Open for consultation: AER seeks feedback on proposed changes to embedded network guidelines

The Australian Energy Regulator (AER) is requesting feedback on several issues identified by embedded network participants and interested stakeholders as requiring clarification and/or revision and which it is now seeking to address. 

The Updating the Network and Retail Exemption Guidelines – Consultation Paper 2021, released for public consultation on 18 May 2021, focuses on issues arising from the Electricity Network Service Provider – Registration Exemption Guideline (the network exemption guideline) and the AER (Retail) Exempt Selling Guideline (the retail exemption guideline). 

The Guidelines (which were last revised in 2018) apply to network operators and incidental sellers of energy in private (embedded) networks and are administered under the National Electricity Law (NEL) and the National Energy Retail Law (NERL), respectively.  They set out the processes for registering and applying for exemptions from the requirement to be registered as a network service provider under the NEL and to hold a retailer authorisation under the NERL, as well as outlining the various exemption classes, their eligibility criteria and exemption conditions. 

The retail exemption guideline applies in those states and territories which have adopted the NERL – this does not include Victoria, Western Australia or the Northern Territory.  The network exemption guideline applies in those jurisdictions which participate in the National Electricity Market and does not include for example Western Australia which has its own electricity market legislation.  In addition, some participant states and territories have their own "extra layer" of electricity regulation to deal with matters within their jurisdiction. These additional requirements are governed by separate, state or territory-specific legislation which are not part of the national electricity framework.

What is the purpose of the AER's consultation?

Submissions will be used to inform a draft network exemption guideline and draft retail exemption guideline, which will be published in mid-2021.

In particular, the AER is seeking to revise the Guidelines to:

• improve the clarity and readability of exemption requirements;
• streamline the network exemption guideline and remove redundancies;
• clarify concepts such as the issue of the ownership, control, and operation of embedded networks in the network exemption guideline;
• introduce standardised statements in both the Guidelines where information requirements need to be met, eg. for exemption applications that require applicants to obtain explicit informed consent to network conversion proposals; and
• improve consistency between the Guidelines.

In addition to the issues identified in the Consultation Paper, the AER is also seeking feedback on other issues or matters of clarification that have not been covered in the paper and any other aspects of the Guidelines.  

The AER's review is restricted to improving the Guidelines themselves and as such, changes to the broader energy law for embedded networks, such as the changes proposed by the AEMC in its Final Report on Updating the Regulatory Frameworks for Embedded Networks published 20 June 2019, are out of scope. 

Ownership, control and operation of embedded networks

One issue which is on the table for consideration and which has previously resulted in a lack of clarity for embedded network participants is the requirement under the network exemption guideline for multiple persons to hold a network exemption for a single site.  This is because, under the NEL (and the network exemption guideline), each party who owns, controls or operates an embedded network must hold a network exemption and comply with all relevant exemption conditions.

This gives rise to several issues.  Where embedded networks are concerned there may be several different exemption holders for one site and the NEL does not determine an order or priority for embedded network owners, controllers an operators.  As the Consultation Paper identifies, it is not logical for every party to join an ombudsman scheme or to appoint an Embedded Network Manager and the network exemption guideline does not specify who should do so.  Furthermore, the NEL does not define what controlling or operating a network actually means.

These issues consequently make it difficult for parties to assess their own compliance obligations and the potential breadth of responsible parties can lead to diffused responsibility and a lack of clear accountability. 

The AER proposes to amend the network exemption guideline to require there be one registrant, with any other parties being subject to deemed exemptions, and clarify the types of parties that may control or operate a network.

Embedded Network Manager Requirements

The Consultation Paper identifies a number of issues relating to appointment of Embedded Network Managers (ENMs) in embedded networks. An ENM is responsible for, amongst other things, assigning NMIs to embedded network customers (having a NMI gives customers the option to access competition and become on-market customers). It is a condition of exemption under the NER that network exemption holders either become an ENM or appoint one in certain situations.  Some of the issues identified in the Consultation Paper in regard to ENMs, include:

• the network exemption guideline does not specify when an ENM must be appointed. The AER proposes to address this by adding a condition to the network exemption guideline such that, where an ENM must be appointed, the exemption holder must do so within a specified number of business days;
• there is no condition to deal with a situation where an ENM's services are no longer required (for example, where all of the embedded network customers that are on-market revert to off-market).The AER proposes to address this by allowing embedded network operators who hold an exemption from any of the deferred ENM appointment classes to revert to deferred appointment if they previously appointed an ENM and there are no longer any on-market customers in their network.

