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

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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 connor@compliancequarter.com.au

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