Approach to Implementation

Contents

Glossary

Executive Summary

The National Energy Customer Framework
Victorian Government Approach
The Legislative Framework
Victoria-specific regulation
Dispute resolution
Transitional matters

Introduction

The National Energy Customer Framework
Consultation
Victorian Government Approach and Priorities

The Legislative Framework

Application of legislation
Licensing framework
Subordinate instruments
Victoria-specific regulation under the NECF
Ongoing functions of the EIA & GIA
Cross-ownership restrictions
Cross-border supply situations

Regulatory Obligations

Basis for determining Victoria-specific obligations
Advanced metering customer service requirements
Statutory requirements
Proposed Victorian Energy Rules

Dispute Resolution

Institutional arrangements for the Energy and Water Ombudsman (Victoria)
Role and jurisdiction of the Energy and Water Ombudsman (Victoria)

Transitional Arrangements

Transition of customer contracts
Rollover of electricity distribution pricing determinations and gas access arrangements
Retailer of Last Resort Scheme
Licensing and exemptions

Glossary

ACCC

Australian Competition and Consumer Commission

ACL

Australian Consumer Law

AEMA

Australian Energy Market Agreement

AEMC

Australian Energy Market Commission

AEMO

Australian Energy Market Operator

AER

Australian Energy Regulator

AMI

Advanced Metering Infrastructure

CCA

Competition and Consumer Act 2010

COAG

Council of Australian Governments

DH

Department of Health

DHS

Department of Human Services

DNSP

Distribution Network Service Provider

DPI

Department of Primary Industries

EDPR

Electricity Distribution Price Review

EIA

Electricity Industry Act 2000

ESC

Essential Services Commission (Victoria)

EWOV

Energy and Water Ombudsman of Victoria

FIT

Feed-in Tariff

GIA

Gas Industry Act 2001

GSL

Guaranteed Service Level

JIG

Joint Implementation Group

LAR

Local Area Retailer

MCE

Ministerial Council on Energy

MRC

Market Retail Contract

NECF

National Energy Customer Framework

NEL

National Electricity Law

NEM

National Electricity Market

NER

National Electricity Rules

NERL

National Energy Retail Law

NERR

National Energy Retail Rules

NEVA

National Electricity (Victoria) Act 2005

NGL

National Gas Law

NGR

National Gas Rules

NGVA

National Gas (Victoria) Act 2008

RoLR

Retailer of Last Resort

SCO

Standing Committee of Officials

SCER

Standing Council on Energy and Resources

SRC

Standard Retail Contract

Executive Summary

Victoria's legislative framework for regulating the energy retail sector will soon change to adopt the National Energy Customer Framework (NECF). The Department of Primary Industries (DPI) is working to ensure that the changeover is smooth and that Victorian energy customers benefit from the NECF.

The National Energy Customer Framework

The NECF consists of a new National Energy Retail Law to be applied in Victoria to replace significant parts of the current State energy laws, and Rules which will be made by the Australian Energy Market Commission.

The NECF involves the transfer of current state and territory responsibilities to a new national regulatory regime governing the sale and supply of energy to retail customers, including new connections to distribution networks. Implementation of the NECF is expected to provide efficiencies and reduce the regulatory burden for energy businesses that operate across various jurisdictions that are part of the national energy markets.

Victorian Government Approach

Victoria's approach to the NECF is to secure the most efficient and effective regulatory regime for the energy sector in Victoria, which leverages the benefits of a coordinated national framework, and ensures Victorian energy customers benefit in the transition.

To this end, the implementation legislation will apply the National Energy Retail Law (NERL) as a law of Victoria, and repeal redundant provisions of Victorian energy laws. It will also establish or modify enduring Victoria-specific regulatory arrangements to work harmoniously with the national frameworks, clarify existing arrangements, and put in place transitional arrangements as needed.

DPI has undertaken a detailed review of the proposed NECF against the existing Victorian legislation and regulations, to identify any material gaps and differences between the frameworks. The results of this review were presented for stakeholder input in DPI's discussion paper released in July 2011. The Government's position is outlined in this paper.

The Legislative Framework

The move to the NECF entails a restructuring of the legislative framework for energy. This must both apply the new national law and modify the existing laws to work harmoniously with the national frameworks.

The National Energy Retail Law (NERL) will be a Victorian law. The NERL, like the existing NEL and NGL, is a uniform law enacted by South Australia. It will be applied in Victoria by an application Act, expected to be entitled the National Energy Retail Law (Victoria) Act 2012 (NERLVA). Conse-quential changes to other acts, including the Electricity In-dustry Act 2000 (EIA), Gas Industry Act 2001 (GIA), Electric-ity Safety Act 1998, Gas Safety Act 1997 and Essential Ser-vices Commission Act 2001 will be made to support this.

Licensing framework

Generation, transmission and distribution licensing will continue with the introduction of the NECF in 2012. Substantial regulatory requirements which are currently enforced through the licensing regime will, however, be translated wherever possible into relevant statutory frameworks to ensure robust regulatory oversight.

Subordinate instruments

The energy laws, both in Victoria and in the context of the national energy laws, have typically required the making of a number of subordinate instruments to avoid the principal legislation being inflexible and un-wieldy. The NECF itself utilises statutory Rules (the NERR) and national regulations. The NECF also permits or requires the making of a number of "local instruments" to fulfil jurisdictional specific requirements. There will be continuing Victoria-specific regulation as well.

