Release of New AER Life Support Registration Guide

Release of New AER Life Support Registration Guide

AU Energy Compliance

AER has just released a new Life Support Registration Guide (the Guide) ahead of the commencement of the new Life Support National Energy Retail Rules (NERR) on the 1 February 2019. This update summaries the new registration guide and what retailers need to do to comply with it.

By Dr Drew Donnelly, Compliance Quarter. 

1.The New Life Support Rules

The new rules:

  • provide customers with life support protections from the time they inform their retailer or distributor that they rely on life support equipment 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 customer eligibility to be on the life support register;

* follow a prescribed process for the removal of a customer from the register where medical confirmation is not provided;

* establish a clear process to enable either the retailer or distributor to deregister the premises if the customer advises that life support equipment is no longer required.

  1. The Guide

The Guide sets out the different steps that retailers and distributors must take at each stage of the process in accordance with the new rules, including the customer notification process, medical confirmation, de-registration and information sharing and record-keeping requirements. It also sets out the AER’s approach to compliance and enforcement with respect to the new life support rules. This includes that:

  • with the commencement of the new rules on 1 February 2019, businesses must have policies, systems and procedures in place for registering and deregistering premises requiring life support equipment. This includes maintaining accurate and up to date registers and ensuring deregistrations are carried out in accordance with the NERR;
  • a failure to meet life support obligations is a civil penalty provision under the NERR which means court-ordered penalties of up to $100 000 for a corporation and up to $20 000 for individuals per contravention. The AER also has the power to issue infringement notices;
  • the self-reporting compliance framework requires retailers and distributors to report possible breaches of the Retail Law and Retail Rules. The life support obligations are classified as immediate and must be reported within two business days of the business identifying them, given the potential for serious customer harm.
  1. What about Embedded Networks?

Authorised Retailers who supply to customers in embedded networks will be subject to the new life support rules just like any other authorised retailer. The new rules do not apply to embedded network operators operating solely under network and/or retail exemption

The life support obligations for exemption holders are provided in the AER Electricity NSP Registration Exemption Guideline (Network Guideline) and the AER Retail Exempt Selling Guideline (Exempt Selling Guideline), respectively. These include requirements not to disconnect customers who rely on life support equipment (without making alternative arrangements for the customers safety) and the requirement to ensure that parent and child connection point retailers are informed of customers with life support needs.

Next Steps

  • Ensure that internal processes are updated as recommended in the Registration Guide to manage registration processes;
  • Conduct a compliance risk assessment with respect to the new rules and submit to the organisations Board for consideration.

Read the Guide at https://www.aer.gov.au/system/files/1482_AER_Life%20Support%20Guide_FA_WEB%20%28002%29.pdf.

 

 

Default Retail Price for Electricity to apply from 1 July 2019  

AU Energy Compliance

The Commonwealth Government has just directed that the Australian Energy Regulator (AER) begin work on developing a mechanism for introducing a default price for electricity.

What we know

The Commonwealth Government has asked that a default market offer and associated default market price be introduced for National Energy Customer Framework (NECF) jurisdictions, which means:

  • the default price will replace the standing offer price in NECF areas that currently do not have price regulation;
  • the price will be set by the AER on the basis of the costs incurred by the retailer as well as allowance for a reasonable margin.

The default price would come into effect on 1 July 2019 with publicly released by 30 April 2019.

In addition, the Commonwealth Government has requested that the AER begin work implementing:

  • A reference bill, based on benchmarks from which advertised discounts must be calculated (including win-back and retention offers), using the default price set by AER. This would apply to generally available offers marketed at both residential and small and medium enterprise (SME) customers.

Comment

The proposed default price will not apply in areas where there is currently price regulation, which covers ACT, regional Queensland and Tasmania.

The Commonwealth Government has also announced that, after introducing the default price changes, the Government intends updating consumer protections and abolishing  Standard Retail Contracts. It is not clear yet which of the protections current contained in Standard Retail Contracts will be carried through to default market offers.

