, the review involved the five distribution businesses and included a workshop conducted in 1995/96 by an independent consultant. Following the workshop the Office published an information paper outlining the proposed changes to the guideline to facilitate further consultation with a wider audience.
As a result of the consultation a number of changes were effected to the guideline in April 1997, including -
• the definition of augmentation;
• stipulating that in determining whether a business must call a tender in relation to an offer to connect, regard should be had to the amount the customer is required to contribute, not the total cost of the augmentation work; and
• variations to the quarterly reporting requirements.
Own works augmentation review
In October 1996 the Office wrote to each distribution business informing it that if it were to satisfy the Office that -
• the business has in place policies, practices and procedures allowing for the tendering out of augmentation work initiated by it; and
• the business gives effect to those policies, practices and procedures, the Office would defer a detailed review and would only pursue such a review if information provided in the course of compliance with Guideline No. 3 suggested otherwise. DIVISIONAL REPORTS
Each of the businesses subsequently satisfied the Office that it had relevant policies, practices and procedures and were giving effect to those policies, practices and procedures.
National electricity market
The year under review saw the development of the national electricity market advance to what is known as NEM1 Stage 1. NEM1 Stage 1, which commenced on 4 May 1997, involves the initial harmonisation of Victoria's and New South Wales' respective electricity markets to give pool price outcomes substantially similar to a full national electricity market. South Australia participates in NEM1 Stage 1 via the Victorian wholesale market.
NEM1 Stage 2 has been rescheduled for February 1998 and will involve further harmonisation of Victoria's and New South Wales' electricity markets with joint system security arrangements.
Queensland is scheduled to establish an internal market in late 1997 which will be similar to the proposed national electricity market. It is proposed that the National Electricity Market Management Company (NEMMCO) will operate the Queensland internal market.
The national electricity market itself is scheduled to commence in March 1998. NEMMCO will operate the national market, playing a role similar to the Victorian Power Exchange's role in the Victorian market and the National Electricity Code Administrator will administer the National Electricity Code.
Key derogations from the National Electricity Code which are designed to ensure a smooth and orderly transition from State based markets to the national market are proposed to be removed by the year 2001.
Moves towards the National Electricity Market involves the transfer of regulatory responsibility for generation, transmission and the wholesale market from State based regulators, such as the Office, to the Australian Competition and Consumer Commission. The State based regulators will retain responsibility for distribution and retail aspects of the electricity market.
A prerequisite to the establishment of the National Electricity Market involves the Australian Competition and Consumer Commission -
• authorising, as being in the public interest, provisions in the National Electricity Code which might otherwise be regarded as anti-competitive and in contravention of the national Trade Practices Act 1974; and • approving the access undertakings which form part of the Code as being consistent with national competition principles that have been approved by the Council of Australian Governments and which are now embodied in the Trade Practices Act 1974.
As an Associate Member of the Australian Competition and Consumer Commission the outgoing Regulator-General participated in the Commission's consideration of these issues along with his counterparts from New South Wales and Tasmania.
The Regulator-General's involvement in the Commission's consideration of the National Electricity Code has, in turn, involved the Division in a considerable amount of work briefing the Regulator-General on various aspects of the Code.
Mutual Recognition of Electricity Licences
The move of generation, transmission and the wholesale market to the national level with the several State jurisdictions retaining responsibility for distribution and retail, involves a risk of regulatory duplication and inconsistency. Steps will therefore need to be taken now to harmonise as far as possible the various State regulatory requirements. Industry participants have expressed concern about the number of regulators and their different regulatory requirements.
Anticipating such concerns, the Office has, in consultation with the Victorian Department of Treasury and Finance's Energy Projects Division and the New South Wales Treasury, been addressing the issue how the two States might best give mutual recognition to each State's retail licences. Among other things, legislative change is likely to be required in order to achieve such mutual recognition.
To this end, the Division is developing an issues paper on mutual recognition which will form the basis for further consultation with interested parties.
Land Access Code
The Electricity Industry Act 1993 gives to electricity businesses rights of access to land and provides for these rights to be subject to a code to be issued by the Office.
During the year the Division was responsible for developing a draft Electricity Industry Land Access Code which is to be the subject of consultation with the electricity supply industry, its customers and other interested parties before being issued as a final document.
In developing the draft, the Office had regard to a January 1997 report, prepared by a Parliamentary Committee chaired by Dr Robert Dean MP, entitled The Report by the Committee to Investigate the Rights and Obligations of Service Providers when Accessing Private Property. DIVISIONAL REPORTS
Policy and Planning Division
Responsibilities
The main responsibilities of the Policy and Planning Division are to -
• provide administrative and management and administrative support to the Regulator-General, the Office's Executive Team and the Office's other Divisions;
• undertake Office policy development projects as required;
• undertake strategic long term planning, policy coordination and due process functions for the Office;
• develop the Office's annual regulatory plan;
• manage the Office's information technology systems;
• supervise external consultants and service providers;
• recruit professional, technical and support staff;
• undertake resource planning for the Office; and
• manage the delivery of administrative, financial and human resource services provided by the Department ofTreasury and Finance to the Office.
Achievements
Strategic review of economic regulation
The strategic review of the Office's economic regulatory role, outlined in last year's annual report, was completed in September 1997. The Division was responsible for the implementation of the following outcomes of that review -
• the development of a strategic framework for the Office;
• the development of a regulatory plan to manage and coordinate the Office's activities;
• the development of a regulatory resourcing plan to identify resource needs for the Office's long term projects; and
• the establishment of a policy and planning function to develop and monitor policy issues, track information flows and implement processes and protocols for the documentation of policy and regulatory determinations and decisions. Information technology strategic review
The Division formed an information technology review team to conduct a strategic review of the Office's information technology environment, framework, operations and requirements.
The key deliverables of the information technology strategic review were the development of an Information Technology Strategic Framework and an Information Technology Operating Plan for 1997-98. The main features of the Information Technology Strategic Framework are -
• the documentation of the Office's information technology general principals, minimum standards, operating environment and strategies;
• a structural framework for the delivery of information technology services to the Office; and • a framework for the preparation of annual Information Technology Operating Plans for the Office.
The main features of the 1997-98 Information Technology Operating Plan are - • the development of suitable service level requirements and performance indicators; • the documentation of core operational and development support requirements; and • the identification and scheduling of key hardware, software and systems development and application projects for the year.
The Office has further elected to streamline the delivery of information technology services by conducting a tender to engage an information technology external service provider on a long term basis. The Office has prepared a tender specification for the tender that is scheduled for the first quarter of the 1997-98 financial year.
Long term strategic planning
In drafting the 1997-98 Regulatory Plan, the Division reviewed the strategic framework for the structure and delivery of the Office's regulatory responsibilities. The Division worked closely with the Pricing and Performance Division in assisting with the specification and planning of key Office projects including the post-2000 distribution network charges review. DIVISIONAL REPORTS
Regulatory Plan
The Office's Regulatory Plan represents its detailed annual work plan. The Division developed and implemented a new output focussed framework for its regulatory plans that is consistent with the adoption of output based reporting by the government sector.