Victoria will be:

  • Applying the customer definitions and thresholds set out in the national regulations.
  • Specifying Local Area Retailers
  • Specifying energy efficiency assistance options for hardship customers
  • Not adopting the prepayment meter regime
  • Opting in to the AER price comparator regime
  • Defining small claims for voltage variation damage
  • Defining 'extreme weather events' for the purposes of the NECF

Victoria-specific regulation

The NECF must be implemented in the context of a highly developed, fully privatised and highly competitive retail market in Victoria. Not all Victorian-specific regulatory arrangements are replicated in the NECF. Where Victorian circumstances warrant, there will be additional regulation to ensure that the interests of Victorians are not compromised.

DPI released a discussion paper in July 2011 which set out regulation which, when compared against the national frameworks:

  • was not included in the NECF and the omission was considered significant, or
  • where the national approach resulted in service standards which are substantively less than those currently enjoyed by Victorian consumers.

Following consideration of public submissions, it is for these matters that the Government has decided to step in to impose regulatory requirements in addition to or different from those set out in the national frameworks:

Advanced metering customer service requirements

There are a number of requirements which were put in place by the ESC in early 2011 to support the operation of advanced metering infrastructure in Victoria, covering remote connection/disconnection, billing information, metering standards and data handling & privacy. These provisions are proposed to be incorporated in the AMI provisions of the Electricity Industry Act 2000.

Statutory requirements

Important Victorian statutory obligations will remain including:

  • The Victorian wrongful disconnection payment scheme
  • A prohibition on the application of late payment fees.
  • Requirements to deliver community service concessions

Regulatory requirements

Regulatory arrangements to be retained include:

Contracting distribution and retail customers

  • Standing offers are to be subject only to fees explicitly contemplated by the NERR
  • A formula for calculation of bulk hot water billing
  • Prohibition on applying credit card fees to existing customers on standing offers

Electricity and gas metering

  • Customer access to consumption data
  • Confidentiality of metering data
  • Metering of embedded networks

Connecting, disconnecting and reconnecting customers

  • Service standards for connection and reconnection,
  • Timeframes for carrying out the functions, and
  • Obligations on distributors when they intend to implement their powers to disconnect customers directly.
  • Customer right of reconnection when eligible for a utility relief grant
  • Guaranteed service level payments

Security, reliability and quality of electricity supply

  • Provisions for the notification of the Department of Human Services regarding widespread power outages where required.
  • Requirements for distributors to participate in co-ordinated efforts during widespread power outages.
  • Distributors should publish information on power interruptions available via their websites in addition to a telephone fault line, as required by the NECF.

Planned interruption to the delivery of gas supply

  • 10-day notification period for planned gas interruptions

Public lighting and undergrounding

  • Regulation of public lighting and undergrounding services

Technical and system operation rules

To the extent necessary, technical requirements will also be retained through Victoria specific regulation to ensure their continued currency. This will be determined through targeted consultation by DPI as the implementation process progresses.

Dispute resolution

The continuation of an accessible and effective dispute resolution body is vital to ensure that customer rights are maintained with the transition to the NECF.

The National Energy Retail Regulations (NERR) prescribes The Energy and Water Ombudsman of Victoria (EWOV) as the energy ombudsman scheme for Victoria. Amendments are to be made to the EIA and GIA to ensure that the approved scheme continues to operate for retail pur-poses under these laws, in addition to the NERL.

DPI will further develop options to ensure that customers taking supply from exempt entities are able to access the dispute resolution services of EWOV.

Transitional matters

Victoria intends to facilitate a smooth transition to the NECF from existing frameworks. Wherever necessary, transitional arrangements will be put in place to ensure that important contractual relationships and customer rights are not disrupted by the shift in regulatory arrangements.

Transitional arrangements are anticipated to be necessary in at least the following areas:

  • Transition of customer contracts from Victorian regulated forms of contract to NECF regulated contracts
  • Management of economic regulatory settings in the current electricity and gas regulatory periods
  • Appointment of default retailers of last resort
  • Transition from Victorian retail licenses and exemptions to national retail authorisations and exemptions

Introduction

This paper sets out the approach to implementation of the National Energy Customer Framework (NECF) which will be adopted by the Victorian Government in legislation to be tabled in Parliament in 2012. The purpose of the paper is to inform the energy supply industry and community on this approach so as to be fully prepared for the legislative changes which will result.

The National Energy Customer Framework

In 2006, the Council of Australian Governments (COAG) agreed to develop a new national framework governing the sale and supply of energy (electricity and natural gas) to retail customers. The COAG tasked the Ministerial Council on Energy (MCE)1 with responsibility for developing and implementing the National Energy Customer Framework (NECF).

The NECF involves the transfer of current State and Territory responsibilities to a new national regulatory regime governing the sale and supply of energy to retail customers, including new connections to distribution networks. Implementation of the NECF is expected to provide efficiencies and reduce the regulatory burden for energy businesses that operate across various jurisdictions that are part of the national energy markets.

The NECF legislative package was endorsed by the MCE in October 2010. The legislative package was introduced to the South Australian (SA) Parliament, as lead legislature, on 27 October 2010 and was passed on 9 March 2011. Royal Assent was received on 17 March 2011. Copies of the final National Energy Retail Law (NERL) and associated amendments to the National Electricity Law (NEL), National Gas Law (NGL) and Australian Energy Market Commission Establishment Act 2005 (SA) are available on the SA legislation website www.legislation.sa.gov.au.

Consultation

NECF Consultation

The NECF has now been the subject of a substantial number of consultation exercises conducted by the MCE's Retail Policy Working Group (RPWG), including:

  • Five reports by Allens Arthur Robinson (AAR) in 2006/07 proposing the outline of the framework;
  • A SCO policy response to the AAR reports in 2008;
  • A report by NERA & AAR in September 2008 on the Retailer of Last Resort (RoLR) framework;
  • A Consultation Regulation Impact Statement (RIS) in October 2008 (followed by a Decision RIS in July 2009);
  • The first and second exposure drafts of the NECF, released in April 2009 and November 2009; and
  • Separate consultation processes carried out for the development of the national connections frameworks and energy bill benchmarking from 2007 – 2009.

