Ensuring a fair deal for Consumers

Airport Hotel
Wellington

Chairman Mr Arvidson, Mr O'Brien, ladies and gentlemen, thank you for inviting me here today and I am delighted to be here.

I was interested to learn that your objective as Trustees is to ensure power companies act as Good Corporate Citizens, which reflects the Ministry of Consumer Affairs purpose: "To work with consumers and business to promote a fair and informed market place for consumers."

I acknowledge the hard work that is occurring within the industry and alongside the Ministry of Consumer Affairs to find ways to enhance power companies performance in relation to customer service.

In my view it is all about ensuring a fair deal for consumers, and in the short time I have been Minister, I am concerned about how few New Zealand consumers understand their rights and know how to go about using those rights.

My role is quite clearly to be a strong advocate on behalf of consumers to ensure that they do indeed get a fair deal.

From the business perspective, keeping customers satisfied makes good sense. The costs of dissatisfied customers far outweigh those of providing good customer service. I believe very firmly that we should encourage a win-win situation for consumers and businesses alike.

The reality of today's market place also means that energy trustees should recognise that developing a loyal customer base will become even more crucial in ensuring the long term success of power companies.

The electricity industry is changing significantly. We have already seen the first phase of such change with the rationalisation of the number of power companies. In 1992 there were 44 power companies; now there are 40.

A more far reaching longer term trend is the prospect that there will be greater competition in the domestic electricity market.

The main barrier to competition in the domestic electricity retail market relates to the cost involved in supplying electricity to geographically dispersed groups of small electricity users.

Already, we are seeing new technologies beginning to emerge which means that in the near future, such technologies offer the prospect of changing the way customers electricity usage is metered and billed for.

This new technology offers some very cost-effective ways for power companies to undertake their business, increase the level of services provided to consumers, and, I hope, lead to a reduction in the price of electricity through greater competition.

I am sure many consumers will welcome the day when meters can be read from a central computer, (with greater accuracy than is currently applied I expect), bills automatically generated and also sent over the Internet to customers' computers, where in the comfort of their own living rooms, customers could pay their bills using a smart card.

This would avoid the need for meters to be read at the residence, eliminate estimated bills (which I know many customers object to) and the inconvenience of paying bills by cheques.

Several initiatives are also underway in the metering area, (often cited as a barrier to competition) which power companies hope will enable them to sell to consumers outside their traditional area of coverage.

I know that many consumers look forward to this eventuality, particularly as New Zealanders are now so used to having choice for most products and services. Ensuring choice, creates pressure on suppliers to offer more competitive and lower prices to consumers.

Competition in the electricity sector is a long time coming, and many consumers are asking when it will happen.

It has been the carrot dangled in front of consumers for long enough in explaining away the reforms of the last few years. I believe consumers need to see progress in this direction made earlier rather than later.

I totally agree with my colleague the Minister of Energy, Hon Max Bradford, when he recently stated that he "was looking at ways in which our Coalition Government can promote rapid development and introduction of metering options. The speedy adoption of these new technologies is an important key to consumers being able to participate in the benefits of the electricity reforms."

I hope to work closely with him on this issue.

Already we find examples, such as Electro Power, allowing customers to pay their electricity bills and gain account information over the Internet. A consortium of banks too, will be trialling the Mondex smart card in New Zealand within the next year.

The prospects of this new technology is quite remarkable and I am sure, as with other technology, such as EFTPOS, New Zealanders will take to its usage very quickly.

The use of the Internet for electronic commerce is a major area of concern to me, particularly in ensuring that there is adequate protection for the consumer wishing to make payments via the Internet.

I am sure most of you here would have heard about my attendance of an OECD International Forum on electronic commerce, where I led the discussion on developing an International Code of Practice to ensure consumer-protection in this very rapidly moving technological area.

The need for power companies to provide customers with terms and conditions they could expect in a more competitive market was one of the major themes of the Ministry of Consumer Affairs report on domestic electricity contract, metering and disputes procedures.

I must say here, that I was very encouraged and pleased with the high level of co-operation my Ministry received from the electricity industry whilst they were working on the report.

The Ministry embarked on this study because of concerns that power companies' terms and conditions were not of a standard that customers could legitimately expect in a more competitive market.

The main concerns raised in the report can be summarised in three main points, which I believe are essential if power companies are to act as Good Corporate Citizens (through excellent customer service) and generate customer loyalty. Power companies need to:

Take responsibility for providing customers with a good service and realise the negative consequences of not doing so;
have fair and customer friendly practices and procedures; and
resolve customers complaints with, in my view, a win-win approach - by that I mean ensuring that both customer and business feel positive about the final result.
Before discussing each of these three points, I want to say how pleased I am at the positive response from your industry to the results of the Ministry's study. This response has not just been positive words, but I am seeing action.

Such actions include the ESANZ contracts and metering committees which are well advanced in developing new industry codes of practice. I look forward to the outcome of these codes and their implementation.

I am very pleased that the industry itself is looking to improve customer service.

I would also like to mention Southpower for taking immediate action in this area, when they issued a new domestic supply contract. This contract sets a new standard in customer focused terms and conditions which I hope the rest of the industry will follow.