Contract management
The Division was responsible for developing and managing supervising a public tender for the creation of a panel of legal advisers. The Division now administers the following panels of advisers -
• accounting and management consulting services;
• economic consulting services;
• water industry technical and engineering services;
• electricity industry technical and engineering services;
• specialist technical and engineering quality assurance services; and
• legal services.
The Division also managed the process for gaining Ministerial approval for the engagement of key advisers for assisting the Office with the post-2000 distribution network charges review.
Human resources and recruitment
The Division's staff recruitment and human resource activities included - • management supervision of the recruitment of the following ten professional and technical positions and two support positions;
5 X Project Managers 2 X Project Officers 1 X Pricing Analyst 1 X Research Officer 1 X Administration Officer 2 X Personal Assistants management of the Office's performance appraisal system for non-executive staff; liaison with the Department ofTreasury and Finance on human resource and staff related issues; the conduct of a regulatory and information technology skills audit; development of an Office wide strategy for the delivery of professional, personal, IT and management training and development and the identification of future regulatory training requirements; establishment of an "in house" information technology based training centre; and a series of organisational team building events during lunch-times. CHAPTER 3 THE OFFICE'S STRUCTURE
The Regulator-General Appointment and qualification The Office consists of one member appointed as the Regulator-General. The Regulator-General is appointed for a five year term by the Governor in Council on the basis of his or her knowledge of, or experience in, one or more of the fields of industry, commerce, economics, law or public administration. The individuals and their terms Victoria's first Regulator-General, Robin Davey, was appointed on 1 July 1994. He graduated in law from Melbourne University and was admitted to practice as a barrister and solicitor of the Victorian Supreme Court and High Court of Australia. He worked for many years in trade practices and consumer protection, was involved in Australia's freedom of information reforms and held a number of senior positions in the Commonwealth Attorney-General's Department. Prior to his appointment as Regulator-General he was the Chairman of AUSTEL (the Australian Telecommunications Authority) and an Associate Commissioner of the Trade Practices Commission.
In June 1997, following Mr Davey's resignation, Dr John Tamblyn was appointed as the new Regulator-General. Prior to his appointment, Dr Tamblyn was Advisor to the Australian Competition and Consumer Commission (the ACCC) on micro-economic reform and public utility regulation matters. He also worked as an adviser to the International Monetary Fund and as a policy adviser on industry policy and regulatory matters in the Commonwealth Treasury and Department of Finance. Dr Tamblyn holds Ph.D, Masters and Bachelor degrees in economics. Associate Regulators-General The Minister for Finance may appoint persons as Associate Regulators-General who are qualified for appointment because of their knowledge of, or experience in, industry, commerce, economics, law or public administration. It is envisaged that the Office may recommend to the Minister the appointment of Associate Regulators-General to undertake specific inquiries. Staff
Staff of the Office are appointed or employed under the Public Sector Management Act i 992. An outline of the structure of the Office follows.
REGULATOR-GENERAL Robin C Davey
ASSOCIATI \SSOCIA 11 REGULATOR - GIMRM' Kl (.1 I -\ TOR-GENERAL*
DIVISIONAI DIVISIONAL Vs ACTING^ >. MANAGER MANAGER nivisiONM CUSTOM CR " COMPETITION MANAGER POLICY RELATIONS- •ftf-il? MARK.LT AND PLANNING
OTHER STAFF POSITIONS POOLED AND ALLOCATED TO PROJECTS BY THE EXECUTIVE OR THE REGULATOR - GENERAL
•MAY BE APPOINTED BY THE MINISTER FOR PARTICULAR INQUIRIES
The Executive Team
Ian Wilson, Divisional Manager, Pricing and Performance
Ian Wilson joined the Office as Director in 1994 to assist with its establishment. His present role is Divisional Manager, Pricing and Performance.
He is a qualified accountant and has held senior management positions in the big six accounting sector and with the departments of Minerals and Energy and Business and Employment.
His experience includes investigative accounting, credit analysis, project evaluation, contract negotiations and management information systems design and implementation. His previous government experience includes assisting with the sale of Loy Yang B Power Station and the development of the Government's economic regulatory policy. THE OFFICE'S STRUCTURE
Fiona Delahunt, Project Director, Pricing and Performance Fiona Delahunt joined the Office in September 1994 from AUSTEL where she managed a competition policy unit. She has previous Victorian public sector management experience including policy adviser and program management positions.
Fiona has expertise in market analysis, research and marketing having worked for the Coles Myer Group. She has a degree in Arts and is currently undertaking studies in public policy and management. Karen Chalmers, Divisional Manager, Customer Relations Karen Chalmers joined the Office in January 1995 from the Institute of Chartered Accountants. She commenced her career as a teacher, moving from there into the management of community-based and professional associations at state and national levels. She has also worked as a Senior Human Resources Consultant within the Management Consulting Division of Ernst & Young. Karen has extensive experience in management, customer service, marketing and human resources consulting. She holds a degree in education and a post- graduate qualification in business administration. Velu Ramasamy, Divisional Manager, Competition and Market Conduct Velu Ramasamy joined the Office in November 1995. He holds post-graduate degrees in economics and in agricultural economics. Velu held positions in the University of Malaya and in various Commonwealth Government departments in Canberra. He spent some six years with Melbourne Water where he made a major contribution to the introduction of a more thorough and rigorous capital expenditure approval process. Prior to joining the Office, he worked as a Senior Economist in Eastern Energy where his responsibilities included the development of a cost of supply model for electricity pricing. Cameron Anderson, Acting Divisional Manager, Policy and Planning On Fiona Delahunt's secondment to the Pricing and Performance Division as a Project Director, Cameron was appointed to act as the Divisional Manager, Policy and Planning. He had formerly been Project Manager with the Group since January 1995. Cameron commenced his career as a Chartered Accountant with Price Waterhouse, moved to the corporate finance sector in the United States and later returned to chartered accounting and management consulting in Australia. As a qualified management consultant,' he has specialised in strategic planning, corporate finance, financial analysis and corporate reconstructions. He holds a Bachelor of Economics degree and is currently completing a post graduate law degree. THE REGULATORY FRAMEWORK CHAPTER 4 O
Establishment of the Office
The Office of the Regulator-General (the Office) was established on 1 July 1994 under the Office of the Regulator-General Act 1994 (the Act).
The Act established the Office as an economic regulator and lays a foundation for the Office to perform its functions and exercise its powers in respect of regulated industries operating under relevant legislation.
f; •
CORPORATE OBJECTIVE
i"" The Office's" corporate objective is to giveteffect to'the Government's fwfnucroeconomic reform agendalby regulating aspects of the;electntity.-^water^grain ^ handling, ports and railway's'industries and other industries which the Government mayV ^ ^mclSif^th ^mfficef^n^" W '"W ' ^ »«iSS;.. r-MFf. S^tt -•tOt .«'».•. imi.-..
