In recent action by the Australian Energy Regulator, several shopping centres and retirement villages were issued with infringement notices for not selling electricity in a manner required by the National Energy Retail Law.
This is a timely reminder for operators of embedded networks to familiarise themselves with their regulatory obligations and also to be aware of proposed changes to that regulatory framework.
In Victoria, typical embedded networks are regulated on two levels:
Sellers of electricity within embedded networks can do so without the need for a Victorian retail licence if they comply with the conditions of the General Exemption Order issued by the Government in 2002 (and subsequently varied) under section 17 of the Electricity Industry Act 2000.
In the context of the embedded network as a distribution network, there is dual regulation.
At the State level, an embedded network provider may also be exempt from the requirement to hold a distribution licence by virtue of the General Exemption Order, provided that the conditions of the exemption are met.
In addition, the operation on an electricity network ordinarily requires registration with the Australian Energy Market Operator (AEMO) as a Distribution Network Service Provider (DNSP) and compliance with the applicable obligations. However, a person who owns, controls or operates an embedded network may apply for an exemption from the Australian Energy Regulator (AER) as canvassed by the AER’s Network Service Provider Registration Exemption Guideline (Network Guideline). Notably, most embedded networks qualifying for exemption must register with the AER as an exempt network.
As noted in our earlier update (see here), the Department of Environment, Land, Water and Planning (DELWP) released a Draft Position Paper proposing changes to the General Exemption Order due to concerns regarding consumer protection issues and a customer’s right to choose its retailer, with the review aiming to ensure that customers in embedded networks are not unreasonably disadvantaged when compared to customers of licensed retailers or distributors.
For facilities that use embedded networks, this could lead to new obligations to be registered with the Essential Services Commission, increased disclosure obligations to potential purchasers and tenants, tightened consumer protection compliance, and empowering the Energy and Water Ombudsman Victoria to hear complaints. For strata lot developments, there is also the prospect of losing access to the exemption altogether, and instead being required to hold a licence.
With the period for making submissions having already closed, the Final Position Paper is expected to be released late in 2016.
As noted above, embedded networks are generally regulated as an exempt entity by reference to the Network Guideline. Primarily to remove the barriers that customers of embedded networks face in accessing retail competition, the AER proposes to vary the Network Guideline, which flows from rule changes made by the Australian Energy Market Commission (AEMC), so as to include the following features:
Submissions on the AER’s draft Guideline are due by 10 October 2016.
The proposed changes being canvassed by the AER could have a marked impact on the cost base of an embedded network. Even if the embedded network operator were to be accredited itself as the ENM, cost and compliance obligations could make the embedded network less competitive with more traditional arrangements, particularly if a customer’s opportunity to obtain a competitive retail offer is more accessible.
For owners and operators of embedded networks, it is timely to review practices to ensure current compliance. Providers of embedded networks supplying 10 or more customers should ensure that they are registered with the AER.
For the future, it is clear that regulators are looking to improve end users’ access to the benefits of electricity competition, and that there is a level playing field for retailers to compete for customers. Those making current investment decisions about embedded networks should be mindful of likely regulatory changes that could affect the cost and attractiveness of conducting an embedded network.