Energy Law Presentation

Public vs. Private

 History of reform and deregulation
o Before deregulation, all utilities were owned and run by the State Governments
 Generation, transmission, distribution and retail were all undertaken by
the government
 Little pressure to keep costs down and prices low
o Deregulation and reform discussion began in 1991 with the Council of Australian
Governments responding to the Industry Commission report
 The Industry Commission report concluded the following:
 Significant GDP increases to be gained by:
o Restructuring the supply side of the energy sector by
deconstructing the vertical set-up of generation,
transmission, distribution and retail
o Introducing competition into generation and retail by
providing fair and non-discriminant access to the
transmission and distribution networks
o Privatizing publicly owned generation, transmission and
distribution assets
o Establishing, enhancing and extending the
interconnections between the different States to form a
national grid that allowed for cross boarder supply of
electricity
 A major influence of the policies developed was the Hilmer Report
 The Report reviewed the Application of the Trade Practices Act
1974
 Proposed principles to corporatize government owned businesses
and to apply tax equivalent systems and ensure these
corporations sought same the same environmental and planning
approvals as private businesses
 Recommended states implement non-discriminatory access to
essential infrastructure
 An outcome of the Hilmer Report = the National Competition Council
 Setup to monitor and check that the recommendations of the
report were implemented, including those regarding the energy
sector
 National institutions:
o The State economic regulators include:
 Independent Pricing and Regulatory Tribunal for New South Wales
 Queensland Competition Authority
 Essential Services Commission of South Australia
 Office of the Tasmanian Economic Regulator
 Essential Services Commission of Victoria
o There are three main bodies that regulate the electricity sector:
 AEMC
 AER
 AEMO
 These three bodies are in control of the national electricity rules,
revenue regulation of network businesses and operate the
national grid for security and safety
o AEMC = Australian Energy Market Commission
 Function: to make rules that dictate how the different parts of the supply
chain will be governed (done through NER, National Gas Rules and
National Energy Retail Rules)
 NER:
o Set the rights and responsibilities of transmission and
distribution networks. Directs the regulations to be put in
place.
o Ensure that the networks are funded appropriately to
provide a sustainable operational grid at the lowest cost to
consumers
o The focus of the rules are: price, quality, safety, reliability
and security of supply of electricity and the national
electricity system
 NERR:
o Relate to the sale and supply of energy to small customers
o Provide the detailed content of the consumer protection
measures and contracts that govern the relationship
between consumer, retailer and distributor
o AEMO = Australian Energy Market Operator
 Established to manage the electricity and gas markets
 It was created to draw together the responsibility for electricity and gas
markets functions, the national electricity market system operations and
national transmission planning under one operational framework
 This was done to provide consistency for market participants and
 improve the whole network security
 Provides system planning, electricity load forecasting and power systems
information, security advice and services to all regulators, generators and
network operators
 Information is important in setting service standards and revenue
allowances, and deciding in the viability of investment on the grid
o AER = Australian Energy Regulator
 Regulates wholesale and retail energy markets, and energy networks
 Part of the Australian Competition and Consumer Commission and was
established in 2005
 Functions:
 Setting revenue caps for electricity distribution and transmission
network providers—this is done by examining and testing
business proposals with regard to project demand, age of
infrastructure, operating and financial costs, and network
standards
 Monitoring the electricity wholesale market—including weekly
wholesale outcome reports, reports on prices outside of normal
thresholds and quarterly reports on compliance monitoring
activities
 Regulating the network operators
o Transmission and distribution still a natural monopoly
o Private corporations needed to be regulated to prevent them from exploiting
natural monopoly nature of the market—hence they became subject to price
and reliability regulation
o 2 specific areas of regulation:
 consumer engagement
 security of supply
o Goal: to protect consumers’ interests are being met and ensure a sustainable
supply of electricity at the lowest cost
 If the company is not providing what customers want then the customer
has the option to change companies
