What are new products and services?
New Products and Services in the
Electricity Market
Advice to the COAG Energy Council
Energy Working Group
July 2015
Contents
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Summary for Ministers
The traditional, centralised electricity supply model is being challenged by new products and services that allow customers greater control over how their electricity is delivered and consumed. These include distributed generation and storage options, demand management services such as direct load control, energy advice services, and new business models for selling energy.
The objective of this advice is to consider whether the regulatory frameworks in the National Electricity Market (NEM) will enable customers to benefit from these innovative products and services while ensuring that appropriate consumer protections and safeguards for the operation of the electricity market and networks are in place.
Policy makers need to ensure both that there are minimal barriers to entry for products and services that will benefit customers, and that regulations are appropriate to mitigate any material risks that they may cause.
In this advice, we discuss the underlying rationales to the national energy laws: the National Energy Retail Law
(South Australia) Act 2011 (the National Energy Retail Law; NERL), and the National Electricity Law (NEL), a schedule to the National Electricity (South Australia) Act 1996. We consider the objectives of each law, and the impacts that new products and services could have on these objectives. We also consider how the privacy of electricity consumption data is managed under the NEL and the Privacy Act 1988 (Cth)
(Privacy Act).
Our analysis has identified fundamental questions that should be further investigated about what we are protecting through regulations, the competitive impacts of regulation, whether alternative regulatory frameworks are more appropriate than energy-specific options, whether there are any unintended consequences or gaps in regulation, and options to address any gaps.
National Energy Customer Framework
The review has found that for many new products and services, such as energy efficiency services, direct load control and home energy management services, the Australian Consumer Law (ACL) and the Privacy Act provide an appropriate level of consumer protections.
More significant consumer protection impacts of new products and services relate to situations where customers are getting a supply of electricity under new business models involving distributed generation and storage. When the
National Energy Customer Framework (NECF) was being developed, it was assumed that purchasing a supply of electricity generated and transported in the interconnected electricity system, under a retail contract, would be the way most customers got their electricity. This will continue to be an option, but customers may also be offered alternatives including different ways of getting electricity from on- and off-grid generation.
The current energy consumer protections framework will increasingly be tested as these alternative forms of supply play a larger role in the market, and an increasing number of businesses offer services as exempt sellers under the
NECF or outside the NECF entirely. For example, there is a risk that different forms of consumer protections will be available for comparable products and services. This could create incentives to structure business in ways that avoid the energy consumer protection obligations and their associated costs, leaving an increasing number of customers outside the energy consumer protections framework. There are a number of underlying issues in this scenario, including:
customers could see different protections in relation to their supply of these products and services, depending on who their supplier is;
customers may have different protections for different products and services they receive from the same supplier; and
businesses could face different paths to market entry, and different regulatory obligations, which could distort outcomes in the market.
Through the consultation process, we identified a number of fundamental questions that need to be answered in making sure that the energy consumer protections regime remains relevant as the electricity market develops.
The first of these relates to the nature of the product or service that is being protected. The NECF sought to achieve a national regulatory regime for retailers and distributors selling and supplying energy to customers. Its aims included providing increased competition for consumers and a comprehensive package of robust energy-specific consumer protections to complement other general consumer protection laws such as the ACL and privacy legislation. The fundamental objective of the framework is the long term interest of consumers, which in competitive energy markets is
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promoted through the application and development of consumer protections to enable customers to participate in the market with confidence, support effective consumer choice and ensure ongoing access to energy on reasonable terms as an essential service. We consider that the objectives of the NECF remain appropriate.
However, the NECF was also developed on the assumption that most customers would get their supply of electricity from the grid under a retail contract. Some customers have always received their electricity supply in an off-grid arrangement; in our consultation, stakeholders identified scenarios where increasing numbers of customers could disconnect from the grid and either manage their own supply arrangements or be in a relationship with an off-grid supplier. Customers who remain on-grid will also have a range of new options to receive a supply of energy from distributed generation and storage that they either manage themselves or rely on others to manage for them. That is, customers now and in future will have a greater range of competitive options for how they get a supply of electricity.
The increasing number of options for electricity supply raises important policy questions including:
Should all electricity supply options be subject to energy-specific consumer protections when customers have a range of options they can choose from?
If a customer is receiving the majority of their energy supply from their own household generation system, should a retailer still be required to offer them the same level of consumer protection when grid electricity is not their primary electricity supply?
Answering these questions will help determine the most appropriate policy options as the electricity market changes.
