AER Approves Network Tariffs

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#ExemptSuppliers, #AuthorisedRetailers

On 14 May 2021, the Australian Energy Regulator announced that it had approved distribution tariffs for distributors in various states including New South Wales, South Australia, and Queensland. Electricity bills are made up of a number of components which include wholesale cost, retail margin, and network charges. The majority of a residential retail bill is made up of network charges and so, the AER’s determination will have a material impact on the price paid by consumers for electricity.

Queensland

In the case of Queensland, the AER approved the 2021 to 2022 electricity distribution tariffs proposed by Energex and Ergon Energy in accordance with their relevant 2020 to 2025 distribution determinations. The determinations set revenues that those distributors can recover to reflect their cost of delivering electricity supply to customers over a five-year period. Each year, the Queensland distributors submit to the AER their pricing proposals that contain the network tariffs that they propose to charge their customers to recover their revenues, transmission network charges, and jurisdictional costs. When compared to the prior year, the network tariff component of a typical annual bill will be $6 higher for residential and $19 higher for small business customers in the Energex distribution area and $42 higher for households and $144 higher for small business customers in the Ergon Energy distribution area. These changes will come into effect from 2021.

New South Wales

In New South Wales, the AER approved the distribution tariffs proposed by Ausgrid, Endeavour Energy, and Essential Energy in accordance with their relevant 2019 to 2024 distribution determinations. In 2021 to 2022, the network tariff component of the typical annual bill compared to the previous year will be $18 higher for households and $6 lower for small businesses in the Ausgrid distribution area, $24 lower for households and $83 lower for small businesses in the Endeavour Energy area, and $53 higher for households and $152 higher for small businesses in the Essential Energy distribution area. These increased tariffs will take effect from 1 July 2021.

You can access the statement of reasons for each of the relevant distribution zones on the AER’s website here: https://www.aer.gov.au/

Relevance to Energy Sellers

The new network tariffs are relevant to both authorised retailers selling electricity on-market and to exempt sellers selling electricity within embedded networks pursuant to exemptions. Exempt sellers are required to comply with the applicable exemption guidelines developed by the Australian Energy Regulator. In the case of network supply, the Electricity Network Service Provider Exemption Guideline applies.

Exempt Supplier Charging Groups

Pursuant to the guideline, there are different methods that may apply when charging exempt customers network fees. Group A applies where customers are charged an all-inclusive tariff which includes any external network charges. The all-inclusive network tariff may consist of separately itemised consumption and supply charges as is the standard practice of many market retailers.

Group A is the most common category of charging. Pursuant to the AER’s Retail Exempt Selling Guideline, all-inclusive tariffs for small customers must typically be no higher than the applicable standing offer of the local area retailer. If the external network charge is clearly attributable to a specific customer, it may be passed through at cost to that customer. The exempt network service provider must not charge fees for services that would not be charged by the distributor to a customer in the same circumstances.

Group B applies where an external network only charge is applied to a customer. This is permissible where the external network charge is clearly attributable to a specific customer. If the charge cannot be readily attributed to a particular customer, the network charge for each customer may be based on a charge no greater than the published regulated charge which the distributor would have charged that customer, had the customer been served directly by the distributor. In other words, exempt operators who rely on Group B, should consider the implications of the variations in network tariffs and ensure that their charges are adjusted accordingly. The AER notes that a cost imposed in relation to the appointment of an embedded network manager is not a valid external network charge. Further, the AER notes that the agreed cost for the initial establishment or upgrade of a network to meet the customer’s requirements may be passed through to a customer in accordance with a bona fide lease or ancillary agreement between the network operator and the network customer.

Group C applies to the large customers and large corporate entities. Group C applies to network charges for exempt network classes ND01, ND02, ND03, ND04, ND05, ND06, NR5, NR01, NR02, NR03, and NR04 as well as individual exemptions approved by the AER pursuant to section 5.3 of the guideline. Group C also applies to dedicated connection assets exempt under NR06 and NR07. For large customers only, network charges may be based on a commercial agreement, freely entered into on mutually agreed terms. If agreement cannot be reached then Groups A and/or B will apply.

Group D applies to individual exemptions only. Group D is applicable where a network exempt operator wishes to earn a commercial return on network assets. Applicants in this charging group must demonstrate compelling grounds for an exemption to be approved as opposed to registration as a network service provider.

Finally, Group E is a largely historical basis of charging.

Note for Exempt Operators

Many exempt operators, supplying energy within embedded networks have retail supply agreements with their customers. It is important to recognise that consumers within embedded networks may choose supply from a third-party retailer and therefore become network only customers. Consequently, all embedded network operators should consider whether they require network only supply terms and conditions.

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