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Dear Raif

Envestra is pleased to have the opportunity to comment on the DPl's issues paper concerning possible licensing arrangements for Victoria.

Envestra acknowledges that a commencement date of 1 July 2012 has been targeted for implementation of the National Energy Customer Framework (NECF) and that the DPI is in the process of preparing legislation to apply in Victoria.

Envestra supports early discussion of important issues and is cognisant that licensing is an important issue not only in the Victorian context, but an important issue for entities such as Envestra which operate in multiple jurisdictions, as the determinations of one jurisdiction may influence the decision of another.

Envestra's views expressed in relation to this Issues Paper, whilst intended for the proposed licensing arrangements in Victoria, also apply in respect of proposals for licensing arrangements in other jurisdictions.

Envestra acknowledges the DPI's stated approach that "submissions and other responses to this discussion paper will be taken into consideration by the Department in formulating draft implementation legislation for the NECF". We anticipate that the issues paper is the first formal consultation with industry on licensing and other arrangements, and that the Department will consult further with industry in due course (before the drafting of legislation).

Envestra's full response is provided on the attached pages.

Yours sincerely,
Ralph Mignone
Manager, Engineering & Technical Regulation

SUBMISSION TO DEPARTMENT OF PRIMARY INDUSTRIES MAY 2011

NB. Numbering below follows the numbering in the Issues Paper.

3. FUTURE OF DISTRIBUTOR LICENSING ARRANGEMENTS

1. What should the basis Of any limitation to entry to the distribution sector be?

It is currently an offence under the Gas Industry Act 2001 to distribute gas without a licence. For reasons of public safety, some form of control or limitation (i.e. a barrier to entry) must be maintained when constructing gas pipelines in the public domain.

On that basis Envestra recommends retaining distribution licences (and distribution licence exemptions) - by far the simplest approach and would minimise required changes to application legislation.

In the event this were not possible, the alternative would be to adopt any other form of control which would require minimal administrative effort (although establishing a new form of control would initially take considerable administrative effort), or adopt a single nationally consistent approach to limit entry.

Envestra recommends retaining distribution licences in a shortened form, ie removing any clauses not directly pertinent to entry or exit conditions.

2. What kinds of network infrastructure should be exempted from such limitations?

Energy infrastructure in the public domain (i.e. infrastructure which is not wholly contained on private land) must be controlled. Some form of licence exemption could be adopted if:

  1. the exemption was intended for limited duration of use only, or
  2. is small in size, or
  3. is located in a remote location (such as a small mining town).

Even in cases where infrastructure is not located in the public domain some other form of control may still need to be adopted, e.g. where there are significant public safety issues involved, such as large shopping centres, industrial complexes, highrise residential buildings, nursing homes, etc.

3. What measure of competence should be satisfied by a business choosing to build some form of distribution infrastructure?

What needs to be demonstrated will depend on where the infrastructure is located and the size and complexity of the infrastructure. There are essentially two scenarios -

1.  those wishing to build infrastructure in the public domain which requires rights of access and where competence is largely technical in nature and driven by the need for public safety, in which the objective should be to establish that the business has adequate financial and technical capability.

2.  those wishing to build infrastructure on private property where technical requirements are tightly bound by established standards and code requirements.

4.  What impact will arise from the imposition of regulatory obligations on small scale network operators?

The proposed changes relate to electricity only. However from a gas perspective Envestra strongly believes the approach adopted must be compatible with the exemption framework adopted by the AER for Retail Exemptions under the NECF. A framework incorporating 'deemed' and 'registrable' distribution authorisations and exemptions should be adopted and conditions developed for each subclass within these. This approach will minimise the confusion generated by ENOs having to deal with disparate retail and distribution frameworks.

The issues pertaining to large scale distributors (Le. 5-6 gas and electricity distributors) can largely be separated from those of small scale network operators, generators etc. Licences and licence exemptions should be adopted for large scale distribution (Le. infrastructure in the public domain), and distribution authorisations and exemptions should be adopted for the smaller embedded network operators whose infrastructure is wholly located on private land. Where an embedded network operator's assets extend into the public domain, then a distribution licence exemption should be required.

5.  Is there any reason why Victorian-specific cross-ownership restrictions are required in the energy sector after commencement of the final national frameworks?

Envestra can see no reason why restrictions should apply.

6.  How might businesses that must exercise these statutory powers be identified in the absence of holding a licence.

For large-scale distributors, holding a licence seems the best way of exercising these powers. This would minimise the amount of unravelling and new arrangements required. Any efforts to eradicate licences would be significantly risky as there is the chance that a statutory power is left out or not adequately covered. Furthermore alternative approaches appear to have no material benefits over the current licensing framework.