Regulated industries and relevant legislation
As at 30 June 1997, the following industries were regulated industries within the ambit of the Office by virtue of the relevant legislation specified below -
• the electricity industry (from 3 October 1994)
the Electricity Industry Act 1993;
• the water industry managed by three Melbourne metropolitan licensees, Melbourne Water Corporation and Melbourne Parks & Waterways (from 1 January 1995)
the Water Industry Act 1994;
the industry of facilitating the export shipping of grain (from 1 July 1995)
the Grain Handling and Storage Act 1995;
the port industry in the ports of Melbourne, Geelong, Portland and Hastings (from 1 January 1996)
the Port Services Act 1995; and
• certain rail services (from 1 April 1997)
the Rail Corporations Act 1996.
It is anticipated that the gas industry and the non metropolitan urban water industry will also come within the ambit of the Office. Key legislation and other documents The relationship between the legislation, the regulations and Orders in Council, on the one hand, and - • the general law which applies to regulated industries; and • other instruments, such as licences or industry codes of conduct which may be issued or approved by the Office, on the other, may be summarised as follows.
THE REGULATORY FRAMEWORK
LEGISLATION
OFFICE OF THE GENERAL LAWS ELECTRICITY INDUSTRY ACT. REGULATOR - GENERAL ACT For example, clic prohibition ot WATER INDUSTRY ACT. GRAIN 1994 misleading or deceptive conduct in HANDLING & STORAGE ACT. the Trade Practices Act 1974 PORTS ACT AND RAIL CORPORATIONS ACT
General powers, REGULATIONS & ORDERS IN COUNCIL Industry specific powers, including a power • Regulations^:^ " including a power to issue guidelines (ratified by both Houses of Parliamen t) j to issue licences 1A • Orders in Council" ¡¿à (not requiring ratification by Parliament J OFFICE OF THE REGULATOR - GENERAL T «ill c ...auM!:. . iiUf't i Require comphance wiih all applicable ] i » i* industry codes and with gtiic issued bv die Office1 r AW^,^ f•rtWgy^-ti.irtfaiirr ..rtinahfrm- Light handed
As far as reasonably practicable, the regulatory framework is light handed. That is, it lets the participants in the regulated industries get on with their business and provides for intervention only where it is necessary to correct misuse or abuse of market power in the interests of competition or customers.
To those ends, the regulatory framework-
• provides an unambiguous framework that maximises the scope for commercially negotiated outcomes;
• avoids placing onerous restrictions or reporting requirements on participants; and
• includes effective reserve powers to protect customers and correct uncompetitive market behaviour.
Objectives
The regulatory framework sets both general and industry specific objectives for the Office.
General
In performing its functions and exercising its powers the Office has the following general objectives under the Act -
• to promote competitive market conduct;
• to prevent misuse of monopoly or market powers;
• to facilitate entry into the relevant markets;
• to facilitate efficiency in regulated industries; and
• to ensure that users and consumers benefit from competition and efficiency.
Industry specific
The relevant legislation referred to above sets industry specific objectives for the Office that reflect those in the Act. If there is a conflict between the objectives under the relevant legislation and those in the Act, those in the relevant legislation prevail. That is, the Office must perform its functions and exercise its powers in a manner it considers best achieves the objectives in the relevant legislation. THE REGULATORY FRAMEWORK
Statements of government policy
Subject to what is said below about the repeal of the Government's power to formally declare a statement of government policy, the Office must also perform its functions and exercise its powers in such a manner as the Office considers best achieves any objectives specified in such a statement of government policy.
Objectives versus powers
While the Act and the relevant legislation contain broad sweeping statements of the Office's objectives, to achieve those objectives the Office must have regard to the terms of the Act and legislation read as a whole and must be able to rely upon specific powers to achieve those objectives.
Consistent with the Government's light handed approach to regulation, the Office does not have carte blanche to achieve its objectives in any way it sees fit. It is not open to the Office to rely solely on its objectives to promote competition and protect consumers and ignore -
• the carefully delineated powers that enable it to achieve those objectives; and
• the quite detailed procedures that are set out in the Act and the relevant legislation on how the Office is to achieve its objectives.
Statements of government policy
Until the proclamation on 8 August 1995 of relevant provisions in the Electricity Industry (Amendment) Act 1995 -
• the Government had the power to declare (by way of an Order-in- Council made under the Office of the Regulator-General Act 1994) statements of government policy; and
• section 4(3) of that Act stated an intention of the Parliament that the Act is to be interpreted and administered in accordance with such statements of government policy.
While the Electricity Industry (Amendment) Act 1995 removed the power to declare such statements of government policy it also inserted a savings provision to the effect that any statement which was in force before the amendment is proclaimed continues to apply until revoked. • • "
Only one statement of government policy has been declared. It relates to -
• the issue of the initial licences under the Electricity Industry Act 1993;
• the granting of licences in respect of electricity generated outside Victoria;
• customer empowerment and customer standards in the electricity industry.
A copy of the statement, dated 29 September 1994, was published in Gazette No. S70 of 3 October 1994.
The Office must ensure that it performs its functions and exercises its powers in such a manner as the Office considers best gives effect to the statement of government policy. This requirement means that the statement of government policy is something more than just one of the matters the Office takes into account in performing its functions and exercising its powers.
Independence of the Office
The thrust of the regulatory framework is that the Office is independent of the government of the day.
The independence of the Office was strengthened by the removal, as outlined above, of the power in the government to declare a statement of policy and other amendments made to the Act which remove -
• a requirement that the Office perform its functions of administering the Act subject to the general direction and control of the Minister; and
• requirements in section 25 and 26 of the Act that determinations made by the Office under those sections must be consistent with any statement of government policy.
A further safeguard for the independence of the Office is to be found in the Act which provides that the Office is not subject to the direction or control of the Minister in respect of any determination, report or inquiry except as provided in that Act or another Act, such as the relevant legislation referred to above. THE REGULATORY FRAMEWORK
Functions
The functions of the Office as expressed in the Act are -
• to perform such functions as are conferred on the Office by the relevant legislation under which a regulated industry operates;
• to advise the Minister for Finance on matters relating to the economic regulation and restructuring of regulated industries;
• to conduct inquiries and report to the Minister for Finance on matters relating to regulated industries;
• to advise the Minister for Finance in relation to any matter referred to the Office by the Minister;
• to perform such other functions as are conferred or imposed on the Office by the Act; and
• to administer the Act.
Powers
Both the Act and the relevant legislation referred to above confer powers on the OfBce relevant to it achieving its objectives.
Price regulation
The Office's specific powers under the Act include the power to regulate prescribed prices in respect of prescribed goods or services supplied by or within a regulated industry. Prescribed in this context means prescribed by relevant legislation or an Order-in-Council made under the Act.
Other regulatory powers
The Act provides that the Office may exercise such powers (including the power to make determinations) for or with respect to -
• standards and conditions of service and supply;
• licensing;
• market conduct; and
• other economic regulatory matters, as may be conferred on the Office by relevant legislation or by an Order-in-Council made under the Act. Information gathering powers
To address the information imbalance between the Office and regulated industry participants, the Office has significant powers to obtain information from licensed entities. Inquiries and reports The Office may, after consultation with the Minister for Finance, conduct an inquiry if it considers an inquiry is necessary or desirable for the purposes of carrying out its functions. The Office must also conduct an inquiry into any matter which the Minister may refer to the Office.
