New Products and Services in the Electricity Market

Consultation on regulatory implications

Energy Market Reform Working Group

December 2014

Submissions are invited on this consultation paper by Friday 20 March 2015. Electronic submissions are preferred and can be sent to the COAG Energy Council Secretariat at energycouncil@industry.gov.au.

Those who wish to provide hard copies by post may do so by addressing their submissions to:

COAG Energy Council SecretariatGPO Box 9839 Canberra ACT 2601

All submissions will be published on the Council website (www.scer.gov.au) unless stakeholders have clearly indicated that a submission should remain confidential, either in whole or in part.

Please note that this paper does not provide legal advice about any of the laws discussed in it, and it should not be relied on for any purpose. It is intended as a consultation paper only. It does not reflect the final views of officials or Council policy.

The Energy Market Reform Working Group consists of officials from the state, territory and Commonwealth agencies with responsibility for energy policy. It operates under the COAG Energy Council framework.

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ContentsIntroduction...................................................................................................................................... 4

Purpose........................................................................................................................................4Scope........................................................................................................................................... 4Why conduct this consultation now?............................................................................................4Making a submission....................................................................................................................5What will happen after this consultation?.....................................................................................5

Which products and services?.........................................................................................................5Stakeholder views............................................................................................................................5

Electricity retailers........................................................................................................................5Electricity distributors....................................................................................................................5Consumer groups.........................................................................................................................6New entrants................................................................................................................................ 6

What are the current regulatory frameworks?..................................................................................6National Electricity Law and Rules...............................................................................................6National Energy Customer Framework: National Energy Retail Law and Rules..........................7General consumer law..................................................................................................................7Why are there energy-specific consumer protections?.................................................................7

Electricity supply market..................................................................................................................8National Electricity Law and Rules...............................................................................................8National Energy Customer Framework........................................................................................8

Demand management market........................................................................................................10National Electricity Law and Rules.............................................................................................10National Energy Customer Framework......................................................................................11

Energy information market.............................................................................................................11Privacy and use of metering data...............................................................................................12Market participants accessing data............................................................................................12Other parties accessing data......................................................................................................12

Conclusion.....................................................................................................................................13

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Introduction

Australian electricity markets are entering a period of change. The traditional, centralised electricity supply model is being challenged by emerging products and services that allow customers greater control over how their electricity is delivered and consumed. These include new products and services that enable customers to generate and store their own electricity, find the best electricity retail tariff, improve energy efficiency, or decide how specific appliances operate in response to changes in electricity prices, temperature and other factors.

Many of these new products and services could be offered by traditional participants in the National Electricity Market (NEM), that is, electricity retailers and distributors. However, many could also be offered by new entrants that do not have defined roles within the current national electricity rules and laws.

As business models emerge around these new products and services, it is worth considering whether they should be covered by the regulatory frameworks that currently govern how various parties operate in the NEM. On one hand, regulatory frameworks should not create a barrier to innovative products and services that could benefit customers. Equally, new products and services should not infringe on the protections and customer outcomes that the regulatory frameworks are intended to ensure.

Purpose

The purpose of this paper is to begin a consultation on whether the regulatory frameworks that govern the NEM are appropriate in the context of new products and services being offered to small electricity customers.

This paper is intended to seek feedback on:

the range of new products and services that could be offered to small electricity customers;

the implications of these new products and services for small customers and for the effective operation of the NEM; and

whether regulatory reforms will be needed to accommodate new products and services.

This paper considers some of the products and services that are currently emerging in the market. However, a regulatory framework cannot hope to regulate every possible product and service individually. A

regulatory framework needs to be based on principles that help all parties, including customers, businesses and the regulator, understand the situations in which activities will be regulated, and the goals of regulation.

Scope

Electricity: To date, most of the discussion about new products and services has been about their implications for the electricity market and its regulatory framework. For example, new technology options are emerging that offer alternatives to a traditional supply of grid-sourced electricity, such as on-site generation and storage.

There are few alternative sources of gas however. While some products and services available to energy customers affect how they use both electricity and gas (for example energy efficiency advice), this paper focusses on the electricity market in order to manage the scope of the discussion.

National Electricity Market (NEM): Similar issues relating to new products and services exist in all Australian electricity markets. This paper focusses on the NEM, which is the largest electricity market in Australia. The NEM operates in Queensland, New South Wales, the Australian Capital Territory, Victoria, Tasmania and South Australia.

However, the discussion will also be relevant to markets in Western Australia and the Northern Territory.

National laws: Although some of the discussion in this paper has implications for jurisdictional energy laws in the NEM states and territories, the paper does not discuss the operation of those laws directly. Jurisdictions are responsible for reviewing any legislation where this is needed to support the national laws.

Small customers: The paper focusses on residential and small business customers1. Although new products and services are and will be offered to large customers, an underlying assumption in the national energy laws and rules is that these customers should have incentives and expertise to negotiate efficient energy supply arrangements, and to understand and adopt new products and services.

Although small customers have similar incentives, they may not have the expertise or time to achieve the best outcomes, and

1 In the NEM, all residential customers are ‘small customers’ for the purposes of the National Energy Retail Law, and small business customers are defined by usage thresholds. See National Energy Retail Law, section 5.

so a greater level of regulatory oversight is appropriate.

New products and services offered to small customers: The paper focusses on new products and services that could be offered directly to customers. This helps to separate this consultation from related work requested by the Council of Australian Governments (COAG) Energy Council in May 2014, which is looking at scenarios for electricity market development over the next 20 years, and their implications for network economic regulation2.

Given this focus, the paper considers a range of issues related to consumer protections in the electricity market, as well as the possible impact that some new products and services could have on electricity network operations (rather than on economic regulation).

Why conduct this consultation now?

It is timely to look at the regulatory implications of new products and services related to electricity entering the market because:

A number of technology options and business opportunities are beginning to emerge in the market, and it would be better to consider any regulatory implications of new products and services at an early stage. This will help to ensure that the regulatory framework is not creating barriers to innovation, and that supporting frameworks are in place as new products and services emerge in the market.

