Refresher: the Australian Energy Regulator’s (AER) Exempt Selling Guidelines

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NB: The most recent guidelines for exempt energy sellers are contained in the AER (Retail) Exempt Selling Guideline dated March 2018. In February 2021, the AER commenced a review of the guidelines. A consultation paper was published on 18 May 2021 and stakeholder submissions were closed on 30 June 2021. At present, the 2018 guidelines are still applicable. However, it is anticipated that there may be changes when the review process is complete.

Introduction

The AER guidelines for exemption relate to any person or business (entity) who sells energy to another person. Such a seller must have either a retailer authorisation or a retail exemption. To put it plainly ‘exemption’ in this context refers to whether a person or entity is required to be authorised or whether they can seek or rely on an exemption from being authorised. Authorisation, in this context refers to being authorised (licenced) by the AER to conduct the business of providing energy.

This paper will provide a summary of the following:

1. Does the seller need to be authorised?

2. If an exemption can be sought, what are the different categories of exemption?

3. Who should hold the exemption?

4. How do you get an exemption?

5. How are exemption applications assessed?

6. What are the compliance conditions for exempt energy sellers?

1. Does the seller need to be authorised?

The core business of the person/ entity will largely be the key indicator of whether an authorisation is required. If energy selling is the entity’s main business, it is most likely that retailer authorisation would be required.

Further, if the entity sells gas or electricity to a person or business for use at premises and the energy cost is itemised in a separate discrete charge, such an entity would be defined as an energy seller under the Retail Law. ‘Premises’ is given a wide definition and the AER takes a pragmatic approach in interpreting the definition of ‘premises’.

NB: Retail Law refers to the applicable retail energy Acts and Rules. For example, in NSW it would mean the Acts and Rules applying and modified pursuant to the National Energy Retail Law (Adoption Act) 2012.

Energy sales do not have to be for profit. Passing on energy to a cost to another party is a sale. It is not considered a ‘sale’ when the energy is part of another fixed charge. An example of this would be a hotel tariff that includes energy costs.

Another example was where a mining company had built a town/ settlement to accommodate company staff. The company produced its own electricity at the site for the mining operations and for use in the settlement. The energy supplied and sold to the premises in the settlement was incidental to the company’s core business of mining and an exemption was granted accordingly.

A useful way of determining whether an entity is an energy seller and requires authorisation is looking at what an entity can do if authorised and what an exempt retail entity can do under an exemption.

Under a Retailer Authorisation a retailer is able to sell energy where the Retail Law applies. An authorisation (licence) would be required when:

  • The main business is the sale of energy to customers;
  • The main business relationship with customers is the sale of energy; and
  • The entity plans to sell a large amount of energy across a number of sites across multiple states and territories.

If your business requires authorisation, Compliance Quarter is a market leader in this space and can assist you with the authorisation application process.

A retail exemption is likely to be granted where;

  • Your entity plans to sell energy ‘incidentally’ to your core business;
  • Your entity is planning to sell energy as a community service or at cost;
  • Your entity plans to sell energy to a defined group of customers at one site.

2. If an exemption can be sought, what are the different categories of exemption?

There are three types of exemptions. The type of exemption your entity will require will depend on the nature of the business and the energy sales arrangement i.e., who you are selling the energy to and the reason for the selling of energy.

The three types of exemption available for energy sellers are:

  • Deemed exemption;
  • Registerable exemption; and
  • Individual exemption.

Deemed Exemptions:

Certain classes of energy sellers are ‘deemed’ exempt and are not required to register with the AER. This category generally applies to small-scale selling arrangements. However, there are still conditions that apply to this category. There is a wide range of energy selling entities that fall within this category such as:

  • Caravan parks and holiday parks that sell metred energy to customers in short-stay accommodation;
  • Entities that sell energy to a related business;
  • Persons who sell energy to less than ten small businesses or individual customers;
  • Entities that sell unmetered electricity in Queensland;
  • Individuals who sell gas where the gas is used for limited purposes;
  • Government and community organisations that sell metered energy secondary to their core functions;

The list above is not exhaustive. As stated above this category captures a wide variety of entities.

NB: It is advisable to seek clarification from the AER before embarking on your enterprise to ensure your entity falls within this category. Energy retail is significantly regulated. There are significant penalties for non-compliance.

Registerable Exemptions:

Where the scale of energy selling activity is larger than the examples given above, such an entity would need to be registered with the AER. This category is subject of greater regulatory oversight. This category includes:

  • Individuals who sell metered energy to ten or more tenants (not large commercial tenants) or residents within a site;
  • Caravan parks (holiday parks) and retirement villages who sell metered energy to permanent residents;
  • Individuals or businesses selling energy to larger customers.