 Customer pressure also leads to innovation and improvement of the
service
 Importance of consumer engagement
o In a competitive market, consumers have the ability to choose the type of
service and who is their service providers
o There is benefit in the service providers engaging with and understanding what
 customers value and what they are willing to pay to receive the service
o Part of the regulatory process in setting prices and service standards is to
guarantee service levels are needed and what consumers want
 Importance of security of supply
o Aimed towards meting the energy needs of consumers both in the short-term
and the long-term
o Aimed to minimize blackouts, brownouts, and shortages of the fuels needed for
energy production
 The Wholesale Electricity Generating Market
o Began operations in 1998
o Currently connects 5 regional markets—QLD, NSW, Victoria, Tasmania, and
South Australia (Western Australia and Northern Territory are not connected to
the NEM)
o The market uses an auctioning mechanism that allows generators to offer
certain amounts of supply for a set price. Bids occur until the market has cleared
and demand is met
o The transportation of energy from generators to end users is facilitated through
a pool or spot market
o AEMO manages the pool in line with the National Electricity Rules and National
Electricity Law
 (mention again here the retail scheme)

Market Power:
 History:
o The process or restructuring of the electricity industry was initiated in 1991, and
by 1998, NEM was developed
o Generators could sell energy by either by bidding in spot markets, or through
formal bilateral contracts
o Most extensive restructuring is occurring in:
 South Australia
 Victoria
 New South Wales
 Queensland
o The key aspect of the transition process was the elimination of barriers to entry
and of trade between states, the creation of pool style (bulk electricity market)
competitive entities in generation and in retail supply and development of
regulatory arrangements appropriate to the new regime
o (See table of Deregulated Structure)
 Overview:
o Electricity is generated by the National Electricity Market (NEM)
o The electricity is sold in a wholesale spot market covering Queensland, New
South Wales, Victoria, South Australia, Tasmania and the ACT
o There is also a wholesale spot market for gas supply hubs at Wallumbilla and
Moomba
o Wholesale electricity in eastern and southern Australia is traded through the
NEM—a spot market in which supply and demand conditions determine prices in
real time
 Over 230 large scale power stations sell electricity into the market (as of
2018)
 Such electricity is being transported along 40,000 kilometers of
transmission lines to almost 10 million energy customers
o The Council of Australian Governments (COAG) Energy Council, chaired by the
Commonwealth Minister for the Environment and Energy is the body responsible
for supervising and reforming Australia’s Energy Markets
 The COAG is supported by 3 key market bodies:
 Australian Energy Market Commission (AEMC)
o Develops the rules by which the market must operate
 Australian Energy Market Operator (AEMO)
o Handles the day-to-day operations of the electricity and
gas markets
 Australian Energy Regulator (AER)
o Enforces the national electricity market rules and makes
judgments on the regulatory proposals of monopoly
network operators
o Monitors wholesale energy markets for compliance with
the underpinning legislation and rules, and takes
enforcement action for breaches
o By monitoring the markets, allows them to inform policy
makers, participants and the community about wholesale
market activity.
o Energy Ministers are responsible for the legislative and regulatory framework
within which Australian energy markets operate
 Rules are made under national energy laws designed to promote efficient
investment and use of energy services for the long-term interests of
consumers with respect to price, quality, safety, reliability, and security of
supply
  The rules determine how companies can operate and participate in the
competitive generation and retail sectors, and also govern the economic
regulation of electricity transmission and distribution networks and gas
pipelines
 Key Legislation:
o National Electricity Law (NEL)
 Establishes the governance and enforcement framework and key
obligations surrounding the national electricity market and the regulation
of access to electricity networks
 Part 2—Participation in the National Electricity Market
 Division 1-- Registration
o (1) A person must not engage in the activity of owning,
controlling or operating, in this jurisdiction, a generating
system connected to the interconnected national
electricity system unless—
 (a) the person is a Registered participant in relation
to that activity; or
 (b) the person is the subject of a derogation that
exempts the person, or is otherwise exempted by
AEMO, from the requirement to be a Registered
participant in relation to that activity under this
Law and the Rules.