The NECF has received intensive and detailed scrutiny at every stage from stakeholders from retail, distribution, customer and regulatory organisations, and this has assisted in making the NECF a robust framework for the future.

DPI Consultation

DPI has also consulted extensively on Victoria's approach to implementation of the NECF, which will require substantial amendments to Victorian energy laws and some significant areas of jurisdiction-specific regulation alongside the national frameworks.

DPI has published four discussion papers on various aspects of the transition. These were:

  • The distribution, transmission and generation licensing framework (April 2011)
  • Transition of energy customer contracts (April 2011)
  • Victoria-specific regulation (July 2011)
  • Extension of the Energy and Water Ombudsman (Victoria)'s role to exempt entities (July 2011)

These discussion papers are published on DPI's website.

Stakeholder submissions were sought and were considered in arriving at the decisions outlined in this paper.

Victorian Government Approach and Priorities

Victoria's approach to the NECF is to secure the most efficient and effective regulatory regime for the energy sector in Victoria, which leverages the benefits of a coordinated national framework, and ensures Victorian energy customers benefit in the transition.

To this end, the implementation legislation will apply the National Energy Retail Law (NERL) as a law of Victoria, and repeal redundant provisions of Victorian energy laws. It will also establish or modify enduring Victoria-specific regulatory arrangements to work harmoniously with the national frameworks, clarify existing arrangements, and put in place transitional arrangements as needed.

Victoria supports the national framework for energy retail and distribution. It is committed to:

  • Supporting the objectives of the NECF to facilitate consistency and efficiencies for consumers and industry across jurisdictions.
  • Ensuring that there is a smooth transition for consumers and the industry.
  • Ensuring that the technical integrity of the distribution networks is retained.

Although the NECF 'completes' the national frameworks by establishing regulation of retail and distribution services to customers at the national level, it does not necessarily mean that there are no areas where State energy legislation is required. This will be necessary in a number of areas:

  • Those matters, such as ombudsman schemes and safety & technical regulation, which are specified by Australian Energy Market Agreement (AEMA) Annexure 2 as being retained by the States and Territories.
  • Those matters where the NECF specifies the making of a local instrument to determine some aspect of the scheme (e.g. energy efficiency programs for customers in hardship).
  • Those matters which may only be administered by a State body for constitutional reasons, such as access to land.
  • Matters of particular jurisdictional significance in facilitating a smooth transition to the national frameworks, and ensuring customers are not materially disadvantaged by the move to the national framework.

As a matter of principle it would be unacceptable for Victorian consumers to be materially disadvantaged by the move to the national framework. Against this background, the DPI has undertaken a detailed review of the proposed NECF against the existing Victorian legislation and regulations, to identify any material gaps and differences between the frameworks. The results of this review were presented for stakeholder input in DPI's discussion paper released in July 2011. The Government's position is outlined in this paper.

The Legislative Framework

The move to the NECF entails a restructuring of the legislative framework for energy. This must both apply the new national law and modify the existing laws to work harmoniously with the national frameworks.

Application of legislation

The National Energy Retail Law (NERL) will be a Victorian law. The NERL, like the existing NEL and NGL, is a uniform law enacted by South Australia. It will be applied in Victoria by an application Act, expected to be entitled the National Energy Retail Law (Victoria) Act 2012 (NERLVA). Consequential changes to other acts, including the Electricity Industry Act 2000 (EIA), Gas Industry Act 2001 (GIA), Electricity Safety Act 1998, Gas Safety Act 1997 and Essential Services Commission Act 2001 will be made to support this.

Licensing framework

The NECF introduces a retailer authorisation scheme to replace the current retail licensing regime overseen by the ESC. In response to the changes to retail licensing and the handover of retail regulatory responsibility from the ESC to the AER, DPI released an issues paper in April 2011 addressing the future of Victorian transmission, generation and distribution licensing.

The argument advanced by that paper was that the licensing framework itself was of decreasing utility in energy regulation, as regulatory powers were increasingly residing in statutory schemes both at the national and state level. Nevertheless, some important remaining functions were identified, particularly in identifying those businesses which were to be subject to business-specific statutory requirements (and entitled to the use of energy-specific powers e.g. to access land and perform works) under various State Acts.

Some submissions from licensed businesses to DPI's paper were supportive of the continuation of licensing. Furthermore, removing licensing faces some practical hurdles and may require replacement with some form of statutory authorisation or nomination, with a similar degree of administrative overhead. Therefore generation, transmission and distribution licensing will continue with the introduction of the NECF in 2012.Substantial regulatory requirements which are currently enforced through the licensing regime will, however, be translated wherever possible into relevant statutory frameworks to ensure robust regulatory oversight.

Small scale licensing

DPI's discussion paper on the licensing regime also queried whether a system of 'small scale licences' should be put in place to govern the operation of the small scale energy sector, including embedded networks and cogeneration installations.

The ESC performed a review2 of small scale licensing arrangements in 2006 arguing that such a scheme be instituted.

Following submissions, the Government considers that the NECF retail exemption framework through the AER's proposed retail exemption guidelines3 will provide a heightened level of regulatory certainty and scrutiny of areas of concern surrounding on-selling of energy and supply of energy through embedded networks. A key recommendation of the ESC was the extension of effective dispute resolution in this area, and this will be further developed by DPI to support the AER's role.