It is unknown, whether and when a default market offer would be extended to Victoria. Note, however, that it was a recommendation of the ACCC Retail Pricing Inquiry that the Victorian regulatory framework be unified with the NECF.

For more information see https://www.aer.gov.au/system/files/Letter%20to%20the%20AER%20Chair%20-%20dafault%20pricing.pdf.

Are electricity prices in Australia being driven by an excessive tax allowance?

Are electricity prices in Australia being driven by an excessive tax allowance?

AU Energy Compliance

The Australian Energy Regulator (AER) recently announced a review on how much estimated tax it will allocate when making revenue decisions for network businesses.[1] This is, in part, a recognition that network costs have been the key driver of rising electricity prices over the last decade or so.[2] As part of that review, AER has released an issues paper for consultation. We summarise this below.

electricity prices

By Dr Drew Donnelly, Regulatory Specialist, Compliance Quarter

Estimate of tax payments

When setting revenue allowances for network businesses (i.e. deciding how much revenue monopoly distributors are allowed to make), the AER estimates expected tax payments for electricity and gas distributors. By reviewing the current approach to estimating tax, the end result may change the total revenue allowance for network businesses, and thereby contribute to bringing down energy prices.

The estimated tax payment is combined with other calculations in AER’s ‘building block’ approach to its revenue determinations including:

  • return on capital (compensating investors for the opportunity cost of funds invested in the business);
  • return of capital (depreciation, to return the initial investment to investors over time);
  • operating expenditure (covering the day-to-day costs of maintaining the network and running the business).

Differences between estimated tax allowance and actual tax paid

Advice from the Australian Tax Office (ATO) suggests that tax is being over-estimated (i.e. network businesses), particularly for privately-owned network businesses.[3] Possible causes identified by ATO include:

  • Ownership structure. Some structures attract a lower statutory tax rate (e.g. 15%) but the tax is being estimated by AER at the corporate rate (30 per cent);
  • High gearing. Some network businesses might be highly geared (greater than 60 per cent), compared to the benchmark (60 per cent) which means a higher interest expense, and lower taxable income than on AER’s model;
  • Some network businesses may use diminishing value depreciation for tax purposes, and thereby front-load depreciation compared to the straight-line model used by AER;
  • Self-assessed shorter asset lives. This makes the depreciation expense higher than in the AER model;
  • Low-value pools. Network businesses may aggregate assets worth less than $1000 and then rapidly depreciate them, meaning a greater depreciation expense than on the AER model;
  • Prior tax losses not accounted for on the AER model.

AER asks a range of questions, including:

  • Are there other publicly available sources that provide tax data for the regulated networks?
  • Of the available data sources, which are the most appropriate for the purposes of the AER’s review?
  • What information would the AER need to obtain on actual tax payments in order to inform this review and any potential adjustments to the regulatory treatment of taxation?
  • Are there other potential drivers that could cause the difference (between expected tax costs and actual tax paid) identified by ATO?
  • How should we assess the materiality of the potential drivers?
  • Which of these potential drivers should be the focus for the AER’s review?

The issues paper is available at https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/review-of-regulatory-tax-approach-2018

Contact the team at Compliance Quarter should you need anything – click here.

[1] See https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/review-of-regulatory-tax-approach-2.

[2] E.g. see https://www.accc.gov.au/publications/accc-retail-electricity-pricing-inquiry-preliminary-report.

[3] See https://www.aer.gov.au/system/files/ATO%20note%20to%20AER%20-%20Comparison%20of%20regulatory%20tax%20allowances%20and%20tax%20paid%20-%2010%20April%202018.PDF.

Important changes to Retail Pricing Information Guidelines

AU Energy Compliance

Retail Pricing Information Guidelines

By Anne Wardell, Compliance Quarter. 

The Australian Energy Regulator (AER) has released new Retail Pricing Information Guidelines (the new Guidelines) which commence on 31 August 2018.

