AEMC rule and law changes for embedded networks

AEMC rule and law changes for embedded networks

AU Energy Compliance

As noted in previous posts the Australian Energy Markets Commission (AEMC) is working on rule and law changes for the regulation of embedded networks.

We now have a new draft timeline- as provided by the AEMC today and set out below:

On the draft report, submissions were received from the Australian Energy Regulator (AER), the Public Interest Advocacy Centre (PIAC), and retailers among others. The AER requested that the AEMC consider retaining individual exemptions as part of the retail framework to ensure that there remains flexibility in the regulation of embedded networks. Retailers were, unsurprisingly, supportive of measures to ensure that customers within embedded networks had power of choice.

Individual exemptions

In retaining individual exemptions, the AEMC proposes to restrict the power of the AER to specify varying conditions on off-market retailers- ensuring that the flexibility is within the individual exemption category and not within the retail authorisation category.

The AEMC is proposing that there be a public consultation process for individual exemption applications whereby anyone can lodge a submission and the AER can make an assessment on the basis of the consumer impact and cost of the proposed selling activity.

Timeline

Above you will see that there is a new timeline for the implementation of the rule and law changes. This process includes rule and law changes passing the SA parliament and AEMO system changes.

In terms of transition, the AEMC proposes to review the size and establishment date (the meaning of which is unclear) in determining when an embedded network needs to transition to the new framework.

The proposed timelines are set out below and you will note that the 2013 date relates to the implementation of new metering requirements- on the assumption that meters installed since are compliant.

 

If you have any questions on the above please get in touch.

What will happen to ‘legacy embedded networks’ under the AEMC’s proposed rule and law changes

What will happen to ‘legacy embedded networks’ under the AEMC’s proposed rule and law changes

AU Energy Compliance

Tomorrow the Australian Energy Market Commission (AEMC) will hold a stakeholder forum to examine the question of what will happen to ‘legacy embedded networks’ under the AEMC’s proposed rule and law changes. Below we discuss this question.

By Connor James, Compliance Quarter.

In January the AEMC released its draft report Updating the regulatory frameworks for embedded networks. The report set out proposed amendments to the national energy laws and rules to establish a new regulatory regime to improve consumer protections and access to retail market competition for embedded network customers. We have discussed the report in previous posts.

The headline items included the establishment of a new ‘type’ or retailer holding an off-market retail authorisation and the abolition of the majority of exemptions meaning that all ‘new’ embedded networks would need to be supplied by an off or on market authorisation holder. A new Embedded Network Service Provider (ENSP) role will be established and that party must register with AEMO and be subject to many of the existing regulatory requirements placed on DNSPs.

The remaining question was what is to happen with ‘legacy’ embedded networks.

Options for Transition

The language of the AEMC has gradually changed from being open to the possibility of allowing existing exemptions to a focus on transition. Transition means that a number of existing embedded networks will need to be supplied by an authorised retailer at some point. There are estimated to be between 700,000 -900,000 customers within these embedded networks, so the transition is important not only for suppliers but also for consumers.

The AEMC is now considering retaining ‘individual exemptions’ for those selling arrangements which meet a set of consumer interest and competition based principles and factors. This makes sense from the point of view of ensuring that the regulatory framework retains flexibility; particularly as we see more and more innovation in the space.

Deemed exemptions will not be transitioned to the new arrangement. These allow, for example, the sale of energy between related entities.

Transition Triggers

The AEMC recognises that ‘Existing EN are quite diverse and will have their own unique situation and characteristics. The transition framework needs to recognise this while keeping the arrangements simple and practical.

It is proposed to use two types of triggers for transition:

• Time based; and
• Size based (number of customers).

This means the size of an embedded network and the dates specified by the AEMC will determine when embedded networks need to transition to the new framework. From an operator point of view, this simply means that they will have time to come into compliance by either obtaining an off-market retail authorisation or by divesting of their embedded network operations- which creates its own issues.

We will provide updates to our clients tomorrow on the proposed transition timelines and new implementation timeline.

If you have any questions on the above, please contact me via email to [email protected]

Embedded Networks Framework Update – Further Questions

Embedded Networks Framework Update – Further Questions

AU Energy Compliance

Following our webinar on the topic last week (which you can watch at https://zoom.us/recording/share/jBd95cUmW_4wZ9fGoZMqnXaJEe-kDAaVBhehvD2pp7uwIumekTziMw?startTime=1551409241000)), we had a range of questions. As those questions will be of interest to a wide range of people, we offer our responses here.

