New review of regulatory arrangements for embedded networks

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embedded networks

By Anne Wardell, Compliance Quarter

On 12 September 2017 the Australian Energy Market Commission (AEMC) released a Draft Report which recommends changes to the regulatory framework for embedded networks. A copy of the Draft Report is available on the AEMC website under Market Reviews: Open: Review of regulatory arrangements for embedded networks.

Submissions on the Draft Report must be submitted by 17 October 2017. Although this seems a relatively short period to allow stakeholders to read the Draft Report, which is 140 pages, and make recommendations, the issue of whether there is sufficient regulation of embedded networks has been on the regulator’s agenda for some time. A stakeholder workshop was held on 4 October 2017.

Significant Changes Ahead

The AEMC is of the view that the current regulatory framework for embedded networks ‘is no longer fit for purpose and is resulting in some customers not being able to access competitive prices or important customer protections. There is also a lack of clarity that embedded network operators are meeting their obligations as suppliers of an essential service’ .

The new regulatory framework proposed by AEMC seeks to improve the regulatory landscape of embedded networks in the following ways:
• better access for customers to competition,
• better alignment of the minimum obligations for supplying embedded network customers with those that currently are in place for supplying standard supply customers, and
• provides customers of embedded networks additional and more appropriate customer protections.

It is important to note that separate recommendations have been made in relation to legacy and new embedded networks. The AEMC notes that retrospective changes would have a significant impact on existing embedded network operators who have varying levels of resources and capacity to implement the changes.

The recommendations are grouped under the following headings:
• improving access to retail market competition,
• elevating embedded networks into the national regulatory and competitive retail market framework, and
• better consumer protections for new and legacy embedded networks.

The Draft recommendations are set out in full at the end of this article.

The main changes will be the requirement for Embedded Network Providers to be registered and members of the state Ombudsman scheme. There will also be changes to the metering provisions which will require most meters to have a NMI. The ENP will also need to appoint a Metering Coordinator.

At this stage the recommendations are in the consultation stage with a final report due on 28 November 2017.

AEMC Public Forum

On Wednesday 4 October 2017, the AEMC held a public forum on the review. I attended this event and there were a number of questions raised. Below is a short summary of some of the main issues raised by attendees:
• the impact on caravan park operators who have mixed use customers which include long term residents and short-term stays,
• protection of the ENP’s infrastructure, in particular for caravan park operators who use open air infrastructure,
• the costs involved in complying with the suggested changes including

o the costs of making a full application,
o membership of the ombudsman schemes
o marketing competitive offers,
o updating meters and obtaining NMI’s, and
o cost of employing a Metering Coordinator as well as an Embedded Network Manager.

• access arrangements to sites with embedded networks and OH&S issues related to the sites,
• payment of network charges by authorised retailers to ENP,
• how are the indirect benefits received by customers of Embedded Networks to be reflected in the price comparative discussion?
• whether any transitional or intermediary provisions will be introduced to address some of the concerns around protection of consumers.

The AEMC representatives were very interested in all the questions and comments and reminded the audience that the recommendations are at the consultation stage. They did indicate that some interim measures may be adopted before the full rule amendments come in to place. They referred to the power of the Australian Energy Regulator to amend its guidelines and policies. It will be important to be aware of any such changes which are made.

The recommendations must be very clear about which are to apply to legacy (existing) embedded networks and what will apply to new networks established after the new rules commence. This is relevant to cost estimates and also to understanding what the changes will mean.

Draft Recommendations

1. Improving access to competition for customers in legacy embedded networks:

(a) Improve access to competition for legacy embedded network customers by making
the process for switching to a market offer as simple as possible. This can be achieved
through two main changes:

— Where there is an embedded network manager (ENM) appointed, child
embedded network customer connections should be issued with National
Metering Identifiers (NMIs), registered by the Australian Energy Market
Operator (AEMO) in their market settlement and transfer solution (MSATS)
system and discoverable by retailers, regardless of whether the customer is onor

— Allowing a retailer of an on-market embedded network customer to pay the
exempt embedded network service provider a network tariff that is equal to the
standard published LNSP network tariff that would apply if there was no
intermediate embedded network.

2. Elevating new embedded networks into the national framework:

(a) Any person who engages in the activity of owning, controlling or operating an
embedded network must be registered as a registered embedded network service
provider (with a sub-set of the requirements of a network service provider) with
AEMO, or exempted by the AER according to a narrow set of circumstances.