There are a number of reforms underway that could support the emergence of new products and services, including: changes to the principles and processes for setting network tariffs; changes to the framework for providing meters, including advanced meters; and proposed reforms to allow relationships with more than one retailer at a single site3.

Stakeholders are seeking certainty from governments about whether and how new products and services might be integrated into the regulatory framework.

Previous reviews have included

2 https://scer.govspace.gov.au/files/2014/05/COAG-Energy-Council-Communique-Final-1-May-20141.pdf 3 Details on the implementation of the Power of Choice Review are available at http://www.aemc.gov.au/Major-Pages/Power-of-choice

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discussion of new products and services, but were not intended to address these issues specifically. These include the Australian Energy Market Commission’s (AEMC) Power of Choice review4 and the Energy Market Reform Working Group’s (EMRWG) review of consumer protections for new products and services enabled by smart meters5.

This consultation process is an opportunity to consolidate consideration of these issues, and any subsequent regulatory changes, in a single work stream.

Making a submission

Stakeholders are invited to provide written submissions on the consultation paper by close of business on Friday 20 March 2015.

All stakeholder submissions will be published on the Council website unless stakeholders have clearly indicated that a submission should remain confidential, either in whole or in part. Electronic submissions are preferred and can be sent to the COAG Energy Council Secretariat at energycouncil@industry.gov.au.

Those who wish to provide hard copies by post may do so by addressing their submissions to:

COAG Energy Council SecretariatGPO Box 9839 Canberra ACT 2601

Should you have any queries, please contact the COAG Energy Council Secretariat at energycouncil@industry.gov.au.

What will happen after this consultation?

Submissions on this consultation paper will be used to inform a discussion paper to be presented to Ministers at the first COAG Energy Council meeting in 2015. The paper will identify any priorities for regulatory reform that officials consider should be addressed in the context of new products and services in the electricity market.

If any reforms are prioritised as a result of this process, these will also involve extensive consultation. We will need to consider the best options for progressing any work. The rule change process managed by the AEMC is one option, although changes to laws require legislative actions.

4 http://www.aemc.gov.au/Major-Pages/Power-of-choice 5 https://scer.govspace.gov.au/files/2012/11/Smart-Meters-Officials-Report.pdf

Which products and services?

The range of new products and services that could be offered to customers is potentially very broad, and it is difficult to predict what they all are or could be. One of the purposes of this paper is to seek feedback on the range of new products and services that are being, or could be, offered to electricity customers.

However, for the purposes of this paper it is useful to identify three broad markets, which we think should cover most products and services relating to electricity supply and use:

The electricity supply market: this involves the supply and sale of electricity to customers. The electricity supply relationship currently in the market involves the sale of electricity by a retailer to a customer, delivered via electricity networks. New products and services emerging in this market typically involve selling electricity from onsite generation, possibly combined with storage in future.

The demand management market: products and services in this market allow customers to take an action to change their electricity consumption or costs. Current products and services in the market include hot water load control tariffs. New products and services might include home energy management systems, or the remote control of appliances in return for a financial benefit.

The energy information market: in this market, customers receive advice and information to help them manage energy consumption and costs. Current examples include energy efficiency advice and electricity price comparators. Future products and services might involve access to real-time information about household consumption via a home area network.

Each of these markets, and the new products and services that could be offered, are discussed in more detail later in this paper.

Consultation question:

Do these three markets cover all new products and services that could be offered to small electricity customers?

Stakeholder views

Our understanding of the views of some stakeholders about the regulation of new products and services is discussed below, to provide an introduction to some of the issues considered in this paper.

Electricity retailers

We understand that the major concern of retailers is that some new products and services should be regulated in a similar way to electricity retail contracts.

The Energy Retailers Association of Australia (ERAA) has argued that there should be a comprehensive review of ‘third parties’ (that is, companies offering energy-related products that are currently not regulated under energy legislation) with a view to bringing them into the National Energy Customer Framework6. They suggest that the ‘sale of energy’ is no longer an adequate test for retailer authorisation, and that the concept should instead shift to the sale of energy services, which includes retailing energy but also energy management services such as direct load control and services that need ongoing access to metering data.

The ERAA argues that new products and services should be judged on criteria based on the core aspects of why retail contracts are currently regulated, such as:

If the product or service is marketed in competition with other services, and specific information needs are required to ensure informed consent.

If the customer receives ongoing services under contract.

If supply to the property or appliance can be controlled or disconnected, including by charging technology.

If the customer is billed or compensated directly from the service provider.

Electricity distributors

Distribution businesses have expressed concerns about the impacts that new products and services could have on network operations and security.

For example, the Energy Networks Association (ENA) has argued that distribution businesses’ obligations for network safety and security could be undermined when other parties can remotely energise and de-energise premises, or control loads at premises7.

6 ERAA (2012) Submission to the National Smart Meter Consumer Protections and Pricing Draft Policy Paper Two. http://www.scer.gov.au/files/2012/06/ERAA-Submission.pdf 7 ENA (2014) Submission to the Consultation Paper: Expanding competition in metering and related services rule change, p.5. http://www.aemc.gov.au/Rule-Changes/Expanding-competition-in-metering-and-related-serv

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Consumer groups

Consumer groups generally want to ensure that there are consistent protections for customers across the electricity market, regardless of who is providing the product or service. Particular concerns relate to privacy of energy consumption data, issues around contracts including dispute resolution, and energy-related marketing.

For example, the Consumer Action Law Centre has recently published a report looking at consumer protection issues in the future ‘smart’ electricity market. The high-level messages from this report include that

take-up of new products and services should be supported by a consistent consumer protection framework that covers not only the current market participants but also new entrants that would otherwise be unregulated; and

this framework would need to address issues such as product use disclosure, some product standardisation to enable comparisons, clear and fair contract conditions, and accessible dispute resolution8.