By Dr Drew Donnelly, Compliance Quarter. 

All references are to AEMC’s draft report ‘Updating the regulatory frameworks for embedded networks’ available at https://www.aemc.gov.au/market-reviews-advice/updating-regulatory-frameworks-embedded-networks. We encourage you to make submissions on this report soon as they close on 14 March.

  1. Can the embedded network owner or operator pass on the costs of appointing the Embedded Network Service Provider (ENSP) and the Off-Market Retailer?

The proposed new framework will require the entities which own and operate new embedded networks to register with the Australian Energy Market Operator (AEMO) as an ENSP and as an authorised Off-Market Retailer.  In certain circumstances an intermediary or third party will be able to provide these services in place of the owner or operator of the embedded network. There is no proposed regulation as to how these costs may be passed on and to whom (p57).

  1. Will all ‘new’ embedded networks have to be built with market facing meters, in all sites, already installed for customers to go ‘on market’ if they so desire?

Yes. New embedded networks, that are requited to appoint an ENSP, will be required to have National Electricity Market (NEM) compliant metering as well as comply with Chapter 7 of the National Electricity Rules (p60).

The off-market retailer for that embedded network will be required to appoint a Metering Coordinator who in turn appoints a Metering Provider who will be responsible for the actual installation of NEM-complaint metering.

  1. Can the cost of a new metering installation be passed on to the customer?

For new embedded networks, who will be required to install NEM-compliant metering (i.e. smart meters), the existing rules in relation to updating a metering installation will apply. The retailer will be able to pass on the cost of a new meter to the customer in a variety of ways including a lump sum, a monthly fee or incorporating the cost of providing new meters to customers as part of the electricity usage charges. For more information see https://www.aer.gov.au/consumers/my-energy-service/smart-meters.

For legacy embedded networks, if they are transitioned to the new framework (which is yet to be determined), the metering will need to be NEM-compliant, if it is not already. There is no mention yet of whether there will be any restriction in passing on the cost of upgrade to customers.

  1. Is the creation of a child NMI the job of the newly created ENSP?

In embedded networks that are required to appoint an ENSP, then it will be the responsibility of the ENSP to create the child National Metering Identifier (NMI) through an ‘MSATs Change Request’ – the name for the AEMO’s market interface system.

  1. Who decides who will be the ‘local embedded network retailer’? 

Under the new framework, for a new embedded network, in its registration as an ENSP, the ENSP will be required to nominate an off-market retailer as the ‘local embedded network retailer’. The consent of that retailer will be required before doing so (p40).

  1. What about small to medium-sized businesses versus large enterprises? Will the rules be the same?

The proposed new requirements for registration as an ENSP and as an off-market retailer would apply equally to a small business or medium-sized business as to a larger businesses. However, the AEMC does point out that its proposal:

“grants the AER discretion in relieving an applicant from some conditions, which substitutes for the current individual exemption regime. The Commission considers that the AER may, for example, determine to exempt some NEM retailers or off-market retailers from a sub-set of obligations based on their customer type or size.” (p54).

  1. Under the new embedded network regulatory environment where there would be a requirement for a ‘legacy’ exempt retailer to become registered as on Off Market retailer, will there be a requirement for legacy customers to provide explicit informed consent (EIC) to transition to the new entity?

The AEMC have not yet come to a recommendation on this. While there is a proposal in the new framework that EIC will be required before transfer from an exempt seller to an authorised retailer (p57), at the time of the commencement of the new framework it is likely that legacy embedded networks that require authorisation, will already be authorised

Webinar Recording Energy Updates: AEMC taking the axe to Embedded Network Exemptions

AU Energy Compliance

If implemented, the AEMC recommendations will effectively take an axe to the existing regulation of embedded networks – embedded network exemptions – redefining a sector of the energy market that is growing in importance. The changes discussed in this webinar are focused on NECF jurisdictions (NSW, QLD, SA, ACT and TAS). In a webinar to follow we will consider similarly significant changes to be implemented in Victoria following the gazettal of a new section 17 order.

embedded network exemptions

View our webinar here.

Hosted by Connor James and Anne Wardell

Welcome

The presentation will run for 25 minutes then we will have a Q & A for 10 minutes after.

What is an Embedded Network?