Enforcement powers
The Office has the significant powers to reinforce initiatives it may take to achieve its objectives.
Firstly, the Office has the power to include relevant conditions in the licences it issues or administers. Breach of a licence condition exposes the licensee to risk of a significant penalty (an initial $100,000 flagfall and $10,000 per day for a continuing breach).
Secondly, a breach of a determination made by the Office may also attract a significant penalty.
Thirdly, the Office has significant powers to obtain information, not only from licensees but also from other parties.
A penalty attaches to a failure to provide the Office with information or documents ($10,000 or two years imprisonment).
Appeals Appeal panel A person who is aggrieved by a determination of the Office may appeal against the determination on the grounds that - • there has been bias; or • the facts on which the determination is based have been misrepresented. THE REGULATORY FRAMEWORK
An appeal must be lodged with the Office within seven working days after the determination has been published and must be heard by an appeal panel, consisting of three persons appointed by the Minister for Finance from a pool of persons appointed by the Governor in Council because of their knowledge of, or experience in, industry, commerce, economics, law or public administration. In March 1996, the Government appointed the following eight people to the appeal panel pool. An appeal must be heard and decided by the appeal panel within two weeks of the appeal notice being lodged with the Office.
Appeals to the courts Appeals to the courts challenging a determination or order by the Office are limited to grounds that - • there was no power to make the determination or order; or • procedural requirements in relation to the making of the determination or order were not complied with. Customer Consultative Committee
The Office is assisted in its consideration of customer issues by a Customer Consultative Committee. The Committee's membership is drawn from representatives of a number of peak bodies listed on page 45.
To facilitate members of the Committee raising issues beyond the Office's mandate with relevant departments and agencies, a number of relevant departments and agencies attend Committee meetings. These departments and agencies are listed on page 45. The Office is committed to consultation. Since its establishment, it has developed the following customer and industry consultation framework.
CONSULTATION FRAMEWORK
( l STOMER J ELECTRICITY INDUSTRY J GROUPS OMBUDSMAN I
111 OFFICE'S!CUSTOMER CONSULTATA I < OMMITTI1
GOVERNMENT DEPARTMENTS OFFICE OF THE REGULATOR-GENERAL. & AGENCIES J T ¡REGULATED .INDUSTRIES (Electricity, water, export grain handling and aspects of ports and rail) aamTfli 1 T Î F CUSTOMERS WATER CUSTOMER u CONSULTATIVE COMMITTEES _ l ' n nl~~ i t ~ i , . ~
OFFICE OF THE REGULATOR-GENERAL VICTORIA Statement of Financial Position for Year Ended 30 June 1997
Notes 1997 1996 $ $
Current Assets Cash on hand 200 200 Receivables 47,904 - Prepayments 7,963 28,375 Funds held in trust 8 166,737 107,517
222,804 136,092
Non-Current Assets Motor vehicles 9(a) 147,292 149,429 Office equipment 9(b) 71,592 67,892 Office furniture and fittings 9(c) 26,865 23,854 Computers and communication equipment 9(d) 634,437 458,438 Leasehold improvements 9(e) 368,930 441,173
1,249,1 16 1,140,786
TOTAL ASSETS 1,471,920 1,276,878
Current Liabilities Creditors and accruals 10 206,922 166,826 Funds held in trust payables 10 166,737 107,517 Provision for employee entitlements 3(b) 165,793 133,212
539,452 407,555
Non-current liabilities Provision for employee entitlements 3(b) 312,129 275,857
312,129 275,857
TOTAL LIABILITIES 851,581 683,412
Net Assets 620,339 593,466
Equity Accumulated surplus 1 1 620,339 593,466
TOTAL EQUITY 620,339 593,466
Commitments 12 Contingent Liabilities 13
The above Statement of Financial Position should be read in conjunction with the accompanying Notes. OFFICE OF THE REGULATOR-GENERAL VICTORIA Operating Statement for the Year Ended 30 June 1997
Notes 1997 1996 $ $ Operating Expenses Employee costs 3(a) 2,658,611 1,958,905 Supplies and services 3,831,315 3,658,852 Depreciation and amortisation 4 345,734 150,963 Other 5 9,408 60,202
6,845,068 5,828,922
Less Operating Revenue Other 1(e) 107,137 2,622
107,137 2,622
NET COST OF SERVICE 6,737,931 5,826,300
Government Revenue Recurrent appropriation 15 6,847,836 5,689,013 Works and services appropriations 15 22,683 583,433 Receipts forwarded to Consolidated Revenue (64,473) (944)
15 6,806,046 6,271,502
Net profit (loss) on sale of non-current assets 9(f) (41,242) 9,046
INCREASE IN NET ASSETS 1 1 26,873 454,248 RESULTING FROM OPERATIONS
The above Operating Statement should be read in conjunction with the accompanying Notes. ?* * * OFFICE OF THE REGULATOR-GENERAL VICTORIA Statement of Cash Flows for the Year Ended 30 June 1997
Notes 1997 1996 $ $
Cash flows from operating activity Payments Employee costs 2,546,027 1,798,203 Supplies and services 3,823,630 3,551,641
6,369,657 5,349,844
Receipts Other revenue (105,376) (944)
Net Cash outflow from Operating 14 6,264,281 5,348,900 Activity
Cash flows from investing activities Payments Leasehold fitouts 3 1,670 501,333 Purchase of fixed assets 579,484 480,069
61 1,154 981,402
Receipts Sale proceeds on the disposal of fixed assets 1 15,850 58,800
1 15,850 58,800
495,304 922,602
Cash flows from Government Recurrent appropriations 6,801,375 5,689,013 Works and services appropriations 22,683 583,433 Receipts forwarded to Consolidated Revenue (64,473) (944)
15 6,759,585 6,271,502
Net Cash Flow Net increase in cash held Opening cash balance 200 200
Closing cash balance 200 200
The above Statement of Cash Flows should be read in conjunction with the accompanying Notes. NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT For the Year Ended 30 June 1997
1. Summary of Significant Accounting Policies
(a) Basis of Accounting
The financial statements of the Office of the Regulator-General, Victoria (the Office) are general purpose financial statements which have been prepared in accordance with the Financial Management Act 1994, Accounting and Financial Bulletins and other accounting policy papers issued under the Direction of the Minister for Finance under the Financial Management Act 1994, applicable Australian Accounting Standards, Statement of Accounting Concepts SAC1, SAC2 and SAC3 and pronouncements of the Urgent Issues Group.
(b) The Reporting Entity
All Funds through which the Office controls resources to carry on its functions have been included in the Financial Statement, with the exception of administered resources.
The accrual basis of accounting has been used in accounting for both controlled and administered resources.
Transactions and balances relating to administered resources are not recognised as Office revenues, expenses, assets or liabilities, but are disclosed in the Notes to the Financial Statement as Administered Revenues, Expenses, Assets or Liabilities.
All non-current assets controlled by the Office are reported in the Statement of Financial Position.
(c) User Charges, Fines and Fees
The Office does not derive any user charges, fines or fees that constitute revenue to the Office.