New entrants

With some exceptions, new entrant providers of new products and services have not participated significantly in consultations about the regulatory frameworks that may affect their business models. This is likely because many of these companies are small and/or are focused on developing their businesses, rather than making submissions to energy market governance processes.

One exception relates to the Australian Energy Regulator’s (AER) recent consultation on ‘alternative energy sellers’, which is an emerging service relating to purchasing electricity from a distributed generator. This example will be discussed in more detail later in the paper9.

Concerns expressed to date centre on:

the need for market regulation to not pose a barrier for new market entrants; and

the need for regulation to be proportional (i.e. not impose a burden on businesses disproportionate to the risks being managed).

8 Consumer Action Law Centre (2014) Smart Moves for a Smart Market: Simple steps to ensure consumer protections keep pace with innovation in a high-tech energy market, p.95. http://consumeraction.org.au/report-smart-moves-for-a-smart-market/ 9 http://www.aer.gov.au/node/22188

As part of our consultation on this paper, officials are keen to hear from other developers of new products and services about how regulatory frameworks affect their businesses.

What are the current regulatory frameworks?

This section describes the current regulatory frameworks in the NEM. These govern the requirements that are placed on some parties to ensure that their actions serve customer interests.

This section also discusses the principles that underpin these laws and rules, which are helpful in thinking about whether new products and services need to be drawn into the regulatory framework.

The two overarching frameworks are created by the National Electricity Law, and the National Energy Retail Law10. The AER is responsible for enforcement of both laws and the associated rules.

National Electricity Law and Rules

The objective of this law (the National Electricity Objective, or NEO) is to:

“promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to—

(a) price, quality, safety, reliability and security of supply of electricity; and

(b) the reliability, safety and security of the national electricity system”11.

The National Electricity Law and the related National Electricity Rules12 achieve this in practice by:

establishing the wholesale electricity market (Chapter 3 of the Rules);

defining power system security roles and obligations (Chapter 4);

applying an economic regulation framework, and a connections framework, to electricity networks (because they are monopoly services) (Chapters 5-6A); and

defining metering arrangements (Chapter 7).

10 The national energy laws referred to in this paper can be accessed from http://aemc.gov.au/Australias-Energy-Market/Market-Legislation/Relevant-Legislation-Electricity 11 National Electricity Law, section 7. 12 These Rules can be accessed from http://aemc.gov.au/Energy-Rules/National-electricity-rules/Current-Rules

Parties that have roles and obligations in these aspects of the market must be registered and/or accredited with the Australian Energy Market Operator (AEMO) (Chapter 2). Some parties must register as market participants to sell into the wholesale market, to buy from the wholesale market, or to operate networks transporting electricity. The Rules describe how these parties must act, and how they interact with each other.

Some parties are also required to register with AEMO because they could affect power system security, even if they are not operating in the wholesale market. The main examples are generators between 5 MW and 30 MW13.

Some parties are also required to be accredited by AEMO because they have a role that could affect the operation of or confidence in the market. Metering Providers and Metering Data Providers are the main examples. As the wholesale market relies on accurate metering data for settlement, businesses performing metering roles need to demonstrate that they have the technical capabilities needed in these roles, which include maintaining accurate meters and collecting and delivering accurate data14.

The National Electricity Law and Rules also allow for some parties to be exempted because their circumstances mean that the full regulatory framework is not appropriate, or would be costly to apply in return for little benefit. Examples include:

embedded networks, which are small, privately owned networks where it would not be efficient to apply the economic regulation framework otherwise applied to networks15; and

generators below 5 MW (and not selling into the wholesale market), which are normally too small to affect the power system.

From this, the following principles are proposed for identifying whether a product or service should be drawn into the National Electricity Law and Rules:

1. it affects the operation of or confidence in the wholesale electricity market;

2. it is a monopoly activity; or

3. it affects power system quality, safety, reliability and security (referred to as

13 AEMO (2013) NEM Generator Registration Guidelines. See Schedule 6 for a discussion of generator exemptions. http://www.aemo.com.au/Electricity/Registration/Application-Forms/Generator 14 Rule 7.4 covers accreditation of these roles.15 http://www.aer.gov.au/networks-pipelines/network-exemptions

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‘power system operations’ in the rest of this paper16).

For most new products and services in the three markets identified above, principles 1 and 2 will not be relevant in the foreseeable future. However, as noted later in this paper, officials are interested in feedback on whether any new products and services could have implications for power system operations.

Consultation question:

Are these principles useful for identifying whether a product or service should be drawn into the National Electricity Law and Rules?

National Energy Customer Framework: National Energy Retail Law and Rules

The National Energy Retail Law and Rules form the National Energy Customer Framework (NECF), which Energy Ministers have agreed will be adopted in the NEM. The NECF has commenced in the Australian Capital Territory, Tasmania, South Australia and New South Wales. Queensland intends to adopt the NECF from 1 July 2015, with Victoria aiming to transition to the NECF by 31 December 2015. Where the NECF has not yet been adopted, state and territory governments remain responsible for regulating retail energy markets.

The NECF applies to the retail sale of electricity and gas to residential and small business customers, and to large customers in a limited way.

The objective of the retail law (the National Energy Retail Objective, or NERO) is to:

“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”17.

The National Energy Retail Law and the related National Energy Retail Rules18 achieve this in practice by regulating the relationships between three parties: customers, energy retailers and energy distributors.

The retailer-customer relationship is regulated because it is fundamental to a customer accessing a supply of energy on fair and reasonable terms.16 ‘Power system security’ has a specific meaning in the NER, and we are interested in a wider range of issues in this paper.17 National Energy Retail Law, section 13.18 These rules can be accessed from http://aemc.gov.au/Energy-Rules/Retail-energy-rules/Current-rules

Distribution businesses (that are registered under the National Energy Law) are included in the NECF where they have a relationship with a small customer. This provides protections relating to a customer’s distribution services.