• Embedded networks are private electricity networks connected to the distribution and transmission system of the national electricity market through a parent connection point (gate meter).
• They are typically found in apartment blocks, retirement villages, caravan parks and shopping centres.
• They are on the increase with a range of business models being introduced on to the retail market.

AEMC Final Report on the regulation of embedded networks

Consistent with the AER’s submission to the AEMC review, the AEMC found the existing regulatory framework is not fit for purpose.

“However, the current regulatory arrangements for embedded networks are resulting in some customers not being able to access competitive prices or important consumer protections. There are also insufficient monitoring and enforcement powers for the Australian Energy Regulator (AER), leading to a lack of clarity that embedded network operators are meeting their obligations as suppliers of an essential service. While some embedded networks are providing benefits to energy consumers they may not receive in a standard supply arrangement, often they do not.,,

Recommendations

• If implemented, the AEMC recommendations will effectively take an axe to the existing regulation of embedded networks, redefining a sector of the energy market that is growing in importance and prevalence.
• The changes discussed are focused on NECF jurisdictions (NSW, QLD, SA, ACT and Tas).
• When considering the recommendations it is important to distinguish between those that apply to retail exemptions and those that apply to network exemptions.
• The recommendations are discussed under three main headings.

The electricity network service provider exemption guideline (Draft) (AER)

On 17 November 2017, the AER published Version 6 of the Electricity Network Service Provider Exemption Guideline (draft). The AER is seeking submissions on the draft. This new draft guideline should be read by all existing exempt operators.

The new draft guideline goes into further detail about microgrids and local energy sales:

“The AER is supportive of the concepts of microgrids and private trading but we caution there are significant regulatory hurdles which must be overcome before a microgrid or private selling of excess electricity can be implemented. We will work with proponents to develop models that respect and enhance the rights of customers to access new energy options but our ability to facilitate microgrids is limited by the constraints of the current regulatory framework”

embedded network exemptions

5 Key Questions

1. What is the headline for existing embedded network operators?
2. Why are changes being made?
3. Will we need to obtain a retail authorisation?
4. How do I obtain a retail authorisation?
5. Will existing embedded networks, and embedded network operators, be grandfathered?

What is the headline for existing embedded network operators?

Under the proposed regime new Embedded Network Operators (ENO) will need to obtain an authorisation rather than rely on an exemption.
The authorisation will not be the same as for an authorised retailer but it will include additional requirements that are not currently imposed on the holder of an exemption.

Why are changes being made?

The AEMC is dissatisfied with the existing regulatory framework:

“The Commission does not see retaining the current framework as an option…”.
The AEMC wants to increase the customer protections available to customers of an embedded network.

At the same time, the AER is introducing new dispute resolution obligations which apply to exempt sellers.

Will we need to obtain a retail authorisation?

Once the recommendations are implemented there will be a very narrow range of activities that can be conducted under an exemption.

Existing operators, such as managers of residential parks will not be included as an exemption category in either the network service provider exemption framework or exempt seller framework. Even community energy projects will be excluded from the exempt seller framework.

Activities which continue to be covered by an exemption

“However, the Commission considers that an energy selling exemption framework remains necessary to address circumstances where:
• the costs of retail authorisation and facilitating retail competition would outweigh the benefits to customers, and
• the need for regulatory oversight is low.

The Commission recommends amending the exemption framework by removing the detailed seller factors and customer factors from the NERL and providing the AER the power to exempt persons, or classes of persons, from holding a retailer authorisation in accordance with the NERR. The Commission also recommends narrowing the exemption framework by including a set of factors the AER must take into account in exempting persons, or classes of persons, from holding a retailer authorisation.

How do I obtain a retail authorisation?

It is proposed that the Australian Energy Regulator be given broader power to reduce the regulatory burden on authorised retailers who only supply electricity within embedded networks by the establishment of a new ‘category’ of retailer authorisation. However, it is unlikely that the AER would exempt (for need of a better word) new authorised retailers from any of the consumer protection provisions within the rules and retail law.

The AER requires that applicants for a retailer authorization meet a number of requirements as set out under the Retail Law. The AER must be satisfied that an applicant has the capacity to meet their obligations as an Energy Retailer under the Retail Law and Rules.

The AER must be satisfied that an applicant;

• has the necessary organisational and technical capacity to operate as a retailer;
• has the financial resources, or access to resources, to operate as a retailer; and
• Is a suitable person to hold a retailer authorisation.
• Your application will need to demonstrate the above.

