ACCC releases blueprint to reduce electricity prices

ACCC releases blueprint to reduce electricity prices

Energy Law

Let’s face it -both you and I, or someone close to us, have recently complained about what seems to be the unstoppable increase to our home and business energy bills.

These increasing prices affect us all – we all use electricity.

So who’s job is it to keep energy prices stable?

By Chris Dennis, Consultant- Law Quarter.

The Role of the ACCC

The ACCC plays a role in the regulation of energy markets. Specifically, the ACCC’s role in energy markets is in the context of the Competition and Consumer Ac 2010. For example, the ACCC enforces the competition and consumer protection provisions in energy markets and assesses energy mergers and authorisations.

So what is the ACCC doing about increasing energy bills?

Just this month the ACCC released their final Retail Electricity Pricing Inquiry report, or a ‘blueprint to reduce electricity prices’. The ACCC states that this blueprint is designed to ‘significantly improve electricity affordability for Australian consumers and businesses’.

The blueprint or report is the result of an inquiry, which commenced in March 2017. This inquiry began by identifying the root causes of high electricity prices across the entire electricity supply chain.

The report describes the National Energy Market as ‘largely broken and needs to be reset’. That’s a big statement from a Government regulatory agency.

As part of the process, the ACCC has admitted that ‘poor decisions have been made over the past decade creating the current electricity affordability problem’, and ‘it now falls to current Commonwealth and state governments to make the difficult decisions to fix it’.

So why have electricity prices increased?

According to the ACCC, electricity has become unaffordable because:
– Wholesale and retail markets are too concentrated;
– Regulation and poorly designed policy have added significant costs to electricity bills; and
– Retailers’ marketing of discounts is inconsistent and confusing to consumers and has left many consumers on excessively high ‘standing’ offers.

It is their view that most households are paying far too much for electricity and many are having difficulty paying their bills.

As a result, the report of the ACCC has made 56 recommendations detailing ways to fix the National Electricity Market

The ACCC’s recommendations include:

  • Abolishing the current retail ‘standing’ offers (which are not the same between retailers), and replacing them with a new ‘default’ offer consistent across all retailers, set at a price determined by the Australian Energy Regulator (AER).
  • Requiring retailers to reference any discounts to the new ‘default’ offer pricing determined by the AER, making it easier for consumers to genuinely compare offers. Conditional discounts, such as pay-on-time discounts, must not be included in any headline discount claim.
  • A mandatory code for comparator websitesbeintroduced so that offers are recommended based on customer benefit, not commissions paid.
  • Voluntary write downs of network overinvestment, including by the NSW, Queensland and Tasmanian governments (or equivalent rebates).
  • Premium solar feed-in-tariff schemes should be funded by state governments and the small scale renewable energy scheme should be phased out, saving non-solar consumers $20-$90 per year.
  • Government support to make bankable new investment by new players in generation capacity to help commercial and industrial customers and drive competition.
  • Restructuring of Queensland generators into three separately owned portfolios to improve competition.
  • Limiting companies with 20 per cent or more market share from acquiring more generation capacity.
  • Improving the transparency of over-the-counter contract trading by requiring reporting of these trades to a central registry.
  • Improving the AER’s powers to investigate and address problems in the market and increasing penalties for serious wrongdoing.

The ACCC estimates its recommendations, if adopted, will save the average household between 20 and 25 per cent on their electricity bill, or around $290-$415 per annum.

Conclusion

While the efforts of the ACCC are welcomed, a sanguine approach must be adopted. There will be no quick fix to ongoing increases in energy bills and sector reform to reduce power bills will take time.

Our Energy Experience

We have significant experience in energy law. Our experience includes working for energy retailers, energy storage, and renewable energy companies. Working on ‘both sides of the meter’ gives us a unique and unmatched perspective.

Our lawyers have written extensively for industry publications including WattClarity and RenewEconomy. Our clients include small solar installers alongside large network distribution businesses.

Our firm is a finalist in this year’s Innovator of the Year award in the 2018 Australian Law Awards. Our sister business, Compliance Quarter has applied for over 80 percent of the recent energy retail authorisations with a 100 percent success rate. Compliance Quarter was a 2018 Westpac 200 Business of Tomorrow winner.