Under the NECF, residential and small business customers are supported by a range of customer protections, including:

guaranteed access to an offer of supply for electricity and gas;

requirements relating to information about and marketing of energy contracts;

requirements relating to customer consent, including that customers must give explicit informed consent to enter into a market retail contract (as opposed to a standard contract or deemed contract);

a customer hardship regime, requiring retailers to develop customer hardship policies that must be approved by the AER, with certain prescribed elements, to assist residential customers experiencing longer-term payment difficulties;

limitations on disconnection, including the processes that must be followed, restrictions on when disconnections can occur, additional protections for customers experiencing hardship or financial difficulties, and a prohibition on disconnecting premises where life support equipment is required;

information requirements for planned and unplanned interruptions;

requirements relating to customers with life support equipment;

a requirement on retailers and distributors to have, and inform customers of, complaints procedures; and

retailer of last resort arrangements, so that a customer can receive an electricity supply from another retailer should the current retailer be unable to continue providing the service (for example if it goes out of business).

Parties are drawn into the NECF through a registration and exemption framework, depending on the products and services offered. In particular, if a business intends to sell electricity or gas for use at premises, it must have a retailer authorisation granted by the AER, or be exempted by the AER from needing an authorisation19.

19 Details of the AER’s role in retail authorisation and exemptions are available at

General consumer law

The NECF works alongside general consumer protection laws. If a business is not drawn into the NECF specifically, its obligations to customers will still be regulated by national and jurisdiction laws.

At the national level, the Australian Consumer Law20 provides consumer protections relating to:

misleading, deceptive and unconscionable conduct;

unfair contract terms and unfair practices;

consumer guarantees,

unsolicited consumer agreements (including door-to-door and telephone sales);

product safety; and

enforcement and remedies.

Other general consumer protections are provided by state and territory fair trading legislation.

Why are there energy-specific consumer protections?

Energy-specific consumer protections are required because of the essential service nature of a supply of energy, which is necessary to support the health and wellbeing of residents of Australia and the functioning of the Australian economy21.

The consumer protections in the NECF and equivalent state and territory regimes reflect that customers should be able to access a reliable, safe and high-quality supply of energy on fair and reasonable terms, and that this supply can only be withdrawn in specific circumstances and after appropriate procedures have been followed.

One way to help ensure that terms are fair and reasonable is to make sure that

http://www.aer.gov.au/retail-markets/authorisations and http://www.aer.gov.au/retail-markets/retail-exemptions. 20 See www.consumerlaw.gov.au 21 This justification was clear during the development of the NECF. For example, the NECF includes an obligation on some electricity retailers to make an offer to supply small customers. In developing this policy the Senior Committee of Officials (SCO) considered that “the characteristic of energy (particularly electricity) as an essential service to ensure the health, safety and wellbeing of residents of Australia warrants the continued regulation of the obligation to offer supply”. Ministerial Council on Energy Standing Committee of Officials (June 2008), A National Framework for Regulating Electricity and Gas (Energy) Distribution and Retail Services to Customers: Policy Response Paper, p.18.

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customers are informed about the agreements they are entering into. The NECF includes specific requirements around explicit informed consent. In the context of new products and services in the electricity market, it is worth thinking about the situations when customers should be informed about the nature of these products and services, including any risks involved.

We consider that the following principle is useful for discussing whether new products and services related to electricity should be drawn into the energy-specific consumer protections framework (rather than being regulated by other consumer protections laws):

Energy-specific consumer protections are required when a product or service impacts on a customer’s access to a reliable, safe and high-quality supply of energy on fair and reasonable terms.

Consultation question:

Is this principle useful for identifying whether a product or service should be drawn into the NECF?

The following sections of the paper discuss emerging products and services in the electricity supply, demand management and energy information markets in more detail, and consider how the principles discussed above could influence decisions about appropriate regulatory frameworks. Changes to regulatory frameworks may be needed where there is the potential for market failures or customer detriment that would not be managed under the current rules.

In this discussion, we are mindful that regulatory frameworks need to strike a balance between supporting development of innovative products and services, and achieving the market and consumer protection outcomes in the NEO and NERO.

Electricity supply market

The most familiar electricity supply service in this market involves the sale of electricity between a customer and an authorised retailer, supplied from a connection to the national grid (in the case of a small customer, a connection to a distribution network). As discussed above, this model is extensively regulated under the current energy laws and rules.

These laws and rules were designed around this form of energy supply service. It is worth considering how new electricity supply services could integrate with the current regulatory frameworks, or be limited by them.

New products and services in this market could involve supplying customers with electricity from on-site generation, as well as micro-grids, community-owned renewable generation, or district energy schemes.

In the sections below, we consider the implications of new energy supply products and services for each of the frameworks created by the National Electricity Law and the NECF. We use the example of products and services based on distributed generation, partly because these are already emerging in the market and partly to simplify the discussion.

National Electricity Law and Rules

We previously identified three principles for judging whether a product or service should be regulated under the National Electricity Law and Rules: does it affect operation of the wholesale market; is it a monopoly service; and could it affect power system operations?

We consider that the current registration and exemption framework under the National Electricity Law and Rules is appropriate to new products and services based on distributed generation. This framework regulates the impact of generators on the electricity market and the power system (rather than the relationship with the customer, which is the subject of the National Energy Retail Law and Rules).

The National Electricity Rules allow for a small generator to participate in the wholesale market as a registered Market Generator, or through a Small Generation Aggregator. Otherwise, unless the generator is large enough to impact on power system operations (above 5 MW) it will be exempt from registering with AEMO.

Some distributed generation schemes may involve use of a private network to supply electricity to customers, for example in a new real estate development or commercial site. We consider that the current arrangements for exempting embedded networks under the National Electricity Rules are appropriate to these situations.