(d) Administered Revenues
The Office acts on behalf of the Victorian Government in collecting licence fees under the Electricity Industry Act 1993 that is administered by the Office, and revenues from public speaking fees. These administered revenues are collected by the Office but not controlled by it, and are not recognised as revenues, but are reported as administered revenues (Note 6). Such amounts are required to be paid to the Consolidated Fund. (e) Appropriations and Other Revenue Appropriations, whether recurrent, works and services, special or and other contributions are recognised as revenues when the Office obtains control over the assets comprising the revenue. Control over appropriations and granted assets is normally obtained upon their receipt. (f) Acquisitions of Assets The cost method of accounting is used for the initial recording of all acquisitions of assets controlled by the Office. The capitalisation threshold is $1,000. (g) Depreciation of Non-current Assets Depreciation is calculated on a straight line basis to write off the net cost of each non-current asset over its expected useful life. As it is the Office's policy to replace motor vehicles after two years the depreciable amount of motor vehicles for depreciation purposes takes into account the anticipated sale proceeds when vehicles are replaced. (h) Employee Entitlements
(i) Wages and Salaries, and Annual Leave Liabilities for wages and salaries and annual leave are recognised, and are measured as the amount unpaid at the reporting date at current pay rates in respect of employees' services up to that date. NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT For the Year Ended 30 June 1997
(ii) Long Service Leave A liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given, when assessing expected future payments, to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using interest rates attaching, as at the reporting date, to Commonwealth Government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows. A liability for long service leave is only recognised as a current liability if it is expected that such leave will be taken in the next 12 months.
(iii) Superannuation The superannuation expense for the reporting period of $81,626 is the Office's contribution determined under the Superannuation Charge Scheme and paid during 1996/97. It does not reflect the present value of all anticipated future payments to be made by the various superannuation funds to Office beneficiaries. No liability is shown for unfunded superannuation in the Statement of Financial Position as the liability is assumed by the Department ofTreasury and Finance.
(i) Leases A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incident to ownership of lease non-current assets, and operating leases under which the lessor effectively retains substantially all such risks and benefits. Operating lease payments are representative of the pattern of benefits derived from the leased assets and accordingly are charged to the operating statement in the periods in which they are incurred. All lease arrangements entered into by the Office are operating leases. (j) Cash
The Office operates a petty cash float but does not operate any bank accounts.
2. Programs of the Office
The Office was established on 1 July 1994 under the Office of the Regulator-General Act 1994 (the Act).
The Act established the Office as an economic regulator and lays a foundation for the Office to perform its functions and exercise its powers in respect of regulated industries operating under relevant legislation.
The Office's appropriation for the financial year was provided through the Department of Treasury and Finance on behalf of the Office. In terms of the Department of Treasury and Finance budget appropriations, the Office operated as a single program entity "Economic Regulation" during the financial year. Accordingly, the Financial Statement represents program reporting disclosures as required by Australian Accounting Standard AAS 29. *w
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT For the Year Ended 30 June 1997
1997 1996 $ $ 3. Employee Costs
(a) Employee Costs
Wages and salaries 2,093,885 1,589,867 Superannuation expenses 81,626 8,853 Annual and long service leave expenses 321,067 214,688
Total employee entitlement expenses 2,496,578 1,813,408 Other employee related expenses 162,033 145,497
2,658,61 1 1,958,905
1997 1996 $ $
(b) Employee Entitlements
Aggregate employee entitlement liability 477,922 409,069
The employee entitlement liability is disclosed in the Statement of Financial Position as follows- Current liability Provision for annual leave 128,987 I 18,693
Provision for long service leave 36,806 14,519
165,793 133,212
Non-current liability Provision for long service leave 312,129 275,857
477,922 409,069
The aggregate employee entitlement liability includes an amount for long service leave which, as explained in Note I (h) (ii), is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. The following assumptions were adopted in measuring present value -
1997 1996 $ $ Weighted average rates of increase in annual employee entitlements to settlement of the liabilities 5.30 % 5.20 % Weighted average discount rates 6.48 % 8.75 % Average term to settlement of the liabilities 12 years 12 years 1997 1996 $ $ 4. Depreciation and Amortisation Expense Depreciation and amortisation was charged as follows-
Depredation Computer equipment 207,952 69,528 Furniture and fittings 3,438 1,513 Motor Vehicles 8,707 I 1,029 Office equipment 21,724 8,733
241,821 90,803
Amortisation Leasehold improvements 103,913 60,160
345,734 150,963
1997 1996 $ $ 5. Other Expenses
Other expenses include -
Auditor's remuneration 6,180 7,500 Capital charge 3,228 52,702
9,408 60,202
1997 1996 $ $
6. Program Schedule - Revenues and Expenses Office Revenues and Expenses Revenues Government revenues 6,806,046 6,271,502 Operating revenues 107,137 2,622
6,9 I 3,183 6,274,124
¡¡||l NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT For the year Ended 30 June 1997
1997 1996 $ $
Expenses Employee costs 2,658,61 1 1,958,905 Supplies and services 3,831,315 3,658,852 Depreciation and amortisation 345,734 150,963 Other 9,408 60,202
6,845,068 5,828,922
Administered Revenues and Expenses Electricity licence fees 2,269,785 2,068,088
Public speaking fees 5,000 -
2,274,785 2,068,088 Program Schedule - Assets and Liabilities
Office Assets and Liabilities
The Office's assets and liabilities are fully disclosed in the Statement of Financial Position.
Administered Assets and Liabilities
1997 1996 $ $
Assets Electricity licence fees 21 1,757 145,500
Liabilities - -
1997 1996 $ $ Funds held in Trust
Salaries and wages accrued 56,861 57,394 Performance incentive payments trust 109,094 43,554 Fringe benefits tax trust - 6,465 VPS Metrail ticket club trust 782 104
166,737 107,517 1997 1996 $ $ 9. Non-Current Assets
(a) Motor Vehicles
Motor vehicles - at cost 152,641 154,687 Less accumulated depreciation 5,349 5,258
147,292 149,429
1997 1996 $ $
(b) Office Equipment
Office equipment - at cost 98,590 78,218 Less accumulated depreciation 26,998 10,326
71,592 67,892
1997 1996 $ $
(c) Furniture and fittings
Furniture and fittings - at cost 34,913 28,464 Less accumulated depreciation 8,048 4,610
26,865 23,854
1997 1996 $ $
(d) Computer Equipment
Computer equipment - at cost 849,226 540,396 Less accumulated depreciation 214,789 81,958
634,437 458,438
1997 1996 $ $
(e) Leasehold Improvements
Leasehold improvements - at cost 533,003 501,333 Less accumulated amortisation 164,073 60,160
368,930 441,173 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT For the year Ended 30 June 1997
1997 1996 $ $ (f) Net Loss on Sale of Non-Current Assets
Historical cost of non-current assets disposed 245,881 53,025 Less accumulated depreciation of non-current assets 88,789 3,271
157,092 49,754
Proceeds arising from disposal 115,850 58,800
Net profit (loss) on sale (41,242) 9,046
1997 1996 $ $ 10. Current Liabilities
Creditors and accruals 206,922 166,826 Funds held in trust 166,737 107,517 Provision for employee entitlements 165,793 133,212
539,452 407,555
1997 1996 $ $ 11. Changes in Equity
Accumulated Surplus
Balance at the beginning of the financial year 593,466 I 39,218 Increase in net assets resulting from operations 26,873 454,248
Balance at the end of the financial year 620,339 593,466
12. Commitments for Expenditure
Operating Leases
Commitments under non-cancellable operating leases at the reporting date are payable as follows-
1997 1996 $ $
Not later than one year 501,802 501,482 Later than one year and not later than 2 years 501,482 501,482 Later than 2 years and not later than 5 years 544,074 1,045,556 Later than 5 years
1,547,358 2,048,520 The operating lease commitment relates to the rental of the Office's premises. These rental commitments are not recognised in the Financial Statement as liabilities.