NB: Where the seller has had energy selling arrangements in place prior to 1 January 2015, there are two registerable classes (R6 – persons selling metered energy to small entities (and individuals) at an adjacent site; and R7- persons selling unmetered energy to small business customers.)

Individual Exemptions:

Individual exemptions are intended for unusual or one-off arrangements that don’t fit within the other two categories. This allows the AER to tailor the conditions of the exemption to fit the purpose of the entity.

The conditions that the AER may impose will differ according to the intended customer base. For example, where an entity is planning to sell energy to large industrial customers, the conditions that the AER will impose are likely to be minimal. If the entity is planning to sell energy to residential customers, the conditions are likely to be more significant. The reasons relate to consumer protections for households (such as hardship programs).

3. Who should hold the exemption?

The individual or business selling the energy should hold the exemption. Generally, this will be the entity (individual or business) who is party to the contract to buy energy at the site’s gate meter  (from an authorised retailer) in the case of an embedded network who in turn sells energy to customers at the site.

An exemption cannot be extended beyond the scope of the specific activities for which the exemption was granted. Nor is the exemption transferrable. It is specific to the holder. Any other related business or subsidiary would need to apply or register for their own exemption.

The exemption holder bears the responsibility for complying with the conditions of the exemption.

Service Providers and Agents:

Some entities with an exemption for selling energy use service providers and agents to manage the sale of energy to customers. This often occurs in embedded networks. A service provider can communicate with customers, organise connections and disconnections, issue bills and handle complaints. If a service provider intends to buy energy from a retailer and sell it directly to the entity’s residents or tenants on behalf of the entity holding the exemption, then they would be classified as an energy seller and would need to obtain their own exemption or authorisation.

4. How do I/ we get an exemption?

Deemed Exemptions:

To be ‘deemed’ exempt, the entity must meet certain criteria. If the criteria is met, the entity does not need to apply for or register an exemption. The entity must still comply with the conditions of the deemed exemption class (discussed below).

NB: The criteria and conditions can be found on the AER website – aer.gov.au.

Registerable Exemptions:

To obtain a registerable exemption, an entity must complete the applicable form (available on the AER website – aer.gov.au). The entity must complete parts A and C of the form and any entity that is on-selling electricity must also complete part B. If any of the information provided on the form changes, the entity must notify the AER.

Individual Exemptions:

An entity (business or individual) seeking an individual exemption should first contact the AER. The AER will provide information and guidance for the application process. The AER has provisions for applicants in relation to providing confidential information. The onus is on the applicant to identify such information and provide an additional ‘public’ version of the application.

5. How are exemption applications assessed? (Individual Exemptions)

The AER will review an individual exemption application and will contact the applicant if the information provided is not complete. Once the application is accepted, the AER will commence the public consultation process and publish a notice on their website. The notice will invite submissions from interested stakeholders. The consultation period is generally 20 days in duration.

The overarching consideration for the AER in assessing an individual exemption application is contained in the Retail Law as follows:

To promote efficient investment in, and efficient operation and use of, energy services for the long term interests of consumers of energy with respect to price, quality, safety, reliability and security and supply of energy.

As discussed above, an individual exemption is a tailored exemption to fit the purpose of the entity. Unlike deemed and registerable exemptions, the AER must first decide whether to grant an individual exemption. If the individual exemption is approved the AER will then tailor the conditions for the individual exemption. If the applicant does not accept the conditions imposed by the AER the application will be refused.

The AER will only grant an individual exemption that covers multiple sites where it is consistent with the Retail Law, i.e. the consumer benefits as quoted above. The AER does not generally impose a time limit on an individual exemption but will impose such a limit if they consider it appropriate to do so.

6. What are the compliance conditions to hold an exemption?

The core conditions and the exemption classes that they apply to are contained at appendices A-2 and A-3 in the Guidelines. (see link below)

https://www.aer.gov.au/system/files/AER%20Retail%20Exempt%20Selling%20Guideline%20-%20version%205%20-%20March%202018.pdf

As contained in the Retail Law quote above, the conditions imposed are primarily designed to protect consumers in regards of cost, safety, quality reliability and security and supply. Breaches of the conditions can be severe with infringement penalties for individuals being $4,000 and $20,000 for a body corporate. The AER can also implement enforceable undertakings and court proceedings.

In certain situations, an exempt seller can also be held liable for the actions of their agents. In addition to the imposed conditions, an exempt seller also must comply with other legislative provisions such as the Competition and Consumer Act 2010.

Law Quarter and our sister company Compliance Quarter are market leaders in energy retail law and compliance. We can assist you with obtaining retail authorisation and exemptions and your ongoing compliance obligations.

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