CENTRE FOR INTERNATION AL ECONOMICS ATTACHMENTA \/ V \. , J ., I \ }' NCP review of the Northern Territory Electrical Workers and Contractors Act Prepared for the Department ofIndustries and Business I t I v Centre for International Economics Canberra & Sydney October 2000 -: ;'1' The Centre for International Economics is a private economic research agency that provides professional, independent and timely analysis of international and domestic events and policies. The CIE' 5 professional staff arrange, undertake and publish commissioned economic research and analysis for industry, corporations, governments, international agencies and individuals. Its focus is on international events and policies that affect us all. The CIE is fully self-supporting and is funded by its commissioned studies, economic consultations provided and sales of publications. The CrE is based in Canberra and has an office in Sydney. © Centre for International Economics 2000 This work is copyright. 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Contents Glossary Summary Background Industry and regulatory framework Objectives Nature of restrictions Benefits and costs Alternatives Summary of recommendations v vii vii vii viii viii viii ix x 1 Introduction National Competition Policy - the framework for the review The review assessment process 1 1 2 2 Industry structure and regulation The electrical workers and contractors'market' Regulation of electrical workers and contractors in the NT 5 5 7 3 Objectives Ensuring safe working outcomes Enhancing worker mobility Providing the flexibility for less skilled work to be done 11 11 12 13 4 Nature of restrictions Restrictions on entry and conduct The impact of restrictions on industry costs 14 15 17 5 Benefits and costs Benefits of licensing requirements Costs of licensing requirements Assessment of the net benefits of current arrangements 18 18 25 29 NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT6 iv CONTEN TS -:- 6 Alternative arrangements Options not expected to deliver net community benefit Possible amendments to the licensing system Co-regulation Industry-run regulation 31 31 33 37 40 42 42 43 7 Recommendations The objectives of the Act Findings and recommended approach Need to undertake a broader review of the Act " 49 APPENDIX A Terms of reference References Boxes, charts and tables 1.1 2.1 4.1 5.1 5.2 5.3 Review assessment process Participants in the NT electrical trades industry as at end June 1999 Entry requirements New workers compensation claims in the Australian Electricity, Gas and Water Supply Sector by age group Electrical fatalities across Australian states and territoriesFees payable by electrical workers and contractors 51 53 55 3 8 16 23 24 25 Viiiii1 ~ NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRAC TORS ACT " v .~ Glossary ABS ANTA ANZRA CEPU CIE CV Australian Bureau of Statistics Australian National Training Authority Australia New Zealand Reciprocity Association Communications, Electrical and Plumbing Union Centre for International Economics Curriculum vitae Department of Industries and Business Electrical Regulatory Authorities Council Electrical Workers and Contractors Government business enterprise High voltage Industry Training and Advisory Body Left hand side Master Plumbers Association National Competition Policy National Electrical Contractors Association National Occupational Health and Safety Commission National Restricted Licensing System Northern Territory National Training Packages DIB ERAC EWC GBE HV ITAB LHS MPA NCP NECA NOHSC NRLS NT NTP NCP REVIEW OF THE ELECTR ICAL WORKERS AND CONTRACTORS ACT n vii -; Summary Background The Department of Industries and Business commissioned the Centre for International Economics (OE), in conjunction with Catalyst Consulting (formerly Desliens Business Consultants) to conduct this review of the Electrical Workers and Contractors Act. The purpose of the review was to assess the consistency of the Act with the · principles of National Competition Policy. The review team undertook public consultation as part of the review process, including through the preparation of an issues paper and receiving public submissions to it, and consulting with stakeholders in Darwin and Alice Springs. Industry and regulatory framework Persons regulated by the Electrical Workers and Contractors Act include: • • electrical workers and contractors across all fields of specialisation and grade who enter the industry from within the Northern Territory; electrical workers and contractors across all fields of specialisation and grade who enter the industry from other Australian jurisdictions and New Zealand who choose to work in the Northern Territory; utilities and other employers, and householders who employ the services of an electrical worker in the Northern Territory; and any person in the Northern Territory who performs limited electrical work without a licence. • • Regulations require the obtaining of a licence or other instrument to perform electrical work above a designated threshold, and impose penalties for unlicensed work. The Act and its Regulations are administered by the Electrical Workers and licensing Board, who delegates certain authorities to the Department of Industries and Business. NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT n viii SUMMARY Objectives .:- The Act contains no explicit objectives. Inferred objectives found to be still important to the regulation of electrical workers and contractors in the Northern Territory include: • • • ensuring safe work outcomes for electrical tradesmen and women, their employers, customers, and the wider community; enabling maximum worker mobility between employers and between states and territories, within necessary safety constraints; and providing a realistic degree of flexibility in regulation to enable less skilled work to be done, and to respond to the requirements of various employers and household purchasers of electrical services. N ature of restrictions The Electrical Workers and Contractors Act imp~cts on competition through restrictions on market entry and conditions imposed on lawful market conduct, including; • restrictions on the performance of electrical work without requisite qualifications, including restrictions on the scope of work available to electricians, depending on grade of licence and area of specialisation; the ability of the Electrical Workers and Contractors Licensing Board to prevent entry to the industry unless satisfied of the character and credentials of applicants; additional conditions to be satisfied to obtain a contractors licence; limits on the type of work that can be performed by apprentices; and limits on electrical work performed by unlicensed persons. • • • • These result in limits on the availability of services, particularly in areas where more specialised skills, or the training to acquire them, are unavailable, and impact on industry costs. Benefits and costs By and large, the benefits of existing licensing requirements exceed the costs imposed on regulators, electrical workers and contractors, and the wider community. n NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT ix SUMMARY While concrete quantification is not possible, the current licensing system is expected to deliver benefits by way of: • • • • reduced accidents, particularly for less experienced electrical workers; reduced damage to property and equipment and less down time in terms of foregone activity in the household and industry sectors; reduced fatalities; and providing a seemingly cost effective mechanism delivering separate benefits to regulators, industry participants, and consumers, Yet safety benefits are also achieved via restrictions on the supply and use of