Options could exist along a range, between:
expanding the NECF so that energy consumer protections apply in all situations where a customer is receiving a supply of electricity, so that risks to customers are managed in the same way in each of these situations; and
a more targeted approach where current protections could apply to a sub-set of electricity supply service that provide a ‘safety net’ of access to a supply of electricity, allowing customers to accept higher levels of risk in some electricity supply relationships in return for real or perceived benefits. This could allow for excluding some activities that are currently regulated by the NECF; or
considering that no energy-specific consumer protections are needed to manage the risks from new electricity supply products and services that fall outside the NECF, given the protections available under the ACL.
The review identified a range of issues that should be examined in future to make sure that the NECF remains flexible as the market changes:
Off-grid arrangements: There is a wide range of stakeholder views on consumer protections for off-grid supply, and whether these should be equivalent to those afforded to consumers who are connected to the grid. Currently many of the NECF protections could not be readily provided to an off-grid customer as they are predicated on a customer having a network connection. In addition, regulatory frameworks relating to off-grid installations can differ between jurisdictions and these will need to be considered further. Therefore issues relating to new products and services that enable a customer to go off-grid will need to be considered separately to those same issues in the context of on-grid customers.
Authorisations and exemptions : Energy sellers must apply for either an authorisation or exemption under the
NERL. Authorised retailers are subject to the NERL and the associated rules, including the full set of energy consumer protections. A framework for providing exemptions was also established under the NERL to address the
(then) relatively small number of situations where businesses were selling energy, but it would be too costly and/or impractical to require them to become authorised retailers, and where there was relatively little risk to customers of these sellers. At the time, examples included caravan parks, shopping centres and airports, industrial parks and some residential developments. However, since NECF commenced new business models have emerged where an exemption is now commonly sought as the path to market entry. In particular, solar power purchase agreements, where customers pay companies for the energy produced by a solar system at their premises, are becoming common in the market.
In many cases the ACL, which currently serves as the general and universal consumer protection regime for products and services in non-energy markets, offers complementary and in some cases comparable protections to the energy-specific regulations under the NECF. The review found there would be value in further examining whether protections available in the ACL address concerns expressed by stakeholders about the risks to customers arising from alternative energy supply services. This includes:
Informed choice: A number of stakeholders raised concerns that not all customers making complex decisions about their electricity supply will receive the same level of information about the agreements they are entering into.
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This is because the ACL does not include the same kinds of ‘explicit informed consent’ provisions as the NECF. If the ACL provisions were not considered appropriate for decisions about a supply of electricity, the coverage of the
NECF may need to be expanded to cover situations where decisions are being made about access to a supply of electricity. It would be worth identifying the current requirements in the ACL relating to product disclosure and whether these address concerns raised by stakeholders.
Dispute resolution: Some stakeholders argued that applying consistent dispute resolution arrangements to energy products and services would reduce confusion for customers and increase confidence to engage in emerging markets. Where a product or service is regulated under the NECF, dispute resolution services are offered by the state and territory ombudsman schemes funded by electricity market participants. Under the ACL, dispute resolution occurs through state and territory fair trading offices, where customers bear more of the cost for resolving disputes, particularly if legal action is required. The suitability of these regimes in relation to electricity supply services would be a factor to consider in making decisions about the scope of energy consumer protections.
Service and product quality: Consumer groups raised issues about the potential impacts from poor quality distributed generation or storage equipment and how these risks are most appropriately addressed. Consumer guarantee provisions in the ACL do appear to provide a good general protection regime. Self-regulation may also provide options to define service standards and offer a higher level of quality assurance. Understanding whether additional gaps or issues remain, and potential options to address them, is relevant to considering whether energy laws should be extended to these types of products.
Recommendations
1. We recommend that officials undertake further work to inform Ministerial decisions on whether the scope of energy consumer protections needs to change when customers have a range of electricity supply options. This will include assessing the appropriateness of the ACL to manage risks from new electricity supply options, and any implications for the national energy laws and rules of changing the scope of energy consumer protections, including further consideration of the issues discussed in this paper.
2. Separately, we recommend that officials undertake a review of the appropriate framework for off-grid installations, including distributed systems and individual customer off-grid systems.
National Electricity Law
The NEL works alongside the NERL to achieve important outcomes for consumers of electricity. Parties with obligations under the NEL generate and transport electricity to customers in accordance with reliability, quality and security requirements, and trade electricity in the wholesale market to achieve the best price outcomes.