o (2) A person must not engage in the activity of owning,
controlling or operating, in this jurisdiction, a transmission
system or distribution system that forms part of the
interconnected national electricity system unless—
 (a) the person is a Registered participant in relation
to that activity; or
 (b) the person is the subject of a derogation that
exempts the person, or is otherwise exempted by
the AER, from the requirement to be a Registered
participant in relation to that activity under this
Law and the Rules
o (3) A person, other than AEMO, must not engage in the
activity of operating or administering, in this jurisdiction, a
wholesale exchange for electricity.
 o (4) A person must not engage in, in this jurisdiction, the
activity of purchasing electricity directly through a
wholesale exchange unless—
 (a) the person is a Registered participant in relation
to that activity; or
 (b) the person is the subject of a derogation that
exempts the person, or is otherwise exempted by
AEMO, from the requirement to be a Registered
participant in relation to that activity under this
Law and the Rules.
o 14—Evidence of registration or exemption
 (1) A certificate signed by an authorized officer
certifying that a person named in the certificate is a
Registered participant, or has been granted an
exemption from registration under section 12 or 13
is evidence of the registration or exemption.
 Division 2—Regulated network service providers
o Summary: the transmission operator and distribution
system operator must comply with a
transmission/distribution determination that applies to
the electricity network provided by that operator
 Part 3—Functions and powers of the AER
 15—Functions and powers
o (1) The AER has the following functions and powers—
o (a) to monitor compliance by—
 (i) Registered participants and other persons with
this Law, the Regulations and the Rules; and
 (ii) regulated network service providers with
network revenue or pricing determinations; and
 (iii) AEMO with this Law, the Rules, the Regulations
or a transmission determination; and
 (b) to investigate breaches or possible breaches of
provisions of this Law, the Regulations or the Rules,
including offences against this Law; and
o (b) to investigate breaches or possible breaches of
provisions of this Law, the Regulations or the Rules,
including offences against this Law; and
 (c) to institute and conduct proceedings—
 o (i) against persons under section 61 of this Law or section
44AAG of the Competition and Consumer Act 2010 of the
Commonwealth; or
o (ii) in respect of Registered participants under section 63
of this Law; or
o (iii) against persons under section 68 of this Law; or (iv) in
relation to offences against this Law; and
 (d) to institute and conduct appeals from decisions in
proceedings referred to in paragraph (c); and
 (e) to exempt persons proposing to engage, or engaged, in the
activity of owning, controlling or operating a transmission system
or distribution system forming part of the interconnected
transmission and distribution system from being registered as
Registered participants; and
 (ea) to prepare and publish reports on the financial and
operational performance of network service providers in
providing electricity network services; and
 (eb) to approve compliance programs of service providers relating
to compliance by service providers with this Law or the Rules; and
 (ec) AER wholesale market monitoring functions and AER
wholesale market reporting functions; and
 (ed) to make a rate of return instrument; and
 (f) AER economic regulatory functions or powers; and
 (g) any other functions and powers conferred on it under this Law
and the Rules
o (2) The AER has the power to do all things necessary or
convenient to be done for or in connection with the
performance of its functions.
o (3) However, the AER—
o (a) cannot make a transmission determination—
 (i) regulating the revenue AEMO earns or may
earn; or
 (ii) regulating the price of electricity network
services provided by AEMO unless the services are
shared transmission services provided by means of,
or in connection with, a declared shared network;
and
 o (b) cannot regulate by transmission determination or in
any other way the price of any other service provided by
AEMO, or the amount of any other charge made by AEMO.
