The sale of electricity in Victoria is regulated by the Electricity Industry Act 2000 (VIC). Sellers must either operate under a licence or an exemption. Most embedded network operators (ENOs) in Victoria operate under a General Exemption Order (‘GEO’) that exempts them from the requirement to hold a licence.
On 15 November 2017, a GEO under section 17 of the Electricity Industry Act 2000 (VIC) was published in the Victorian Government Gazette. The new GEO implements recommendations from the Department of Environment, Land, Water and Planning, whose final report was published in August 2017.
The new GEO will come into effect from 1 April 2018 (clause 11 will come into effect on 11 July 2018).
By Connor James, Compliance Quarter.
The new General Exemption Order:
- sets out exemption categories;
- includes an obligation to obtain explicit informed consent; and
- includes mechanisms to restrict the pricing charged by ENOs in Victoria.
The new GEO represents a significant challenge for Victorian ENOs and a departure from the recommendations by the AEMC.
Why are embedded networks important?
Embedded networks allow for ‘behind the (gate) meter’ innovation that can result in embedded generation, greater network stability, and lower pricing. Electricity is purchased in bulk at the gate meter and can then be on-sold to individual occupants within an embedded network at a rate that is lower than those end users would have been able to purchase directly from the ‘grid.’
The various benefits of embedded networks were recognised by the AEMC in its review of the regulation of embedded networks. The AEMC found that the existing regulation of embedded networks was not ‘fit for purpose.’
Exemption Categories
The new GEO introduces exemption categories. Generally, these reflect the framework in place in NECF jurisdictions, soon to be overhauled.
Relevant retail exemption categories are extracted below (note that there are additional conditions that apply to each):
Similar categories apply in the exemption from the requirement to obtain a distribution licence.
The extensive amendments coming into effect in NECF jurisdictions will ensure the challenge of continued compliance with multiple, ambiguous, and inconsistent Victorian obligations continue.
Explicit Informed Consent
A condition of an exemption under the GEO will be that ENOs obtain the explicit informed consent of customers to an arrangement for the sale of electricity.
Explicit informed consent means consent is given by a customer where:
(a) the ENO, or a person acting on behalf of the ENO, has clearly, fully and adequately disclosed, in plain English, all matters relevant to the consent of the customer, including each specific purpose or use of the consent; and
(b) the customer gives the consent to the arrangement or transaction,
(i) in writing, signed by the customer; or
(ii) verbally, if the verbal consent is evidenced in a way that it can be verified and recorded; or
(iii) by electronic communication generated by the customer.
There are practical difficulties in complying with this obligation. It is very common for electricity to continue to be connected to a site after a known customer moves out and an unknown customer moves in. If electricity continues to be supplied, and payment required, an agreement (deemed) is in effect. Without the explicit informed consent of the new occupant, it is unclear how an ENO could possibly comply with the above obligation for deemed supply agreements.
Pricing Regulation
Under the new GEO, pricing for embedded networks supplied by an exempt operator will be regulated. This was anticipated in the Department’s draft and final position papers:
The Department will task with ESC with formulating a new price cap benchmark based on commercial market data.
This would better approximate a fair price for electricity and restrict the potential for exempt sellers to earn monopoly profits on electricity sales. Currently, the ESC publishes an annual schedule which prescribes the maximum charges that an embedded network operator may charge its customers. The ESC will continue to annually publish the applicable rates on its website.
The mechanism by which the ESC will determine the price cap is unclear. The new GEO simply requires that the ESC “must have regard to commercial market data in formulating a maximum price.”
If you would like to read other recent articles on the subject of embedded networks please click here.
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