electricity and electrical devices and inspections and audits of electrical work contained in the Electricity Reform Act. Thus the identified benefits of injury prevention or reduction and reduced equipment and property damage should not be considered solely attributable to licensing. There are many costs associated with the licensing. Costs are incurred by the regulator, by way of administration, monitoring and enforcement of regulation, and those being regulated, who must comply with regulations. Other costs include efficiency costs, where competition between actual and potential electrical workers and contractors is reduced, or costs associated with reduced consumer choice. However, the costs of current regulation are modest. No stakeholders submitted that costs were an adverse barrier to entry. Costs are greatest for those groups not well suited to licensing, and for whom any costs, even modest costs, are net costs. Alternatives The alternatives to current arrangements which were analysed include: • • amendments to the current system to address areas where costs exceed benefits, or where benefits can be achieved less restrictively; co-regulation, via an industry-driven, competency based approach; industry-run regulation; registration; negative licensing; and the removal of industry-specific regulation. government sanctioned, • • • • The latter three were dismissed because they were found to be unable to achieve the objectives of regulation. NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT n x SUMMARY Summary of recommendations • Licensing should be retained, but other means of signalling competence be afforded comparable status. Licensing should be flexible enough to accommodate alternative means of signalling a persons' competence to perform set tasks. There are several reasons for removing the additional experience requirement for contractors. The Board should seriously consider these. The objectives of the requirement should be clearly articulated by the Board, and it should be demonstrated that experience is the best way of satisfying those objectives if they are to be retained. The fit and proper person test was found to be problematic for several reasons. However, on balance, the cost of the test is likely to be low, and it does have an important benefit of giving the Board discretionary powers of exclusion to respond to instances of inappropriate conduct. The test should be amended to overcome .concerns relating to its arbitrariness, and signal to potential licence applicants the criteria against which their .fitand proper status will be assessed. • • • .The exemption to licensing requirements afforded to PAWA should be removed. However, approved competency based assessments should be recognised as a substitute for licensing in certain situations. • A more general review of the Act is both warranted and recommended. At a minimum, a more general review should: incorporate the recommendations in this report, including the incorporation of explicit regulatory objectives; enable the act to explicitly accommodate the National Restricted Licensing System currently in place; make explicit the application of licensing, permit and record keeping provisions of the Act with regard to PAWA, other utilities, and other categories of employers, inducting households; eliminate the overlap between the assessment and accreditation activities of the Board and those developed and endorsed by industry through the National Training Packages processes; review the industry-dominated composition of the Board, and consider advantages of consumer and government representation; update the language of the Act, including the removal of gender sp~clanguage;and review of the adequacy of the level of enforcement of licensing provisions and penalties where restrictions to competition are relaxed. n NCP REVIEW OF THE ELECTR ICAL WORKERS AND CONTRACTORS ACT 1 Introduction ELECTRICAL WORKERS AND CONTRACTORS in the' Northern Territory (NT) are directly regulated by the Electrical Workers and Contractors Act 1997. The Act contains various restrictions to competition, including certain requirements to be satisfied prior to market entry, and others while participating in the market. Accordingly, as part of the commitment of all Australian governments under the Competition Principles Agreement, the Act needs to be reviewed for consistency with the principles of National Competition Policy (NCP). This review was initiated by the Department of Industries and Business (OIB), who commissioned the Centre for International Economics (CIE), in conjunction with Catalyst Consulting (formerly Desliens Business Consultants) to conduct the review. The terms of reference for the review are set out in Appendix A. National Competition Policy - the framework for the review A key objective of NCP is to develop open, integrated markets throughout the economy to promote competition where it encourages more efficient resource use, stimulates cost reductions and brings quality improvements. NCP assumes that competition is desirable unless a legislated restriction can be shown, on a case-by-ease basis, to deliver socially beneficial or desirable outcomes that are greater than those with no such restriction in place. The specific test contained in the Competition Principles Agreement is that legislation should not restrict competition unless it can be shown that: • • the benefits of the restriction to the community as a whole outweigh the costs (of the restriction); and the objectives of the legislation can only be achieved by restricting competition (Clause 5(1) of the Competition Principles Agreement). Both these criteria must be met if a restriction is to be retained. To keep a restriction, it is necessary to demonstrate that to do so will result in a public NCP REVIEW OF THE ELECTR ICAL WORKERS AND CONTRACTORS ACTD 2 INTRODUCTION .;, net benefit. It is not sufficient to demonstrate that its removal would result in no or little net benefit. Market failure as a justification for intervention Legislative restrictions that restrict competition may be justified in order to correct'market failure' - where unfettered competition produces flawed outcomes. Yet market failure is relative. All markets fail to some degree because the benchmark against which failure is measured is an ideal case. Under NCP, the test is whether a set of arrangem~ts generate net benefits by comparing actual market outcomes with what can realistically be achieved by intervention. For example, we should ask if today's licensing is the best way to reduce safety hazards associated with electrical work (in a net benefit sense), rather than whether it eliminates dangers altogether. The review assessment process The key steps for an NCP review are to: • • • • • • describe the industry and regulatory structure; clarify the objectives of the legislation; identify the nature of every restriction on competition; analyse the likely effects of the restrictions on competition and on the economy generally; assess the balance between costs and benefits of the restrictions; and consider alternative means of achieving the same results including non-legislative approaches. Chart 1.1 illustrates the review assessment process adopted in this review. A restriction to competition is only to be retained if it is shown to produce net benefits, and there is no less restrictive way to do so. Public interest issues are to be taken into account in assessing the net benefits including: • • • • • ecological sustainability; social welfare and equity; occupational health and safety; industrial relations and access and equity; economic and regional development including employment and investment growth; n NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 3 INTRODUCTION ~. 