Although the new Guidelines commence on 31 August 2018, not all of the new requirements will commence on that date. The AER is of the view that the changes will take time to implement and has therefore introduced a series of stages for implementation. The important dates for the stage implementation are:

Retail Pricing Information Guidelines

Source: new Guidelines at pp 5-6

A number of key changes have been introduced in the new Guidelines including the replacement of the Energy Price Fact Sheet.

The key changes to the Guidelines include:

  • replacing the requirement for retailers to provide an Energy Price Fact Sheet with a requirement that each energy plan have two separate documents – a Basic Plan Information Document and a Detailed Plan Information Document
  • changes relating to display of plan information on websites, in advertising and marketing material
  • new requirements for the use of clearer and simpler language, and
  • clarifying the definition of generally available plans.

Source: News item AER, AER releases final Retail Pricing Information Guidelines (version 5.0) and Notice of Final Instrument.

Plan information documents

Energy Price Fact Sheets will be replaced by Plan information documents which must be provided to the Energy Made Easy website. The plan documents will be automatically generated in the retailer secure area of Energy Made Easy after the relevant data and information have been submitted. The plans must be submitted within two business days of the plan being offered to customers.

Each plan will have a unique reference code or plan ID which is generated by Energy Made Easy. The Key Plan information which must be provided is contained in ss 31 to 64 and covers such information as price, discounts, incentives, fees and eligibility requirements.

There are two types of plan information documents which retailers must have; the first is the Basic Plan Information Document (BPID) and the second is the Detailed Plan Information Document (DPID). Retailers are required to have a BPID for every plan, including restricted plans (cl 79 of the new Guidelines).

What are generally available plans?

One of the aims of the new Guidelines was to provide some clarity on the definition of generally available plans. The Glossary provides the following:

Generally available plan means any plan that is available to any customer in the relevant distribution zone unless it is classified as a restricted plan’.

Clearer and simpler language

Clauses 65 to 69 of the new Guidelines contain certain language requirements which include prohibited and required terms:

Retail Pricing Information Guidelines

Source: new Guidelines at pp 13-14

Display of plan information

There are different requirements for the display of the plan information depending upon whether it is a generally available plan ( cl 81-82) or a restricted plan ( cl 83-89). There are also requirements for online sign up (cl 90-92), in-person marketing activity (cl 93-94) and other marketing activities such as telemarketing or internet sales channels (cl 95-98).  The in-person marketing activity and other marketing requirements will apply whether the retailer conducts the marketing themselves or uses a third party vendor.

Other display requirements are:

  • publication requirements on mass media and social media (cl 100-102);
  • price comparison websites and third party agents (cl 103); and
  • a requirement to refer to plan ID in communication with customers (cl 104-105.

Clauses 106 to 110 deal with the requirements for describing discounts in advertising and marketing and provide the following example:

‘For example, these requirements would be satisfied with an electricity advertisement with the claim:

15% guaranteed discount off usage charges’ and, in fine print ‘Discount is off our standing offer plan charges. This information is available at www.sunenergy.com.au/standingplancharges’.

Further information is available on the AER website at Retail Pricing Information Guidelines 2018.

Should you wish to discuss any aspect of this article with the team, please click here.

The ‘New Reg’ trial: towards increased consumer participation in network regulation

The ‘New Reg’ trial: towards increased consumer participation in network regulation

AU Energy Compliance

On 23 March, the Australian Energy Regulator (AER), Energy Consumers Australia and Energy Networks Australia announced the ‘New Reg’ initiative. This is a new consumer-centric approach to electricity network regulation which will soon be tested via a trial with Victorian network business AusNet Services. We discuss this initiative below.

consumer participation in network regulation
Photo by Mike Wilson on Unsplash
By Dr Drew Donnelly, Compliance Quarter.

Consumer participation in network regulation – Background

As electricity network business generally operate as monopolies, they are subject to a rigorous regulatory framework aimed at getting the best outcomes for Australian consumers and investors. An important part of this framework is the submission of regulatory proposals to AER. These must be submitted every five years and set out proposed capital and operating plans and the funding needed to deliver them. The AER, after consultation, considers the regulatory proposal and proposed tariffs and then makes a determination setting out the revenue and price ceilings for those businesses.

