The Australian Energy Market Commission recently released its draft Updating the Regulatory Frameworks for Embedded Networks report.

The AEMC is very focussed on improving consumer protections for customers on embedded networks. Some of the more significant reforms it is proposing in this regard include:

  • making the owners and operators of new embedded networks comply with many of the ‘network service provider’ obligations under the national electricity regulatory framework as “Embedded Network Service Providers”, and
  • requiring new off-market sellers of electricity on embedded networks to effectively be authorised as a ‘retailer’ under the national electricity regulatory framework

Winners: consumers

The draft proposal is aimed at consumers.

The AEMC’s measures will:

  • improve consumers’ ability to access on-market retailers ability to provide services to them, increasing retail market competition for consumers so as to maintain downward pressure on electricity prices
  • improve the Australian Energy Regulator’s monitoring and enforcement powers, make it easier for consumers to go on-market from within an embedded network, create a richer flow of information to consumers entering embedded networks and extend the “Retailer of Last Resort” protections and life support requirements to embedded network customers

A mixed bag for off-market retailers and embedded network owners

Off-market retailers

Off-market retailers will now effectively have to hold a retail authorisation from the Australian Energy Regulator under the National Electricity Retail Law and register with the Australian Energy Market Operator. They will also have to:

  • make retail offers to consumers, which offers must include network and connection service charges
  • appoint a metering co-ordinator (just like an on-market retailer) and ensure each consumer connection point has a National Metering Identifier
  • comply with supply interruption notification requirements and life support customer requirements
  • maintain a 24 hour telephone line and disclose information on a website

They will not however need to be a participant in the wholesale electricity market.

The AEMC has declined to recommend that the National Energy Retail Rules be amended to require all on-market and off-market retailers to charge embedded network customers no more than the standing offer of the applicable local area retailer at this time, though under the proposed regulatory framework off-market retailers will be subject to the National Energy Retail Law and presumably the proposed default market offer regime, with prices set by the Australian Energy Regulator. However, legacy market retailers (the transition or otherwise of which is still being considered by the AEMC) will continue for the present to be subject to the terms of their exemptions, which generally do impose such a cap.

The AEMC is also recommending that:

  • deemed retail exemptions be discontinued
  • the types of retail exemptions be dramatically reduced, to things like caravan parks, construction sites, supplementary supply through power purchase agreements to grid connected consumers (capped at 10 years and terminable by the customer) and jurisdictional instrument exemptions
  • all exemptions be registered going forward with the AER (and all current deemed retail exemptions be transitioned to become registrable exemptions)

Embedded Network Service Providers

The AEMC is recommending that on-market retailers be statutorily obliged to reimburse Embedded Network Service Providers for network charges at the grid connection point - the on-market retailers will then pass these costs onto their customers in the usual way (and they will not be required to unbundle network and retail charges).

This will be a welcome relief for Embedded Network Service Providers and consumers (who will no longer potentially receive two bills).

On-market retailers and Embedded Network Service Providers will also benefit from the AEMC proposal for standardisation of data and billing arrangements between them.

But it is not all good news for ENSPs.

The AEMC is proposing that ENSPs become a new category of Registered Participant under the National Electricity Law and the National Electricity Rules, making them subject to many of the compliance frameworks applicable to network service providers in the National Electricity Law and the National Energy Retail Law. This does not include economic regulation.

Each entity that owns, operates or controls an embedded network will be obliged to either register as an ENSP or appoint an Intermediary to act on its behalf (and in turn, obtain and exemption from AEMO from registering as an ENSP). For appointments of Intermediaries, a range of the usual provisions will apply, including joint and several liability.

The ENSP will be required to, for their embedded network:

  • provide on-market and off-market retailers with NMI standing data on request
  • comply with the metering data provision requirements for off-market and on-market retail customers
  • fulfil market interface functions of a Distribution Network Service Provider (ie comply with chapter 7 of the NER)
  • implement network billing and settlement in line with AEMO requirements
  • provide connection services in accordance with the NERL and chapter 5A of the NER, though the AEMC is recommending creation of a model standing basic connection offer by the AER which ENSPs may adopt by notifying the AER
  • comply with supply interruption notification requirements and life support customer requirements
  • disclose specified information on a website and report to the AER

The AEMC is also recommending that:

  • the existing market interface functions (performed by Embedded Network Managers) be subsumed into the new role of the ENSP and the ENM function only be retained going forward for legacy embedded networks and possibly exempt ENSP’s
  • individual exemptions be subsumed by registration as an ENSP under the proposed framework
  • the definition of distribution system be narrowed slightly (to further reduce the need for registration or exemption)
  • the types of exemption be narrowed consistently with those for retail exemptions, to things like supply to caravan parks, electric vehicle charging stations, rail networks and other specific classes
  • all exemptions be registered going forward with the AER (and all current deemed exemptions be transitioned to become registrable exemptions)

Importantly, ENSPs will continue to be able to charge a ‘shadow network tariff’ to consumers equivalent to the network tariff the Distribution Network Service Provider would have charged the customer had they been directly connected to the DNSP’s network. The ENSP may of course be charged by the DNSP less than the shadow network tariff of the DNSP - the AEMC is not proposing rules to prevent the ENSP from retaining this arbitrage.

ENSPs will also be able to rely upon the credit support provisions within Chapter 6B of the NER, which will be extended to cover embedded networks. This means that, under certain circumstances, an ENSP will be able to demand that a retailer provide security to support the obligations that the retailer owes to the ENSP. Previously, such obligations were completely unsecured. The AEMC acknowledges that this is not necessarily a perfect solution and invites further stakeholder views on it.

Performance standards for large loads or generators connected to an embedded network

The AEMC acknowledges that further consideration must still be given to the connection process and performance standards that should apply to registered participants seeking to connect large loads and generators to an embedded network.

We’re here to help

The AEMC is seeking stakeholder views regarding the proposed changes, particularly in relation to the transition of existing networks from the current scheme to the new one.

We are happy to help you navigate your business through these proposed changes and have your say on this important topic. If you are considering making a submission or want advice on your obligations under the draft proposal, please contact us.