Many new products and services will give consumers more choice in how they source and manage their supply of electricity. Many will also create challenges for managing the electricity network and the wholesale market. For example, selfsupply from generation and storage will increase the variability of customers’ demand for grid-supplied electricity. Direct load control products and home energy management systems will have similar impacts. Energy efficiency options are also intended to reduce the amount of electricity drawn from the grid. The key questions in this review are whether these impacts will be material and if so, whether regulation under the NEL is the appropriate response.
Our review found that there are a suite of new products and services where there is little justification for additional regulation. In particular, products and services that operate at the discretion of the customer should remain outside the NEL. Energy laws are not intended to regulate choices about how customers use energy. The energy laws are intended to create a system that operates to meet customer demand. For this reason, products and services such as home energy management systems operated by the customer, information based services such as energy efficiency advice, and energy efficient products should remain outside the scope of the energy laws.
However, where decisions about how energy is used at a customer’s premises are not being made by customers, there may be risks to power system operations. In our consultation, stakeholders raised concerns about the aggregation of load control, generation and storage, particularly by third parties outside the current regulatory framework. Network businesses highlighted that large load swings on their networks could be difficult to manage, and in worst-case scenarios could lead to large-scale outages.
Options to address these risks could include regulating information flows between networks and aggregators, or requiring aggregators to register in a new category under the NEL. However, some stakeholders argued that
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additional regulation is not needed at this time due to the early stage of market development. Some stakeholders also thought that aggregators should be able to cooperate with network operators to avoid consumer detriment, potentially using some agreed protocols, since this is in the interests of all parties. Regulation at this early stage of development could also create a barrier to entry.
There are some grey areas in how new technologies are treated under the National Electricity Rules (NER), because emerging technologies such as storage were not available when some of the definitions in the rules were being drafted. As storage becomes more common in future, these kinds of issues with definitions in the rules will become more significant and could create barriers to entry for innovative products and services. It will be important to address these issues proactively to avoid barriers to entry as well as any safety and network reliability impacts as new technologies are deployed.
New products and services could include control of how electricity is produced and used at a customer’s premises, including remote connection and disconnection of electricity via smart meters, control of appliances through direct load control and home energy management systems, and aggregation of generation and storage. Communications platforms for these products and services could include smart meter infrastructure, the internet, radio, power line carrier and cellular networks. The proliferation of technologies and service providers create cyber security risks both to individual customers and the power system. These risks are currently managed through existing work around cybersecurity and protection of critical infrastructure. We do not believe it is necessary to create additional work streams specific to new products and services. However, it will be important to ensure that new electricity products and services are considered in the existing work streams, given their potential to increase security risks.
Recommendations
We recommend that:
3. Further work identify options to manage any risks to power system operations from the aggregated control of large amounts of load that may be difficult for network operators to manage. These options would need to recognise both the operational requirements of networks and the commercial needs of aggregators.
4. The definitions in the rules should be reviewed to make sure that they are technology neutral and adaptable to future trends in technology and service innovation.
5. Officials ensure that emerging cybersecurity risks from new electricity products and services are recognised in work streams dealing with cyber security and critical infrastructure protection.
Accessing and using information
Information about energy consumption is an important input to information services. The ongoing introduction of smart meters in the National Electricity Market will mean that the volume and detail of metering data will increase. Easy access to and sharing of data will support development of innovative information and energy management services for customers.
Privacy will be a significant issue for many customers in deciding if they want to engage with these new opportunities.
Recent research by the Consumer Action Law Centre (CALC) 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 services 1 .
There are two frameworks relevant to the privacy of metering data that work side-by-side in the NEM.
National Electricity Rules: For registered participants, the NER govern the collection and use of metering data, and include provisions relevant to the privacy of metering data.
The Privacy Act 1988 (Cth): This is Commonwealth legislation that includes thirteen 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 2 .
We do not consider that privacy protections for metering data need to be amended at this stage of market development.
1 Consumer Action Law Centre (2014) Smart Moves for a Smart Market , p.82.
http://consumeraction.org.au/report-smart-moves-for-a-smart-market/
2 http://www.oaic.gov.au/privacy/privacy-act/the-privacy-act
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The current protections for metering data are generally strong. The NER provide a good level of protection for metering data where it is used by participants in the electricity market. The Privacy Act protects personal information held by all parties, with some exceptions, and is considered sufficient to protect many types of important information, such as financial information. We do not consider that metering data is sufficiently different from other kinds of information to need a specific privacy protection regime.
Exceptions in the Privacy Act relate to small businesses with turnover below $3 million per year. Even in these cases, the Privacy Act applies to some situations, including using that information ‘for a benefit’.