New Reg

New Reg aims to increase the efficiency and effectiveness of network regulation through introducing more meaningful consumer input into the process. Throughout 2018 AER will carry out consultation on the approach in conjunction with a ‘live’ trial of the process.

The focal point of this initiative is a new ‘Consumer Forum’ that will be created containing a cross-section of AusNet Services’ residential, small business, commercial and industrial customers. AusNet Services will attempt to reach an agreement on its revenue proposal with the Forum before it is submitted to the AER.

The trial and consultation on the approach will determine what effect this level of consumer input has on network decision-making. It may also result in a shortened AER determination process for network businesses who take part. This is one clear incentive to network business participation in the new approach. Depending on the outcome, changes could be made to the National Electricity Rules to further shorten the process.

Comment

This initiative must be read in conjunction with a range of initiatives that have been introduced to improve network investment and the revenue determination process. Other measures have included:

The overall goal of all these measures is to make sure the network tariff component of consumer electricity bills is reasonable while still allowing crucial investment in the network by network businesses.

This trial will make it clearer whether a consumer ‘co-design’ process will be helpful in achieving those aims.

For more information, see the Approach and Directions Papers at https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/regulatory-innovation.

To get in touch with the team at Compliance Quarter, click here.

Revised Exempt Selling Guideline released

AU Energy Compliance

Revised Exempt Selling

By Anne Wardell, Compliance Quarter. 

The Australian Energy Regulator (AER) has released an updated Retail (Exempt) Selling Guideline Version 5 March 2018 (new Guideline). They have also released a Notice of Final Instrument which discusses the changes introduced. The new Guideline became effective from 16 March 2018 which was the date of publication.

There are a number of important changes which have been introduced. All of the changes have been the subject of extensive consultation and discussion between the AER and stakeholders. For additional background please refer to our earlier articles:

I will discuss each important change individually.

Dispute resolution, membership of ombudsman scheme now a condition

One of the major changes is the requirement for exempt sellers who have residential customers to be members of the relevant ombudsman scheme in the states and territories in which they operate.

The Notice of Final Instrument provides the following overview of the changes:

‘We have revised the Guideline to improve dispute resolution arrangements for exempt customers. New and amended core exemption conditions now require exempt sellers to
have appropriate complaints and dispute handling processes, and exempt sellers with residential customers must be members of, or subject to, energy ombudsman schemes where the scheme allows.

We have made a number of amendments to strengthen protections for exempt customers and to better align the protections of exempt customers to those of customers of authorised retailers. Finally, we have made some small housekeeping amendments to help clarify aspects of the Guideline and exemption conditions’ (emphasis added).

Exempt retailers will need to amend their standard conditions to incorporate the changes introduced, particularly conditions 16 and 17.

Condition 16 – Dispute resolution

1 An exempt person must develop and make a set of procedures detailing the exempt person’s procedures for handling complaints and disputes, and those procedures must
be provided to exempt customers in accordance with condition 2(1)(d)(i).

2 The procedures must be consistent with the Australian Standard AS/NZS 10002:2014 Guidelines for complaint management in organizations as amended and updated from
time to time.

3 In the event of a complaint or dispute concerning the sale of energy to an exempt customer, and in the absence of a determination of the relevant tenancy tribunal if the
customer is a tenant, the exempt person must:

a. deal with the complaint or dispute in accordance with the exempt person’s procedures for handling complaints and disputes and

b. make reasonable endeavours to resolve the dispute and

c. advise the exempt customer:

i. of any right the exempt customer has to access an energy ombudsman (if applicable), including to lodge a complaint or for free independent information
and advice, or any other external dispute resolution body in the state or territory where the exempt customer is located, and

ii. of the telephone number and other contact details of the energy ombudsman (if applicable).