The assessment by the AER is conducted at the point in time that an application is made. The application itself consists of a range of documents including a hardship policy, complaints management procedure, and compliance plan.

Point of difference

Authorised retailers who operate solely within embedded networks will not need to be a market participant and register with AEMO (providing they are sourcing electricity at the gate meter from a market participant retailer). This means that the prudential requirements will be less onerous. Nonetheless, the operational and compliance costs of running an authorised retailer are significant. Systems used for customer management, billing and operations will need to be fully compliant with the application provisions of the rules and retail law.

Will existing embedded networks, and embedded network operators, be grandfathered?

The separation of ‘new’ from ‘legacy’ embedded networks raises the obvious concern that the existing two-tier regulatory regime is evolving into a four-tier regime. This, in turn, raises the question about whether ‘legacy’ embedded networks can continue forever or will need to convert to the regime applicable to ‘new’ embedded networks.

Of course, when a property is sold, the exemption which applies cannot be transferred so the new ENO would need to apply under the new system.

As part of the review, the AEMC engaged Minter Ellison to “Review and advise in connection with the implementation of the recommendations in its Draft Report ‘Review of regulatory arrangements for embedded networks’ dated 12 September 2017.”

Minter Ellison identified that the draft report did not:

“show an intention that there should be any element of retrospectivity in relation to existing exemptions.”

Minter Ellison identified six options for either grandfathering existing embedded networks and embedded network operators or move them to the new regulatory regime.

In our view, the options open to the AEMC include recommendations to:

i. preserve all existing exemptions indefinitely, on their current terms and conditions;
ii. provide that existing exemptions only apply until such time as there are substantial changes to the network;
iii. Preserve each existing exemption until such time as the premises to which they relate are sold. We note that under the NERL. while authorisations are transferable, exemptions are not;
iv. Deem pre-existing individual and registrable exemptions to be authorisations for the premises to which they relate on the conditions on which they have been granted. Such mechanism could either:
A. require the previously exempt retailer to comply with the conditions attaching to the exemption as if they were contained in an authority; or
B. require the previously exempt retailer to comply with exemption conditions and the obligations of an Off-market retailer under the NERL and NERR;
v. give the holders of exemptions a certain time in which to elect to convert their exemptions to authorisations; and
vi. require the holders of deemed exemptions to notify the AER of the existence of their deemed exemptions within a certain time frame, in order to maintain them.

Preferred options

“In our view, given that one of the dominant themes of the Draft Report is the lack of information available to the AER about the extent and number of deemed exemptions, we are attracted to option (vi). We also consider there is some merit in further exploring options (iii) and (iv)”.

Conclusion

Whatever framework the AER decides to implement, the one certain thing is that Embedded Network Operators will be subject to more regulation. This means that if you are currently an ENO operating under an exemption you will need to be vigilant about keeping up to date with the proposed changes.

We are here to help with embedded network advice

• Compliance Quarter provides regular updates on what is happening in the energy regulation space. Check out our news stories on our website here.
• Alternatively, give Connor James a call to discuss your questions or issues or email us here.

 

Strengthening protections for customers requiring life support equipment

Strengthening protections for customers requiring life support equipment

AU Energy Compliance, Uncategorized

life support Photo by Jair Lázaro on Unsplash

By Anne Wardell, Compliance Quarter. 

The Australian Energy Market Commission (AEMC) has today released its final rule in relation to the rights which must be provided to life support customers by energy retailers and distributors. The final rule will become effective from 1 February 2019, however, from 1 February 2018 transitional arrangements will apply.

The transitional arrangements are:

  • provide the protections in the current life support rules during the transition period (i.e. 1 February 2018 to 1 February 2019) to all existing customers who are registered as having life support equipment, whether they have provided medical confirmation or not; and
  • provide the protections in the current life support rules during the transition period to all new customers who advise a retailer or distributor they require life support equipment, whether they provide medical confirmation or not.

The AEMC has advised that:

‘The final rule will provide better protection for life support customers, allocate responsibilities clearly and appropriately between retailers and distributors, and improve the accuracy of life support registers’[1].

The new rule sets out minimum legal requirements which must be met by retailers and distributors. It also amends the current life support provisions:

‘so that customers will be entitled to life support protections from the time they first inform either their retailer or distributor that they need life support equipment. It establishes minimum requirements for retailers and distributors to register and deregister customers for life support protections. It also clarifies the role of retailers and distributors with regards to the registration, medical confirmation, and deregistration processes’[2].