In older networks (established prior to January 2012) there was no requirement to meter the supply of electricity and many remain unmetered. In the AER's view, where there are no customer meters there is no reason to appoint an Embedded Network Manager and the AER proposes that the requirement to appoint an ENM for these networks should not apply.

Allowing unmetered supply for networks established before 2012

Another issue identified by the AER for consideration is addressing unmetered supply in networks established prior to 2012. The AER considers it to be in a customer's best interests to have their consumption metered to ensure they only pay for the electricity they use and allow them to reduce costs by reducing usage as well as access retail competition.  However, the AER do not wish to impose large additional costs on embedded networks that were compliant before 2012 by requiring the installation of meters for every customer within the networks.  The AER proposes to clarify in the Guidelines that unmetered connections in embedded networks that existed before 2012 may continue to be unmetered unless a customer requests a meter be installed, in which case, the cost may be passed directly to that customer.

Hardship

The Consultation Paper notes that the retail exemption guideline does not currently require exempt sellers to provide the full suite of hardship protections to embedded network customers (such as requiring exempt sellers to develop and offer hardship programs).  The AER considers it appropriate, given the greater levels of vulnerability in embedded networks, to provide hardship supports for customers of exempt sellers to the extent possible.

The AER proposes two options to deal with this issue:

• broaden the current range of exemption conditions to include some additional hardship obligations; or
• amend the retail exemptions guideline to require exempt sellers to adopt hardship plans.To reduce the administrative burden of this, the AER proposes to develop a template hardship plan.

Ombudsman

The Guidelines require exempt entities to have dispute resolution processes for small customers and, if they deal with residential customers, the exempt entity must join the relevant energy ombudsman.  However, as the Consultation Paper identifies, many exempt entities are failing to comply with their membership requirements, thereby depriving residential customers of the important customer protection of having access to independent dispute resolution.   Similar to the requirement which applies to retailer authorisation applicants, the AER proposes to require individual exemption applicants to provide evidence of the steps they have taken to obtain ombudsman membership in the jurisdiction/s in which they intend to sell energy to residential customers.

Other proposed changes:

• Small generation – rather than accommodating small generation units (SGUs) under the network exemption guideline, the AER has formed the view that SGUs should be regulated separately and considered as part of the ESB's Post 2025 Electricity Market Design project;
• Disconnection – "energy only" customers who purchase electricity on-market from an electricity retailer of choice may currently have their electricity disconnected by a network operator if (for example) the customer is not paying their share of the network tariff. The AER is proposing to amend the network exemption guideline to include the same disconnection obligations as are contained in the retail exemption guideline on the basis that the network operator disconnection protections should be the same for on-market customer as for off-market customers.
• Retrofit and EIC – the AER has identified a number of issues in regards to retrofit requirements. This includes the fact that information provided to customers often fails to clearly and adequately disclose appropriate information that customers need to make an informed decision about whether to join an embedded network. There are also a number of ambiguities relating to network operators' and on sellers' retrofit requirements. Among other initiatives, the AER proposes to standardise the information embedded network owners or operators must provide to prospective customers and apply the retail exemption guideline term "explicit informed consent" to the network exemption guideline and specify that evidence of consent will need to be in the form of a signed consent form.
• Mandatory information disclosure by exempt sellers – the retail exemption guideline requires exempt sellers to advise customers, in writing, at the start of their tenancy, residency or supply agreement, of any right they have under state or territory laws to purchase energy from a retailer of their choice and to provide information on metering options to support this choice. However, this obligation stops short of requiring the provision of information on the process and requirements a customer must follow to be able to access retail competition. The AER proposes amending the retail exemption guideline to require exempt sellers to provide a hard copy or a link to a factsheet, that the AER will develop, that describes the process an embedded customer must follow to enter into a market retail contract.
• Chilled water – the AER proposes to regulate the sale of energy to chill water through a deemed exemption which would not require the full suite of customer protections and would be limited to cost and billing requirements.

Making your views known

Public consultation on the Consultation Paper is now open with submission due by 30 June 2021.

Given that these submissions will inform the AER's draft retail and network exemption guidelines due to be released in August 2021, embedded network participants and interested stakeholders should consider lodging a submission on the issues raised in the Consultation Paper along with any other issues which stakeholders have separately identified in the Guidelines as requiring clarification, consideration and/or fine tuning by the AER.

A further period of public consultation will follow in September 2021 for the draft Guidelines, with final Guidelines due to be published in November 2021.