Power Purchase Agreements in Australia- Four Key Legal Concerns

Power Purchase Agreements in Australia- Four Key Legal Concerns

Energy Law

Power Purchase Agreements (PPAs) have reached maturity in the Australian market- now in the market for more than seven years. We are reaching the point where, for those early PPAs, we can expect to see legal issues arise and PPAs examined in the courts.

In today’s article, we look at four key legal considerations when it comes to drafting a ‘behind the meter’ PPA. Correct drafting today will save you unnecessary legal costs tomorrow. This is our second post looking at PPAs in Australia.

By Connor James, Principal.

I. Certainty

PPAs are complex due to the nature of the ‘product’ being sold i.e. energy. Some PPAs require the purchase of 100 per cent of the generated quantity whereas others require the purchase of the quantity of electricity consumed. Each variation comes with its own risks and benefits. Care must be taken to ensure that the structure of a PPA is clear and compliant with regulatory obligations.

Different considerations apply when selling a PPA to a commercial as opposed to a residential consumer. There are a range of statutory obligations you will have under Australian Consumer Law including the non-excludable guarantees. These obligations need to be considered at the drafting stage. Furthermore, your marketing collateral needs to be consistent with the terms of your PPA, and not have the potential to mislead consumers.

II. Ownership

Ownership of solar panels under a PPA may be clear in your mind but, under the law, the reality is less certain.  Where ownership of panels is to transfer to the consumer at the end of the PPA term (often 7 years), with no intention of retention by your business, it may be that the panels are in fact fixtures meaning that you have limited rights in relation to taking them back.

III. Licences, Permits and Approvals

By selling energy under a PPA you are operating an energy business. Your business will either need to be exempt from the requirements to hold an authorisation or licence or hold an authorisation or licence. The Australia Energy Regulator has jurisdiction in NSW, SA, TAS, ACT and QLD. If your business is proposing to offer a PPA in those states it may be able to rely on an R8 exemption. The R8 exemption will not be appropriate in all instances and where it is appropriate comes with conditions.

In addition to energy licence obligations, your business will also need to consider consent authority obligations including any requirement to obtain a complying development certificate or a development approval. Further, your business will also need to comply with electrical safety laws in each state and with any electrical contractor licensing obligations.

IV. Metering

Energy is sold to a consumer on the basis of meter reads. A PPA should consider a range of scenarios including a customer denying access to a meter, any need for an estimated reading, and responsibility for metering including ongoing maintenance.

When metering PPAs it is important to remember the requirements of the National Measurements Act 1960 (Cth). Pattern approval (in other countries this is sometimes called ‘type approval’) is mandatory for measuring instruments used for trade in Australia. The National Measurement Institute (NMI) evaluates measuring instruments to check they meet specific Australian standards.

Our Energy Experience

We have significant experience in energy law, including in drafting Power Purchase Agreements. Our experience includes working for energy retailers, energy storage, and renewable energy companies. Working on ‘both sides of the meter’ gives us a unique and unmatched perspective.

Our lawyers have written extensively for industry publications including WattClarity and RenewEconomy. Our clients include small solar installers alongside large network distribution businesses.

Our firm is a finalist in this year’s Innovator of the Year award in the 2018 Australian Law Awards. Our sister business, Compliance Quarter has applied for over 80 percent of the recent energy retail authorisations with a 100 percent success rate. Compliance Quarter was a 2018 Westpac 200 Business of Tomorrow winner.

In our next post, we will look at changes to the accounting standards that come into effect from 1 Jan 2019 and are relevant to businesses looking to explore Power Purchase Agreements.

If you have any questions on Power Purchase Agreements please email connor@lawquarter.com.au. Alternatively, contact us here.

A Short Guide to Power Purchase Agreements (PPA) in Australia

A Short Guide to Power Purchase Agreements (PPA) in Australia

Energy Law

A couple of weeks ago the University of New South Wales announced its entry in to a power purchase agreement (PPA) for the next 15 years with the goal of reaching carbon neutrality (http://www.smh.com.au/business/the-economy/unsw-signs-deal-to-go-fully-solar-powered-20180111-p4yyf3.html).

In today’s article we ask three questions: What is a PPA, why enter into one, and what is their legal and regulatory environment?

Photo by David Cristian on Unsplash
  1. What is a PPA?