Small businesses can also choose to opt-in to the Privacy Act and be bound by its provisions. This would be one way for companies providing energy information services to distinguish themselves from their competitors.
If systemic privacy issues emerge in future, there is an option in the Privacy Act to develop enforceable privacy codes that can relate to a specific type of information, a class of activities, an industry sector or a type of technology. A code could be developed to manage the use of metering data by parties outside the electricity market, but we do not consider that there is a need to pursue this option at this stage.
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Introduction
Objective
The objective of this advice is to consider whether the regulatory frameworks in the NEM will enable customers to benefit from innovative products and services while ensuring that appropriate consumer protections and safeguards for operation of the electricity market and networks are in place.
Overview
The traditional, centralised electricity supply model is being challenged by new products and services that allow customers greater control over how their electricity is delivered and consumed. These include distributed generation and storage options, demand management services such as direct load control, energy advice services, and new business models for selling energy.
New products and services are only going to play a bigger role in the electricity market. As technology evolves, customers are creating demand for new ways to manage their electricity supply and costs, and innovative businesses are developing new ways to meet this demand.
Policy makers need to ensure both that there are minimal barriers to entry for products and services that will benefit customers, and that regulations are appropriate to mitigate any material risks that they may cause. This means asking some fundamental questions about what we are protecting through regulations, the competitive impacts of regulation, whether alternative regulatory frameworks are more appropriate than energy-specific options, whether there are any unintended consequences or gaps in regulation, and options to address any gaps.
In this advice, we discuss the underlying rationales to the national energy laws: the NERL and the NEL. We consider the objectives of each law, and the impacts that new products and services could have on these objectives.
Many of these new products and services could be offered by existing participants in the NEM, particularly electricity retailers and distributors. Many could also be offered by new entrants that do not have defined roles within the current national energy laws. However, the important distinction in this advice relates to the nature of the product or service and its impact on customers, not the nature of the business offering the product or service. If a product or service could undermine achieving the objectives of the energy laws, but isn’t currently covered by these laws, it may be appropriate to bring it under the energy regulatory framework.
At the same time, new products and services could offer real benefits to electricity customers, by allowing them to have more control over their electricity consumption and costs. It would not be in the long-term interests of consumers to prevent these products and services entering the market, or to impose high regulatory costs and other barriers to entry, if they do not actually affect the objectives of the energy laws.
There may also be a group of customers who don’t want to, or aren’t able to, engage with new products and services.
We need to make sure that these customers retain access to a high-quality supply of electricity, with strong consumer protections, regardless of the decisions of more engaged customers.
This advice identifies emerging challenges to the regulatory frameworks in the NEM resulting from new products and services in the electricity market. It highlights the issues identified by stakeholders and in our analysis, and sets out our advice on additional work needed to understand these issues and identify policy solutions.
Consultation process
Development of this advice included public consultations from December 2014 to March 2015. A consultation paper was published in December 2014. Thirty-three submissions on the consultation paper were received. A public workshop was held in Melbourne on 5 March 2015, which drew approximately 70 participants.
The consultation paper, submissions and workshop materials are available at http://www.scer.gov.au/workstreams/energy-market-reform/demand-side-participation/new-products-and-services-inthe-electricty-market/ .
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Scope
The scope of this advice includes:
Electricity: during the consultation process, some stakeholders raised issues about the gas market 3,4 , particularly relating to how gas and gas services can be provided to customers by on-sellers and intermediaries. However, most stakeholders addressed issues in the electricity market, where there are many more emerging products and services.
National Electricity Market: 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 (QLD), New South Wales (NSW), the Australian Capital Territory (ACT), Victoria (VIC), Tasmania (TAS) and South Australia (SA). However, the discussion will also be relevant to markets in Western Australia (WA) and the
Northern Territory (NT).
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 customers 5 . 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 so a greater level of regulatory oversight is appropriate.
What are new products and services?
In our consultation paper, we asked for feedback on the kinds of products and services that stakeholders see emerging in the market now or in the future. Stakeholders responded with many examples, including:
various forms of distributed generation, including solar photovoltaic, fuel cell and gas generation, with and without storage;
stand-alone storage;
new financing options such as power purchase agreements and leasing;
off-grid options both for individuals and for groups of customers;
demand management services such as direct load control and home energy management systems, as a service to customers and/or networks and retailers through demand aggregators;
energy consultation and advice services, both to residential customers and to businesses; and
new business models for selling energy, particularly the growth of exempt sellers in embedded networks such as residential developments.