Condition 17 – Member of energy ombudsman scheme

1 An exempt person must, if permitted by an energy ombudsman scheme:

a. be a member of, or subject to, an energy ombudsman scheme for each jurisdiction where it sells energy to exempt customers and

b. comply with the requirements of that scheme.

Explicit informed consent

The AER has updated the definition of explicit informed consent as follows:

explicit informed consent means consent given by a customer to an exempt seller where the exempt seller has clearly, fully and adequately disclosed all matters relevant to the
consent of the customer, including each specific purpose or use of the consent; and the customer, gives the consent to the transaction:
 in writing signed by the customer or
 verbally, so long as the verbal consent is evidenced in such a way that it can be verified and recorded or
 by electronic communication generated by the customer.

It has also expanded on what it will require from an applicant to a conversion to demonstrate they have obtained explicit informed consent. The application will need to confirm the following:

  • that you have evidence of written consent from all customers impacted by the retrofit; and
  • that consent was sought separately from customers for the retrofit and the energy sale agreement.

Importantly you will also need to confirm evidence that where a customer or customers have expressed concerns you have sought to resolve the concerns.

Note although the actual evidence of this consent does not need to be included in the initial application, you should be able to produce the evidence upon request. You should not confirm the existence of this evidence if it does not actually exist.

Who holds the exemption clarified

The new Guideline also clarifies the position in relation to who should hold the exemption when the seller uses third-party agents:

‘We revised Section 5 of the draft Guideline to clarify who should (or may) hold a retail exemption. We say under the current Guideline that the seller is the person or business who
will bear the financial risk of their customers’ non-payment. We proposed amending this because it could include third-party agents, which is not what we intended. Instead, we
proposed defining a seller as the person who buys energy from a retailer at the gate meter and then sells it to the customers at the site’.

Applications for network conversions

New information requirements

The new Guideline has made amendments to the information requirements for applications for network conversions;

‘The draft Guideline included additional information requirements for preparing network conversion applications (Appendix B). These are not new requirements but expand on the
application criteria outlined in section 7.2.1.
We also proposed removing some of the information requirements in Appendix B that we do not require to assess applications, for example, information about energy rebate/concession availability, energy efficiency options, whether premises are separately metered, the frequency of meter reads, and the application of tenancy or other jurisdictional legislation.

We have therefore adopted our proposed additions to Appendix B with a further change to the consent requirements (see section 4.5, below).

We have also amended the introduction to section 7.2.1 to explain that applicants need to demonstrate the steps they have taken to mitigate any potential customer detriment. We have removed sub-section 3 (Mitigation of detriment: state or territory legislation) as it is redundant now that exempt customers can access the retail market in all jurisdictions where the exemptions framework applies’. 

Consent

The new Guideline makes it clear that a customer’s consent to a proposed conversion is not the same as their consent to join a network. This allows a customer to consent to the proposed conversion but choose to enter into a supply contract with a different retailer. The Information Notice provides the following important clarification in relation to what is required:

To assess whether consent is fully informed, we consider the actions taken by the applicant to disclose all matters relevant to the conversion. Specifically, we look at whether applicants have clearly, fully and adequately disclosed all matters relevant to the customer’s consent. 

We consider information about price is essential to customers’ decisions. It is also important that potential customers are made aware of how easy (or difficult) it is to find another energy retailer. We also consider how applicants sought to obtain consent and customers’ capacities to provide consent. This information needs to be supported by evidence

We acknowledge customers in existing embedded networks face the same practical limitations in their ability to access the competitive market as those experiencing a network conversion. However, we believe that customers entering an existing embedded network effectively consent to the network by choosing to enter it and do not see the need to create an additional consent requirement. We note that condition 2 requires exempt sellers to provide new customers with a copy of the conditions and information about energy selling arrangements in the embedded network, which clearly establishes that energy selling arrangements in the embedded network are different. 

We have amended our discussion of explicit informed consent in the Guideline to address the questions and concerns raised in the consultation and to clarify what we mean by the term. The information requirements in Appendix B have also been clarified’ (emphasis added).