Given this discussion, we do not consider that fundamental changes to the National Electricity Law and Rules are needed to support the entry of most new products and services in the electricity supply market. Incremental improvements can always be proposed through the rule change process provided for in the law, overseen by the AEMC22.

However, we do recognise the need to make sure that the economic regulation framework

22 http://aemc.gov.au/Energy-Rules

for network businesses is flexible enough to accommodate market changes in future. This is the subject of the work requested by Ministers in May 2014, discussed in the introduction to this paper, which will ‘stress test’ the economic regulation framework for networks against a number of development scenarios for the electricity market.

There may also be situations where the laws and rules as drafted do not reflect changing technologies. One example relates to electricity storage, which could import electricity (and be considered a load) or export (and perhaps be considered a generator) but in either case was probably not considered when the definitions in the laws and rules were being drafted. It may be worth considering the most effective way to address these kinds of issues in the current regulatory framework.

National Energy Customer Framework

The AER has recently considered in detail the issue of how the current framework for selling energy relates to emerging products and services in the electricity retail market, in its Statement of Approach: Regulation of Alternative Energy Sellers in the National Energy Retail Law23.

Scenario - Alternative energy seller: A company (the alternative energy seller) installs a solar photovoltaic (PV) system at a customer’s premises, retains ownership of and maintains the system, and sells the electricity it produces to the customer at a fixed price over a fixed period.

In establishing its approach to alternative energy sellers, the AER has considered the tools currently available to it through the retailer authorisations and exemptions framework.

As these companies are selling energy for use at premises, they are regulated by the NECF. In this framework, the available choices for the regulator are to require a party that is selling energy to become an authorised retailer, which attracts the full complement of consumer protections, or to grant an exemption. The AER can impose conditions on an exempt seller that mirror the consumer protections available to a customer of an authorised retailer, to the extent that this is possible24.

23 http://www.aer.gov.au/node/22188 24 Section 114(1)(c) of the Retail Law states that ‘exempt customers should, as far as practicable, not be denied customer protections afforded to retail customers under this Law and the Rules’.

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The AER considers that the key test for determining whether a retailer authorisation is needed in these situations is whether the seller is the primary supplier of electricity to a customer’s premises25. Where a small customer is buying an ‘add-on’ or optional service (such as a solar power purchase agreement), and also has a contract with an authorised electricity retailer, the AER considers that an exemption is appropriate.

This reflects that the AER considers that access to a reliable, safe and high quality supply of electricity is assured by the fact that the customer has a separate electricity supply contract with an authorised retailer.

We agree with the approach adopted by the AER in the context of the current rules. The NECF’s registration and exemption framework requires the AER to make a decision about whether a retailer authorisation or exemption is appropriate, and about the appropriate conditions to impose on an exempt seller.

To date, in most cases, the AER has decided to impose minimal conditions on exempt alternative energy sellers, only requiring the exempt sellers to inform their customers that they are exempt and that the relevant consumer protections are under the Australian Consumer Law, rather than the National Energy Retail Law26.

These models can raise challenging questions about energy consumer protections. For example, if a customer is getting most of their electricity supply from an alternative energy seller (maybe from a combination of on-site generation and storage) and only has a network connection and a retail contract as back-up, how should energy consumer protections be assured?

In this context, we note that a number of traditional retailers have applied for retail exemptions for their PV business arms, presumably to compete in the same market as other alternative energy sellers.

We are interested in views on the consumer protection obligations that are appropriate for alternative energy sellers.

25 AER (2014) Statement of Approach: Regulation of Alternative Energy Sellers in the National Energy Retail Law, p5. http://www.aer.gov.au/node/22188 26 For example, in granting an individual exemption to one company providing a solar power purchase agreements, the AER imposed a condition that “the exempt seller must provide the customer in writing a plain English notice explaining that the contract is covered by the Australian Consumer Law (as set out in schedule 2 of the Competition and Consumer Act 2010) and is separate to the customer’s contract with their retailer and distributor which are covered under the National Energy Retail Law”. http://www.aer.gov.au/node/23291.

The AER has recently begun a further consultation on these issues, and you are welcome to indicate that you have provided a submission to the AER, which we will also consider27.

Off-grid customers

Scenarios:

Off-grid alternative energy seller: This scenario is similar to the previous example, in that a provider offers customers an on-site generation option. However, in this case the generation (and possibly storage) is sized to meet the site’s full electricity needs and the network connection is removed.

In this scenario, the off-grid solution could be offered to individual customers, or to a group of customers, for example in a real-estate development that is not connected to the national grid and is marketed to customers on the basis of benefits such as certainty about energy costs, or environmental sustainability.

In this scenario the generation would not be owned or operated directly by the customer and so the contract with an energy seller (rather than the use of distributed generation) is the key issue for thinking about appropriate energy consumer protections.

Customers who choose to install, maintain and operate their own generation and storage have also chosen to take on the full risk involved in not having a grid connection. However, we are interested in feedback on the types of information that could or should be provided to customers thinking about this option. This might include information about the risks of going off-grid and/or how to reconnect.

Off-grid supply by a regulated provider: Another scenario relates to situations where currently regulated electricity providers choose to serve some customers with distributed generation and storage. For example, it may be more cost effective for distribution businesses to serve some remote customers with distributed resources and remove the connection to the national grid. However, this would have a number of flow-on implications, including limiting those customers’ ability to access retail competition and to receive the same consumer protections as on-grid customers.

The issues become even more complex if we consider scenarios where large numbers of customers go off-grid but have a relationship with an electricity seller. The CSIRO and others have identified increasing numbers of off-grid customers as one

27 http://www.aer.gov.au/node/28403

possible scenario arising from increasing costs of grid-supplied electricity and falling costs of alternatives like distributed generation and storage28.

On one hand, off-grid customers should have similar rights to anyone else to access a reliable, safe and high-quality supply of electricity. On the other hand, customers may choose to accept higher levels of risk in their relationship with an energy seller in return for lower costs or other benefits.