Noting the above, some exemptions (including class exemptions) from distribution, transmission and generation licensing will continue to be granted through Orders in Council under ss. 17 and 24 of the EIA and GIA respectively.

Nevertheless, it is of concern that there is a high degree of regulatory fragmentation in the area of licensing, authorisation and exemptions, with responsibilities now to lie with:

  • The AER, for retail authorisation, retail authorisation exemptions and network service provider registration exemptions.
  • The ESC for distribution, transmission and generation licensing.
  • AEMO for market registration and determining generation exemptions from registration.
  • The Governor-in-Council for distribution, transmission and generation licensing exemptions.

DPI will investigate appropriate ways of rationalising this structure in future. Preferably, this would go hand in hand with the evolution of the national frameworks, noting the need for the regulatory frameworks to keep up with the increasing range of technologies and options on offer in the 'small scale' sector.

Subordinate instruments

The energy laws, both in Victoria and in the context of the national energy laws, have typically required the making of a number of subordinate instruments to avoid the principal legislation being inflexible and unwieldy. The NECF itself utilises statutory Rules (the NERR) and national regulations. The NECF also permits or requires the making of a number of "local instruments" to fulfil jurisdictional specific requirements. There will be continuing Victoria-specific regulation as well.

Local instruments under the NECF

The following 'local instruments' are authorised or required to be made under the NECF in order to fill out jurisdictionally varied aspects of the framework. Victoria's approach to these instruments is outlined below.

Customer consumption thresholds

Victoria's current customer classification thresholds will be replaced by the customer consumption thresholds outlined in sections 5 and 6 of the NERL and regulations 7 and 8 of the National Energy Retail Regulations.

The new thresholds will introduce a new classification to Victoria - small market offer customers. Small market offer customers will be business customers who use between 40 - 100MWh/a of electricity and 400-1000GJ of gas.

Local area retailers

Local area retailers in Victoria will be responsible for making standing offers of supply to new customers in a given geographic area. These geographic areas, in electricity, will continue to be the zones formerly allocated to the franchise retailers at the time of privatisation. In gas, these will be the current declared host retailers for relevant distribution systems within the declared wholesale gas market; or – for those distribution pipelines which are not incorporated with the wholesale gas market – the retailers with dominant market share on those systems.

Minimum requirements for customer hardship policy

The level of energy consumption of a household can significantly affect the affordability of energy for a household under financial stress. The current Victorian customer hardship regime under the EIA and GIA requires retailers as part of their financial hardship policies to offer hardship customers:

  • free or subsidised home energy consumption audits; and
  • flexible options for the purchase or supply of energy efficient appliances.

The NECF does not impose energy efficiency programs directly on retailers. It does, however require retailers to include in their policies any assistance that is required by jurisdictional regulation as per section 44(g) of the NERL. Therefore Victoria will continue the existing requirements on retailers mentioned above under this local instrument provision.

Use of prepayment meter systems only in jurisdictions where permitted

The use of prepayment meter systems will continue to be prohibited in Victoria.

Price comparator and AER information gathering powers for pricing guidelines and comparator

Giving the community access to free, unbiased and accurate information on available market offers for electricity and gas is important to maintain effective competition in the energy retail market and to control cost of living pressures.

Section 62 of the NERL requires the AER to create a price comparator website so that customers can compare standing offer and market offer prices. The AER is currently consulting on the development of the site which is expected to be operational by 1 July 2012.

Victoria intends to opt in to the AER's price comparator website through a local instrument. However, the ESC's Your Choice website4, which provides a pricing disclosure and comparison function to the community at present, may need to continue to operate for a period of time if functionality related to new flexible tariff types that are particular to Victoria are not able to be accommodated by the AER's service. Therefore, transitional provisions will be included to allow for this.

The definitions of claimable incidents and compensable matters

Part 7 of the NERL sets out a national small compensation claims regime which will replace the current Victorian voltage variation regime outlined in the ESC's Guideline 11. The ESC's guideline provides for customers to reclaim the replacement value of equipment damaged by voltage variations (spikes).

The NECF allows the parameters of the small compensation claims regime to either be set by the AER or by a local jurisdictional instrument. In Victoria, the small compensation claims regime will be set out in a Victorian local instrument, which will be drafted in order to create alignment with the current regime in Guideline 11.

A claimable instrument and compensable matter under sections 178 and 179 of the NERL will be defined in line with the current definitions under Guideline 11.5

Extreme weather events

The impact of heatwaves on human health is real and life-threatening. In order to minimise the impact on customers during heatwaves, a Victorian local instrument will define an extreme weather event for the purposes of rules 108, 116(1)(i) and 120(d) of the NERR which preclude disconnection for non-payment of bills during extreme weather events.

An objective 'trigger' for this obligation needs to be defined so that businesses are aware of when they have this responsibility, and to ensure that this protection only operates where it is necessary for health.

The Department of Health's (DH) Heat Health Alert system has been developed based on robust research with the aim of preventing heat-related illness and death. Alerts are issued by the DH when a heat health temperature threshold is reached in a specific weather forecast district.6

Therefore retailers and distribution businesses will be prohibited from disconnecting customers for non-payment of energy bills in Bureau of Meteorology weather districts where a Heat Health Alert has been issued by DH.

AER administration and review of electricity consumption benchmarks

The NECF contains a scheme to facilitate the inclusion of consumption benchmarks on customer bills to assist customers achieve energy efficiency improvements.