Who is providing new products and services?
Many existing businesses in the market are starting to respond to the emergence of new products and services.
Authorised retailers are developing new forms of electricity retail contracts that offer better services and more choice for customers, and are starting to provide alternative products and services themselves, including distributed generation and storage systems. Distribution networks are thinking about how they can use new technologies to provide regulated services to customers in different ways, and how they can enter competitive markets to provide new services.
Many new products and services are also being offered by companies outside the current regulatory framework.
Some are small start-up companies while others are larger, well-established businesses. Some are offering wellunderstood services such as energy efficiency advice or tariff advice, while others are investigating new markets such as distributed generation and storage, and aggregation of load, generation and storage. One common feature of
3 E.g. Jemena.
4 In this advice, submissions are referred to using the name of the submitting organisation or person only. Submissions are available at the website above.
5 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.
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these companies is that, at the moment, their activities do not cross one of the thresholds that trigger regulation under the national energy laws.
Regulating providers or activities?
The table below summarises the combinations of activities and providers that we are considering in this paper, with examples of possible products and services for each, categorised according to the current rules.
Party regulated under the energy laws (e.g. retailer, exempt seller, distributor)
Party not regulated under the energy laws
Regulated activity
Sale of energy by an authorised retailer
Provision of distribution network services
Sale of energy by an exempt seller (regulated but exempt from all or certain parts of the NECF)
None
Unregulated activity
Many of the activities in the cell to the right 6
Leasing of solar equipment,
Aggregator of load, generation and/or storage
Seller/installer of generation and/or storage
Energy efficiency advice
Comparator website
Home energy management system
Under the national energy laws, activities, rather than companies, are regulated because they could affect achievement of the laws’ objectives. Debate around regulation of new products and services is often phrased in terms of whether new companies should be regulated in the same way as existing companies in the electricity market.
However, the discussion is really about whether new activities should be regulated in the same way as existing activities 7 .
6 For distribution network businesses, there are complexities in determining the situations when these activities can be undertaken as part of the regulated business or as competitive activities.
7 There are also complexities where currently regulated providers are offering new products and services. For example, the activity of selling energy is regulated under the National Energy Customer Framework (which is discussed in more detail below). If an authorised retailer also offers separate products and services, such as selling appliances or photovoltaic systems, these would be regulated under the Australian Consumer Law rather than the National
Energy Customer Framework, except where these other products and services are bundled with the sale of energy.
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Consumer Protections
Overview: Implications of new products and services for energy consumer protections
When the NECF was being developed, it was assumed that purchasing a supply of electricity generated and transported in the interconnected electricity system, under a retail contract, would be the way most customers got their electricity. This will continue to be an option for the majority of customers, but an increasing number of customers are also likely to consider different ways of getting electricity. Both on- and off-grid customers will be presented with new options involving distributed generation and storage. Depending on technology costs and personal preference, on-grid customers may consider disconnecting from the grid altogether.
The current energy consumer protections framework will increasingly be tested as these alternative forms of supply play a larger role in the market, and an increasing number of businesses offer services as exempt sellers under the
NECF, or outside the NECF entirely. For example, there is a risk that different forms of consumer protections will be available for comparable products and services. This could create incentives to structure business in ways that avoid the energy consumer protection obligations and their associated costs, leaving an increasing number of customers outside the energy consumer protections framework.
There are a number of underlying issues in this scenario, including:
customers could see different protections in relation to their supply of these products and services, depending on who their supplier is;
customers may have different protections for different products and services they receive from the same supplier; and
businesses could face different paths to market entry, and different regulatory obligations, which could distort outcomes in the market.
Consumer protections issues may also arise in relation to other new products and services. Although products and services such as energy efficiency, direct load control and home energy management services are intended to provide benefits for customers, there is a risk that complexity of choice can lead to decisions which have detrimental outcomes for customers. For example, if energy efficiency options don’t deliver expected benefits, customers might end up paying more for electricity than they expected. However, an important question here relates to whether this kind of customer detriment should be dealt with under the energy laws, or under general consumer law. The review found that the ACL is the appropriate framework for providing consumer protections for these types of products, because these products do not affect whether a customer has access to a supply of electricity.
Why are there energy-specific consumer protections?