(b) Any party who sells energy to a consumer in an embedded network must hold a
retailer authorisation from the AER, or be exempted by the AER from holding a
retailer authorisation according to a narrow set of circumstances.

(c) The Commission also recommends that:
— an embedded network service provider be required to appoint an ENM for all
its embedded network connection points
— the ENM be required to:

• apply to AEMO for NMIs for all off-market metering installations
• provide the Metering Coordinator with the NMI for the metering
• register the NMI for off-market metering installations with AEMO (i.e. in
• maintain information in the metering register (i.e. NMI standing data in
MSATS) about the metering installations.

(d) The NER be amended to provide more guidance to the AER on the criteria for
network service provider exemptions which would restrict these exemptions to
narrow circumstances.

(e) The AER be provided limited discretion under the authorisations framework to
exempt retailers that on-sell electricity in embedded networks from specific
conditions under the NERR where the cost of meeting the obligation is
disproportionate to the benefit, and does not impede access to retail market

— The AER would not be permitted to exempt authorised retailers from
complying with a minimum set of conditions including, for example:

• providing access to independent dispute resolution through
Ombudsman schemes
• explicit informed consent when entering into a contract
• life support requirements
• disconnection requirements.

(f) Remove the current exempt seller factors from the NERL and replace these with
principles that clarify the purpose of retail exemptions are to address circumstances

— the costs of retail authorisation, facilitating retail competition and retail churn
would outweigh the benefits to customers, and
— the need for regulatory oversight is low.

(g) More guidance be provided in the NERR to the AER on the criteria for selling (retail)

3. Better consumer protections for new and legacy embedded networks:

(a) The AER, Ombudsmen and jurisdictional governments continue to develop required
changes to the retail exemption guidelines and state regulations to increase access to
independent dispute resolution services for exempt customers.

(b) Jurisdictions should consider options for improving awareness of entitlements and
concessions and access to these for embedded network customers.

(c) To facilitate greater transparency of activities within embedded networks related to
exempt customers, the NERL should specify a role for the AER to monitor embedded
network service provider and exempt selling behaviour. Such a role should include
flexibility so that the AER can examine the conduct of particular sellers as required. In
the interim the AER should consider how monitoring can be increased under its
Review of regulatory arrangements for embedded networks
current functions and powers. The AER should also consider whether the reporting
requirements under the exemption framework should be increased

(d) Review the penalty amounts for infringement notices and act upon previous COAG
Energy Council work in this area.

(e) Enforcement options for network exemption breaches, including breaches of
conditions, should be more closely aligned with the enforcement powers for retail
exemption breaches.

(f) Consider the costs and benefits of extending the requirement on designated retailers
(i.e. local area retailer in most circumstances) to provide a standing offer to include
embedded network customers, or alternatively whether another party could take on
the obligation to offer.

(g) Make the NERL/NERR work for retail customers in embedded networks, including
by addressing the following consumer protections:

— Consider extending the standing offer price cap for exempt customers to cover
retail customers in embedded networks as well.
— Amend the NERR to align the de-energisation and re-energisation rules for
retail customers in embedded networks with standard supply customers.
— Amend the NERR to align the life support rules for retail customers in
embedded networks with standard supply customers.

(h) Improve information provision by:
— Amending the NERR to require authorised retailers to provide additional
information and obtain explicit informed consent prior to a customer entering
an embedded network or other non-traditional selling arrangements. The AER
should update the exemption guidelines to reflect that change.
— Jurisdictional governments should consider whether there is sufficient
provision for disclosure of the cost, benefits and risks of embedded networks in
state-based laws at the time of purchase or lease of a property.
— Authorised on-selling retailers be required to publish their prices in line with
other authorised retailers, though the AER should have some flexibility to
exempt some parties from inappropriate obligations.
— Many exempt sellers should also be required to publish price information to
allow customers considering moving into an embedded network an informed
choice and to allow greater monitoring of exempt selling activity. The AER
should consider whether some embedded networks should be exempt from this
requirement due to their size or nature.

4. Improve regulatory framework for gas embedded networks:

(a) We recommend the COAG Energy Council:

— agrees to establish a clear and jurisdictionally harmonised regulatory
framework for gas embedded network operators which is consistent with the
regulatory framework for embedded network service providers in the national
electricity market
— decides whether to establish this framework through jurisdictional legislation
or under the national gas law and rules
— if this framework is to be established under the national gas law and rules,
requests the AEMC to provide advice on changes to the law and rules that
would be required to implement it.

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