Victoria has opted to make electricity benchmark data in Victoria based on Victoria as a single climate zone within the national bill benchmarking scheme

Victoria-specific regulation under the NECF

  • As DPI's discussion paper on Victoria-specific regulation explained, a number of circumstances in Victoria are considered to warrant the inclusion of additional regulatory requirements to supplement the NECF and to ensure it can operate effectively in Victoria.
  • These will be included through the implementation legislation as "Victorian Energy Rules". The content of these rules is discussed in the next section "Regulatory Obligations".

Ongoing functions of the EIA & GIA

The principal legislative instruments governing the energy supply industry in Victoria historically have been the EIA and GIA. These Acts contain provisions concerning State prerogatives under the AEMA, including land access and emergency management, and will continue to be the governing framework in these areas.

In broad terms, after amendment, the EIA will consist of:

  • Part 1 - Preliminary
  • Part 2 - Regulation of Electricity Industry; the following divisions:
    • Division 2 – Price regulation. This provides for a 'reserve' retail pricing power should a review of the Victorian retail market show that competition is not effective.
    • Division 2A – Special pricing regime for the development of clean energy.
    • Divisions 3 & 4 – Licences. These provisions will however cease to apply to retailers.
    • Division 5A – the Feed-in Tariff regimes.
    • Division 6A – Advanced metering infrastructure.
  • Part 4 - Protection of Critical Electricity Infrastructure
  • Part 5 - Powers of Electricity Corporations
  • Part 6 - Electricity Supply Emergency Provisions
  • Part 7 - General

Similarly, the GIA will consist of:

  • Part 1 - Preliminary
  • Part 2 - Application of Act
  • Part 3 - Regulation of Gas Industry: Divisions 1, 2 and 3 regarding price regulation reserve powers and licensing.
  • Part 7 - Gas Company Property and Works
  • Part 9 - Gas Supply Emergency Provisions
  • Part 10 - General
  • Part 11 - Abolition of VENCorp

Cross-ownership restrictions

The EIA and GIA contain "cross-ownership" regimes which are designed to prevent vertical integration between owners of generation, transmission and distribution infrastructure.

The current cross-ownership provisions are complex and do not override or substantially depart from the broader Competition and Consumer Act 2010 merger and competition regime. The provisions' only substantive effect in 2011 is to preclude parties from challenging the Australian Competition and Consumer Commission (ACCC)'s views on the merits of a particular merger, which is inappropriate.

DPI's issues paper on Victorian licensing arrangements sought feedback from stakeholders regarding any issues with the abolition of the Victorian cross-ownership provisions. Submissions did not identify any issues and noted that the provisions in the EIA and GIA were not required in light of the Competition and Consumer Act 2010. As a result, the cross-ownership provisions contained in Part 3 of the EIA and Part 6 of the EIA will be repealed, effective at NECF commencement.

Cross-border supply situations

It will be important to ensure that where distribution systems cross state borders distribution and retail activities are duly authorised and the regulatory requirements made clear. Generally, the approach taken by State governments has been that the state borders should not be a barrier to efficient supply arrangements, and so the regulatory regime from the 'home' of the distribution network concerned will apply in respect of its customers in other states. While the NECF reduces the degree of difference in regulatory frameworks, it does not eliminate it, and this principle will continue to be applied.

Regulatory Obligations

The NECF must be implemented in the context of a highly developed, fully privatised and highly competitive retail market in Victoria. Not all Victorian-specific regulatory arrangements are replicated in the NECF. Where Victorian circumstances warrant, there will be additional regulation to ensure that the interests of Victorians are not compromised.

Basis for determining Victoria-specific obligations

As Victoria implements a national framework which regulates most aspects of the energy supply industry, the question arises of what – if any – reason is there for Victoria to impose further regulation upon the industry.

The national frameworks are designed to facilitate efficiency and cross border trade in energy, which are in the long term interests of Victoria. To the extent that Victoria, or any other jurisdiction, deviates from the national frameworks, these benefits may be reduced.

On the other hand, there are some areas where Victoria must regulate separately, and will do so to the extent necessary, for the following matters:

  • Those matters, such as ombudsman schemes and safety and technical regulation, which are specified by AEMA Annexure 2 as being retained by the States and Territories.
  • Those matters where the NECF specifies the making of a local instrument to determine some aspect of the scheme.
  • Those matters which are outside the AEMA, such as access to land.

Furthermore, there are some areas where for reasons of circumstances particular to Victoria, it is necessary to provide further guidance for the industry. These include (in order of relevance for the NECF):

  • Victoria's particularly competitive retail market, which operates without retail price controls. Consumers in this market require confidence that the terms and conditions of supply from all providers will be fair, so that they can make competitive choices.
  • Victoria's entirely privatised distribution sector, which must operate under robust price regulation to avoid the accumulation of monopoly rents.

The Victorian model for transmission planning and operation through AEMO, designed to support investment in the fully privatised generation sector.

DPI's discussion paper set out the regulation which, when compared against the national frameworks,

  • was not included in the NECF and the omission was considered significant, or
  • where the national approach resulted in service standards which are substantively less than those currently enjoyed by Victorian consumers.

Following consideration of public submissions, it is for these matters that the Government has decided to step in to impose regulatory requirements in addition to or different from those set out in the national frameworks.

Advanced metering customer service requirements

There are a number of requirements which were put in place by the ESC in early 2011 to support the operation of advanced metering infrastructure (AMI) in Victoria.

Victoria is the first jurisdiction to widely implement advanced metering infrastructure, which allows for – amongst other things – remote energisation and de-energisation of customer premises, new tariff structures and load control. These bring with them benefits, but also new challenges and risks for energy customers and it is appropriate for Victoria to retain AMI related regulation in the absence of corresponding provisions in the NECF.

