Envestra logo3 August 2011

Dear Raif

DPI Discussion Paper - Victoria-Specific Regulatory Requirements under the NECF

Envestra welcomes the opportunity to provide comment on transitional issues for Victoria with respect to "Victoria-Specific Regulatory Requirements" under the National Energy Customer Framework ("NECF").

The attachment to this letter provides further information in relation to the above and provides commentary which we hope will assist DPI in formulating the draft implementation legislation for the NECF.

If you have any queries regarding this submission or would like to discuss the transitional issues further please contact me Qn (08) 8418 1128.

Yours sincerely

Ralph Mignone

Manager, Engineering and Technical Regulation

Envestra Ltd

DPI Discussion Paper

Victoria-Specific Regulatory Requirements under the National Energy Customer Framework

DPI's Approach

The NERL objective

The NERL objective is "promote efficient investment in, and efficient operation and use of, energy services for the long term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply of energy." In our view, DPI's approach to consolidating the existing Victorian regulatory regime with the National Energy Customer Framework ("NECF") appears to be moving away from the efficiencies in investment, operation and use, as stipulated by the Ministerial Council of Energy, by focussing predominately on customer protections.

Envestra acknowledges that DPI faces challenges in drafting legislation for implementing the NECF as there are a number of considerations and interests to satisfy, and Envestra support customer protection measures in the energy industry where they are efficient.

Envestra does not agree, however, that the diminution of customer rights should be the only or prime consideration when drafting legislation for a regulatory change of this magnitude. Envestra believes that a better balance could be achieved if DPI also focused on efficiencies for the industry. Such an approach would ensure cost effective solutions are implemented, with those cost savings ultimately passed on to customers. In addition, simpler and less costly solutions are likely to result in lower on-going compliance costs for industry and consumers.

Application

Envestra also note DPI's statement that if there are to be specific regulations to be included in the legislation, they must be of a 'foundational nature or important enduring policY,'1 if not, DPI "proposes to continue the practice of establishment of detailed regulatory arrangements through subordinate instruments to all for the evolution of the regulatory regime over time."2 Envestra supports the approach of the use of subordinate instruments wherever possible rather than legislation, as this allows for flexibility moving forward in the event that refined approaches becomes necessary. This is likely to be the case as the new obligations are based in most instances on existing obligations, but those existing obligations have not to-date all been effective or relevant in the provision of efficient customer service.

2.2.4 Gas Distribution System Code

DPI states that the "obligations necessary to support the uniqueness of gas billing and disconnection from supply have been preserved," however it is not clear whether DPI intended for all other sections of the Code to be repealed.

Furthermore DPI advised under section 2.4 that "some highly technical requirements of the Electricity Distribution Code and Gas Distribution System Code are not addressed directly by this paper."

There is a level of ambiguity surrounding provisions which are proposed to be repealed and those which will come under a separate review, meaning it is difficult for Envestra to provide a fully informed response on DPl's approach to the Code and survival of its provisions. Hence Envestra's comments are limited to those issues raised in the discussion paper.

3.2 Contracting Distribution and Retail Customers

DPI stated that "the majority of small distribution customers are on deemed contracts," however DPI is reminded that this is not true for gas distribution customers. As correctly stated by the DPI in their Discussion Paper on Energy Customer Contracts (Victoria) Transition Issues (released April 2011) - "In gas, s48 (of the Gas Industry Act 2001) also provides for deemed distribution contracts. However, it is understood that no deemed distribution contracts have been gazetted by gas distribution businesses and hence the contractual relationship between distributors, retailers and customers in Victoria is effectively 'linear' - that is, the retailer is responsible for the provision of all services to a customer's premises."

3.8 Planned Interruption to the Delivery of Gas Supply

Envestra understands that the requirement to provide 10 business days' notice of planned interruptions stems from the historical practice of providing longer periods of notice to large customers, e.g. a manufacturing plant that has gas kilns and which may require production rescheduling. Envestra advises that distributors liaise closely with Tariff D (large) customers whenever undertaking works which may affect them. For example, Envestra might provide 3 months' notice before undertaking a planned interruption to a car manufacturing plant. It is Envestra's view that the regulations should be taken to apply as minimum requirements for small customers. This is generally the interpretation taken not only in other jurisdictions but also in respect of electricity in Victoria, whereby more than 4 business days' notice would be given to a large manufacturing facility. On this basis, it is therefore appropriate to adopt 4 business days' notice for gas interruptions also.

Cross Border Regulatory Arrangements

This is a key distribution issue which Envestra asks DPI to consider and advise upon accordingly. As DPI is aware, access regulation of the Albury distribution system (owned by Envestra) has been cross-vested to Victoria, in recognition of AGC assets essentially being operated together with Envestra's Victorian assets. Similarly the NSW Government has allowed ACG to operate in accordance with the Victorian Retail Market Procedures (previously administered by VENCorp and now administered by AEMO), in recognition of the fact that the operational and market factors and systems governing gas supply and distribution for AGC cannot be divorced from Victorian systems.

With regard to implementation of the NECF, Envestra believes that AGC must be treated for all intents and purposes as part of the Victorian gas distribution network, i.e. follow Victorian transitional arrangements, otherwise Envestra would be forced to implement separate systems for AGC. This is likely to impose a significant cost impost upon the NSW customers being served by AGC, and is the very reason that cross-vesting of other arrangements has taken place. Envestra seeks confirmation that the implementation of a national energy customer framework would not inadvertently disadvantage consumers in southern New South Wales and requests that the regulatory changes proposed by DPI address this cross-border issue appropriately.

Footnotes

1 DPI, Discussion Paper - Victoria-Specific Regulatory Requirements under the National Energy Customer Framework (Released July 2011), Part 1.5, Paragraph 1.

2 Ibid.