1.1 Review assessment process Clarify the objectives of the legislation Chap/er2 Are the objectives relevant or appropriate? Chapter 2 I + t-- Abandon legislationNo --. government involvement is not necessary Yes Identify nature ofrestrictions on competition in the legislation Chap/er 3 Yes Does the restriction achieve the objective Chapter 4 1 - - - No Do the benefits of the restriction outweigh itscosts? Chapter 5 Yes I Abandon legislalive restriction in f---- - - - No - ~ itscurrent from Retain currenl restriction as an option .- - - - - - ---.J Develop alternative regulatory options including option of no regulation Chapter 6 Yes Isthere an option that yields positive net benefits? Chapter 6 I- - - No Adopt option thai generales grealest net benefit Abandon legislation as objective not achieved with positive net benefits usIng available instruments NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACTD 4 1 I NT R ODU CT I O N .~ • • • interests of consumers; competitiveness of Australian businesses; and efficient resource allocation. Consultations Consultation with various stakeholders was encouraged throughout the review, several were held during the review assessment process. All identified stakeholders were contacted and invited to' participate in the review. Members of the review team met or spoke with representatives from the: • • • • • • • • Power and Water Authority (pAWA); Communications, Electrical and Plumbing Union (CEPU); National Electrical Contractors Association (NECA); the Territory Construction Association (TCA); electrical inspectors and other representatives from the Department of Industries and Business (DIB) in both Darwin and Alice Springs; the NT Chamber of Commerce in Alice Springs; Tangentyere Council; and Tangentyere Constructions. There were three formal written submissions to the review. Numerous verbal comments, which were made by stakeholders have also been taken into consideration in the review. The Tangentyere Council mentioned above was consulted in part to obtain a consumer perspective on the issues encompassed by the review, particularly for more vulnerable groups such as Aboriginal communities living in remote areas. Several inquiries were also made of DIB staff in Darwin and Alice Springs as to the nature and frequency of customer complaints regulating electrical workers and contractors, to help identify issues of importance for consumers. No individual consumers responded to advertisements inviting the community to participate in the review. n NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 5 ': Industry structure and regulation' IDENTJEYING THE MARKET is an important early step.in an NCP review. This includes establishing the dimensions of the market affected by regulation, and where regulation impacts on the market. The electrical workers and contractors 'market' The Electrical Workers and Contractors Act 1997 regulates the performance and supervision of all electrical work performed in the NT, including the contracting to perform electrical installation work. 'Electrical work' is defined by the Act as .. ,work done in connection with the installation or repair of an electric line or electrical article for the generation, transmission, supply or use of electric energy, but does not include work done in a) manufacturing, or assembling at the place of manufacture, electrical articles; or b) constructing for and on behalf of the Authority and under its supervision a new overhead line on steel towers, not being towers supporting any other overhead line that is in service or has previously been in service. The Authority referred to above is Northern Territory Power and Water Authority (pAWA), which under Section 42 is permitted to supervise or perform electrical work notwithstanding anything elsewhere in the Act suggesting its work is not regulated by the Act. No other utility or other business is afforded this status. However, PAWA is a holder of a contractors' licence. Under the Act, it is an offence for licensed contractors to employ unlicensed workers to supervise or perform electrical work (Section 54A). Despite this apparent inconsistency, for the purposes of this review PAWA is regarded as part of the industry subject to the requirements of the Electrical Workers and Contractors Act and its Regulations. There is a substantial difference between the electrical work performed by employees of PAWA and many electrical contractors, and those services NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS AC n " 6 2 INDUSTRY STRUCTURE AND REGULATION purchased by households, or the 'average consumer'. Utilities and soine commercial contractors undertake industrial, up to high voltage (HV) electrical work, performed by elect-fitter mechanics, linesmen, and cable joiners. PAWA has commented to the review that this differs significantly from household wiring. Several HV lines in the Northern Territory are owned by PAWA, who determines access to them. There is no apparent legislative basis for this authority. The NT Government also owns HV power lines other than via PAWA assets, including the Darwin Katherine HV line, as a 'private line'. Industry size and composition The NT electrical workers and contractors industry is comprised of 3727 tradesmen and women. The size of the NT industry is not large compared to other states. There are 650 licensed electrical contractors (although not all permanently reside in the NT), compared to 4500 in Queensland. In 1998/99 alone, there were 2000 electrical workers licenses issued in Queensland (Queensland Electrical Licensing Board 1999, p. 15). And the 3727 electrical trades-persons in the NT compares with 24 481 registered electrical operatives in Western Australia 0NA Office of Energy 1999, p . 32). On a per capita basis, this means that the NT is very well served, with a population of just under than 200000, compared to almost 3.5 million in Queensland and over 1.8 million in WA (ABS, 1999). There are a limited number of apprentices registering in the NT each year, typically around 15-25, some of whom withdraw from completing their training each year . It is not possible to estimate the precise value of the electrical workers and contractors industry in the NT from available statistics. According to the Northern Territory Budget 2000-2001, the total annual value of the NT electricity, gas and water industry is just over $100 million, or around 1.6 per cent of gross state product.. A proportion of this would be generated by the electrical trades industry (NT Treasury 2000, p. 16). Competition from electrical tradespersons outside the NT Electrical workers and contractors are licensed in all Australian States and Territories and in New Zealand. Electrical workers and contractors can apply for a reciprocal licence to operate in the NT if their home state has the same licensing structure, generally offered to holders of A Grade electrical mechanics' licences, or equivalent. Alternatively, mutual recognition applies, which means that a person holding a licence in one n NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 7 2 INDUSTRY STRUCTURE AND REGULAT ION state or territory is entitled to a comparable licence in another. Such mechanisms enable those licensed outside the NT to operate in the NT, subject to the requirements of the Act under review. Examples of some differences across state and territory borders include licence renewal periods (which vary for electrical workers between 3 and 5 years), the duration of additional experience required for contractors (only 1 year in Queensland compared to 2 in the NT and many other jurisdictions), and the definition of electrical work, affecting the scope of work that can be done by unlicensed persons. . The fluid and mobile nature of the electrical trades industry, assisted by reciprocity and mutual recognition, results in a potentially significant degree of competition from electrical tradespersons outside the NT. In its submission to this review, the Communications, Electrical and Plumbing Union notes that: • interstate contractors often bring their own workforce to the NT, partly for convenience, and partly because of the (perceived) availability of higher skills and competency outside the NT due to greater training and industrial experience and opportunities interstate; and the itinerant nature of the NT population creates competition between prospective employees as itinerant workers often do not care about Awards and Agreements and tend to cut the wage rates and sell their skills for a lesser rate, despite being contrary to regulations in place (CEPU (i), p . 