The ESC consulted widely in 2010 in making its determination on these matters, and these provisions were reiterated in DPI's discussion paper. These provisions will henceforth be incorporated in the AMI provisions of the Electricity Industry Act 2000.

These provisions include those set out in DPI's discussion paper covering matters including (but not limited to):

  • Rules and service standards for remote meter operations.
  • Customer rights to information on bills and from service providers.
  • Rules around changes to the form and structure of tariffs.

It is also noted that, pending any decision on the form and extent of the AMI rollout, appropriate provisions for metering type and standards may be necessary.

Statutory requirements

A number of direct statutory requirements on the energy sector will remain despite the commencement of the NECF, in particular:

  • The EIA and GIA contain a statutory scheme to require an electricity or gas retailer who wrongfully disconnects one of its household customers to make a $250 per diem payment to that customer. This scheme was principally intended to place an additional incentive on retailers to guard against disconnecting relevant customers who are willing, but who do not have the capacity, to pay their energy bills. This scheme will continue to apply in Victoria, noting that some amendments were made to the scheme by the Energy Legislation Amendment (Bushfire Mitigation and Other Matters) Bill 2011.7
  • Retailers are explicitly precluded from applying fees for late payment of bills against small customers under sections 40C EIA and 48B GIA. Victorian energy customers have historically been afforded this protection against fees which may unduly impact on customers experiencing payment difficulties, and it is proposed that this continue under the NECF.
  • There will be continuing requirements on retailers to enter into agreements with the State, administered by the Department of Human Services (DHS), for the provision of community services (concessions) to customers.

The deemed standard connection contracts which accompany the NECF include model terms and conditions that require customers to comply with the Service & Installation Rules of distributors. This is a new regulatory requirement on customers, and Energy Safe Victoria will be given a role in ensuring that these requirements are not unreasonable.

Proposed Victorian Energy Rules

DPI's discussion paper spoke generally of "Victorian Energy Retail Rules" incorporating the various residual Victorian regulatory requirements discussed in that paper. Noting the highly varied nature of the remaining proposed regulations, it is now more appropriate to speak of "Victorian Energy Rules".

DPI's discussion paper outlined the provisions, at the consultation stage, by reference to existing provisions of regulatory codes and guidelines. As these provisions will now need to be redrafted to work harmoniously with the national frameworks, this mapping will not be reiterated in this document. Rather, the substantive intent of the proposed VER is set out below.

Assistance to vulnerable customers

In addition to the aforementioned community services agreements between retailers and DHS - which will be retained - Victorian law currently requires retailers to offer customers in hardship programs free home energy audits and assistance with the purchase of energy efficient appliances. These can help with the underlying affordability of a vulnerable customer's consumption, and these provisions will be retained in the VER.

Contracting distribution and retail customers

Both the Australian Consumer Law (ACL) and the NECF provide strong protections for consumers in relation to contractual terms. There are statutory provisions requiring retailers to ensure that consumers provide explicit informed consent to contractual terms and conditions, which will be enforced by the AER. The ACL also strengthens the enforcement powers of the relevant consumer agencies.

The NECF prescribes many of the terms to be included in market and standing offer contracts. Nevertheless, the following matters are considered material enough to warrant specific regulation in Victoria:

  • Standing offers are to be subject only to fees explicitly contemplated by the NERR. Customers on standing offers do not have the benefit of regulated prices in Victoria, and instead are entitled to a simple tariff-based service which is not encumbered by fees that obscure the cost of service.
  • A formula for calculation of bulk hot water billing rates is necessary to ensure charges for these essential services are fair.
  • Customers who are presently on standing offers should not have new credit card fees imposed on them due to the introduction of the NECF. This may cause an undue price shock to vulnerable customers.

Electricity and gas metering

Good information on consumption is important for customers to ensure that their energy costs are appropriate and to improve energy efficiency. Customer access to cumulative consumption data will continue to be required.

Confidentiality of metering data, which may contain personal information, is of ongoing importance for customers on accumulation and advanced meters, and current provisions will be retained.

Appropriate metering requirements will be retained governing the operation and interaction of embedded networks with the electricity system.

Connecting, disconnecting and reconnecting customers

The circumstances surrounding connection, disconnection and reconnection of customer supply require robust regulation to ensure that customers are not treated unfairly or in a way that would endanger health and safety. The NECF provides appropriate regulation for the most part, but DPI's discussion paper identified a number of provisions as requiring further guidance surrounding:

  • service standards for connection and reconnection,
  • the timeframes for carrying out the functions, and
  • the obligations on distributors when they intend to implement their powers to disconnect customers directly.

It is particularly important that retailer and distributor timeframes continue to afford Victorian customers who are disconnected from supply an opportunity to be reconnected on the same day, and an opportunity to remedy non-urgent health and safety related concerns that may lead to disconnection.

In addition, customers will have the right to reconnection if they are eligible for a Utility Relief Grant as at present, to ensure vulnerable customers are not left without power unnecessarily.

Finally, the provisions requiring Guaranteed Service Level payments for customer service matters will continue to be imposed on gas distributors.

Security, reliability and quality of electricity supply

While the principal frameworks for energy supply security are set out by the EIA and GIA, there are some important regulatory requirements on distributors that assist customers with preparation and management of supply issues and require ongoing regulation. These include:

  • Provisions for the notification of the Department of Human Services regarding widespread power outages where required.
  • Requirements for distributors to participate in co-ordinated efforts during widespread power outages.
  • Distributors should publish information on power interruptions available via their websites in addition to a telephone fault line, as required by the NECF.

