What are the rules for embedded networks in Western Australia?

What are the rules for embedded networks in Western Australia?

AU Energy Compliance

The regulatory landscape for embedded networks in Australia is complicated. There are four separate regulatory frameworks:

  1. New South Wales, South Australia, Australian Capital Territory, Queensland, Tasmania (National Energy Customer Framework jurisdictions);
  2. Victoria;
  3. Northern Territory; and
  4. Western Australia.

By Dr Drew Donnelly, Compliance Quarter.

Within each framework, there are significant jurisdictional variations (for example, strata legislation in NSW and Queensland impose different obligations on embedded networks). Furthermore, some frameworks overlap with the others (for example, a Victorian embedded network may require both a network exemption from the Australian Energy Regulator and a network activity exemption from the Essential Services Commission (Victoria)).

In today’s article, we look at the key features of the regulatory framework for embedded networks in Western Australia (WA).

What is an embedded network?

An electricity embedded network is a private electricity distribution system that is connected to the main electricity network or ‘grid’. Owners, operators or service providers in embedded networks may be required to hold licences, authorisations or exemptions to carry out distribution, selling or generation within that embedded network depending on the rules of the jurisdiction that they operate in. Similar arrangements apply in the case of private gas distribution systems (‘gas embedded networks’).

The exemption framework in Western Australia

The distribution or sale of electricity WA is only permitted under a licence or an exemption under sections 7 and 8 of the Electricity Industry Act 2004. Analogous rules for the distribution and supply of gas apply under sections 11G and 11H of the Energy Coordination Act 1994.

Exemption orders made by the Governor to-date are:

  • For residential and commercial electricity embedded networks, the Electricity Industry Exemption Order 2005;
  • For caravan parks, the Electricity Industry (Caravan Park Operators) Exemption Order 2005;
  • For residential and commercial gas embedded networks, the Energy Coordination Exemption Order 2009;
  • For Solar Power Purchase Agreement providers, the Electricity Industry (Solar Power Purchase Agreements) Exemption Order 2016.

The first three exemption orders contain ‘class exemptions’, which apply automatically to exemption-holders. The last exemption order applies to suppliers only by individual application to the Public Utilities Office.

Conditions contained in the Electricity Industry Exemption Order 2005 that apply to residential customers include:

  • where the on-seller buys electricity from Synergy or Horizon Power, the customer may not be charged more for electricity consumption than a residential customer of Synergy or Horizon Power would be charged;
  • where customers are within Synergy or Horizon Power’s licence area, the customer may not be charged more for the daily fixed supply charge than a residential customer of Synergy or Horizon Power would be charged;
  • If the on-seller generates its own electricity, the residential customer of the on-seller may not be charged more for the electricity than the cost the on-seller incurs in generating that electricity;
  • The supplier must make available to each resident of the relevant premises information that clearly sets out —

(a) the quantity of electricity supplied to the resident; and

(b) the fees and charges payable by the resident;

— (i) for electricity supplied; and

— (ii) for the provision of electricity services.[1]

Do embedded network customers in Western Australia have the right to go ‘on-market’?

The biggest reform to electricity embedded networks over the last few years has been the introduction of ‘power of choice’ to embedded network customers. Power of choice reforms include changes to metering requirements, distributor arrangements and the introduction of a new ‘Embedded Network Manager’ role to facilitate customers in embedded networks accepting an offer from a ‘market retailer’. These reforms have not been extended to Western Australia.

In addition, WA does not have ‘full retail contestability’. Only customers that consumer more than 50 megawatts hours of electricity per annum have a right to choose their retailer within most of WA (in the ‘South West Interconnected System’). This covers the overwhelming majority of residential and business customers in WA.[2]

While there is nothing in principle stopping an electricity embedded network customer going ‘on market’, limited retail competition (most customers must be sold energy by one of either Synergy or Horizon Power, depending on where they are located), and the absence of any entity being responsible for this to occur (e.g. an Embedded Network Manager), would make it difficult for a customer to do so.

If you would like further information on the rules for setting up or operating an embedded network in Western Australia, please get in contact with us.

 

[1] See clause 6 of the Electricity Industry Exemption Order 2005.

[2] Read more at https://www.pv-magazine-australia.com/2018/03/12/report-full-retail-contestability-plans-for-wa-on-hold/.

State of the Energy Market

State of the Energy Market

AU Energy Compliance

Today saw the release of the 2017 State of the Energy Market, a report published by the Australian Energy Regulator.

There is a lot to digest in the AER’s comprehensive and useful report. In this first post, I will briefly look at some of the key themes.

It has been a challenging year for the industry, one that has seen significant structural and technological change.

‘Technology change is impacting on the wholesale electricity and gas markets more than at any other time in the history of the NEM…’ Paula Conboy—AER Chair.

Retail and Wholesale Pricing

Electricity retail pricing trended higher in 2016, in all states other than Victoria.

As I noted in a previous post, significant increases are expected this financial year on top of the average 13 percent in NSW and 11 percent in SA increases in 2016.

Australia’s electricity prices are above the OECD average, higher than the US, Canada, NZ, South Korea but lower than Japan, the UK and most of Europe.

In response to rising prices, the Australian Government has directed the ACCC to hold an inquiry into retail electricity pricing, with the preliminary report due in September 2017.

It has been another interesting year in the wholesale market. Wholesale market prices directly impact on consumers, although with a delayed effect.

The AER examines weekly wholesale prices in its report:

Challenging Market

The AER point to a number of factors resulting in challenging conditions generally, including investor uncertainty about the viability of new generation investment against the background of recent coal plant closures.

As the AER note:

‘The past 12–18 months have been some of the most challenging Australia’s energy sector has experienced since the National Electricity Market (NEM) was established in 1998.’

Legal Review

Successful court challenges by the network businesses are expected to place upward pressure on prices. On 24 May 2017, the Federal Court upheld elements of the Australian Competition Tribunal’s decision on revenues for NSW and ACT network businesses.

Legal review is a common theme in the relationship between network business and their regulators:

‘Since 2008, reviews have been sought on 32 out of 51 regulatory decisions (figure 8). Of the matters that were varied or remitted back to the AER, none resulted in a decrease in revenues the regulated businesses could collect from their customers compared with the original decision. Service providers face little practical downside from seeking merits review. The legal costs of seeking review are minor compared with the potential upside from successfully reviewing elements of the decision. To date, consumers have not argued successfully for any decrease in network revenues.’

Consumer Participation

In a previous post, I spoke about the increased participation of consumers in the energy market, the blurring of the traditionally distinct roles between retailer, consumer, generator, and distributor.

Pricing pressures are forcing consumers to take matters into their own hands. This is evidenced by the greater take-up of rooftop solar PV and interest in energy storage.

The AER reports on the percentage contribution of various sources of generation:

Source: AER, 2017 State of the Energy Market, 30 May 2017 (https://www.aer.gov.au/publications/state-of-the-energy-market-reports)