In the NEM, the NECF provides an energy-specific consumer protections regime. In our consultation process, we tested the underlying rationale for providing energy-specific consumer protections, rather than relying on general consumer law. Ministers established a national framework for energy-specific consumer protections because of the nature of energy as an essential service, and the need for regulations that balanced the goal of fostering innovation and competition while also providing a strong consumer protections regime for small consumers. The reliable and safe supply of energy is fundamental to the well-being of residents of Australia, and a reliable supply of energy contributes to Australia’s competitiveness and economic prosperity. The NECF, and state and territory equivalents, reflect that customers should be able to access a reliable, safe and high quality supply of energy, and that this supply can only be withdrawn in specific circumstances and after appropriate procedures have been followed.
Stakeholders generally agreed on the need for energy-specific consumer protections. However, stakeholders also argued that a range of other issues are significant in considering whether energy specific consumer protections are efficient and effective, including needing to address a demonstrable issue that cannot be addressed by other means, promoting competition, and not unduly advantaging or disadvantaging particular market participants 8 .
8 E.g. Vector p.2, Embertec p.4, Energy Networks Association p.4.
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Scope of energy consumer protections
In the consultation process, we identified a number of fundamental questions that need to be answered in making sure that the energy consumer protections regime remains relevant as the electricity market develops.
The first of these relates to the nature of the product or service that is being protected. The NECF sought to achieve a national regulatory regime for retailers and distributors selling and supplying energy to customers. Its aims included providing increased competition for consumers and a comprehensive package of robust energy-specific consumer protections to complement other general consumer protections provided through the Australian Consumer Law and privacy legislation. The fundamental objective of the framework is the long term interest of consumers, which in competitive energy markets is promoted through the application and development of consumer protections to enable customers to participate in the market with confidence, support effective consumer choice and ensure ongoing access to energy on reasonable terms as an essential service. We consider that the objectives of the NECF remain appropriate.
However, the NECF was also developed on the assumption that most customers would get their supply of electricity from the grid under a retail contract. Some customers have always received their electricity supply in an off-grid arrangement; in our consultation, stakeholders identified scenarios where increasing numbers of customers could disconnect from the grid and either manage their own supply arrangements or be in a relationship with an off-grid supplier. Customers who remain on-grid will also have a range of new options to receive a supply of energy from distributed generation and storage that they either manage themselves or rely on others to manage for them. That is, customers now and in future will have a greater range of competitive options for how they get a supply of electricity.
The increasing number of options for electricity supply raises important policy questions including:
Should all electricity supply options be subject to energy-specific consumer protections when customers have a range of options they can choose from?
If a customer is receiving the majority of their energy supply from their own household generation system, should a retailer still be required to offer them the same level of consumer protection when grid electricity is not their primary electricity supply?
Answering these questions will help determine the most appropriate policy options as the electricity market changes.
Options could exist along a range, between:
expanding the NECF so that energy consumer protections apply in all situations where a customer is receiving a supply of electricity, so that risks to customers are managed in the same way in each of these situations;
a more targeted approach where current protections could apply to a sub-set of electricity supply service that provide a ‘safety net’ of access to a supply of electricity, allowing customers to accept higher levels of risk in some electricity supply relationships in return for real or perceived benefits. This could allow for excluding some activities that are currently regulated by the NECF; or
considering that no energy-specific consumer protections are needed to manage the risks from new electricity supply products and services that fall outside the NECF, given the protections available under the ACL.
Assessing the protection frameworks appropriate for new energy supply options requires in-depth analysis of the consumer protections we offer to customers in the NECF and ACL. For example, the NECF includes consumer protections in relation to billing, tariffs and marketing which would not be available to a consumer receiving energy supply from generation systems they own and operate. Some of the issues raised by stakeholders regarding the protections available in the NECF versus the ACL are discussed further below.
A range of issues would also be needed to be considered to understand the implications of policy choices on the scope of energy consumer protections, including impacts for competition, barriers to entry and costs to business and consumers of different regulatory options.
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How are energy-specific consumer protections provided?
The NECF provides a range of protections to energy customers. It applies to the retail sale of electricity and gas to residential and small business customers, and to large customers in a limited way. The NECF comprises the NERL and a number of related instruments, particularly the National Energy Retail Rules (NERR).
The objective of the retail law (the NERL, or National Energy Retail Objective (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, reliability and security of supply of energy.” 9
The NERL and the related NERR 10 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. The inclusion of distribution businesses in the NECF provides protections relating to a customer’s access to distribution services.
Under the NECF, residential and small business customers of authorised retailers are supported by a range of consumer protections, including guaranteed access to an offer of supply for electricity and gas, requirements around explicit informed consent to enter into market contracts, customer hardship regimes and limitations on disconnections.
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 authorisation 11 .