2). • The latter point refers to illegal non-compliance with the provisions of the Act under review, and the requirements of other acts effecting the electrical workers and contractors industry. The claim is that certain people operate unlicensed, and move on before their unlicensed status is detected or penalties are imposed. Regulation of electrical workers and contractors in the NT Similar to arrangements in other Australian jurisdictions, the NT Electrical Workers and Contractors Act segments the electrical trades industry by distinguishing between types of electrical work and levels of competency. The Act refers to four categories of electrical worker, including: • • electrical cable joiner; electrical fitter; NCP REVIEW OF THE ELECTR ICAL WORKERS AND CONTRACTORS ACTn 8 2 INDUSTRY STRUCTURE AND REGULAT ION • • electrical linesman; and electrical mechanic. The Regulations pursuant to the Act distinguish between two classes of electrical mechanic and fitter (A and B), and create an additional category for a refrigeration mechanic (R). A Grade licences are issued in the categories of Electrical Mechanic, Electrical Fitter, Electrical Linesman, and Electrical Cable Joiner. B Grade licences are available to electrical mechanics and fitters who fail to complete the requisite course, although such licences are currently being phased out. Grade' B licences are not expected to be part of the National Licensing"&:heme currently under development (see below). Each category has its own market entry and conduct requirements (some with considerable overlap), as described later in chapter 4. The vast majority of industry participants are A .Grad e licence holders, as shown in table 2.1. Restricted licences are also available in the NT for those wanting to perform some electrical work, but not the full scope of work that can be performed by a fully skilled electrical worker. The Act does not mention restricted licences per se, although there is provision for an R Grade licence endorsed as refrigeration mechanic or instrument fitter . There is also mention of a temporary permit system, and this section is used to validate restricted licensing f~r other categories. PAWA reports that restricted licences are very important to its work, particularly in remote areas. 2.1 Participants in the NT electrical trades industry as at end June 1999 No. of persons % 71.7 0.3 10.0 17.4 0.6 100 A grade electrical workers B grade electrical workers R grade eleclrical workers Electrical contractors Apprenllces" Total apprentices registering late. 2672 12 370 650 23 3727 a Does not necessarily include all new apprentices eligible for registration. and may include some second year Source : Electrical Workers and Contractors Ucensing Board Annua l Report 1988-99. The Electrical Workers and Contractors Licensing Board The Act establishes the Electrical Workers and Contractors Licensing Board (the Board), responsible for administering licensing and registration. The Act outlines procedural and reporting requirements for the functioning of the Board, sets out an appeals process, and procedures for the suspension ~ I'· t.!L..!! NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 9 2 INDUSTRY STRUCTURE AND REGULATION and cancellation of licences. In practice, responsibility for licensing and registration is delegated to an officer in the Department of Industries and Business and the Board is principally involved with restricted licensing, ratification of licences that have been granted under delegation, and broader industry issues. The Board must consist of five members: • • • • • an electrical engineer with an A Grade licence or a qualified electrical engineer who has or could have relevant affiliations; an employee who is an electrical engineer with an A Grade licence or a qualified electrical engineer who has or could have relevant affiliations; a representative of institutions providing apprenticeship training for apprentice electrical workers; a representative of electrical contractors; and a representative of electrical workers. By and large the Board is an industry Board. There is no deliberate representation of consumers or government. Contemporary changes in the industry The NT electrical trades industry is subject to changes occurring on a national scale. In addition to the National Restricted licensing System (NRLS) currently in place, a National Licensing System is also under discussion. Under this scheme it is proposed that the linesman, fitter and cable joiner categories be dropped and one A Grade licence be issued without specifying area of specialisation. The curriculum vitae of individuals would be relied upon for demonstration of specialised skills. The national licensing proposal is of interest, but is not in the scope of this review. Other important developments include national training packages for the assessment, recognition and development of competencies, which are being developed for various parts of the electrical workers and contractors industry. Competencies are endorsed by the Australian National Training Authority (ANTA) at the national level. Competencies of electrical tradespersons working in the NT can be assessed by a Registered Training Organisation (RTO), given that status by the NT Employment Training Authority, and the assessment is in accordance with ANTA guidelines. PAWA have already adopted this competency-based assessment of their employees, rather than relying exclusively on the licensing system. NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT6 10 2 INDUSTRY STRUCTURE AND REGULATION For instance, PAWA does employ unlicensed electrical workers who have been declared competent to perform specified electrical tasks by an RTO. Licensing assists PAW A in its screening and assessment process, but it is not necessarily sufficient to guarantee work placement with the organisation. Several Industry Training and Advisory Bodies (ITABs) such as the National Utilities and Electrotechnology Industry Training Advisory Body (NUEITAB) are developing National Qualifications for the industry sectors they represent. Training packages describe the standards of work performance expected from individuals, and the rtational qualification/ certification they will be issued when deemed competent for the respective NUEITAB Industries. Technological and other changes inevitably effect most industries, and may raise questions about the appropriateness of certain regulations. As noted byPAWA: The Act remains largely unchanged since 1978 despite significant structural and technological change and growth within the industry and occupations to which it applies (pAWA, p. 1). ri1iii ~ NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 11 Objectives The Electrical Workers and Contractors Act was introduced in 1978 at a time when electrical contractors were unlicensed