Grounds for refusal

The examples of what is a ground for refusal have been expanded to include the following:

  • we do not consider it will contribute to the achievement of the national energy retail objective;
    we do not consider it is in line with the policy principles or is consistent with the exempt seller related factors or the customer related factors;
    you have not adequately demonstrated why you should be granted an individual exemption or have not provided evidence necessary to support your application and / or
    claims;
    we consider you should apply for a retailer authorisation, given the scale and scope of your energy sales; and
    you have provided us with false or misleading information.

Class variations

  • Class D10 has been expanded to include government contractors who operate facilities on behalf of the government and for whom the sale of energy is part of the overall facility operation. In these situations the contractors are ‘standing in the shoes’ of the government.
  • Class R8 has been clarified with the insertion of the words ‘selling energy as a supplementary supply’. This is to make it clear that the class is only open to sellers who are not a customer’s sole supplier of energy.

Core condition variations

Apart from the variation to conditions 16 and 17 referred to above, the following core conditions have been amended:

ConditionChangePurpose
Condition 1 – Obligation to supply;Key change: that sellers would no longer be able to withhold energy supply because a customer owes them money.To better align exempt customer protections with those of retail customers.
Condition 3 – Billing and payment arrangements;
Condition 7 – Pricing;
Condition 11 – Reconnection or re-energisation1. limiting when customers can request reconnection to 10 days after the disconnection, unless the matter that led to the disconnection is remedied earlier.

2. making the obligation to reconnect or re-energise supply conditional on customers agreeing to enter into a payment plan.

New Condition 12New payment plan introduced.The new plan mirrors the payment plan requirements for customers specified in the Retail Rules.
Condition 3 – Billing and payment arrangements;Require exempt sellers to bill supply charges as a daily amount, rather than a single charge.To make the pricing information for exempt customers clearer and is in line with the AER Retail Pricing Information Guideline.
Condition 7 – Pricing;Clarified what charges may or may not be imposed on exempt customers.This was previously in the footnote.
Condition 9 – Payment difficulties and disconnection or de-energisationNew conditions 9.3 and 9.4 inserted which specify minimum information requirements for reminder and disconnection warning noticesThe new conditions reflect what is in Retail Rules 109 and 110.
Condition 18 – Planned interruptions to supplyNew condition.Addresses omission of these conditions in previous Guidelines.
Condition 19 – Unplanned interruptions to supplyNew condition.

 

It is important for current exemption holders to review their terms and conditions to ensure they comply with the new Guidelines.

We will be providing a Webinar on the changes. Please email me at [email protected] if you would like additional information about the webinar.

Embedded Network Managers in Queensland: What’s the Deal?

Embedded Network Managers in Queensland: What’s the Deal?

AU Energy Compliance

Embedded Network Managers in Queensland: What’s the Deal? In a previous post, we looked at the Electricity and Other Legislation (Batteries and Premium Feed-in Tariff) Amendment Bill 2018 (the ‘Bill’). Today we want to update you on the progress of the Bill and answer the key question: Do consumers in QLD have power of choice?

Embedded Network Managers in Queensland

Photo by Samuel Scrimshaw on Unsplash

By Connor James, Compliance Quarter. 

In our previous post, we discussed the Bill and noted that:

The accepted view is that the effect of this provision (section 23 (2)) prevents residents in embedded networks from fitting the definition of ‘customer’. Therefore, the current law leaves it unclear as to whether embedded network customers in Queensland have the power to change to a retailer of their choice under the National Electricity Law.

Section 23 (2) states:

“[A] receiver [of electricity] is only a customer if the receiver’s premises has an electrical installation that, to the reasonable satisfaction of the distribution entity whose distribution area includes the premises, is capable of receiving supply directly from a distribution entity’s supply network”.

The Bill proposes the removal of s 23(2) from the Act, leaving no room for argument that Queensland embedded network residents are not ‘customers’ for the purposes of the National Law. Provided that the Bill is passed, this will remove any doubt about the ability of embedded network customers in Queensland to switch to their desired retailer.