Planned interruption to the delivery of gas supply

Planned interruptions to gas supply can be disruptive and customers need a reasonable opportunity to make their premises safe when one is to occur. The current 10-day notification period for planned interruptions in gas will be retained.

Public lighting and undergrounding (excluded services)

Some former "excluded" (non-tariff) services, such as public lighting and undergrounding of lines, are provided in contexts which are jurisdiction-specific.

The existing Public Lighting Code will continue to apply. The VER will also contain requirements to ensure that undergrounding services continue to be provided on fair terms.

Technical and system operation rules

A number of technical and system operation requirements are currently imposed on the industry, including retailers, through codes regulated by the ESC, such as the Electricity System Code.

To the extent necessary, technical requirements will also be retained through Victoria specific regulation to ensure their continued currency. This will be determined through targeted consultation by DPI as the implementation process progresses.

For example, there are various gas metering provisions of the Gas Distribution System Code which may be appropriately dealt with variously under the VER, the National Gas Rules or Retail Market Procedures for the Victorian Declared Wholesale Gas Market. DPI will work with AEMO on the most appropriate way to integrate these provisions.

Dispute Resolution

The continuation of an accessible and effective dispute resolution body is vital to ensure that customer rights are maintained with the transition to the NECF.

Institutional arrangements for the Energy and Water Ombudsman (Victoria)

  • Part 4 of the NERL provides for small customer complaints and dispute resolution by setting out the roles and functions of the state energy ombudsman schemes under the national framework. Section 86 of the NERL states that retailers and distributors must be a member of, or subject to the energy ombudsman schemes in the areas where they are retailing or distributing energy.
  • The National Energy Retail Regulations (NERR) prescribes EWOV as the energy ombudsman scheme for Victoria.

Role and jurisdiction of the Energy and Water Ombudsman (Victoria)

The current Victorian dispute resolution regime is outlined in section 28 of the EIA, section 36 of the GIA and ESC issued energy licences for retail and distribution. The ESC is responsible for approving a customer dispute resolution body, membership of which is a licence condition. In addition, EWOV operates under a Charter and Constitution, which sets out in detail its role and jurisdiction in relation to energy complaints.

Amendments are to be made to the EIA and GIA to ensure that the approved scheme continues to operate for retail purposes under these laws, in addition to the NERL.

As noted above, the NERL only refers to energy ombudsman schemes dealing with small customer disputes, however EWOV's Constitution and Charter does not restrict its jurisdiction based on a customer's usage. Irrespective of this distinction, it is not proposed or expected that the current scope of EWOV's activities will be constrained by the introduction of the NECF.

EWOV's jurisdiction over unlicensed energy bodies

In response to reviews conducted by the ESC in 2006 and the AER in 2010, DPI released an issues paper considering the extension of EWOV's jurisdiction to include unlicensed energy bodies. The ESC concluded in its review that the scheme should be available to customers of unlicensed bodies to ensure equitable customer protection.

DPI's discussion paper on this topic examined the options for customers of exempt bodies when they have issues and complaints concerning their energy supply, and concluded that promoting access to EWOV would enhance effective customer rights and provide some degree of equality with customers of licenced (authorised) retailers and distributors.

DPI considers that the case for providing this access is well founded and would remedy a material shortcoming of the current regime, and support the AER's role in bringing greater clarity and consistency to the exempt supply sector.

A feasibility study is however needed to inform decisions on how best to integrate exempt bodies into the scheme. Further questions regarding the form of obligation on exempt bodies to allow customers access to EWOV, and the means by which binding decisions of the ombudsman could be enforced also require further development.

DPI will provide EWOV with funding to commission an independent feasibility study regarding the extension of the scheme. This study will determine the operational changes that will need to be made in order to implement this wider dispute resolution role and inform the timing of its implementation.

Transitional Arrangements

Victoria intends to facilitate a smooth transition to the NECF from existing frameworks. Wherever necessary, transitional arrangements will be put in place to ensure that important contractual relationships and customer rights are not disrupted by the shift in regulatory arrangements.

Transition of customer contracts

The NECF establishes a new regime for the regulation of energy customer contracts to supersede and replace the current Victorian arrangements. In 2011, DPI released an issues paper regarding the transition of existing customer contracts to contracts that are compliant with the NECF. Submissions to DPI's paper assisted in the formation of the following national policy principles regarding contract transition:

  • minimal disruption to existing customer contracts;
  • moving toward compliance with NECF requirements for contracts as soon as possible after NECF start; and
  • the preservation of accrued rights and liabilities under existing retail contracts as at the date of transition to the NECF.

In accordance with the above principles, Victorian customer contracts will be transitioned as outlined below.

Retail contracts

Standing offer contracts, deemed contracts, and former franchise customers - Customers who are on these arrangements will be deemed at NECF start to be on their retailer's Standard Retail Contract adopted under the NERL.

Market contracts - Current Victorian market contracts will be known as market retail contracts (MRCs) with the introduction of the NECF. Customer's accrued rights and obligations under their pre-NECF MRC will be preserved.

Existing MRCs that contain terms and conditions consistent with NECF requirements will continue unchanged after NECF start.

If an existing MRC contains a term or condition that is inconsistent with the NECF and is disadvantageous for a small customer, the term or condition will no longer apply from the transition date and the NECF protection would apply and prevail.

Energy only contracts - SRC and MRC energy only contracts will be subject to the contract transition provisions outlined above.

Large customer contracts - Business customers with usage between 40 - 100MWh/a (for electricity) and 400-1000GJ/a (for gas) will no longer be treated as "large" customers, but rather will be treated as small market offer customers at NECF start. These customers will be transitioned to MRCs in accordance with the transition of existing market contracts as outlined above.