The main features of the final rule are:

  • enable a customer to receive the protections of the life support rules from the time they inform their retailer or distributor until they are deregistered;
  • require the registration process owner (the retailer or distributor contacted by the customer) to: — notify customers of their rights and obligations under the life support rules — follow a prescribed process for obtaining medical confirmation of a customer’s eligibility to be on the life support register — follow a prescribed process if the registration process owner chooses to remove a customer from the register where medical confirmation is not provided;
  • enable either the retailer or the distributor to deregister the premises if the customer informs them that life support equipment is no longer required; and
  • enable the non-registration process owner (either the retailer or the distributor) to deregister the premises once the registration process owner has deregistered the premises in the event where medical confirmation is not provided[3].

The new rule also contains amendments to the model terms and conditions for standard retail contracts and deemed standard connection contracts. Retailers will be required to update their standard terms once the rule becomes effective.

Further information, including copies of the Final Determination and Final Rule are available on the AEMC website.

[1] AEMC Information sheet.

[2] Summary of AEMC Final Rule Determination National Energy Retail Amendment (Strengthening protections for customers requiring life support equipment) Rule 2017

[3] Ibid.

For anyone that would like to discuss this in more detail, please feel free to contact our regulatory specialists here.

Embedded Network Operators take note: A new General Exemption Order in Victoria

Embedded Network Operators take note: A new General Exemption Order in Victoria

AU Energy Compliance

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).

general exemption order
Photo by Samuel Zeller on Unsplash
By Connor James, Compliance Quarter. 

The new General Exemption Order:

  1. sets out exemption categories;
  2. includes an obligation to obtain explicit informed consent; and
  3. 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):

general exemption order

general exemption order

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.

If you would like to discuss embedded networks, including the impact of the new GEO, please contact us by email to [email protected]

Taking the Axe to Embedded Network Exemptions

AU Energy Compliance

Yesterday we spoke about the final Australian Energy Market Commission (AEMC) report on the regulation of embedded networks. Recommendations from the report will be considered by COAG and are likely to be implemented mid-to-late next year.

Today, we answer Five Key Questions for existing embedded network operators.

embedded network operators
Photo by Malte Wingen on Unsplash
By Anne Wardell and Connor James, Compliance Quarter. 

If implemented, the AEMC recommendations will effectively take an axe to the existing regulation of embedded networks, redefining a sector of the energy market that is growing in importance and prevalence.

The changes discussed in this article are focused on NECF jurisdictions (NSW, QLD, SA, ACT and Tas). In an article to follow we will consider similarly significant changes to be implemented in Victoria following the gazettal of a new section 17 order.

The existing regulatory regime distinguishes between authorisation holders and exempt operators. To be able to provide network and/or retail services, embedded network operators must be operating under an exemption from the requirement for registration as a network service provider and/or hold a retailer authorisation.

Currently, exempt operators are regulated, but not to the same extent as authorisation holders. Exempt operators are not required to publish standing offer pricing, nor to report to the regulator, nor to comply with other requirements in the rules.

Question One: What is the headline for existing embedded network operators?

From the date of implementation, customers within the majority of ‘new’ embedded networks are going to need to be supplied by an authorised retailer rather than an exemption holder.  This means that a business that relies on exemptions to supply electricity within embedded networks will need to obtain a retail authorisation if it wishes to supply electricity within any ‘new’ embedded networks.

The implementation of the AEMC recommendations will redefine existing successful business models. Existing embedded network operators and exemption holders need to take note of the changes.

Question Two: Why are changes being made?

The AEMC is dissatisfied with the existing regulatory framework: [i]

“The Commission does not see retaining the current framework as an option…

We have also found significant practical barriers to customers in embedded networks accessing retail market competition, which means that embedded network customers have limited ability to change supplier if they are unhappy with the price they are paying or level of service that they are receiving. In addition, there are a number of provisions of the NERL and NERR that do not operate effectively for embedded networks.”