Put simply a PPA is an agreement between an independent power generator (or vendor) and a purchaser (often called the ‘off-taker’) for the sale and supply of energy.[1] They can be used for the supply of any type of energy, but in more recent times have often been used for the supply of renewable energy such as through solar panels or wind generators.

A PPA can take on two general forms. In a physical PPA, energy is physically supplied and sold directly to the purchaser. The power generator is usually not connected to the wholesale National Energy Market (NEM). A virtual or synthetic PPA involves two distinct agreements which operate in parallel. Unlike a physical PPA, the energy is not physically supplied and sold directly from the generator to the purchaser. Instead the generator must connect to the NEM, where the purchaser is supplied energy through a contract with an authorised market retailer. At the same time a separate agreement, often taking the form of a ‘contract-for-differences’ is agreed between the generator and the purchaser to guard against fluctuations in the spot price for electricity which will be reflected in the retail contract. This means that, in effect, the energy and relevant renewable energy certificates are provided to the purchaser at a ‘fixed price’.

  1. Why enter into a PPA?

PPAs may be advantageous to any organisation, such as UNSW, which seeks to reduce its carbon footprint. Whether in its physical or synthetic forms, through a PPA with renewable energy, a purchaser can ensure that a certain amount of renewable energy is produced.

Of course, there are economic considerations that an organisation will need to take into account before entering into a PPA as well, including:

  • Wholesale price uncertainty. A PPA allows the organisation to lock in a price for electricity over an extended period. The purchaser can benefit from not being subject to the price fluctuations of the wholesale energy market. On the other hand, this may lock the organisation into a price higher than it would otherwise pay;
  • Generator failure. The purchaser needs to take into account the risk that the generator will fail and be unable to supply energy as agreed and how they might insure against such failure.
  1. What is the regulatory and legal environment for PPAs?

All energy suppliers in NECF participating jurisdictions, including independent generators that supply energy through PPAs, are subject the supervision of the Australian Energy Regulator (AER). AER requires that such suppliers hold either an exemption or a retail authorisation and must provide certain consumer protections.[2] Whether or not they are subject to the consumer protections under the National Energy Retail Law, all such vendors are subject to the Australian Consumer Law.

If the PPA involves a ‘derivative’ financial instrument (as synthetic PPAs generally do), the supplier may be required hold an Australian Financial Services (AFS) licence, and be subject to the authority of the Australian Securities & Investments Commission (ASIC). To read more go to https://compliancequarter.com.au/otc-electricity-derivatives/.

Another matter that anyone entering into a PPA may need to consider is whether a security interest should be registered on the Personal Property Securities Register (PPSR). For example, if a vendor is physically supplying a solar panel to the purchaser’s premises this can protect their legal interest in the solar panel (for general information on the PPSR see https://compliancequarter.com.au/ppsr-changes/).

If you think we could be of any further guidance in this area, please don’t hesitate to get in contact.

 

[1] For more information and a good general introduction to PPAs see the following guide produced by the United States Department of Commerce http://cldp.doc.gov/sites/default/files/Understanding_Power_Purchase_Agreements.pdf.

[2] For further information see https://www.aer.gov.au/system/files/AER%20-Alternate%20energy%20sellers%20-%20Final%20statement%20of%20approach%20-%20July%202014.PDF.

Energy Retail Law Key Definitions

Energy Retail Law Key Definitions

Energy Law, Regulatory Updates

 

There are some key definitions contained in the Energy Retail Law which need to be understood.  Chapter 10 of the National Electricity Rules (NER) contains the Glossary and it covers 114 pages. Often the definition of the word or phrase will contain words which also need to be defined.

By Anne Wardell, Law Quarter

Embedded Network

For example, the definition of an Embedded Network is:

distribution system, connected at a parent connection point to either a distribution system or transmission system that forms part of the national grid, and which is owned, controlled or operated by a person who is not a Network Service Provider.

Each of the phrases in italics has a separate definition within the Glossary. To understand all the meanings, you may watch a short presentation I created. Each phrase which is defined also has defined terms within it. You may need to go up to three steps within the definition to find the meaning of that phrase.

Distribution system

Let’s look at the phrase ‘distribution system’ which is contained in the definition of Embedded Network.

It is defined in the National Energy Retail Law as:

(a) for a distributor who is a regulated distribution system operator within the meaning of the NEL—a distribution system within the meaning of the NEL; or

(b) for a distributor who is a service provider within the meaning of the NGL who owns, operates or controls a distribution pipeline that is a covered pipeline under that law—a distribution pipeline within the meaning of the NGL; or

(c) for a nominated distributor under s 12—the nominated distribution system that is specified under that section.