Another possibility relates to customers who find themselves off-grid because their electricity providers decide this is the most efficient way to supply them. As costs for distributed generation and storage fall, it may become more cost effective to serve some communities at the end of long transmission and distribution lines with distributed energy technologies, compared to maintaining a connection to the national grid.

This already happens in some remote regions (e.g. regional Queensland). Customers in these isolated communities are not considered to be part of the NEM and are not covered by NEM-based consumer protections, but rather by separate protections put in place by the jurisdiction.

Earlier in this paper we discussed the principle that energy-specific consumer protections are required when a product or service impacts on a customer’s access to a reliable, safe and high-quality supply of energy on fair and reasonable terms.

This is useful for identifying when energy-specific consumer protections are required. It suggests that the current arrangements for grid-connected customers are appropriate, because their electricity seller will need to be authorised or exempted, with appropriate consumer protections applied in either case.

However, it also suggests that the arrangements for off-grid customers may need more consideration. An off-grid provider would not be subject to the NECF in most jurisdictions, although any jurisdictional energy laws would apply, as would general consumer laws. For example, an off-grid provider may not be required to have the same hardship and dispute resolution and disconnection arrangements as an energy seller under the NECF.

Information requirements may also be applicable, to enable customers to fully

28 CSIRO (2013) Change and choice: The Future Grid Forum’s analysis of Australia’s potential electricity pathways to 2050. http://www.csiro.au/Organisation-Structure/Flagships/Energy-Flagship/Future-Grid-Forum-brochure.aspx

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evaluate the risks and benefits of going off grid before making an informed decision.

Consultation questions:

Are there other products and services emerging in the electricity supply market (beyond distributed generation and storage) that we should consider in our advice to Ministers?

Do you agree that the National Electricity Law and Rules can accommodate new products and services in this market, through the framework for authorising and exempting generators and network operators?

Is the NECF flexible enough to allow the AER to ensure customers of alternative energy sellers have appropriate consumer protections?

Will off-grid energy supply arrangements create specific consumer protection issues if this becomes a mass-market option?

Are specific consumer protections required to help consumers make informed decisions about going off-grid?

Are there other consumer protection issues we should consider in this market?

If so, how could these be addressed?

Demand management market

Products and services in the demand management market allow customers to take an action to change their electricity consumption or costs. This is distinct from providing customers with advice or information about their energy use and costs, which is discussed in the next section.

Some new products and services in the demand management market may raise questions about appropriate levels of regulation under the energy frameworks, because they involve active control of how a customer’s electricity supply is used, and decisions made on behalf of a customer, rather than by a customer.

Scenario - Home energy management systems: A provider offers a system that automates how appliances operate in response to factors like electricity prices and temperature. Dishwashers, washing machines, pool pumps and dryers can be programmed to operate when prices are low. Air-conditioners can be programmed to

provide a certain level of cooling during normal price periods, and a different level during high price periods such as a critical peak pricing event during a heatwave that results in high levels of network demand.

We consider that there is no rationale to regulate active demand management systems that operate at the discretion of the customer. The energy laws are not intended to regulate the choices that customers make about how they use energy, and these types of systems would only be automating actions that customers could do manually anyway.

Remote control of load, generation and storage

However, some forms of active demand management may operate at the discretion of parties other than the customer (with customer consent), and feedback is sought on the regulatory implications of these products where they are offered by parties not currently covered by the energy laws.

Direct load control products offered by electricity retailers or distributors are already widely available. The main example is off-peak hot water tariffs, where the water heater is separately metered and charged at a discounted rate, and heating times are controlled by a remote signal or timer according to the requirements of the distributor. This allows distributors to control when hot water loads come on line, in order to manage demand in the network. Some distributors and retailers are also offering or proposing direct load control products for other appliances. For example:

Queensland distributor Energex offers rebates for air conditioners connected to its PeakSmart system29.

Pooled Energy is an authorised retailer proposing to offer bundled electricity retail and pool pump direct load control products to small customers30.

Other parties could also offer these types of products in situations where they are not covered by the energy laws.

Scenario – Demand aggregator: a company (known as an ‘aggregator’) signs up small customers to a direct load control product and installs control equipment on suitable appliances (such as air conditioners and pool pumps). The company offers to share the financial benefit of the controlled loads with the customers (for example in the form of a fixed payment for being part of the

29 https://www.energex.com.au/sustainability/positive-payback/positive-payback-for-households/households 30 http://www.aer.gov.au/node/22521

program, and variable payments depending on how often or how long the loads are controlled).

The aggregator can operate the direct load control in accordance with the contract with the customer, and offers the load that it has under control to electricity retailers and distributors to help them manage their wholesale and network costs respectively.

As the aggregator is not operating in the wholesale market or running a network, it is not required to be registered under the National Electricity Law. As it is not selling electricity, it is also not required to be authorised or exempted as a retailer.

In future, similar business models could involve on-site generation and storage. For example, electricity stored in stand-alone batteries or batteries in electric vehicles could be aggregated and called on to support wholesale market and network objectives, as could some forms of on-site generation, such as fuel cells.

National Electricity Law and Rules

The discussion below focusses on direct load control, but the issues are essentially the same for remotely controlled generation and storage.

In the scenario above, the aggregator could have a significant amount of load under control, which is being activated according to the aggregator’s commercial incentives31. This could mean that there are large blocks of load switching on and off with no visibility to other market participants, particularly network operators. It seems possible that that this switching could have unintended results such as tripping network protection equipment, making it harder for operators to manage the stability of their networks.

Feedback is sought on whether these are material risks.

