May 2011

Introduction

SP AusNet welcomes the opportunity to comment on the DPI's Issues Paper on the Victorian Licensing Arrangements. SP AusNet is broadly supportive of the abolition of the licensing regime for its electricity and gas networks. It is evident from the DPI's Issues Paper that the Victorian licensing regime is now out-of-step with the national regime and the legal framework that has been adopted. SP AusNet supports a move to statute for all Victorian-specific issues subject to two significant caveats on timing and balance sheet impacts. Where regulation has been transferred to national frameworks, the Victorian regime should not duplicate regulatory coverage.

In this submission, SP AusNet has identified a number of important issues that will need to be managed carefully if the DPI proceeds with its intended abolition of the Victorian licensing regime. SP AusNet would therefore welcome on-going dialogue with the DPI as it develops its thinking in light of submissions received.

1.1 Future of Distribution Licensing Arrangements

SP AusNet's preliminary view is that it should be possible to transfer all regulatory oversight, obligations, powers and property rights to state and national statutes. However, important existing arrangements must be retained in some form. In particular:

  • SP AusNet considers that existing property rights granted under the licence should be maintained in statute; and
  • The DNSP planning responsibilities should be covered in the Electricity Industry Act (EIA).

Specific questions are addressed below.1. What should the basis of any limitation on entry to the distribution sector be?

SP AusNet considers that existing property rights granted under the licence should be maintained in statute. In particular, the exclusive franchise areas defined under schedule 2 of the electricity and gas distribution licences should be maintained in statute if the licence is revoked.

In addition, SP AusNet concurs with the DPI's observation limiting entry protects customers' interests by ensuring that only competent entities can generate, distribute, transmit or sell energy, and to ensure that planning outcomes are efficient. SP AusNet considers that it is appropriate to maintain this protection albeit through statute rather than a licensing regime.2. What kinds of network infrastructure should be exempted from such a limitation?

Small scale operators in Victoria will need a framework in which to conduct their business. SP AusNet's preference is that any such framework or regulatory requirements be developed in the national regime.3. What measure of competence should be satisfied by a business choosing to build some form of distribution infrastructure?

As noted above, it should be assumed that the incumbent distributors and their successor organisations are competent to run such infrastructure and this should be recognised as part of a statutory authorisation of the incumbents.

With regard to small scale operators, it is helpful to have regard to the ESC's existing procedures for applications for electricity license in which the ESC requires the applicant to demonstrate that it has the necessary technical capacity, is financially viable and has access to sufficient financial resources. It may also be appropriate to have regard to the specific conditions that apply to the existing general exemptions order. SP AusNet notes that it may be appropriate to establish transitional or savings provisions to enable parties that are currently exempt from the requirement to hold a licence to continue to benefit from that exemption. SP AusNet recognises that these are detailed matters that the DPI will be well-placed to address.

SP AusNet also refers the DPI to its submission (attached) to the recent ESC consultation on its Draft Statement of intent to cease issuing certificates of opinion on exempt electrical activities. The submission highlights many of the current issues and problems with respect to small scale operators.4. What impact will arise from the imposition of regulatory obligations on small scale network operators?

As highlighted in the ESC review of small scale licensing, an effective regime should enhance the regulatory oversight of a growing sector of the energy industry. National arrangements regulated by the AER would ensure consistent and low cost arrangements.

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

SP AusNet concurs with the DPI's 2005 discussion paper on the need for the cross-ownership, which concluded that these provisions should be removed in favour of generic reliance on the provisions of the Trade Practices Act 1974, now the Competition and Consumer Act 1974 (CCA). SP AusNet's view is that cross-ownership is appropriately regulated nationally by the ACCC under the CCA. Considerations that underpinned the original cross-ownership restrictions are either no longer applicable (for example distribution/retail tie ups) or can already be considered under the CCA. Therefore, the state cross-ownership regime should be abolished as a simple prohibition cannot adapt to market circumstances.

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

SP AusNet considers a form of authorisation under statute is the appropriate method to identify businesses for the purpose of exercising statutory powers including under Part 5 and section 46 of the EIA and Part 7 of the GIA.

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

As an essential service it is appropriate that Governments retain certain 'step in' powers. However, the circumstances and processes of any such actions should be clearly set out in statute.

The DPI position that these 'step in' powers are developed on a consistent national basis is endorsed. Therefore, SP AusNet considers that any such powers should be based in national rather than state statute (for example, the NEL).

  1. What alternatives are there to appointment of administrators to businesses that are required to exit the energy sector?
  2. What is the appropriate basis for funding the cost of regulation if the licensing regime is ended or substantially modified to accommodate the national framework?