Customers with usage above the small customer thresholds will be outside the NECF, and therefore their contracts will remain unchanged following NECF start.

Distribution contracts

Deemed distribution contracts - Customers on existing deemed distribution contracts will be deemed to be on the NECF standard distribution contracts at NECF start.

Negotiated contracts - Existing negotiated customer contracts will continue for the remainder of their term unchanged, despite the commencement of the NECF. Negotiated contracts entered into after NECF commencement must be NECF compliant.

Dispute resolution

A customer will be able to take a dispute to the EWOV that arises or relates to a dispute with a retailer or a distributor about the application of the contract transition regime to their circumstances. In accordance with EWOV's policies and procedures, customers should attempt to resolve the matter directly with their retailer or distributor before contacting EWOV.

Rollover of electricity distribution pricing determinations and gas access arrangements

Electricity Distribution Price Review 2011-2015

A number of current regulatory requirements underpin or are linked to the current price determination as made by the AER for the 2011-2015 period. These include, in particular, sections 3 - 6 of the Essential Services Commission's Guideline 14 - Provision of Services by Electricity Distributors.

This guideline sets out principles and methodologies to be applied by distributors in charging for "excluded services", which includes network augmentations and connections.

While the proposed Chapter 5A and existing Chapter 6 of the NER will largely provide for national framework for these services, it is important that the current charging arrangements be retained until 2015 to ensure these services are delivered at the correct price.

Furthermore, the provisions regulating electricity GSL payments will be retained until 2015 to ensure that these are paid at the correct rates and in correct circumstances.

Gas Access Arrangements 2008-2013

The current gas access arrangements for Victorian gas distributors, which set out tariffs and terms and conditions of gas haulage, will expire on 31 December 2012 and new access arrangements will be determined by the AER to take effect from that date on.

A number of significant regulatory changes will flow from the implementation of the NECF for the Victorian gas distribution sector. Appropriate transitional arrangements will be decided to ensure that these regulatory changes are taken account of and coincide with the commencement of the new gas access arrangements to the extent possible.

Retailer of Last Resort Scheme

The RoLR scheme provides a vital protection for customers in the event of retailer failure as it ensures continuity of supply and assists in minimising negative impacts on customers. The current Victorian RoLR regime established in the EIA and GIA will now be replaced with a national RoLR scheme under Part 6 of the NERL.

Victorian RoLRs assigned by the ESC under the Victorian regime for electricity and for gas distribution systems that are part of the Declared Wholesale Gas Market will be deemed to be default RoLRs for the purposes of section 125 of the NERL. The AER will be responsible for registration of additional RoLRs and determining the arrangements for a first-tier RoLR event in accordance with the NECF.

For gas distribution systems that are not part of the Declared Wholesale Gas Market, RoLRs will be assigned transitionally based on their market share in the areas concerned.

The RoLR cost recovery arrangements in the NECF will apply to all Victorian default RoLRs.

Licensing and exemptions

Transition to national retailer authorisations

In April 2011, the Standing Committee of Officials (SCO) released a bulletin advising industry that retailers who obtain a retail licence from a jurisdictional regulator after 12 April 2011 will need to seek a national retailer authorisation from the AER in order to be compliant with Part 5 of the NERL at NECF start.

Following the release of this bulletin, the joint implementation group (JIG) meet with retailers holding a jurisdictional licence at 12 April 2011 regarding transition to national retailer authorisations. Following these meetings, SCO wrote to licensed retailers confirming their transition to authorisations.

The JIG will continue to liaise with transitioning retailers regarding retailer NECF readiness issues in the lead up to the NECF.

Exemptions

Part 5 of the NERL provides the facility to exempt some bodies from the requirement to be authorised while selling energy in some circumstances. Under this scheme the AER is responsible for issuing an exempt selling guideline outlining the classes of deemed and registrable exemptions and to providing guidance on the associate conditions. The guidelines also provide advice on the application and registration process for individual and registrable exemptions.

The existing deemed licence exemptions for retail activities under the General Exemption Order8 will lapse at NECF start. From 1 July 2012, all exempt sellers (including off-grid networks) currently operating within a deemed retail (sale) exemption will be required to ensure that they fall within the deemed or registrable categories outlined in the AER guidelines, or apply to the AER for a retailer authorisation or a specific exemption. This also applies to current holders of ESC certificates of opinion on exempt electrical activities.

Further information regarding retail exemptions is available on the AER's website at www.aer.gov.au.

Existing specific exemptions for retail (sale) activities will also lapse. To give holders of individual exemptions under Victorian exemption Orders in Council reasonable time and flexibility, these bodies will be given until 1 July 2013 (unless otherwise advised by DPI) to attain compliance with the NECF.

Footnotes:

1 - NB: MCE is now succeeded by the SCER.

2 - Essential Services Commission (Victoria). Small scale licensing framework final recommendations. On the web, March 2007.

3 - Australian Energy Regulator. Draft exempt selling guideline and exempt selling determinations. On the web, June 2011.

4 - YourChoice - practical tips and tools to help you make the best energy choice: http://www.yourchoice.vic.gov.au/

5 - Essential Services Commission (Victoria).Voltage variation compensation - Guideline no. 11: electricity industry . Web site, April 2001.

6 - Further information on the Heat Health Alert system is available on the DH's website: http://www.health.vic.gov.au/environment/heatwave/agencies/alert.htm.

7 - Essential Services Commission (Victoria). Final Report: Review of Wrongful Disconnection Payment. On the web, February 2010.

8 - Governor in Council (Victoria). Order-In-Council specifying General Exemptions. On the web, May 2002.