Large blocks of controlled load could also be a resource for AEMO in managing power system security events. Under the National Electricity Rules, AEMO can direct registered participants to take actions that would help restore power system security (a clause 4.8.9 instruction). Registered participants also give AEMO information that

31 Very roughly, an aggregator would need to control 4,200 pool pumps if each pump had a capacity of 1.2 kW and could only be turned on and off, to reach 5 MW of controlled load (a 5 MW generator would need to register with AEMO for power system operations reasons). An aggregator would need to control 2,900 split system air conditioners each using 1.75 kW, to reach 5 MW of controlled load. Actual demand response modes are likely to include more than just on and off, for example operating at 50% and 75% capacity.

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it uses in developing its demand forecasts, which are used in wholesale market operations, network planning and investment decisions.

For these reasons, some form of registration for demand aggregators might seem appropriate.

On the other hand, the National Electricity Law does not require customers to register large loads for power system operation reasons. Large industrial customers routinely switch large loads on and off with no obligation to inform market participants. This can be managed under the existing rules and probably affects the large customer’s retailer as much as the network.

It may also be the case that controlled loads do not represent a material risk to power system operations. For example, it is possible to stagger or randomise the operation of direct load control, so that appliances respond at slightly different times in slightly different locations, and changes in load are ramped up or down more gradually.

Registration under the National Electricity Law may also not be the best solution to any problems identified. For example, if the real issue with demand aggregation is a lack of transparency for network operators, a better option might involve communication between demand aggregators and network operators. The Energy Networks Association has previously developed a Load Management and Network Security Protocol32 that sets out principles for integrating direct load control products into distribution network operations. An alternative to registration could involve formalising this kind of protocol for use in the market.

National Energy Customer Framework

Officials have previously looked at appropriate consumer protections relating to direct load control products in the context of new products and services enabled by smart meters33. Officials considered the possible impacts of direct load control products on customers, and noted that they might have negative impacts that a customer should be aware of before accepting a direct load control product. For example, a customer should be informed about any risks before

32 ENA (2012) ENA Submission – AEMC Power of Choice Directions Paper. The text of the protocol follows Attachment 2. http://www.aemc.gov.au/Media/docs/Energy-Networks-Association---120516-e53dc460-6769-404d-9179-e6889aed62c5-0.PDF 33 EMRWG (2012) National Smart Meter Consumer Protections Review – Officials’ Report, p. 75. https://scer.govspace.gov.au/files/2012/11/Smart-Meters-Officials-Report.pdf

accepting an air conditioner direct load control product, which could arise, for example, if they have medical cooling needs.

As a result of that review, officials are drafting changes to the National Energy Retail Rules34, relating to the situations when information about a direct load control product must be given to customers, and the nature of the information. These new rules will apply to electricity retailers, distributors and their agents.

In principle, this logic should also extend to other providers of direct load control products. That is, a company offering direct load control products directly to customers should have the same marketing, information and consent obligations as a retailer or distributor offering the same product.

However, a third party demand aggregator would not be drawn into the NECF at present. We are seeking feedback on whether the discussion above leads to the conclusion that a direct load control aggregator should be subject to similar energy consumer protections, noting that this may be a barrier to entry for these businesses.

Consultation questions:

Are there other products and services emerging in the demand management market that we should consider in our advice to Ministers?

Could direct load control products create material risks for power system operations? If so, how could these risks be managed within the regulatory framework?

Are there similar implications for power system operations where distributed generation and storage are being controlled remotely?

Should parties offering direct load control products to customers have similar obligations to retailers and distributors regarding informed consent?

If so, how could these obligations be created for parties not covered by the National Electricity Retail Law?

34 http://www.scer.gov.au/workstreams/energy-market-reform/demand-side-participation/smart-meters/consumer-protections/

Energy information market

Many organisations already provide customers with information to help them manage energy consumption and costs. As advanced electricity meters and complementary technologies become more widely available, the variety and complexity of information products and services is likely to grow. These could include:

energy efficiency advice to identify opportunities to lower consumption and manage demand, and ultimately costs;

bill forecasting and checking services, for example where a customer has a solar PV system or complex energy arrangements;

price comparator websites that help customers find the best retail offer for their circumstances; and

monitoring energy use, for example through an in-home display or a web portal.

We consider there is no reason to include these types of products and services in the energy regulatory frameworks, as they don’t invoke the principles identified above. In the case of the National Electricity Law, they don’t involve the wholesale market or impact on power system operations, for example, and they don’t affect a customer’s ability to access a reliable, safe and high-quality supply of electricity under the NECF. Further, customers receive suitable consumer protections under the Australian Consumer Law.

However, there are some issues that are worth considering because they relate to the privacy and use of electricity consumption data.

Privacy and use of metering data

Metering data can be an important input to energy information products and services. Easy access to and sharing of data is an important enabler in this market.

However, some customers may only fully engage with these opportunities if they are confident that their privacy is being protected. Recent research by the Consumer Action Law Centre identified the privacy of consumption information, and the use of this information for marketing, as the two major concerns of customers about engaging with new energy products and services35.35 Consumer Action Law Centre (2014) Smart

Moves for a Smart Market, p.82. http://consumeraction.org.au/report-smart-moves-for-a-smart-market/

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There are two frameworks relevant to privacy that work side-by-side in the NEM.

National Electricity Rules: For registered participants, the National Electricity Rules include provisions relevant to the privacy of metering data. The rules define metering data as confidential information, impose obligations on the handling of confidential information, and set out which parties can access a customer’s metering data36. Registered participants must use all reasonable endeavours to make sure that confidential information stays that way, but they can disclose confidential information with consent37.

Privacy Act: This is Commonwealth legislation that includes 13 Australian Privacy Principles (APPs) that govern how some entities must handle personal information. These entities are generally Australian Government agencies, and businesses with annual turnover above $3 million, although businesses that undertake specific activities, such as disclosing personal information ‘for benefit’, are also covered by the Act38. Under the Privacy Act, ‘personal information’ is defined as “any information or an opinion about an identified individual, or an individual who is reasonably identifiable”39.