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

No comment.

In the absence of any substantive role continuing for the ESC in regulating energy in Victoria it is not necessary that the current licence fee needs to be replaced by an alternative funding method. As noted by the DPI's Issues Paper, the AEMA agreement sets out the funding arrangements for national regulation.

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

In the absence of any substantive role continuing for the ESC in regulating energy in Victoria it is not necessary that the current licence fee needs to be replaced by an alternative funding method. As noted by the DPI's Issues Paper, the AEMA agreement sets out the funding arrangements for national regulation.

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

SP AusNet considers the effect of existing arrangements such as exemptions should be maintained in any shift from licensing to statutory authorisation.

If assets are transferred from a NSW DNSP to a Victorian DNSP (thereby imposing new functions and obligations with respect to those assets) this should be considered a regulatory change event for the purposes of National Electricity Rule 6.6.1.

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

There are no identified issues.

Future of Electricity Generation Licensing Arrangements

12. Is there a need to further limit entry to the generation sector (in addition to AEMO's registration role?)

13. Should the small scale generation sector be subject to specific regulatory oversight? If so, should this be through Victorian or national regulatory instruments?

SP AusNet does not consider state based regulatory oversight of the generation sector is required if the national arrangements to be administered by AEMO and the AER (in the case of small scale generation) are developed appropriately.

The current AEMC reviews and NECF implementation, referenced in the Issues Paper, are the appropriate forums to address this process.

Future of Transmission Licensing Arrangements

SP AusNet agrees that there are no substantial regulatory functions now performed by the licensing regime and there does not appear to be any ongoing need for licensing of transmission operators. Redundant State-based instruments that cover transmission such as the system code should be removed with the licensing regime.

Therefore, subject to transitional issues outlined below SP AusNet would support the removal of the licensing regime and associated redundant

As for distribution, statutory powers associated with the operation of a transmission business under Part 5 and section 46 of the EIA should be accessed via statutory authorisation.

1.2 Determining the Policy Response

What are the alternatives?

SP AusNet supports a move to statute for all Victorian-specific issues. Where regulation has been transferred to national frameworks, the Victorian regime should not seek to duplicate regulatory coverage.

14. Do any implications arise from shifts from regulatory to statutory requirements?

It appears that most regulatory requirements have been or are being transitioned to the national regime. Any replication of national regulatory arrangements at the state level simply results in unnecessary cost to businesses and government, which is ultimately borne by customers and tax payers. The residual Victorian-specific issues (largely property rights, specific works powers or safety obligations), can be appropriately covered by statute.

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

Commercial – in – Confidence

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

SP AusNet considers that all relevant regulatory functions be covered by the national regulator. In so much as state statutory functions need to be exercised these should be by the AER with respect to economic matters and the ESV with respect to safety matters under the direction of the Minister for Energy where appropriate. SP AusNet does not believe any regulatory or statutory functions need remain with the ESC.

17. Can national concepts of authorisation and registration under the 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?

SP AusNet considers some form of statutory authorisation is required in the absence of a licensing regime.

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

No comment.

What is the efficient way forward?

With regards to the implementation scenarios advanced in the Issues Paper, option 4 is supported, which proposes that national framework is supplemented with Victorian-specific regulations.

19. Are there material costs from the duplication of an authorisation function in the Victorian and national frameworks?

The state authorisation function should only cover matters not covered in the national regime. As such, there should not be any duplication and associated costs.

20. What Victorian regulatory arrangements – that are not covered by the future national frameworks – require substantial regulatory oversight?

Outside of safety, SP AusNet does not consider that there are substantive arrangements that are not covered by future national frameworks.

21. What is the most appropriate and effective enforcement regime for Victoria-specific regulatory arrangements?

SP AusNet does not consider that there are substantive arrangements that are not covered by future national frameworks.

22. When and where should customers have the right to take enforcement action?

No comment.

23. Which body is best placed to oversee Victoria-specific regulatory arrangements?

Given its experience and skill set, the AER is best placed, to oversee Victoria-specific regulatory arrangements.

24. Should Victoria reform small scale licensing activities in concert with the implementation of the NECF?

SP AusNet hopes that the national reform process will address all substantive issues with regards to small scale distribution and generation activities through AER oversight. Only in absence of national arrangements in this area should Victorian specific reform become necessary.

1.3 Transitional arrangements

25. What impacts arise from abolishing licences if licensing arrangements are to be reformed?

These have been covered above.

26. Are there any other transitional issues that DPI should be aware of?

Other than those covered previously, SP AusNet is not aware of any such issues.