The AEMC is essentially concerned that the range of activities covered by exemptions is too broad. This flows back to wide-ranging concerns in the sector about pricing and consumer choice. Electricity pricing is newsworthy and pricing increases have real-life consequences, particularly for vulnerable consumers. The AEMC does recognise the benefits of embedded networks:

“Provided that they are appropriately regulated, the Commission considers that embedded networks can provide benefits to consumers by way of discounted prices and non-price benefits such as multi-service offerings, more environmentally sustainable housing and improved access to embedded generation. However, due to a lack of competitive pressure and appropriate consumer protections, the Commission considers that many embedded network consumers are not currently receiving benefits from these arrangements.”

Another major factor in seeking change is to increase the customer protections available to customers of embedded networks. The current view is that a number of customers of embedded networks have no recourse to dispute resolution or assistance in dealing with a complaint about the services received. We have discussed changes in this area in previous articles.

Question Three: Will we need to obtain a retail authorisation?

If you propose to supply electricity within ‘new’ (in reference to the implementation of the recommendations not to greenfield/ retrofit) embedded networks, then the answer is probably yes.

“The Commission considers the most effective way of implementing these measures is through elevating the regulation of embedded networks into the national framework. The Commission recommends requiring embedded network service providers that supply small customers to register with AEMO and on-sellers to hold a retailer authorisation except in a narrow set of circumstances.”

Once the recommendations are implemented there will be a very narrow range of activities that can be conducted under an exemption.

Existing operators, such as managers of residential parks will not be included as an exemption category in either the network service provider exemption framework or exempt seller framework. Even community energy projects will be excluded from the exempt seller framework:

“The Commission considers that it would be in the long-term interests of consumers if community energy projects are implemented within the proposed framework which requires the supply and sale of energy to small customers in embedded networks to be provided by a registered embedded network service provider and authorised on-selling retailer.”

There will continue to be activities that are appropriate for a retail exemption:

“However, the Commission considers that an energy selling exemption framework remains necessary to address circumstances where:

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

The Commission recommends amending the exemption framework by removing the detailed seller factors and customer factors from the NERL and providing the AER the power to exempt persons, or classes of persons, from holding a retailer authorisation in accordance with the NERR. The Commission also recommends narrowing the exemption framework by including a set of factors the AER must take into account in exempting persons, or classes of persons, from holding a retailer authorisation.

The Commission agrees with the AER that a principles-based approach in the NERL would avoid precluding as yet unforeseen energy selling activities from being eligible for an exemption, where exemption may be more appropriate than authorisation. The Commission considers further prescription in the NERR would be appropriate for providing direction to the AER and certainty to industry on the eligibility criteria for exemptions. Placing these in the NERR balances this prescription with flexibility by providing any person the opportunity to request a rule change to amend these factors if they consider it meets the NERO.”

Question Four: How do I obtain a retail authorisation?

It is proposed that the Australian Energy Regulator be given broader power to reduce the regulatory burden on authorised retailers who only supply electricity within embedded networks by the establishment of a new ‘category’ of retailer authorisation. However, it is unlikely that the AER would exempt (for need of a better word) new authorised retailers from any of the consumer protection provisions within the rules and retail law.

“The Commission acknowledges that elevating the regulation of embedded networks into the national framework will involve some costs for participants and market bodies. As we note above, providing consumer protections and providing access to the retail market is not costless. However, the Commission considers these costs will be minimised and proportionate to the benefits or the proposed changes.”

A point of difference for authorised retailers who operate solely within embedded networks will be that they need not be a market participant and register with AEMO (providing they are sourcing electricity at the gate meter from a market participant retailer). This means that the prudential requirements will be less onerous. Nonetheless, the operational and compliance costs of running an authorised retailer are significant. Systems used for customer management, billing and operations will need to be fully compliant with the application provisions of the rules and retail law.

We previously published an article on ‘how to become an authorised retailer’ which can be read here.

Question Five: Will existing embedded networks, and embedded network operators, be grandfathered?

The separation of ‘new’ from ‘legacy’ embedded networks raises the obvious concern that the existing two-tier regulatory regime is evolving into a four-tier regime. This, in turn, raises the question about whether ‘legacy’ embedded networks can continue forever or will need to convert to the regime applicable to ‘new’ embedded networks.

As part of the review, the AEMC engaged Minter Ellison to “Review and advise in connection with the implementation of the recommendations in its Draft Report ‘Review of regulatory arrangements for embedded networks’ dated 12 September 2017.