Market participants accessing data

In order for the electricity market to function, a number of parties have a genuine need to access metering data, including AEMO and electricity retailers and distributors, as well as the metering service providers that actually collect, process and deliver data. For this reason, the best framework for managing confidentiality of electricity metering data is under the electricity framework. The National Electricity Rules establish procedures for parties to access the metering data they need to fulfil their roles, while protecting the confidentiality of that data.

However, we understand that customers want to know that their privacy is being fully protected when they take advantage of opportunities in the energy information market.

36 Rule 7.10 defines metering data as confidential information. Rule 8.6 defines how Registered Participants must deal with confidential information. Rule 7.7 defines who can access metering data.37 Rule 8.6.2(c)38 http://www.oaic.gov.au/privacy/privacy-act/the-privacy-act 39 Office of the Australian Information Commissioner (2014) Australian Privacy Principle Guidelines, p.18. http://www.oaic.gov.au/privacy/applying-privacy-law/app-guidelines/

Officials have previously engaged Seed Advisory to examine privacy issues related to metering data from smart meters40. Seed Advisory found that the confidentiality requirements under the National Electricity Rules are generally consistent with the requirements of the Privacy Act, although there is scope to impose some additional obligations on electricity market participants. These relate to informing customers about how metering data is used in the market.

The AEMC has also recently considered the issue of privacy protections for metering data in its determination on a rule change request submitted by the Standing Council on Energy and Resources (SCER) (now the COAG Energy Council).

That rule change request was intended to clarify the ability of customers to access their own electricity consumption data, and the obligations on retailers and distribution businesses to provide it. The rule change request also included a proposal for retailers and distributors to provide information on their websites about how metering data is used in the market and who has access to it. This was intended to increase transparency for customers about the nature and use of metering data.

In its final determination, the AEMC did not accept this element of the rule change request. The AEMC considered that any privacy concerns are better addressed through the application of privacy legislation to the extent that metering data is personal information41.

We consider that the current arrangements are appropriate to manage how market participants handle metering data, because they balance legitimate needs for market participants to access data with the need to protect the confidentiality of customers.

However, we are interested in feedback from stakeholders on whether there are privacy issues related to market participants that have not been discussed in this paper but that should be addressed.

One example may relate to situations where market participants provide data to specialist companies for analysis, for example to identify trends that would help improve business efficiencies. We would want to ensure that data is appropriately protected in these situations.40 Seed Advisory (2013) Privacy for the National Smart Meter Program – Final Advice. http://www.scer.gov.au/files/2013/08/Final-Advice-Privacy-for-National-Smart-Metering-Program.pdf41 AEMC (2014) Final Rule Determination: National Electricity Amendment (Customer access to information about their energy consumption) Rule, p.9. http://www.aemc.gov.au/Rule-Changes/Customer-access-to-information-about-their-energy

Other parties accessing data

We also recognise that, in future, parties that are not covered by the National Electricity Rules could have access to customer metering data.

Scenarios

Energy adviser: A company (the adviser) offers to provide a customer with advice about how to lower energy costs, including by using electricity at different times of the day (because the customer has a time-of-use tariff). The customer asks their electricity retailer to give them a copy of their interval data for the past 12 months, and gives the file to the adviser. The customer gets the benefit of the advice, but the adviser also has a copy of the customer’s data.

Direct access to metering data: Smart meters can include functionality to support a home area network (HAN) that includes a link to the meter to use its measurement functions. If the system also provides this information back to a central database, the provider, who is not a market participant and not governed by the National Electricity Rules, has access to a stream of data about the customer.

Seed Advisory recommended relying on the Privacy Act to ensure the privacy of metering data that is available to parties not covered by the National Electricity Rules. This is a national regime that is considered appropriate to protect privacy with regard to many types of sensitive information about individuals.

However, other stakeholders have suggested that specific privacy protections are necessary for consumption data, so that electricity customers have confidence to engage with new products and services. For example, the Consumer Action Law Centre has proposed the development of a limited and industry specific privacy regime for consumption data that would:

include standard contract terms that cover all permitted uses of metering data;

set out the agreed primary and secondary purposes for the collection of metering data; and

ensure customers have to opt-in (rather than opt-out) to any use of metering data for any agreed secondary purpose42.

42 Consumer Action Law Centre (2014) Smart

Moves for a Smart Market, p.81. http://consumeraction.org.au/report-smart-moves-for-a-smart-market/

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There would be challenges in implementing this kind of regime in practice so that it covered all parties with access to metering data, enabled the continuing operation of the electricity market and included parties not covered by the National Electricity Rules. This would essentially involve placing special obligations on access to metering data so that all parties accessing the data were covered.

This kind of regime would also only be necessary if there was something specific about consumption data that meant it needed a specific privacy regime.

We are seeking feedback on whether metering data is sufficiently sensitive to require specific privacy protections, and if so, how these could be implemented.

Consultation questions:

Do the National Electricity Rules protect metering data sufficiently where it is held by market participants?

Is the Privacy Act sufficient to protect metering data where it is used by parties outside the electricity market?

How can the privacy expectations of customers and the need for market participants to access data best be managed concurrently?

Conclusion

This paper is intended to begin a consultation on whether the regulatory frameworks in the NEM are appropriate in the context of new products and services being offered to small electricity customers.

The National Electricity Law and Rules, and the NECF, reflect underlying principles about when activities should be regulated to ensure that the NEO and the NERO are achieved; both of these objectives are intended to ensure that the electricity market operates in the long-term interests of consumers.

As the electricity market evolves in future, these principles will continue to be relevant as a basis for making decisions about when activities should be regulated.

However, we also believe that it is appropriate to review whether the way that these principles are operationalised in the laws and rules means they are flexible enough to accommodate new products and services. This paper has discussed some of the issues that need to be considered, such as finding a balance between supporting

innovation while not infringing on the objectives that are being sought for customers.

Officials would like to hear from stakeholders about whether you think the current regulatory frameworks are sufficiently flexible, or if changes are needed which can support innovation in the small customer market.

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