 Division 1A—Wholesale Electricity Markets--- AER monitoring and
reporting functions
 18b—Meaning of effective competition
o For the purposes of this Division, the AER must, in
assessing whether there is effective competition within a
wholesale electricity market, have regard to—
 (a) whether there are active competitors in the
market and whether those competitors hold a
reasonably sustainable position in the market (or
whether there is merely the threat of competition
in the market); and
 (b) whether prices are determined on a long term
basis by underlying costs rather than the existence
of market power, even though a particular
competitor may hold a substantial degree of
market power from time to time; and
 (c) whether barriers to entry into the market are
sufficiently low so that a substantial degree of
market power may only be held by a particular
competitor on a temporary basis; and
 (d) whether there is independent rivalry in all
dimensions of the price, product or service offered
in the market; and
 (e) any other matters that the AER considers
relevant.
 18c—AER wholesale market monitoring and reporting functions
o (1) The AER wholesale market monitoring functions are as
follows:
 (a) to monitor and review on a regular and
systematic basis the performance of wholesale
electricity markets in accordance with this Law and
the Rules;
 (b) in connection with paragraph (a), to identify
and analyse whether, in relation to a particular
wholesale electricity market—
  (i) there is effective competition within the
market; and
 (ii) there are features of the market that
may be detrimental to effective
competition within the market; and
 (iii) there are features of the market that
may be impacting detrimentally on the
efficient functioning of the market (and, if
so, to assess the extent of the inefficiency);
 (c) other monitoring or analysing functions that
relate to offers and prices (including forecast
prices, actual prices and bidding) within any
wholesale electricity market conferred on the AER
by the Rules.
 Part 4—Functions and powers of the AEMC
 34—Rule making powers
o (1) Subject to this Division, the AEMC, in accordance with
this Law and the Regulations, may make Rules, to be
known, collectively, as the "National Electricity Rules", for
or with respect to—
 (a) regulating—
 (i) the operation of the national electricity
market;
 (ii) the operation of the national electricity
system for the purposes of the safety,
security and reliability of that system;
 (iii) the activities of persons (including
Registered participants) participating in the
national electricity market or involved in
the operation of the national electricity
system;
 (iv) the provision of connection services to
retail customers; and
 (aa) facilitating and supporting the provision of
services to retail customers; and
 (b) any matter or thing contemplated by this Law,
or is necessary or expedient for the purposes of
this Law.
  (fa) provide for procedures governing the
operation of the national electricity market and the
sale and supply of electricity to retail customers;
 Part 5—Role of AEMO
o 49—AEMO’s statutory functions
 (1) AEMO has the following functions:
 (a) to operate and administer the wholesale
exchange;
 (b) to promote the development and
improve the effectiveness of the operation
and administration of the wholesale
exchange;
 (c) to register persons as Registered
participants;
 (d) to exempt certain persons from being
registered as Registered participants;
 (e) to maintain and improve power system
security;
 (f) to facilitate retail customer transfer,
metering and retail competition;
 (g) for an adoptive jurisdiction—the
additional advisory functions or declared
network functions (as the case requires);
 (h) any functions conferred by jurisdictional
electricity legislation or an application Act;
(i) any other functions conferred under this
Law or the Rules.

 (2) In its role as National Transmission Planner,
AEMO has the following functions:
 (a) to prepare, maintain and publish a plan
for the development of the national
transmission grid (the National
Transmission Network Development Plan)
in accordance with the Rules;
 (b) to establish and maintain a database of
information relevant to planning the
development of the national transmission
 grid and to make the database available to
the public;
 (c) to keep the national transmission grid
under review and provide advice on the
development of the grid or projects that
could affect the grid;
 (d) to provide a national strategic
perspective for transmission planning and
coordination;
 (e) any other functions conferred on AEMO
under this Law or the Rules in its capacity as
National Transmission Planner

o National Energy Retail Law (NERL)

 Regulates the supply and sale of both gas and electricity to retail
customers
 Division 4—Market retail contracts for small customers
 33—Formation of market retail contracts
o A small customer and a retailer may, subject to and in
accordance with this Division and section 147, negotiate
and enter into a market retail contract for the provision
of— (a) customer retail services; and (b) any other
services, as agreed between the small customer and the
retailer.