arid "electrical workers and contractors were regulated differently to those in other Australian states. The stated purpose of the Act is 'to provide for the licensing of electrical workers and contractors and for other purposes'. A broad statement such as this does not provide a clear insight into the objectives of the Act, nor the reasons for government involvement in the regulation of the electrical trades. The second reading speeches at the time the Act was introduced provide some insight into the Acts objectives, namely: • • • to promote the safe operation of the electrical trades, for workers, contractors and the public alike; to provide confidence to consumers in using electrical tradespersons; to achieve reciprocity of licences among the states, presumably to both reinforce the safety objective as well as provide tradespersons with the mobility to follow available work; and to provide flexibility within the industry for less than fully skilled electricians to enter and perform lower skilled duties. • Ensuring safe working outcomes Safety issues are paramount in the electrical trade, given the danger of fire and danger to lives. The objective of safety protection remains as relevant and important today as it was at the time the legislation was drafted. Given safety concerns in other jurisdictions, seeking compatibility with regulation elsewhere is a further means of protecting safety standards in the NT. In its submission to this review, the CEPU reinforces the safety objective of the Act in stating its reasons for resisting de-regulation: ... to maintain a strong and effective regulator of electrical usage for the safeguarding of workers, users, consumers and equipment. (CEPU (i), p. 1) NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT n 12 3 OBJECTIVES .: It is unlikely that broader regulations, not exclusive to the electrical trades industry, would afford adequate safety protection to workers and the community. The CEPU submitted that It is important to maintain high electrical standards irrespective of the development and/ or emergence or broader health and safely legislation. Standards in both areas move at times at different speeds and with some variations. (CEPU (i], p. 3) Enhancing consumer confidence to employ licensed persons Providing confidence to consumers follows from the safety objective. Consumers are more likely to select a licensed tradesperson if they believe that person is better able ·to·perform electrical work in a safe and efficient manner. By reducing consumer risk associated with engaging electrical tradespersons, the legislation seeks to reduce overall risk. Under the current Act, this objective applies principally to the quality of the work performed, rather than risks associated with the character of the individual performing it. However, the trace-back mechanism implicit in licensing may also provide some assurance that those who engage in inappropriate behaviour or substandard work can be disciplined. The pursuit of consumer confidence is not an a priori relevant objective of regulation unless the lack of confidence is due to, or results in some form of market failure. For instance, if consumers were not confident that a licensed person could perform safer work than themselves, they might attempt to tamper with very dangerous electrical wiring, causing injury to themselves and potentially others. Enhancing worker mobility Providing electrical workers with the mobility to work in other jurisdictions is an important objective of any regulations pertaining to the building industry, where activity is notoriously volatile and cyclical. The achievement of mobility is important in moderating the peaks and troughs of electrical work associated with building activity. Attempts to achieve reciprocity with other states would facilitate this mobility. The merits of seeking to achieve such reciprocity depend in large part on the standards in other areas. In the case of electrical workers and contractors, standards are very similar, therefore other objectives are unlikely to be compromised in the pursuit of mobility for tradespersons. n NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 13 3 OBJECTIVES Enhancing worker mobility is not directly related to the correction of market failure. However it does seek to offset the adverse consequences of those regulations that do - that is, market entry restrictions designed to support the community's interest in the performance of safe work, which is unlikely to be satisfied in the absence of regulation. Providing the flexibility for less skilled work to be done There are times when work needs to be done, but cannot be performed by a fully skilled tradesperson. The Act tries to' provisions for these circumstances and allows for practices and rules to be developed so that limited types of work can be done to an acceptable level of safety. Enabling less than fully skilled electricians to perform some tasks is of particular importance in the more remote areas of the Northern Territory where fully skilled professionals are unavailable. The intention of the Act to allow for less skilled work to be done is a practical means of ensuring certain work is undertaken legally, and within necessary safety protocols. This recognises, for instance, that a fully skilled tradesperson might be unable to service very distant areas where they are not a resident. Stakeholder discussions suggest there is some tension in the community between the safety objective and the desire to allow less skilled persons to undertake restricted electrical work. In instances where work is performed by less skilled persons, there may be a limited trade-off with more stringent safety standards. Still, regulating restricted work is likely to be in less conflict with the safety objective than would be the likely alternative - the performance of illegal work. NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT[I:It 14 Nature Of restrictions ALL LEGISLATION REGULATES BEHAVIOUR in some way, but not all regulation necessarily restricts competition. The> Electrical Workers and Contractors Act impacts on competition through restrictions on market entry and conditions imposed on lawful market conduct, including; • restrictions on the performance of electrical work without requisite qualifications, including restrictions on the scope of work available to electricians, depending on grade of licence and area of specialisation; the ability of the Electrical Workers and Contractors Licensing Board to prevent entry to the industry unless s~tis£ied of the character and credentials of applicants; additional conditions to be satisfied to obtain an electrical contractors licence; limits on the type of work that can be performed by apprentices; and limits on the electrical work that can be performed by unlicensed or unregistered persons. • • • • These result in: • consequent limits on the availability of services, particularly in areas where more specialised skills, or the training to acquire them, are unavailable; and impacts on industry costs, both for those being regulated (fees payable), for those responsible for regulating (administration and enforcement), and purchasers of regulated services. • Other restrictions to competition are imposed on electricians by the Electricity Reform Act 2000. For instance, inspection, random audit, and selfcertification requirements originate hom the Electricity Reform Act and Electricity By-Laws. The specification of wiring standards and rules are also part of that Act. The Electricity Reform Act also allows for the setting and enforcement of standards. However, restrictions to competition outside of the Electrical Workers and Contractors Act are outside the scope of this review. n NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 15 4 NATURE OF RESTRICTIONS Restrictions on entry and conduct One of the more closely watched aspects of regulation in an NCP review is the extent to which market entry is restricted. An NCP presumption is that voluntary exchanges in unrestricted and competitive markets lead to efficient and fair outcomes in most instances. Licensing Licensing in the NT is a barrier to entry. All electricians and electrical contractors must be licensed, and there are limits on the work that can be done by unqualified people. Requirements at entry and renewal include qualification, experience and other conditions, shown in table 4.1. The Act does not specify requirements for HV work but PAWA requires special safety training before it will allow persons to work on its network. The Act allows only PAWA to supervise and perform electrical work without using licensed operators. Although, as mentioned previously, PAWA's contracting licence would apparently require it to utilise licensed personnel. PAWA has additional-to-licensing requirements of its workers to demonstrate necessary competencies to protect workplace safety. Character checks The Board has some discretion in accepting new entrants into the industry through character assessments. At the time of application and renewal, licensees are subject to an unspecified fit and proper person test, which can include a criminal records check. In practice, this test is not applied as part of the application process, but on an 'as needed' basis. The Board also has the flexibility to require applicants to undertake further training or sit certain examinations if deemed necessary. Restrictions on the scope of work available Separate licences are issued for each trade classification and grade. This means that a given licence allows a person to perform only set tasks for that vocation. For apprentices and B Grade licence holders, there are also supervisory requirements by an A Grade licence holder for the performance of only designated tasks. NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT n 16 4 NATURE OF RESTRICTIONS .:- 4.1 Entry requirements Qualification requirements Experience requirements Other condltJons Category Electrical mechanic' Complete course for eleclsical • Complete apprenticeship for Grade A mechanic or litter/mechanic electrical mechanic or fitter/ apprentices at a College in or outside the NT • Has, In the opinion of the Board , sufficient knowledge of the trade , evidenced where the Board sees fit by an examination conducted or • During apprenticeship obtain at approved by the Board and Is deemed leas I 12 months experience in the a 'fit and proper person' work of an electrica l mechanic in the NT or been the holder of a • Pay prescribed fees . Term of licence is 5 years relevant licence outside the NT Electrical fitter Grade A • Complete course for eleclsical • Complete apprenticeship for mechanic or fitter/mechanic electrical mechanic or filterJ apprentices at a College mechan ic in or outside the NT • Has, in the opinion of the Board, sufficient knowledge of the trade, evidenced where the Board sees fit by an examination conducted or • Was the holder of an eleclsical • During apprenticeship obtain at approved by the Board and is deemed least 12 months experience in the mechanic's licence grade R, a 'fit and proper person' endorsed for electrical fitting work of an electrical filter In the NT without restriction prior 10the or been the holder of a relevant • Pay prescribed fees. Term of licence is 5 years licence outside the NT EWCAct Electrical linesman • Complete course for electrical • Complete an apprenticeship to the • Has.Jn the opinion of the Board, trade of electrical Grade A IinesmanIX.P.L.E. cable sufficient knowledg e of the trade, jointing apprentices at a evidenced where the Board sees lit by IinesmanIX.P.L.E. cable jointing College an examination conducted or • Has at least 3 months experience approved by the Board and is deemed • Was the holder of an electrical or work ing on overhead electrical . a 'fit and proper person' mechanic's licence grade R line construction or maintenance endorsed as a linesman prior • Pay prescribed fees. Term of licence is 5 years to the EWC Act Electrical cable joiner Grade A • Comple te an apprenticeship to the • Has, In the opinion of the Boa rd, • Completed course for sufficient knowledge of the trade, trade or electrical electrical linesmanIX.P.L.E. linesmanlX.P.L.E. cable jointing evidenced where the Board sees fit by cable jointing apprentices at a an examination conducted or College • Has been employed as an approved by the Board and is deemed assistance in electrical cable • Was the holder of an electrical a 'fit and proper person' joining work for at least 2 years mechanic's licence grade R endorsed as a cable joiner • Pay prescribed fees . Term of licence is 5 years prior to the EWC Act • As for Grade A • As for Grade A Electrical mechanic' Failed to comp ete the course or fitter for electrical fitter/mechanic Grade 8 apprentices at a College ApprentIces • Registration only • Only work on physically Isolated electrical article/ inslalJationJline • Work under direct supervision for 3600 hours, then general supe rvision Electrical Contractors • Pass a lest set or approved by the • Complete course for electrical • Has held an electrical workers Board when required to do so by the fitter/mechanic apprentices at licence for not less than 2 years: Board a College • Has experience In both performing electrical Installation work and • Pay prescribed fees supervising others In performing such work • Annual renewal required • Complete course In relation to refrigeration mechan ics • Has, in the opinion of the Board, sufficient knowledge of the trade, evidenced where the Board sees fit by an examination conducted or approved by the Board • Pay prescribed fees. Term of licence is 5 years Refrigeration mechanic Grade R Sourca: Electrical Worlce~ and Con/actors Act and lhe Electrical Worl E :z ;;;, lIf 150 100 50 20 10 0 <20 0 20-24 25-29 30-34 35-39 4044 45-49 50-54 55+ 3 Incidence rate measures new claims per thousand wage and salary worllers: Frequency rate measures new claims per million hours worlled. Data soun:e: National OccupaUonal Health and Safety Commission. 1999. access to electrical work to those with requisite training and experience. However, without a claims profile backdating licensing, the number of accidents prevented, and the total costs foregone, cannot be quantified. We can observe that the number, frequency and incidence of reported accidents in the Australian Electricity, Gas and Water Supply sector, is lower for yo~ger tradespersons (chart 5.1). This may be interpreted in a number of ways. Without having an age profile of the total number of workers within the industry, it cannot be said conclusively that young people are injured less (or make less claims) than older age groups. However, it is likely that this is the case, and this would not be unrelated to the additional restrictions imposed on less experienced workers until they meet specified training and experience requirements, such restricting work to that which is physically isolated from the power system. Avoided deaths attributable to licensing would be another benefit of regulation, to the extent that licensing reduces safety risks. There have been an average of 1.1 deaths due to electrocutions per annum in the NT over the past eight years, around 2 per cent of the national average. On a per capita basis, fatalities in the NT are more frequent than the national average (table 5.2). Of the two deaths in the NT in 1998/99, one was as a result of work on an overhead line, and one a result of misuse or interference