Minter Ellison identified that the draft report did not “show an intention that there should be any element of retrospectivity in relation to existing exemptions.” Minter Ellison identified the following six options for either grandfathering existing embedded networks and embedded network operators (or move them to the new regulatory regime), noting that option (iv) is the most attractive:[ii]

  • preserve all existing exemptions indefinitely, on their current terms and conditions;
  • provide that existing exemptions only apply until such time as there are substantial changes to the network;
  • preserve each existing exemption until such time as the premises to which they relate are sold. We note that under the NERL, while authorisations are transferable, exemptions are not;
  • deem pre-existing individual and registrable exemptions to be authorisations for the premises to which they relate on the conditions on which they have been granted. Such mechanism could either:
    1. require the previously exempt retailer to comply with the conditions attaching to the exemption as if they were contained in an authority; or
    2. require the previously exempt retailer to comply with exemption conditions and the obligations of an Off-market retailer under the NERL and NERR;
  • give the holders of exemptions a certain time in which to elect to convert their exemptions to authorisations; and
  • require the holders of deemed exemptions to notify the AER of the existence of their deemed exemptions within a certain time frame, in order to maintain them.”

We are currently working with the Majority of retail authorisation applicants and have successfully assisted a number of retailers. If you would like to understand how the above impact your business, contact us by phone (02) 8001 6664 or email [email protected]

 

 

[i] See Review of regulatory arrangements for embedded networks, AEMC 2017, accessible at http://www.aemc.gov.au/Markets-Reviews-Advice/Review-of-regulatory-arrangements-for-embedded-net

[ii] See Review of regulatory arrangements for Embedded networks, Implementation of

recommendations in Draft Report

, Minter Ellison 2017, accessible at http://www.aemc.gov.au/getattachment/e7a91675-0277-4757-9221-a59bf832a5e2/MinterEllison-Review-of-regulatory-arrangements-fo.aspx

A poll to pass a resolution not to appoint an Embedded Network Manager– Caravan park operators take note

A poll to pass a resolution not to appoint an Embedded Network Manager– Caravan park operators take note

AU Energy Compliance

The AEMC has made a number of rule changes which come in to force on 1 December 2017. The changes relate to embedded networks and metering arrangements. Two major new roles will be introduced under the rule changes, an Embedded Network Manager (ENM) and a Metering Coordinator (MC).

pds

By Anne Wardell, Compliance Quarter. 

The regulator has made certain exemptions for caravan parks, holiday parks, residential land lease parks and manufactured home estates (caravan parks). Operators of caravan parks who operate an embedded network will often hold an R4 retail exemption and an NR4 network exemption, both of these exemptions apply specifically to caravan parks.

Apart from the current conditions imposed under the exemptions, there are a number of state based Acts which impose restrictions on how much a caravan park owner or operator can charge residents for utilities.

These restrictions must be complied with as well as the regulations and conditions under the Retail Law.

Given these state based regulations, the regulator has decided not to impose the ENM conditions on caravan park operators except in particular circumstances. However, in order for a caravan park operator to avoid the requirement to appoint an ENM, they must have held a poll of their residents in relation to a resolution not to appoint an ENM.

The conditions which will trigger the appointment of an ENM are set out in 4.4.2 of the AER electricity NSP Registration Exemption Guideline – Version 5, 1 December 2016 (REG). Classes ND3 and NR4 are omitted from the relevant activity classes which are required to comply with the trigger conditions. The regulation provides the following rationale for this:

‘We have omitted classes ND3 and NR4 from the relevant activity classes. These classes concern short–term rental accommodation (as is common in tourism) residential land lease and manufactured home sites. For class ND3, we do so on the basis that the transient nature of those tenancies makes it unlikely that there would be sufficient opportunity to offset the transaction costs of appointing an ENM. For class NR4, we are satisfied that the price control effect of State based legislation (where it exists) makes the costs of an immediate appointment of an ENM unlikely to outweigh the benefits of an early appointment’.

Regulation 4.7.2 provides the provisions relevant to the non-appointment of an ENM and reversion. It applies to an embedded network serving eligible communities registered in activity classes ND2, NR2, NR3 and NR4.

If a caravan park owner or operator does not want to appoint an ENM then they must follow the procedure set out in reg 4.7.2. This provides for a poll to be taken of the residents as to a resolution to not appoint an ENM. The procedures refer to eligible members for the purposes of voting. For activity class NR4 an eligible member will be ‘a person who principally resides there’.

