We have spent a lot of time recently discussing embedded networks and, in particular, the ‘power of choice’ and embedded network manager reforms.[1] We also recently discussed the permissive regulatory environment in New Zealand for electricity retail.[2] Assessing the regulatory environment in New Zealand for ‘Secondary Networks’ (the New Zealand equivalent of Australian embedded networks) is more complex.

Photo by Tim Swaan on Unsplash
By Dr Drew Donnelly, Compliance Quarter.

Today we look at the key rules for owning or operating such a network in New Zealand with an emphasis on the differences between the Australian and New Zealand contexts.

  1. The definition of secondary networks.

A Secondary Network is defined as any network that is connected to a local distribution network rather than directly to the transmission network and is owned by someone other than the local network provider.[3] This is similar to the definition of an ‘Embedded Network’ in Australia.[4] A secondary network could be a shopping mall, an apartment building, a retirement home, a caravan park, or take some other form. There are three types of Secondary Network in New Zealand:

  • Customer Network. A Customer Network is a secondary network with only one Installation Control Point (ICP) connecting it to the Local Network.[5] The consumer associated with that ICP (i.e. the embedded network operator) is responsible for billing all other individual consumers connected to the Customer Network.[6]
  • Embedded Network (NZ). An Embedded Network (NZ) is a Secondary Network where individual consumers have ICPs allocated and managed by the Embedded Network (NZ) owner. The Embedded Network (NZ) owner is responsible for reconciling energy traded and must be certified as a reconciliation participant.[7]
  • Network Extension. A Network Extension is a Secondary Network where individual consumers have ICPs managed by the parent network owner and the electricity traded is reconciled at the by the parent network owner.[8]

Below we consider the key differences between the way in which embedded networks in Australia and Secondary Networks in New Zealand are regulated.

  1. There is no ‘power of choice’ right in New Zealand

In almost all cases Australian embedded network consumers have a right to choose whether to be supplied energy by the embedded network operator or by a market retailer. In New Zealand, consumers in Embedded Networks (NZ) and Network Extensions have the right to switch retailer. Consumers in a Customer Network do not have this right. Their only option is to request their Customer Network owner to take on reconciliation obligations and switch to an Embedded Network (NZ), or, to ask a local network provider to do so and switch to a Network Extension (with the Customer Network owner’s consent). There will often be little incentive or the owner of a Customer Network or a Local Network to do so.

  1. Secondary Networks do not have a distinct regulatory framework in New Zealand

In Australia, embedded networks are regulated separately from other forms of electricity distribution and supply. Rather than being subject to the Distribution Network Service Provider requirements of the National Electricity Rules (NER), embedded networks are subject to the Network Service Provider Registration Exemption Guideline.[9] Furthermore, embedded network operators are often exempt from the National Energy Retail Rules and instead adhere to Retail Exempt Selling Guideline.[10]

The owners of Secondary Networks in New Zealand, by contrast, are not exempt from obligations in governing legislation the Electricity Industry Act 2010 (the Act), or New Zealand’s version of the NER, The Electricity Industry Participation Code (the Code).[11] This means that, depending on the configuration of the Secondary Network, it has the same regulatory obligations as a Distributor (equivalent to a Distribution Network Service Provider in Australia) or a Retailer.

The different types of obligations a Secondary Network owner might have under the Act and the Code are set out below.

  1. Obligations as industry participants

Owners of a Secondary Network in New Zealand are classed as ‘industry participants’ under the Act.[12] This means that secondary networks must:

  • register with the Electricity Authority as an industry participant;
  • comply with the ownership separation requirements in Part 3 of the Act;
  • make available a low fixed charge tariff option for domestic consumers;[13]
  1. Obligations as Embedded Network (NZ) owners

Further obligations under the Act and the Code depend on which type of Secondary Network is involved. Embedded Network (NZ) owners have specific obligations under the Code. These include obligations relating to metering (Part 10), registry management and switching customer processes (Part 11), trading arrangements (Part 13) and reconciliation (Part 15). Customer Networks and Network Extensions do not have similarly specific obligations under the Code.

  1. Obligations as Distributors

A recent law change has clarified that all ‘Secondary Network providers’ are subject to the Code, as if they are Distributors.[14] Distributor obligations under the Code are extensive and include the obligation to ensure connection points have metering installations (clause 10.25(1)), and that there is a metering equipment provider for each connection point (clause 10.25(2)). All Distributors must be members of the dispute resolution scheme that is administered by ‘Utilities Disputes’[15] (section 96 of the Act). It is possible that some Customer Networks may be exempt from Distributor obligations on the basis that they do not “provide services that are substantially similar to the services provided by a distributor”, as required in section 131A of the Act.

Whether or not a Customer Network owner is subject to Distributor obligations, as they are suppliers of energy, they will be subject to retailer obligations under the Code. [16]

In addition to regulatory obligations under the Act and the Code, all Secondary Networks are expected to comply with the Guidelines for Metering, Reconciliation and Registry Arrangements for Secondary Networks.[17]

If you think we could be of any assistance in moving into the New Zealand market as a Secondary Network owner, please let us know.

 

 

 

 

[1] For example, see https://www.compliancequarter.com.au/transitional-compliance-embedded-network-managers-key-facts/.

[2] See https://www.compliancequarter.com.au/expanding-into-the-new-zealand-electricity-retail-market-the-broad-contours-of-the-new-zealand-system/.

[3] See Guidelines for Metering, Reconciliation, and Registry Arrangements for Secondary Networks

Version 8.2., p2.

[4] Defined in the National Electricity Rules as “A distribution system, connected at a parent connection point to either a distribution system or transmission system that forms part of the national grid, and which is owned, controlled or operated by a person who is not a Network Service Provider.” (Chapter 10). It is noteworthy here that an Australian embedded network can be connected directly to the transmission network, though this is not the usual type of embedded network.

[5] An ICP is the New Zealand equivalent of an Australian National Metering Identifier.

[6] See Guidelines for Metering, Reconciliation, and Registry Arrangements for Secondary Networks

Version 8.2., p4.

[7] Ibid., p7.

[8] Ibid., p5.

[9] See  https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/network-service-provider-registration-exemption-guideline-march-2018.

[10] See https://www.aer.gov.au/retail-markets/retail-guidelines-reviews/retail-exempt-selling-guideline-march-2018.

[11] See https://www.ea.govt.nz/dmsdocument/22778.

[12] Under sections 7 and 5 of the Act, all retailers, distributors or owners of lines count as industry participants. Some owners of Customer Networks may fall outside this definition if they simply own electricity installations, rather than ‘lines’. For example, a retirement home where tenant-occupiers are supplied electricity but have no property rights in their unit. See Retail Review of secondary networks -Issues and options paper 12 February 2015, p11.

[13] Ibid. p9.

[14] See Energy Innovation (Electric Vehicles and Other Matters) Amendment Act 2017, section 7 (new section 131A).

[15] Formerly known as ‘The Office of the Electricity and Gas Complaints Commissioner’.

[16] For more information about these see https://www.compliancequarter.com.au/expanding-into-the-new-zealand-electricity-retail-market-the-broad-contours-of-the-new-zealand-system/.

[17] See https://www.ea.govt.nz/dmsdocument/17885.

Leave a Reply

Your email address will not be published. Required fields are marked *