Capital Commitments
As at 30 June 1997 the office was not subject to any contractual obligations for major purchases of a capital nature. 13. Contingent Liabilities In January 1997, Powercor Australia Ltd ( a licensed distribution business) issued a Supreme Court challenge against an Office determination to amend VicPool Rules. As the challenge is yet to be heard by the Court, a contingent liability exists in respect of legal costs that may be awarded against the Office by the Court. The Office estimates this amount to be $150,000.
1997 996 $ $ 14. Reconciliation of Net Cost of Services to Net Cash Outflow from Operating Activities
Net cost of services 6,737,93 I 5,826,300
Items not involving cash Depreciation and amortisation expense (345,734) (150,963) Other (21,624)
Change in operating assets and liabilities Increase (decrease) in receivables 1,445 Increase (decrease) in other prepayments (20,412) 28,152 (Increase) decrease in creditors and accruals (40,096) (149,558) Increase in provision for employee entitlements (68,853) (183,407)
(473,650) (477,400)
Net cash outflow from operating activities 6,264,281 5,348,900 '«¡¡fi
NOTES TO AND FORMING PART ill^lll OF THE FINANCIAL STATEMENT For the Year Ended 30 June 1997
15. Summary of Compliance with Financial Directives
The Office is dependent on Government funding by way of annual appropriations. The following table summarises costs for the individual appropriations and illustrates the extent to which the Office has complied with the spending limits authorised by Government.
Appropriation Actual Original Actual Payments 1997 1997 1997 $ $ $
Recurrent appropriations 8,000,000 6,847,836 6801,376 Works and services appropriations 50,000 22,683 22,683
Total appropriations 8,050,000 6,870,519 6,824,059 Receipts forwarded to Consolidated Revenue - (64,473) (64,473)
Net cash inflow from government 8,050,000 6,806,046 6,759,586
Total government revenues 8,050,000 6,806,046 6,759,586
16. Executive Officers Remuneration
The number of executive officers, other than the Responsible Persons, whose total remuneration payments exceeded $ 100,000 during the reporting period are shown below in their relevant income bands - 1997 1996 $ $
$ 100,000 to $ 109,999 I 2 $1 10,000 to $1 19,999 2 2
Total remuneration payments to the above executive officers for the reporting period amounted to -
1997 1996 $ $
336,662 446,494 17. Disclosures Relating to the Accountable Officer
In accordance with the Directions of the Minister for Finance under the Financial Management Act 1994, the following disclosures are made for the reporting period.
(a) Names
The Responsible Minister for the Office of the Regulator-General, Victoria is the Hon Roger Hallam, MLC, Minister for Finance in his capacity as the Minister responsible for administering the Office of the Regulator-General Act 1994.
Under section I 3 of the Office of the Regulator-General Act 1994, the Office consists of one member appointed as the Regulator-General by the Governor in Council. The Regulator- General is the Accountable Officer for the Office of the Regulator-General, Victoria. Mr. Robin Davey resigned from the office on 30 June 1997 to be replaced by Dr. John Tamblyn who was appointed 14 July 1997.
(b) Remuneration
The total remuneration payable by the Office to the Accountable Officer is disclosed by the following remuneration ranges -
1997 1996 $ $
$170,001 to $179,999 - I $330,000 to $339,999 I
The above remuneration includes $ 150,764 for long service and unused recreation leave paid to Mr. Robin Davey on his retirement.
(c) Other Transactions
Other related transactions and loans requiring disclosure under the Directions of the Minister for Finance under the Financial Management Act 1994, have been considered and there are no matters to report. 18. Post Balance Date Events On 3 July 1997 the Department of Treasury and Finance completed a sale and lease back of its entire motor vehicle fleet. The Department's Corporate Resources Agency advised the Office that as part of the sale of the motor vehicle fleet that vehicles owned by the Office were sold for $154,000. This amount equates to the written down book value of the Office's motor vehicles as at 30 June 1997 and has not been reflected in these financial statements. CERTIFICATION OF THE STATEMENT 30 June 1997
I certify that the attached Financial Statement for the Office of the Regulator-General,Victoria has been prepared in accordance with Part 9 of the Directions of the Minister for Finance and Australian Accounting Standards. I further state that, in my opinion, the information set out in the Statement of Financial Position, Operating Statement, Statement of Cash Flows, and Notes to and forming part of the Financial Statement, presents fairly the financial transactions during the year ended 30 June 1997, and financial position of the Office as at 30 June 1997. I am not aware of any circumstance which would render any particulars included in the Financial Statements to be misleading or inaccurate.
JOHNTAMBLYN Regulator-General and Accountable Officer Melbourne 2 October 1997 AUDITOR-GENERAL'S REPORT
Audit Scope The accompanying financial statements of the Office of the Regulator-General, Victoria for the year ended 30 June 1997 comprising a statement of financial position, operating statement, statement of cash flows and notes to the financial statements, have VICTORIAN been audited. The Regulator-General is responsible for the preparation AUDITOR- and presentation of the financial statements and the information they GENERAL'S OFFICE contain. An independent audit of the financial statements has been Auditing in the carried out in order to express an opinion on them as required by Public interest the Audit Act 1994. The audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance as to whether the financial statements are free of material misstatement. The audit procedures included an examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial statements, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with Australian Accounting Standards and other mandatory professional reporting requirements and comply with the requirements of the Financial Management Act 1994, so as to present a view which is consistent with my understanding of the financial position of the Office of the Regulator-General, Victoria and the result of its operations and its cash flows. The audit opinion expressed on the financial statements has been formed on the above basis. Audit Opinion In my opinion, the financial statements present fairly the financial position of the Office of the Regulator-General, Victoria as at 30 June 1997 and the results of its operations and its cash flows for the year ended on that date in accordance with Australian Accounting Standards and other mandatory professional reporting requirements and comply with the requirements of the Financial Management Act 1994.
C.A. BARAGWANATH Auditor-General Melbourne, 3 October 1997 St-
APPENDIX A THE OFFICE'S PUBLICATIONS
1. About the Office
Annual Reports
• 1994-95
• 1995-96
Information Kit, containing the following fact sheets -
• The role and functions of the Office
• Consultation not confrontation
• The Victorian electricity industry - an overview
• The Melbourne metropolitan water industry - an overview
• Electricity pricing
• Electricity outages and surges
• Complaint handling and dispute resolution
Community Information Brochures
• The Office of the Regulator-General. What is it? And what does it do?