Southpower also plans to provide customers with a performance guarantees scheme, services for special needs customers, such as the elderly, and plain English information on how to resolve complaints and avoid disconnection.

Furthermore, Southpower has consulted widely with community groups over development of the contract.

My challenge to the rest of you is not to let Southpower be the leader in this area for long.

From the customer's perspective, when the service received does not come up to scratch, the power company should take responsibility for putting things right. Businesses have to remember quite clearly, that consumers are purchasing that service.

In some of my own personal experiences, businesses at times have been arrogant in their approach and have, in my view, forgotten who pays their income - that is the consumer.

In the electricity sector, examples of this are when something goes wrong with the meter, the bill or anything else within the power company's control. In these cases the company should shoulder the responsibility.

For example, just this week, one power company was discussed in an item on Fair Go, when a situation quite clearly showed that the company should have taken responsibility for this particular consumer's complaint.

The end result is bad publicity for them, but it also tarnishes the rest of the sector because consumers gain the impression of "might is right" and because power companies have a monopoly currently, the threat to some consumers comes through as "we'll cut you off if you don't respond in the way we demand."

Now really, as reasonable business people - and of course, as consumers yourselves - would you find this approach acceptable?

I know the issues I am raising today are being looked at as a result of our study's findings but I do believe the industry should hear quite clearly, the concerns I have.

A good example of power companies not taking responsibility to provide a good service is in the area of inaccurate meters.

Power companies should take responsibility to provide domestic customers with meters which ensure they get what they pay for. In some contracts, power companies make the customer responsible for any additional un-metered consumption. This is despite the power company owning and being responsible for maintaining the meter.

The ability to claim back un-metered electricity has reduced the incentives for power companies to invest in quality assurance measures which ensure consumers get an accurate bill.

An irony is, that in the competitive market for commercial consumers, power companies have adopted Codes of Practice which require them to adhere to strict standards of accuracy to ensure the users pay the correct amount for their electricity.

These standards have not yet been offered to the domestic customer. I find this totally unacceptable for all consumers, and I expect this approach to be changed by the industry as a whole.

In terms of the domestic contract, it should have practices and procedures which treat customers as an equal party to the contract. This includes providing customers with the opportunity to have input into their terms and conditions, and having fair disconnection and bond handling practices.

Unfortunately, almost all electricity supply companies currently present their domestic supply contracts to the customer on a take it or leave it basis.

There is no negotiation allowed and changes in contracts may be made unilaterally, without any discussion with the customer.

Quite frankly, anyone schooled in customer service knows that listening to customer concerns is one of the building blocks for creating a loyal customer base, and from this perspective, such a lack of negotiation with customers is clearly unacceptable.

Another problem is the area of unfair disconnection. Disconnection is a costly business, both for the customer and the power company. The customer should be assured that disconnection will not occur except for sound and appropriate reasons. The current contracts fall significantly short of this requirement.

For instance, some current contracts do not give customers any warning before disconnection, and I personally find this appalling and totally unacceptable. By doing this, the power company fails to offer the customer an opportunity to rectify the situation. I intend to talk to these companies directly to speed up a change to this approach.

The bond handling practices of the industry are also often unsatisfactory. For instance, many power companies do not pay interest on or put bonds in a separate trust account.

To ensure that customers remain loyal, power companies must have disputes resolution procedures which can resolve customers' problems in a quick and efficient manner, and, as I said earlier, in a win-win situation.

Many of the people that get to the point of ringing up the Ministry of Consumer Affairs with problems about power companies say:

"It's not so much the problem that has occurred that has got us angry but the way it was dealt with."

The Ministrys study found that the industry did not fully realise the significance of handling customer complaints well.

A good complaints handling procedure can resolve the customers dispute in a timely and cost efficient manner and this is often more effective than engaging in a protracted dispute.

A good example on how costly disputes can be, is shown in the case of a customer who moved into a new house.

The power company installed a second hand meter. Six months later, the power company indicated there was a problem with the meter and billed the customer for $300.

For the next 18 months. the power company, at a management level, and through lawyers, argued about who should pay this $300 until a worn out consumer agreed to pay half. The costs to the power company of handling this dispute in time and effort would have been considerably more than $300.

In my view, I believe a company that has to involve lawyers in such a dispute, must surely question its long term value to the consumer.

Certainly, when competition comes along, some will be in for a major shock as dissatisfied customers take their custom elsewhere. So why wait for that eventuality?

My message to such companies is to tidy up your act now!

To improve dispute handling practices in the industry, there needs to be a shift in the attitude on the part of senior management within power companies towards a greater customer focus.

Senior management in my view, needs to recognise that customers judge their power company by what happens when things go wrong.

In the past, the senior management of power companies have often worried more about the health of their network than that of their customers.

Maintaining high standards of customer service, of which an efficient complaints handling scheme is a vital component, needs to be seen as critical in ensuring the successful long term operation of the company's business.

Managers of power companies need to ensure that they have a formal complaints system which monitors and tracks individual complaints.

While this system needs to be adequately staffed and funded, more importantly it needs to be viewed by senior management as one of the key ingredients of their business.

