Energy Regulatory Updater – July

Converging and diverging issues in energy market regulation

Today we take a stocktake of approaches to Australian energy market regulatory issues by launching the Norton Rose Fulbright monthly energy regulatory update and providing some insights from the ACCC/AER regulatory conference, held in Brisbane last week. Download the PDF to see the monthly regulatory update.

As regulators, rule-makers and stakeholders converged in agreeing that energy markets must be regulated in a manner that best serves the long-term interests of consumers (LTIC), they diverged on what exactly that means and how it might be done, particularly in electricity markets.

On the one hand, there are issues of affordability, contributed to by historical policy settings, market developments (including wholesale electricity prices), the level of market concentration and limited customer sophistication. Simultaneously, however, there are security and reliability issues, which coincide with the rise of renewable and retail-scale generation.

Whilst these developments further long-term imperatives to achieve 'low emissions' and show that there are pockets of consumers that are exercising real sophistication (known as 'prosumers'), there are also grid investment and efficiency issues that must be addressed. These may cut across short-term affordability goals.

As the AER, ACCC, AEMC, AEMO and jurisdictional regulators grapple with these jostling interests, they each have initiatives that seek to address different elements, including the following:

• The ACCC is seemingly focussed upon affordability in its electricity retail competition inquiry. Last week Chair, Rod Sims, highlighted concern about the level of vertical integration and about the necessity for consumers to better understand and access offers best suited to their needs.
• Complementary to that, the AER is focussing upon hardship customers and retail billing compliance.
• The AEMC’s retail energy competition review is telling a sunnier story, identifying that an increasing number of consumers are seeking out a more diverse and bespoke range of retail alternatives, including through new technologies. Nonetheless, wholesale prices and uncertainty in emissions policy are noted as detrimentally impacting upon retail market competition and regulatory barriers to new and novel retail and energy supply models are identified as warranting review.
• In grids, the AER is seeking to develop a more collaborative and proactive approach to its network regulatory function. Among other things:

i. it is working with networks to ensure that their regulated and unregulated businesses are appropriately (but not overly) ring-fenced; and

ii. taking steps to achieve appropriate outcomes and engagement in anticipation of the abolition of Limited Merits Review, which would significantly limit the ability of networks to appeal revenue determinations made by the AER.

• The AEMC has also published some reports and inquiries and a rule change connected to efficiency and planning of investment in the changing transmission and distribution sectors and the suitability of reliability and frequency control standards.
• The AEMC has extended its consideration of the rule change request to reduce the 30-minute NEM settlement regime to five minutes. It is seen as a positive development for the changing generation mix and system security. However, will require a significant transition timeframe.
• Meanwhile, AEMO is revisiting some of its guidelines and policies in connection with generator standards and registrations and other market mechanisms to better align with security, reliability and efficiency motivations.
• COAG is currently focussed upon implementing the Finkel review recommendations and improving market functioning as a whole, with a focus upon security and reliability.

We are watching these and other developments closely. We will update you as they unfold. Please contact us in the interim, should you wish to know more.