The above view is supported by the explanatory note which states that an objective of the Bill is to “enable the effective implementation of a new national regulatory framework for retail competition in embedded electricity networks which commenced on 1 December 2017.” and further “amendments to Queensland legislation are required to avoid any conflict with the implementation of this major national reform in Queensland.

The Bill is currently being considered by the State Development, Natural Resources and Agricultural Industry Development Committee. The Committee is due to report back to parliament next week. 

The view of the Department and the AER

Since the publication of our prior post, the QLD Department of Natural Resources, Mines and Energy has released a number of factsheets on embedded networks. The factsheets indicate that the obligation to appoint an embedded network manager is in effect in QLD.

Also of relevance, is the AER’s website tool that helps determine when an embedded network manager needs to be appointed. It appears that this tool was updated to specifically reference the need in SE QLD as well as other in other states that have adopted the National Energy Consumer Framework.

Obviously, it is in the interest of the department to take this interpretation of the legislation. They wouldn’t want to be seen as the only NECF State restricting the rights of their residents to choose a retailer.

So, is an ENM required or Not?

So, do QLD consumers have power of choice (POC) and should embedded networks in QLD be appointing an Embedded Network Manager.

It is our view that Section 23(2) of the QLD Electricity Act may be read as conflicting with the POC reforms, however, the view of the Department of Natural Resources, Mines and Energy and AER is clearly that POC exists in QLD.

Consequently, embedded network operators in QLD should ensure that they appoint an Embedded Network Manager before the expiry of the transitional compliance period (i.e. Before 31 March 2018).

Embedded Network Managers in Queensland

If you would like assistance in understanding the obligations, appointing an Embedded Network Manager contact me today via email by clicking here.

Energy Updates: Customer Hardship.

Energy Updates: Customer Hardship.

AU Energy Compliance

This morning we ran a webinar on Customer Hardship. A recording of the webinar is available to our clients via the Compliance HUB.

If you are not already a Compliance HUB client please get in touch.

customer hardship

Photo by Patrick Tomasso on Unsplash

Customer hardship – Electricity costs disproportionately affecting low-income households.

Over the past 10 years, the average electricity bill has gone up by 44 percent (adjusted for inflation) (ACCC preliminary report). Over the same period, real wages have only increased by 6 percent (ABS).

“There are some people who think the more loyal you are, the more you’ll get looked after, the lower price you get. “I’m afraid the reverse is true “The more loyal you are, very likely the more you’re paying.“- Rod Sims, ACCC.

View the webinar here: https://zoom.us/recording/play/vgkPU-IiipzoYo2NkGWsWk4v9mxiYKFMVvIPYSOLGAhHVfTGf_ViogBlYIRyjI1g 

Feedback sought on Rate of Return methodology for Network Businesses

Feedback sought on Rate of Return methodology for Network Businesses

AU Energy Compliance

On 28 February 2018, the Australian Energy Regulator (AER) released three discussion papers as part of their review of the Rate of Return Guideline (an AER Guideline that must be updated every five years).
These three discussion papers will guide a concurrent evidence session that the AER will hold on 15 March. The papers relate to:

• Gearing;
• Financial performance measures;
• Risk and judgement.

rate of return

Photo by NASA on Unsplash

By Dr Drew Donnelly, Compliance Quarter. 

While the evidence session is a closed session between invited experts and the AER Board, the AER invites written submissions on the discussion papers and transcript that is to come out of the evidence session by 20 April 2018.

In today’s update, we introduce these three discussion papers. Note, this is a particularly complex area of regulation and if you think changes to the rate of return will affect your business you should read the discussion papers here (https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/review-of-rate-of-return-guideline).

Background

AER regulates the revenue that network businesses (distribution network service providers and transmission network service providers) are allowed to make in the National Electricity Market.

The allowed Rate of Return is one of the methods used by AER in making revenue determinations. It is designed to ensure that a network business can make a sufficient return on investment to fuel that investment. The Rate of Return is estimated by combining the returns on equity and debt.