The AER considers a number of factors in deciding whether an authorisation or exemption is appropriate, such as whether selling energy is a core part of the business model and whether it provides the customer with their primary source of energy, and in deciding on the appropriate conditions to place on an exempt seller. The protections offered to customers of exempt sellers vary depending on the circumstances of the seller and the level of protection required by the customer. For instance, some sellers are entirely exempt from the NECF, some sellers are required to provide information to customers about their rights (such as which protections are available or not available), and some are subject to part but not all of the NECF protections. Market entry for new and innovative energy selling business models is currently mostly occurring through the individual exemption application process on a case by case basis.
The need to provide important protections for consumers, while not creating barriers to entry and innovation, was recognised during development of the NECF. When the legislation was introduced in the South Australian Parliament, as lead legislator, the second reading speech noted that:
“Energy Ministers have sought to ensure strong protections for consumers, while also seeking to balance the benefits of such protections against the cost of additional regulatory obligations, which ultimately get passed through to customers, and can act as a barrier to competition and innovation.” 12
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 ACL, which came into effect in 2010, 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 13 .
9 National Energy Retail Law, section 13. The national energy laws can be accessed from www.aemc.gov.au/Australias-Energy-Market/Market-Legislation
10 These rules can be accessed from www.aemc.gov.au/Energy-Rules/Retail-energy-rules/Current-rules
11 Details of the AER’s role in retail authorisation and exemptions are available at www.aer.gov.au/retail-markets/authorisations and http://www.aer.gov.au/retail-markets/retail-exemptions .
12 http://my.lawlex.com.au/tempstore/SA/Hansard/118811.htm
13 See www.consumerlaw.gov.au
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Other general consumer protections are provided by state and territory fair trading legislation. Privacy issues are dealt with under the Privacy Act, which is discussed in more detail later in this advice.
Appropriateness of ACL protections
In many cases the ACL offers similar protections to the NECF. It would be worth considering the extent to which the protections available in the ACL address many of the concerns expressed by stakeholders about the risks to customers arising from new electricity supply products and services. For example, concerns about the quality and performance of generation and storage systems may be addressed by protections relating to guarantees and warranties.
There are differences between the NECF and the ACL, however. For example, dispute resolution under the NECF in relation to authorised retailers is managed through the state and territory ombudsman schemes, which are funded by registered energy market participants. The ombudsmen can deal with disputes relating to the terms and conditions of electricity retail contracts, but don’t deal with issues regarding exempt sellers (except in New South Wales), or complaints of faulty products such as generation and storage. Dispute resolution under the ACL is handled through state and territory fair trading offices, with customers paying more of the cost for dispute resolution services. The ACL is a universal law that does not address the specific information requirements that some stakeholders believe should be placed on generation and storage providers.
Need for change in energy consumer protections
We sought feedback on the need to extend energy consumer protections to new products and services in the electricity market.
Some stakeholders considered that few if any changes are needed. These stakeholders argued that minimal regulation will be best for customers because it creates the best environment for competition and innovation. For example, the Energy Storage Council argued that regulation should not be prescriptive and should play the smallest role possible in the market, so that the market can decide which energy products and services should succeed 14 .
United Energy argued that customers making choices about discretionary products will make both good and bad choices, and “it is not appropriate for policy makers to regulate a consenting adult from making a bad choice” 15 .
Vector Limited also considered that more prescriptive arrangements in a rapidly changing market would limit competition and innovation that would benefit consumers 16 . Vector argued that regulators should “focus on removing barriers to the introduction of new technologies and services, to promote innovation. Instead of imposing additional compliance costs and rules, regulators should create an environment that enables commercial solutions to be developed, including the efficient resolution of consumer complaints.” 17 Vector considered that the consultation paper appeared to pre-empt problems that did not yet exist 18 , and that new regulations should only be considered if particular consumer issues become systemic 19 .
We agree that competition and innovation should drive outcomes in the electricity market. We also agree that it is important to respect consumer choice relating to their electricity supply. Much of the policy direction in the NEM is intended to improve the ability of customers to make choices about how they access and use a supply of electricity.
As more options emerge for customers to get a supply of electricity, thought needs to be given to the level of consumer protections associated with these products, particularly the role of consumer protections to help consumers manage the risks associated with their supply arrangements. Consumers are best placed to determine the level of risk they wish to accept in return for certain benefits. For example, customers may choose a higher level of risk in self-supply options, in return for real or perceived benefits such as energy independence or lower costs. Further work could be undertaken to understand whether the current scope of energy consumer protections supports these kinds of choices where customers have a range of electricity supply options.