with equipment of wiring (ERAC 2000). All Australian states and territories have similar regulations, therefore systems of licensing across states can not adequately account for differences NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT n 24 5 BENEFITS AND COSTS 5.2 Electrical fatalities across Australian states and territories" Region Electrocutions FatallUes per 1 000 000 1997/98 1995/96 Northern Territory New South Wales VIctoria Queensland Western Australia South Australia Tasmania Australian Capital Territory AUSTRALIA 1996/97 1998199 2 9 7 11 5 3 0 1995/96 1996/97 1997198 1998199 10.45 1.41 1.49 3.16 2.71 2.01 0.00 0.00 1.96 0 13 10 9 6 2 4 0 2 9 8 20 5 2 0 0 17 0.00 2.10 2.19 2.70 3.40 1.36 8.43 10.69 1.43 1.74 5.88 2.78 1.3.5 0.00 0.00 2.48 0.00 2.69 0.87 3.16 1.65 1.35 2.10 0.00 2.03 4 11 3 2 a 46 a 38 0 37 0.00 2.40 44 a Excludeselectrocutionsdue \0 suicide or on lraction systems,mining sites, and ships. Sourc:e: ElectricalRegUlatory Authonties Council,AccJden! Statistics. ht1p·11wv.tw erac gOY aumews-as.htrn, downloaded22'" August 2000. in the incidence of fatalities. Clearly licensing does not prevent fatalities from occurring, although it would be unrealistic to expect so . Statistics on the incidence of electrical fatalities prior to licensing are unavailable. Therefore it is not possible to judge whether licensing has reduced electrical fatalities in the NT or not. The review team is unaware of any jurisdiction or country that does not have a licensing or an equivalent competency assessment system in place for electrical workers. This alone suggests that such systems do reduce the number of accidents and fatalities that would likely occur in the absence of regulation. But without knowing the extent of any reduction, benefits of reduced fatalities as a result of licensing cannot be quantified. The benefits of a licence mechanism for achieving desired outcomes In addition to the benefits of licensing criteria, there are additional benefits associated with the licensing mechanism. Licensing is attractive because it provides: • regulators with a mechanism to register and monitor market participants, and a trace-back mechanism for following up on complaints or breaches of specified conditions; consumers with an identifiable signal of competence, which can be reinforced by education campaigns; electrical workers with a mechanism to demonstrate to clients their suitability to perform. various jobs, and to protect the reputation of their industry by excluding unlawful work by those unlicensed; and • • n NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 25 5 BENEFITS AND COSTS • electrical contractors with a mechanism to select appropriate tradespersons to perform work under their name, and afford some protection of that name. Costs of licensing requirements There are a range of costs associated with the licensing of electrical workers and contractors in the NT. Costs are incurred by the regulator, by way of administration, monitoring and enforcement of regulation, and the party being regulated, who must comply with regulatory requirements. Other costs include efficiency costs, where competition between actual and potential electrical workers and contractors is reduced, or costs associated with reduced consumer choice. Compliance costs Compliance costs are a 'necessary evil' for any legitimate regulatory system. For electrical workers and contractors, the direct application costs for licensing are shown in table 5.3. The CEPU submitted that these costs are restricted to those being regulated and that industry participants absorb those costs, without passing them on to consumers. Licence fees are calculated to achieve full cost recovery, and are not passed on to consumers. Based on licence fees for contractors and workers of $215 and $10 per annum respectively, and an average of 1824 hours worked per year (based on a 38 hour week), the cost of fees per hour is $0.12.This small amount would not be passed onto consumers. They also suggest that any cost or price increases are due to factors beyond the influence and operation of the Act (CEPU (ii), p. 5). However, these costs 5.3 Fees payable by electrical workers and contractors Category Fee s Application fee for an electrical workers licence Renewal of electrical workers licence Application fee for an electrical contractors licence Renewal of electrical contractors licence Copy or electrical workers' licence Copy or a permit Copy of/alteration to an electrical contractors licence SouICe: Electrical WOrXe~ and Contractors Regulations. as In 50 50 215 215 10 10 25 ron;.a al 9 April 1997 and current as at Saplember 2000. NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT n 26 5 BENEFITS AND COSTS exclude the costs of workers time taken to prepare and submit licence applications and renewals. Application and associated fees do not include the opportunity cost of supervision requirements for apprentices. It was suggested to the review that for the first year or so, an apprentice is (affectionately) 'dead wood', and it is some time before a return from an investment in apprentice training is realised. Using the CEPU estimation above, electrical workers work approximately 1824 hours per year. An apprentice requires 3800 hours of supervision before being eligible for a full licence. Thus a potentially large part of a supervisors time is less productive than it would otherwise be if he or she were not supervising others. There are also potentially significant training costs borne by applicants, having to complete the course for their specialisation of electrical work. The total cost to those undertaking courses varies, depending on how many modules are undertaken. The cost of each module is over $30 per applicant (Northern Territory University, personal communication). While the costs described in table 5.3 are likely to represent a negligible barrier to market entry, there are also direct compliance costs imposed on electrical workers and contractors under the Electricity Reform Act. These include those associated with complying 'wi th AS300 standards, audits, inspections and the like. However these costs are outside the scope of this review. While the Electrical Workers and Contractors Act does mention the role of inspections, inspectors are appointed and given powers under by the Electricity Reform Act, which also specifies the standards of work that inspections relate to. Administration costs The administration cost of running the licensing system for electrical workers and contractors has been estimated at approximately $50 000 per annum (Department of Industries and Business). This cost excludes personnel costs and only covers costs of operation, and is 80 per cent of the total estimated cost of administering electrical and plumbing licensing. Administration costs include the cost of administering licensing functions, any disciplinary action, and the cost of Board meetings. However, this estimate understates the true cost of administration, which should include staff time and opportunity costs. Licensing and associated fees are calculated to achieve full cost recovery, and total over $180 000 per annum, based on new licences and renewals information as at June 1999 (Electrical Workers and Contractors Licensing Board 1998/99). n NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 27 5 BENEFITS AND COSTS Board members currently give up their time for'free' to serve on the Board, However, there is an opportunity cost associated with their time, and in an economic sense, it is not free. A proposal for a combined Plumbing and Electrical Industry Board put forward by NECA and the MP A was casted at $279 500 per annum for operational costs, excluding set up costs. Given