Regulation 4.7.2 and 4.7.3 are set out in full below:

How to conduct a poll

Step One:          

Prepare a resolution which states that the eligible community does not want to appoint an Embedded Network Manager. Prepare written information in support of the resolution. Remember that a copy of this information must be provided to the AER. It may be useful to notify eligible members of the community that the REG makes provision for cost recovery of the provision of an ENM in an eligible community (4.7.1.1). Arguably this cost may be outside the definition of ‘supply of utilities’ contained in the state legislation. Remember that the reforms being introduced are about providing competition to consumers in relation to their energy bills. Due to the state based regulations, one may argue that residents of a caravan park are already receiving low or competitive rates for their utilities.

Step Two:

Set a date for the poll which allows sufficient time for you to provide at least 14 calendar days notice to each eligible member of the meeting in writing.

Step Three:

Prepare a written Reg 4.8.1 notice.

Step Four:

Write a letter to each eligible member of the community advising them of the date, time and place of the poll and enclosing the following documents:

  • Copy of the resolution
  • Copy of the written information in support of the resolution and
  • Copy of the reg 4.8.1 notice.

Step Five:          

Hold the meeting and explain the process to the eligible members. Eligible members are not required to vote but if they do vote they may only vote once. Advise the meeting that you will be recording the votes and providing that information to the Australian Energy Regulator (AER).

You must keep a separate tally of the following:

  • Votes for
  • votes against
  • Proxy votes for
  • Proxy votes against
  • total number of eligible voters
  • total number of informal voters and excluded voters.

Make sure you take a careful record of this as it must be provided to the AER.

In order for the resolution to pass you must obtain a vote in favour of the resolution by two-thirds of the eligible members.

Step Six:            

You must notify the AER of the results of the poll within 10 business days of the meeting. The notification to the AER must include:

  • the itemised tally of the votes
  • a copy of the resolution,
  • a copy of the written information in support of the resolution
  • a copy of the reg 4.8.1 notice.

Step Seven:       

AER will determine whether the caravan park operator may not appoint an ENM.

Step Eight:        

The AER will provide a written notice of its decision to the caravan park operator. The decision does not take effect until receipt of the decision.

If you do not receive a vote in favour by a two thirds majority you may need to appoint an ENM.  It would be worthwhile to prepare for the meeting carefully and perhaps engage with your residents prior to the meeting about the changes and costs involved.

You are only required to hold one poll every 12 months but there is nothing to say that you cannot hold more than one poll a year.

You will also be required to hold a poll if one of your residents is supplied by a retail seller or indicates they want to be supplied by a retail seller. It is therefore important for caravan park operators to be aware of the poll procedures.

This is part of a series of articles I am writing which will look at the impact of the changes in Embedded Network regulations to caravan park operators.

If you have any questions about this or require assistance with holding a poll or preparing documents for it please contact either Connor James or Anne Wardell at Compliance Quarter.

New review of regulatory arrangements for embedded networks

New review of regulatory arrangements for embedded networks

AU Energy Compliance

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
off-market.

— 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
installation
• register the NMI for off-market metering installations with AEMO (i.e. in
MSATS)
• 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
competition.

— 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
where:

— 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)
exemptions.

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.

AEMC releases draft rule to support a competitive market for ‘behind the meter’ battery storage

AEMC releases draft rule to support a competitive market for ‘behind the meter’ battery storage

Uncategorized

By Anne Wardell, Compliance Quarter

The Australian Energy Market Commission has released a draft rule to support a competitive market in ‘behind the meter’ batteries and other distributed energy resources by limiting network businesses’ ability to own and control these assets.

This follows a rule change request from the COAG Energy Council and the Australian Energy Council.

The purpose of the rule is to facilitate competition in the emerging contestable energy services market. The rule is designed to allow the consumer to choose how to use their energy resources rather than the distribution business.

The draft rule:

  • restricts distribution network service providers’ ability to earn regulated returns on assets located behind the meter, on the consumer’s side of the connection point
  • updates the framework setting out how the Australian Energy Regulator (AER) should determine which network services are regulated, and which are open to markets
  • requires the AER to publish a distribution service classification guideline setting out its approach to classifying distribution services.

The AEMC is inviting stakeholders to make submissions on the draft rule and has provided an extended consultation period of nine weeks. Submissions close on 31 October 2017. There will also be a stakeholder workshop in Sydney in late September 2017.

Source: Draft rule to support a competitive market for ‘behind the meter’ battery storage and other distributed energy resources, News story, 29 August 2017, AEMC.