• Office of the Regulator General - Independent Economic Regulator
• Consultation - For Better Results.
• Victoria's Electricity Industry - Step-hy-Step to Choice.
• Electricity Pricing - Residential/Small Business
• Electricity Supply Interruptions - The Facts.
• Melbourne's Water Industry - Competition by Comparison.
2. Electricity Industry
Regulatory Statement and Industry Guidelines
• Electricity Industry Regulatory Statement: Issue No. 2 (Sept 1995)
• Electricity Industry Guideline No. 1: Access to and Use of Distribution Systems, Statements of Approved Changes and Charges for Other Services (Aug 1995)
• Electricity Industry Guideline No. 2: Distribution Systems Augmentation (Aug 1995) • Electricity Industry Guideline No. 3: Regulatory Information Requirements
• Electricity Industry Guideline No. 4: Accounts Collection Cycle (Nov 1996)
• Electricity Industry Guideline No. 5: Connection and Use of System Agreements (Nov 1996) Industry Codes
• Supply and Sale Code
• Benchmark Electricity Customer Charter Public Reports
• Electricity Customer Service Indicators - Nov 1994 - July 1995 (Oct 1995)
• Electricity Customer Service Indicators - July 1995 - Dec 1995 (May 1996)
• Electricity Disconnections - July 1995 - Dec 1995 (Feb 1996)
• Electricity Customer Service Indicators - Jan 1996 - June 1996 (Jan 1997)
• United Energy - Outages and Surges (May 1996)
• Electricity Disconnections - Jan 1996 - March 1996 (June 1996)
• Electricity Disconnections - April 1996 - June 1996 (August 1996)
• Electricity Performance Report - July 1996 - Dec 1996 / Jan and Feb 1997 (June 1997) Customer Information
Choice of Electricity Retailer - booklet for 750MWh/yr customers (Feb 1996)
Choice of Electricity Retailer - video for 750MWh/yr customers (March 1996) General
Exemptions from Licensing Requirements- Recommendations to the Treasurer (April 1996)
Half Hourly Metering Charges - 1996-97 Decision (Oct 1996)
Amendment to VicPool Rules - Distribution Loss Factors 1996-97 (Oct 1996) THE OFFICE'S PUBLICATIONS
3. Water Industry
Regulatory Statement and Industry Guidelines
• Water Industry Regulatory Statement: Issue No. 1 (April 1995)
Industry Codes
• Benchmark Customer Contract (Dec 1995)
• Benchmark Customer Charter (Dec 1995)
Public Reports
• Melbourne Metropolitan Water and Sewerage Companies: Customer Service Indicators 1995 (May 1996)
General
• Water Industry Performance Standards Review - Recommendations to the Minister for Agriculture and Resources (June 1996)
4. Customers with special language needs
The Office is conscious of the importance of assisting those customers who have special language needs and has undertaken the following initiatives. Multi-cultural To assist non-English speaking members of the community and with the help of Victorian Interpreting Translating Services, the Office has translated its basic information brochure "Office of the Regulator-General: What is it? And what does it do?" into the ten most commonly spoken languages, other than English. The brochure provides information about the role of the Office, service standards in the electricity and water industries, the Office's Customer Consultative Committee and external dispute resolution contacts for customers. In its development of the benchmark customer contracts and charters for the electricity and water industries, the Office has also ensured that the companies are required to provide access to multi-lingual services for their customers. Sight-impaired With the assistance of the Braille & Talking Book Library, a number of Office publications, including the Electricity Supply and Sale Code, have been converted to audio form. The tapes are available for loan through that library to borrowers throughout Victoria. Each electricity and water company is also required to make large print versions of its customer contract and charter available to its customers on request. LEGISLATION AND AMENDMENTS APPENDIX -
"r" ''i/ni
1. Office of the Regulator-General Act 1994
Amending legislation - Electricity Industry (Amendment) Act 1995 Office of the Regulator-General (Amendment) Act 1995 Miscellaneous Acts (Omnibus Amendment) Act 1996 Office of the Regulator-General (Amendment) Act 1997
2. Electricity Industry Act Í993 Amending legislation -
Borrowing and Investment Powers (Further Amendment) Act 1994 Electricity Industry (Amendment Act ) 1994 Electricity Industry (Further Amendment) Act 1994 Financial Management Act 1994 Financial Management (Consequential Amendments) Act 1994 Electricity Industry (Electricity Corporations) Act 1995 Electricity Industry (Amendment) Act 1995 Electricity Industry (Further Amendment) Act 1995 Equal Opportunity Act 1995 Electricity Industry (Amendment) Act 1996 Superannuation Acts (Amendment) Act 1996 Electricity Industry (Further Amendment) Act 1996 Electricity Industry (Loy Yang B) Act 1997 Electricity Industry (Miscellaneous Amendment) Act 1997
3. Water Industry Act 1994 Amending legislation -
Water Industry (Amendment) Act 1995 Water Acts (Amendment) Act 1996 Superannuation Acts (Amendment) Act 1996 Building (Amendment) Act 1996 Port Services and Marine (Amendment) Act 1996 Miscellaneous Acts (Omnibus) Act 1997 4. Grain Handling and Storage Act 1995 Amending legislation -
Superannuation Acts (Amendment) Act 1996. Please note that the relevant section of this Act actually refers to section 12 of the Grain Handling and Storage Act 1988. Enquiries to the Victorian Government have confirmed that no such Act exists and the correct reference should be to the 1995 Act.
5. Ports Services Act 1995
Amending legislation -
Melbourne City Link Act 1995 Superannuation Acts (Amendment) Act 1996 Statute Revision (Marine) Act 1996 Port Services and Marine (Amendment) Act 1996
6. Rail Corporations Act 1996 OFFICE OF THE REGULATOR-GENERAL APPENDIX ACT 1993 PART 3A REPORT
Section 27F of the Office of the Regulator-General Act 1994 requires the Office to include in its annual report -
• The number of notices issued under section 27A of the Act - - Nil.
• The general use made by the Office of the information and documents obtained as a result of those notices - - Not applicable.
• The number of notices issued by the Office under sections 27C (2) (c) and (d) of the Act -
- Nil.
• The number of appeals lodged under sections 27B and 27D of the Act - - Nil.
• The outcome of those appeals -
- Not applicable. APPENDIX D EXTERNAL CONSULTANCIES
Name of consultant and nature of Estimated Actual Future the consultancy Fees Fees Fees $ $ $
Coopers and Lybrand (UK) Accounting, financial & economic advice for the post- 250,000 23,800, 226,200 2000 electricity distribution network charges review.
Freehill Hollingdale & Page Specialist legal advice on regulatory issues. 607,799 390,892 216,907
Indepen Consulting UK recruitment advice and the strategic review of 120,000 120,000 Nil economic regulation
KPMG Management Consulting Advice in relation to the Regulatory Accounting 199,850 169,517 30,333 Guideline working group.