that the DIB estimates that electrical licensing functions comprise around 80 per cent of the cost of licensing both electrical and plumbing workers, the true administration cost of current electrical workers and contractors regulation could be up to $224 000 per annum. Although, the NECA/1v1PA 'proposal may involve additional functions which generate costs not currently incurred by DIB or the Board. Efficiency and other costs If the current system is unable to be implemented or enforced effectively, there may also be costs by way of adverse reputation effects. For instance, incidences of unlicensed work are not dealt with solely by the Board and are directed to the Magistrates Court. The Act itself is silent on the body authorised to deal with unlicensed work. As mentioned previously, the Board prepares the cases and the Magistrates Court makes its ruling. It is questionable, given competing demands made upon the Court, whether this is an efficient or cost effective means of enforcing the provisions of the Act pertaining to unlicensed work. The sole nomination of the Power and Water Authority to supervise and conduct certain electrical work notwithstanding the provisions in the Act is in conflict with the principles of competitive neutrality. Legislation which sets in place a competitively neutral operating environment for government businesses delivers a range of benefits (or benefits foregone in its absence). Possibly foregone benefits (costs) from this provision in the Act include: • • • • • encouraging more efficient pricing leading to resources being allocated to their best uses; longer term performance efficiency gains due to government business enterprises (GBEs) operating in a more competitive environment; savings to governments from better utilisation of infrastructure; transparency and greater efficiency in the provision of community service obligations; and increased service quality from performance monitoring of GBEs. NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT n 28 5 BENEFITS AND COSTS On another score, one submission to the review suggested that the current licensing system excludes indigenous Australians from practising in the electrical trades due to their lack of education. The costs of doing so are by way of foregone benefits of improving the economic circumstances of the indigenous population. There is an urgent requirement for a change that is necessary to shift economic circumstances to afford people (Black, White and Brindle) employment and training, using physical skills accreditation only to enter the electrical industry (because of lack of eduction) to a complete job and a better way of life. (Ivinson, p. 2) The Tangentyere Council in Alice Springs expressed similar concerns about the inability of the current system to deliver employment and training access opportunities to indigenous Australians. How-ever, representatives from the Council were not convinced that the qualification and experience requirements of the Act were the problem. F.or safety reasons, they considered it imperative to keep licensing standards as high as possible. They were more interested in ensuring that employment subsidies and/or dedicated training opportunities were offered or created for Aboriginal people to better enable them to get access to the necessary employment and training requirements for licensing. The Council has already established Tangentyere Constructions, a management company, to win contracts and subcontract and train Aboriginal J?eople in the electrical and other trades. The company must compete with others, despite having a higher cost structure that its competitors not dedicated to employing indigenous Australians. The Council feels, however, that this initiative is insufficient to overcome the barriers to employment and education that Aboriginal people face in the trades (Tangentyere Council and Tangentyere Constructions, personal communication). The abovementioned programs are outside the scope of this review, but could be considered by other areas of government, perhaps outside of electrical licensing. There are also wider efficiency costs associated with any restrictions to competition. Competition contributes to achieving higher growth by helping to ensure that the resources of the wider community (land, labour, capital, including skills and ideas) are used in the most valuable and beneficial way. The disciplines imposed by competition are. also significant drivers of improved productivity and encouraging innovation. raIiiiiI ~ NCP REVIEW OF THE ELECTRICAL WORKERS AND CONTRACTORS ACT 29 5 BENEFITS AND COSTS Assessment of the net benefits of current arrangements By and large, the benefits of existing licensing requirements exceed the costs imposed on regulators, electrical workers and contractors, and the wider community. While concrete quantification is not possible, the current licensing system is expected to deliver benefits by way of: • • • • reduced accidents, particularly for less experienced electrical workers; reduced damage to property and equipment and less down time in terms of foregone activity in the household and industry sectors; reduced fatalities, given the inability to identify any jurisdiction or country that does not have market entry barriers in place; and providing a seemingly cost effective mechanism delivering separate benefits to regulators, industry participants, and consumers. " One of the reasons why quantification of the benefits of licensing is difficult is because licensing is one of many mechanisms used to achieve them. For instance, licensing does play an important and primary role in educating electrical workers to recognise and respond to dangerous situations. It also provides the public with a means of identifying competent workers, improving overall confidence and safe work practices in the industry. This is supported by submissions and comments to the review. We (CEPU) consider that the licensing system is the best and appropriate means of protecting and providing community safety. Associated with this, is the opportunity of greater public awareness. (CEPU (ii), p. 3) Compulsory licensing is necessary because an electrical licence can be a licence to kill (NECA, personal communication). Yet safety benefits are also achieved via restrictions on the supply and use of electricity and electrical devices and inspections and audits of electrical work contained in the Electricity Refonn Act. Thus the identified benefits of injury prevention or reduction and reduced equipment and property damage should not be considered solely attributable to licensing provisions. The current licensing system is not fail-safe. Accidents can and still do occur, although the lack of statistical information makes it difficult to assess the extent of those accidents. Regardless of Improvements in the technology alleged to reduce risks, you will find accidents are still happening but go unrecorded... there is no accessible database to prove otherwise, and that both the electrical workers NCP REVIEW OF THE ELECTR ICAL WORKERS AND CONTRACTORS ACT[t,I 30 5 BENEFITS AND COSTS .' and the public have not been encouraged to report them. As an electrical inspector in the Northern Territory since 1976, I have heard of numerous occasions from electrical workers, Power and Water Authority linesmen and electrical contractors but long after the event. (peter Ivinson, p. 2) According to the National Occupational Health and Safety Commission (NOHSC), the incidence rate of new workers compensation claims in the Electricity, Gas and Water Supply sector in 1997/98 (claims per 1 000 wage and salary earners) was the highest of any sector in the NT (61.1, compared to 21.5 for all NT industry sectors). The same sect