 61—AER Retail Pricing Information Guidelines for presentation of
standing and market offer prices
o (2) The purpose of the AER Retail Pricing Information
Guidelines is to provide guidance to retailers in the
presentation of standing offer prices and market offer
prices, and thereby assist small customers to consider and
compare standing offer prices and market offer prices
offered by retailers.
o (3) Without limitation, the AER Retail Pricing Information
Guidelines may specify any or all of the following:
 (a) the manner and form in which details of
standing offer prices and market offer prices are to
 be presented when publishing, advertising or
notifying the AER of those prices or any variation;
 (b) the types of market offers to be provided for
the purposes of the price comparator, including
without limitation, by reference to areas, classes of
small customers or tariff classes;
 (c) any additional matters that the AER considers
necessary or convenient to assist customers to
consider and compare standing offer prices and
market offer prices offered by retailers.
 *small customer—whether your business is a small energy
customer depends on how much energy you use: (for gas if you
use less than one terajoule per year and for electricity, depends
on the territory [SA: 160MWh; QLD: 100MWh; NSW: 100MWh;
Tas: 150MWh])
o Australian Energy Market Commission Establishment Act 2004
 Establishes the Australian Energy Market Commission and sets out
matters such as the functions of the AEMC
 6—Functions
 The AEMC has the following functions:
o (a) the rule-making, market development and other
functions conferred on the AEMC under National Energy
Laws or Jurisdictional Energy Laws;
o (b) the provision of advice to the MCE as requested by the
MCE;
o (c) other functions conferred on the AEMC under this or
any other Act or any other law;
o (d) other functions that are reasonably incidental to any of
the foregoing
 AER Pricing Guidelines
o See Pricing Guidelines
 Market Condition:
o Retail Energy Markets
 Policy Developments:
 October 2018—the Australian Government adopted an ACCC
(Australian Competition and Consumer Commission)
recommendation for a default market offer price to be set by the
AER
 o The default price is to take effect from July 1, 2019 and act
as a cap on standing offer prices in jurisdictions where
price regulation does not exist
 “Power of Choice” reforms are being implemented to provide
electricity customers with opportunities to benefit from advances
in metering, energy generation, management and storage
technologies that are changing how energy markets work
 Only 39 per cent of consumers trust the retail market and 25 per
cent of consumers are confident it works in their interests—lower
than for telephone, internet, insurance, water and banking
services.
 67 per cent of customers in eastern and southern Australia buy
their energy from a ‘big 3’ retailer—AGL, Origin or
EnergyAustralia—but smaller retailers are gaining ground.
o Wholesale Electricity Market
 Market Evolution:
 Wind and solar generation are replacing older coal fired
generators as they retire from the market
 2 million Aussie energy customers have become energy producers
by installing rooftop solar PV systems, and selling surplus
production back into the grid
o government incentive is given (ex. Small Scale Renewable
Energy Scheme and premium feed-in tariffs—have
resulted in Australia having one of the world’s highest per
capita installations of rooftop solar PV
 Coal fired generators are being retired as they reach the end of their
economic life, withdrawing 4200 MW of capacity from the market since
2014. But 4300 MW of large scale wind and solar capacity was added
over the same period. The pace of this investment is rising, with
renewable capacity additions averaging almost 200 MW per month (plus
another 100 MW per month in rooftop solar PV) since July 2017
 Almost 2 million Australian households and businesses have become
energy producers by installing rooftop solar PV systems.
 Investors cited a lack of stability and predictability in government energy
policy, market interventions, government ownership in the industry,
difficulties in obtaining finance, vertical integration and contract market
liquidity as barriers to investment
 Reforms are helping to better integrate wind, solar and battery
technologies into the market to manage risks of power system security
issues. The NEM’s first grid–scale battery and new demand response
initiatives lowered South Australia frequency management costs over
summer, enabling significant savings for consumers