The appropriate Rate of Return, AER suggests, must balance the need for network business to attract funding in order to invest in reliable networks, while not overcharging end-customers.

The three papers released by AER are intended to guide discussion on how the Rate of Return should continue to be calculated by AER. Each paper is discussed in turn.

1. Financial Performance Measures

In the first paper, AER asks whether the financial performance indicators of ‘RAB multiples’, ‘financeability’ and ‘historical profitability measures’ should continue to be used when making the new Rate of Return Guideline. These indicators are defined as follows:

• A RAB multiple is the market value of the firm (determined either through the purchase price when a transaction of the business occurs, or the existing share price) divided by its regulatory asset base (RAB). RAB multiples can provide information as to whether a regulated firm is under or over-valued;
• Financeability is a network business’s ability to meet financing requirements and raise new capital;
• Historical Profitability measures include standard accounting measures derived from financial statements such as the net profit margin and the return on assets.
AER invites comment as to whether these continue to be appropriate.

2. Gearing

Gearing is the ratio of the value of debt to total capital. Currently, the benchmark gearing ratio is set at 60:40. In arriving at the ratio, AER takes into account the following principles:

• The estimation of a gearing ratio should be consistent with the estimation of other Rate of Return parameters;
• Gearing estimates are based on both market and book values;
• The book value of gearing is likely a good proxy for the market value of gearing;
• It is inappropriate to use net debt in the calculation;
• The book value of loan notes should be removed from the book value of total debt;
• It is not clear whether or not adjusting for double leveraging is more representative of the level of gearing and, in the absence of further evidence, both will be considered;
• Gearing data of an annual frequency is likely to be sufficient.

AER seeks comment on the method used for arriving at the benchmark gearing ratio.

3. Risk and Judgement

AER seeks input into the criteria used for the exercise of its regulatory judgement with respect to Rate of Return matters. In accordance with the current Guideline, it adopts an approach that:

• Is reflective of generally accepted economic and finance principles and market information;
• Is fit for purpose;
• Is implemented in accordance with good practice;
• In using models, uses models in accordance with sound quantitative modelling;
• In using market data and other information, uses information that is credible, verifiable, comparable and timely;
• Is flexible and responsive to changing market conditions.

Read the discussion papers in full at https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/review-of-rate-of-return-guideline, and make a submission by 20 April 2018 if you wish to have your say.
Submissions can be made to [email protected]

If you’d like to chat to the experts at Compliance Quarter, message us here or book a call here.

AGL pays penalty for failing to inform customers that contract ending

AU Energy Compliance

AGL pays penalty

By Anne Wardell, Compliance Quarter. 

The AGL group of companies has paid penalties totalling $60,000 in response to three infringement notices issued individual companies within the group. The infringement notices alleged that between 2013 and 2017, AGL pays penalty for failure to notify more than 1000 customers across NSW, SA and QLD that their fixed term retail contracts were due to end. The infringement notices are available on the AER website here.

The notices alleged a breach of subrule 48(2) of the National Energy Retail Rules which requires a retailer to notify a small customer with a fixed term retail contract when that is to end.

The notice must include:
• the date on which the contract will end;
• details of the prices, terms and conditions applicable to the sale of energy to
• the premises concerned under a deemed customer retail arrangement; and
• the customer’s options for establishing a customer retail contract (including the availability of a standing offer).

Ms Conboy, Chair of the AER, stated that:

“I am particularly concerned that by not telling customers that their retail contracts were due to end, AGL failed to provide customers with time to look around for a better energy deal.

These requirements of the Retail Rules are important safeguards to ensure customers are fully informed and able to make active choices of their retail energy supplier.
Energy Made Easy is a vital source of information for customers looking for a better deal. It contains all generally available offers from all energy retailers in a specific area.

Significant savings can be made, especially if customers are nearing the end of a fixed term contract or a benefit period. This makes it even more important that retailers meet their obligations to notify customers at that time”

(AER media release AGL pays $60,000 penalty for failing to inform customers of contract end).