Staff at the frontline should not feel that they are the flack catchers unsupported by management - this support can be demonstrated in many ways.

A demonstration of such support happens at Electra, the Trust owned Horowhenua company, I understand the Chief Executive sits in the customer call centre and answers calls at least one day in every month to gauge customer concerns.

Power companies should see complaints as a positive opportunity to resolve customer problems and build customer loyalty. To do this, the complaint process therefore needs to encourage customers to complain, and in a manner to encourage confidence in the dispute being handled fairly .

Having received a complaint, the power company should have a system which places an incentive upon the company to perform positively in its response. Complaints are not a negative - they are actually a very useful and important gauge to the company's performance.

In the first instance, staff should be encouraged to take ownership of complaints and resolve them rather than shunting customers from pillar to post.

A standard time to process complaints should be specified, and if the customer wants to take it further, a standard time for management to respond.

There has been a lot of talk in the industry recently about developing independent dispute resolution mechanisms for those disputes which cannot be resolved by the internal complaints system and become deadlocked.

This has included proposals for a Watchdog, an Ombudsman scheme, and independent arbitration.

I wish to raise today the benefits of developing an Ombudsman scheme, and in doing so throw out the challenge to you as Trustees to think about the benefits of an Ombudsman.

I note from your programme that this topic is on your agenda for discussion tomorrow. I would like to make some comments which you can think about and discuss tomorrow. Perhaps you could issue a resolution from this conference supporting the development of an Ombudsman scheme.

In the first instance I wish to set the record straight. An Ombudsman is NOT a Watchdog. The two are completely different models of dispute resolution.

A watchdog is charged with being a consumer advocate. In contrast an Ombudsman is neither the advocate of the consumer or power company but is charged with making independent decisions on the basis of what's fair.

A watchdog has a role in monitoring the sector to protect consumers' interests by lobbying government. An Ombudsman's brief would be to identify problems in industry practices through the complaints they handle.

A watchdog would have more of a role in ensuring compliance with legislation in contrast to an Ombudsman who works with the industry to improve standards.

I am of the view that of all the dispute resolution models, an Ombudsman scheme has the most potential to ensure that the industry improves standards of customer service.

An Ombudsman scheme can be one of the most potent tools to ensure that Codes of Practice are credible and robust. In the current environment industry is increasingly having to take responsibility for its actions by developing self regulatory Codes of Practice. An Ombudsman scheme can do this by:

highlighting problems to individual companies about their practices and procedures;
comparing companies relative performance and providing examples of what are benchmarks of good practice;
publicising through their Annual Report examples of where industry practice is consistently deficient;
providing essential input to any Code monitoring groups;
providing an independent voice on committees developing and reviewing Codes.
There are already two very successful private sector Ombudsman schemes in operation in New Zealand. The Banking Ombudsman and the Insurance and Savings Ombudsman.

I have no doubt that these two Ombudsmen, and the Industry Associations that introduced the schemes would be only too happy to talk to you about the schemes.

Improved standards of customer service will be the key to developing customer loyalty.

Independent arbitration schemes, which some companies have in place at a local level to deal with complaints, do not necessarily have the follow on effect of improved standards.

The results of Arbitration are not publicised, and the Arbiter does not necessarily have information to benchmark and set standards of good practice for the industry or company.

In our report we identified that the Coalition Government could become involved in regulating to ensure that customers obtained good standards of contracts, metering and disputes resolution.

This, however, is very much the last option and would result from the industry having not developed suitable mechanisms and responses to ensure the benchmarks set out in the report were adopted.

An Ombudsman scheme is one of the most credible mechanisms for ensuring customers' concerns are met and government does not have to intervene.

In this regard the development of an Ombudsman scheme could become a key means of ensuring the principles of the light-handed regulatory regime remain intact for many years to come.

I look forward to hearing the outcome of your discussions tomorrow.

Acting as a good Corporate Citizen, and in doing so, generating customer goodwill is going to become an increasingly important part of power companies business.

Ultimately, when the customer can choose between power companies, customer loyalty and goodwill will drive shareholder values.

To be good Corporate Citizens and generate customer goodwill, power companies have to take responsibility when things go wrong, have fair customer focused procedures and perhaps most importantly for you as Trustees, resolve customers' problems through good dispute resolution procedures.

To improve on the service the customer gets when there is a problem, attitudes need to change, and management needs to recognise the importance and business sense of dealing with customer complaints effectively.

I note the next session is on company performance and values, industry directions and other related ownership issues. I do hope that I have given some useful thoughts to add to your discussions.

I have chosen to cover some areas which are sensitive to industry participants, but as Consumer Affairs Minister, I need to be sure that action will be taken to ensure a fair deal for consumers, and in the long term, it means a fair deal for business from customer support.

I acknowledge that some changes take time, but I think in today's environment, we do not have the luxury of time. Consumers want to see rapid changes to the way power companies conduct their business.

I am also very supportive of your work as Energy Trustees to ensure such action occurs.

I look forward to working closely with the electricity industry to improve customer service and overall, provide a dynamic, user friendly service.