Therefore, you need to determine if you are a distributor and which type of energy you are providing. The NEL is the National Electricity Law and the NGL is the National Gas Law.

Distributor

Distributor, under the National Energy Retail Law means

(a) a regulated distribution system operator within the meaning of the NEL; or

(b) a service provider within the meaning of the NGL who owns, operates or controls a distribution pipeline that is a covered pipeline under that Law; or

(c) a nominated distributor, to the extent provided by section 12.

Under the National Energy Law the definitions are contained in the NER as:

Distribution System Operator

A person who is responsible, under the Rules or otherwise, for controlling or operating any portion of a distribution system (including being responsible for directing its operations during power system emergencies) and who is registered by AEMO as a Distribution System Operator under Chapter 2.

Distribution system

A distribution network, together with the connection assets associated with the distribution network, which is connected to another transmission or distribution system. Connection assets on their own do not constitute a distribution system.

Under the NGL the phrase ‘service provider’ is defined in s 8 of the National Gas (South Australia) Act 2008 as:

Service provider

(1) A service provider is a person who—

(a) owns, controls or operates; or

(b) intends to own, control or operate, a pipeline or scheme pipeline, or any part of a pipeline or scheme pipeline.

Note— A service provider must not provide pipeline services by means of a scheme pipeline unless the service provider is a legal entity of a specified kind: see section 131, and section 169 where the scheme pipeline is an international pipeline to which a price regulation exemption applies.

(2) If AEMO controls or operates (without at the same time owning) a pipeline or scheme pipeline, or any part of a pipeline or scheme pipeline, AEMO is not for that reason to be taken to be a service provider for the purposes of this Law.

Distribution pipeline

means a pipeline that is classified in accordance with this Law or the Rules as a distribution pipeline and includes any extension to, or expansion of the capacity of, such a pipeline when it is a covered pipeline that, by operation of an applicable access arrangement or under this Law, is to be treated as part of the pipeline;

Note— See also sections 18 and 19.

Section 12 of the National Energy Retail Law provides:

12 — Nominated distributors

(1) The regulations under an application Act of a participating jurisdiction may nominate an entity (being an entity that is licensed or otherwise authorised under jurisdictional energy legislation of that jurisdiction) to provide customer connection services as a nominated distributor for the purposes of this Law.

(2) A nomination of an entity may be made for any or all of the following:

(a) the whole or a specified part of the geographical area of a jurisdiction; or

(b) the whole or a specified part of a distribution system that is owned, controlled or operated by the entity.

(3) A nomination of an entity has the effect of applying this Law and the Rules (in whole or in part as specified in the regulations and with any specified modifications) to the entity as if it were a distributor within the meaning of this Law, and references in this Law and the Rules to a distributor are accordingly taken to include references to the nominated distributor.

What to do?

As you can see there are many steps to clarify the definition of words and phrases under the National Energy Laws. To understand a phrase the first step is to determine whether it has a definition under the relevant legislation.

If there is a definition then you should take note of the italicised words. This will indicate that the word or phrase has a defined meaning under the legislation. You should therefore also check these definitions.

Words can also be defined by judges when deciding cases. The term ‘explicit informed consent’ was considered by the Federal Court in Australian Competition and Consumer Commission v EnergyAustralia Pty Ltd [2015] FCA 274 at [70]:

‘Section 39 of the NERL SA and the NERL ACT provides that “explicit informed consent” is given where the retailer, or a person acting on the retailer’s behalf, has clearly, fully and adequately disclosed all matters relevant to the consent of the customer, including the purpose or use of the consent, and the customer gives consent. Consent by the consumer must be given in writing signed by the customer, verbally (provided it is evidenced in such a way that it can be verified), or by electronic communication generated by the customer’ (emphasis added).

As further cases come before the courts, a more detailed definition will be created. It is important therefore to be aware of any decisions which may come before the courts.

We have introduced a new section on our news page which will cover cases of interest. Our first decision will be Privacy Commissioner v Telstra Corporation Limited [2017] FCAFC 4. We have selected this decision as it contains important information for all businesses which collect personal information from customers which of course includes the energy retail secto