National Economic Research Associates Advice in relation to the development of an 321,662 221,710 Nil economic framework for the post-2000 electricity distribution network charges price review.
Total 1,499,311 925,919 473,440
Total number of consultancies less than $ 100,000 47
Total expenditure for consultancies less than $100,000 $559,926 HUMAN RESOURCES APPENDIX E
Staffing Policies
All permanent staff of the Office are employed or appointed under the Public Sector Management Act i 992. Other staff employed under Public Sector Management Act 1992 are appointed for a three or five year fixed term and are required to enter into an employment agreement with the Office which details the terms and conditions of employment together with performance assessment criteria for the duration of the contract.
The Office adheres strictly to the principles of merit, equity and equal opportunity in all aspects of recruitment programs, staff development and grievance reviews. It is the policy of the Office to conduct six monthly staff reviews for all staff. Salary reviews are carried out annually. The Office's staff review process and treatment of staff grievances are based on principles of merit, equity and natural justice
Employment Categories by Gender as at 30 June 1997
Employment Type Male Male Female Female Total full time part time full time part time
Holders of public office Regulator-General 1 Staff Executive 3 2 5 Non Executive 17 2 8 1 28 Contractors 1 3 4 1 38
Staff Classified by Gender as at 30 June 1997
Classification Male Male Female Female Total full time part time full time part time
VPS-5 8 1 9 VPS-4 6 1 1 8 VPS-3 1 1 1 3 VPS-2 2 5 7 VPS-I 1 1 18 1 8 1 28 Executive Officers Classified by Gender as at 30 June 1997
Classification Male Female Total Holders of public office EO-I 1 1 Staff EO-2 1 1 2 EO-3 2 1 3
4 2 6
WorkCover Statistics
WorkCover Statistics 1996/97 1995/96
Claims during the year Nil Nil
Days lost during the year Nil Nil FREEDOM OF INFORMATION APPENDIX F.
INFORMATION REQUIRED UNDER SECTION 7 OF THE FREEDOM OF INFORMATION ACT 1982 1. Informal Requests
The Office of the Regulator-General will, as far as is reasonably practicable, having regard to -
• personal sensitivities and commercial confidentiality; and
• time and cost considerations,
make information and documents available without the necessity of a formal request under the Freedom of Information Act 1982.
To that end, the Office encourages an individual seeking information or documents to consult with the Office and make their needs known in an informal manner so that the Office may respond in a manner that best suits the individual.
Where because of personal sensitivity or some other reason the Office is unable to respond positively to an individual's informal request, it will assist the individual to make a formal request under the Freedom of Information Act 1982. 2. Currency of documents
As the Office was established on 1 July 1994, all records are classified as current for permanent retention and are stored at the Office's premises. 3. Document storage and retrieval system (Recfind)
Recfind is the Office s automated document management system which operates on the Office s file server. The Office uses Recfind to create official Office files, to record incoming correspondence, to monitor the movement of files and to keep staff informed on the status of outstanding action on correspondence.
All files maintained on this system are titled primarily by a two-element function code, second by broad subject and third, with a tertiary level to allow for specification.
The two-element primary code and the secondary and tertiary elements, are allocated by reference to a thesaurus of terms held on the computer system. The fourth line allows for greater specification of file content and is not governed by strict thesaurus principles.
File searches may also be conducted on any portion of the file title including the abstract fourth level data. _____ Personnel Files
Personnel files are maintained, indexed and administered in the same way as general files. Information is stored in individual files for each staff member and contain details of age, address, salary, educational qualifications and employment history Access to the information relating to the personnel affairs of a staff member is released only to the person concerned and their supervisor.
FOI Access
Subject to what is said above about informal requests and access, access to information under the Freedom of Information Act 1982 (the FOI Act) is obtainable only through written request, as detailed in section 17 of the FOI Act.
Applications must be in writing, detailed and as specific as possible, so that the Office may quickly identify the relevant documents. An applicant may request photocopies of documents or inspect the documents at the Office's premises. A "document" can be a single page of paper, an entire file or even information gathered from a computer as set out in section 5 of the FOI Act.
The Office is required to reply to an FOI application within 45 days. The Office will acknowledge the request in writing and proceed to identify and locate the relevant documents and if applicable, arrange for the applicant to have access to them. Access is, as far as practicable, given in the form requested (eg. photocopies). If the Office is unable to grant access, the Office will send the applicant an "Access Decision" letter which details access granted, reasons for excluding any material and the charges that apply to the FOI request.
When the application has not been specific enough for the Office to identify and locate the relevant documents, it will request the applicant to clarify the request. The Office is obliged to take all possible steps to assist the applicant in making a request for access to information under the FOI Act. Sometimes the documents requested may not exist or the request may be referred to another agency. In these cases the Office shall send a letter to the applicant detailing the action that has been taken.
The Office may not always be able to grant full access to documents, eg - because they relate to the personal affairs of an individual. Exempt documents are detailed in Part IV of the FOI Act. The Office will consult and identify such documents and set out reasons for their exempt status in the "Access Decision" letter. FREEDOM OF INFORMATION
Under the FOI Act, an applicant may apply for an "Internal Review" of the Office's decision. An internal review application may be made to the Regulator-General. If the application is unsuccessful, an appeal may made to the Administrative Appeals Tribunal. Complaints about the Office's search procedures and systems can be brought to the attention of the Ombudsman.
6. Charges under the FOI Act The FOI Act is not a revenue raising measure and specifies that access to information be provided at the lowest possible cost. Charges are determined in accordance with the Act and the Freedom of Information (Access Charges) Regulation 1983. 7. Amendment of personal records Where a document containing information relating to the personal affairs of a person is released to the person who is the subject of that information, that person is entitled to request the correction or amendment of any part of that information where it is inaccurate, incomplete, out of date, or where it would give a misleading impression. Where the Office does not agree to the proposed amendment, the applicant is entitled to place on the record, a concise statement specifying the respects in which the information is claimed to be incomplete, incorrect, out of date or misleading and in a case where the information is claimed to be out of date, setting out such information as is claimed to be required to bring up to date or complete the information.
8. Nominated contact person Requests for access to information should be addressed to - Mr Ian Wilson Office of the Regulator-General 1st Floor, 35 Spring Street Melbourne Vic 3000 9. FOI request statistics for the year
1996-97 1995-96
Formal requests received during the year 1 1 Requests granted in full
Requests granted in part - - Requests denied - - Requests transferred 1 1 Requests withdrawn - - No document in existence - -
Requests pending as at 30 June - -
10. Further information Further information concerning the FOI Act may be obtained from -
• Freedom of Information Act 1982 • Freedom of Information Handbook
• Freedom of Information (Access Charges) Regulation 1983
• Freedom of Information (Prescribed Authorities) Regulation 1983 These publications are available from the Victorian Government Bookshop. PECUNIARY INTEREST DECLARATIONS APPENDIX G
In accordance with the general guidelines for declarations of pecuniary interest, the Regulator-General and the following staff have completed a declaration of pecuniary interest for the financial year; Ian Wilson, Fiona Delahunt, Karen Chalmers, Ross Cartey andVelu Ramasamy. ÍWGGO