On the other hand, works undertaken by small-scale network operators wholly located on private land do not require statutory powers. In these situations an alternative framework mirroring the AERs Retail Exemptions under the NECF should be adopted.

7.  In what circumstances might a network business be required to cease operating?

A network business may be required to cease operating when it is found to be continually and materially failing in its duties. We are not aware of such instances in Australia, and while we believe that situation unlikely to occur, a licencing regime would be an effective mechanism for dealing with such a situation.

8.  What alternatives are there to appointment of administrators to businesses that are required to exit the energy sector?

Energy distribution companies are critical to the State economy and for the welfare of its people, so unlike most other businesses, continued operation is essential. Where a distribution company ceases to be able to operate the alternatives are:

1.  transition to operation by another existing distribution business

2.  the State (with the aid of Energy Safe Victoria) assuming responsibility until such time as a buyer for the business is found.

9.  What is the appropriate basis for funding the cost of regulation if the licence regime is ended or substantially modified to accommodate the national framework.

With no licencing regime, the cost of regulation could be funded by a fee set by regulation.

10. Are there any issues regarding NSW and SA distributors who supply customers in Victoria

Envestra owns the Mildura gas network. Consumers in Mildura are supplied gas from South Australia, however Envestra holds a separate Victorian licence for that network. Consequently regulatory compliance costs per consumer are significantly higher than for consumers in the larger networks. Opportunities exist however to lower costs by facilitating "cross-vesting" arrangements. Since our Mildura network is operated under South Australian management using South Australian processes, we propose that for NECF purposes Mildura be covered under SA arrangements.

11. Are there any issues regarding Victorian distributors who supply customers in SA and NSW?

Envestra's customers in southern NSW (on the Albury Gas Company (AGC) network) are supplied gas from Envestra's Victorian Network, however a separate reticulation licence is currently required from IPART for the network supplying these customers. Consequently regulatory compliance costs per consumer are significantly higher than for consumers in the larger networks. Opportunities exist to lower costs by facilitating further cross-vesting arrangements. Since our AGC network is operated under Victorian management using Victorian processes, and the Albury network Access Arrangement was previously cross-vested to Victoria, we propose that for NECF purposes the AGC network be covered under Victorian arrangements.

6.  DETERMINING THE POLICY RESPONSE

6.1. What are the Alternatives?

Envestra supports Option 2:

Continue licensing - continue the existing Licensing arrangements for the largescale distribution businesses. However a modified framework mirroring the AER's Retail Exemptions framework under the NECF comprising 'deemed" and 'registrable' exemptions could be developed for the smaller-scale operators.

14. Do any implications arise from a shift from Regulatory to statutory requirements?

As mentioned earlier, there would be costs in establishing the new regime and risks that issues might be overlooked or not adequately covered. As the ongoing administrative effort required for the alternative statutory regime would be the same as for the existing licence regime, ie minimal, there appears to be little benefit to consumers to be gained when considering the complex and costly exercise of amending all instruments and regulations impacted by the change.

15.   Do any implications arise from the absence or replacement of a licensing regime?

As mentioned above there are significant public safety issues if there were no barrier to entry for large-scale energy distribution. The existing licensing regime addresses this key issue and allows operators to access the public utility powers required to undertake such works. There may also be commercial implications for Envestra, in that various financial instruments supporting Envestra's operation rely on Envestra's ability to operate under a "licence".

16.   Are there relevant considerations for Government regarding the body that grants and revokes an energy authorisation? (for e.g. the ESC, the AER, the Minister for Energy or the Governor-in-Council)

Envestra proposes that licences and associated licence exemptions should be administered by the one body. Currently for gas in Victoria, the ESC administers distribution licences and DPI administers licence exemptions. As a minimum, the large-scale distribution licences and licence exemptions should be administered by one body and, if required, distribution authorisations and authorisation exemptions for small-scale operators could be administered by another body.

17.   Can national concepts of authorisation and registration under NEL, NGL and NERL be relied upon to underpin Victorian statutory obligations and powers, or should nomination, registration and/or authorisation be performed under a Victorian scheme?

Processes and the final regime(s) developed should be permitted to differ for electricity distribution as opposed to gas distribution, large-scale as opposed to small-scale, etc. The overall aim should be for a nationally consistent regime to the maximum extent possible. Accordingly we do not support the development of statebased regimes or approaches that hinder the transition to a nationally consistent framework.

18.   On what basis might a person be granted (or refused) such an authorisation?

Envestra has no comment on this issue.