Other stakeholders considered that changes are needed to align consumer protection obligations on providers of new products and services with those of electricity retailers. These submissions suggested that consumers would benefit from higher levels of protection when dealing with new electricity products and services, and less confusion when
14 Energy Storage Council, pp.2-3.
15 United Energy, p.2.
16 Vector Ltd, p.1.
17 Vector Ltd, p.3.
18 Vector Ltd, p.4.
19 Vector Ltd, p.5.
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trying to resolve issues. This position reflects a view that energy consumer protections should apply to all situations where customers are receiving a supply of electricity.
For example, the Energy and Water Ombudsman (EWON) NSW argued that “it is critical that new energy products and services are developed and operate with alignment to energy specific consumer protection and energy regulation.” 20 This would mean that customers of these companies would have access to the same arrangements for explicit informed consent, dispute resolution and other consumer protections as customers of authorised retailers.
Other stakeholders considered that changes are needed to make energy consumer protections more light-handed for all participants. For example, Origin argued that:
“given the rapidly evolving nature of the electricity market and growing competition enabled by technology, Origin would strongly encourage EMRWG to focus its efforts on a review of the National Energy Customer Framework
(NECF) more generally. The NECF was drafted with the conventional energy supply market as its basis. Evolving energy market dynamics due to changing customer preferences and emerging technologies question whether this foundation assumption continues to apply. Consequently, it is timely to consider whether the extensive energy regulatory framework applied in addition to the ACL will, over time, become increasingly incongruous with market reality.” 21
The Energy Networks Association (ENA) also supported a broader review of energy consumer protections, including to identify whether there are “opportunities to achieve more efficient or light-handed regulatory obligations for all sellers, including reta ilers and innovative business models.” 22
Off-grid
Of the specific new products and services that might emerge in future, off-grid options attracted the most comment from stakeholders. It is useful to discuss this issue in detail, because it highlights some fundamental issues about the reasons for energy-specific consumer protections.
There are different types of risk involved in going off-grid than are faced by on-grid customers. This is because electricity market participants manage many forms of risk on behalf of grid-connected customers. Electricity networks manage the risks involved in providing regulated levels of quality and reliability, so that customers don’t need to consider these issues when choosing their retail contract. Retailers manage much of the risk in the cost of generation, through their wholesale market operations. As a result, retail customers mainly have to think about which retail tariff is the best option, along with choices about additional services, discounts and other benefits that might be offered.
Customers choosing to go off-grid may need to think about all of the risks that are otherwise managed by networks and retailers. However, some customers might be willing to accept higher levels of risk, in return for real or perceived benefits including lower costs, environmental sustainability or energy independence.
The Alternative Technology Association (ATA) and the Consumer Utilities Advocacy Centre (CUAC) noted that high quality, properly designed stand-alone power systems can deliver similar or higher levels of reliability to the national electricity grid. However, where customers choose cheaper, lower quality systems that could be more likely to fail, from suppliers that might not be committed to providing after-sale service and honouring warranties, risks to customers could include lack of access to electricity if there is no back-up generator, or high costs of running a backup generator if there is one 23 .
Most stakeholders considered that there should be some level of consumer protection for customers thinking about going off-grid, ranging from requirements to provide information to help customers make this choice, to requiring explicit informed consent in the same way as the NECF, to extending similar consumer protections to off-grid customers as on-grid customers.
20 Energy and Water Ombudsman NSW, p.3.
21 Origin, p.1.
22 Energy Networks Association, p.4.
23 Alternative Technology Association and Consumer Utilities Advocacy Centre, p.12.
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For example, the South Australian Council of Social Services (SACOSS) argued that customers who choose to go off-grid should also be in a position to assume all of the risk associated with this decision 24 . SACOSS suggested that customers should be given clear information about the implications of their choice, including clearly demarcating the protections available under the NECF and the ACL, and be required to give explicit informed consent as described in the NERL, to ensure customers are informed and engaged in their decisions 25 . Ergon Energy suggested that requiring that information be presented in a consistent way, and standard terms and conditions for off-grid arrangements, would be appropriate for mass-market off-grid options 26 .
A number of stakeholders discussed the situations where customers who have chosen to go off-grid subsequently decide to re-connect; reasons for this might be dissatisfaction with the off-grid service, or better prices or opportunities for energy trading by being on grid. The Clean Energy Council suggested that “[i]f a customer were to disconnect from the grid and subsequently finds the service provided by their alternative energy seller to be inadequate for their needs they would retain the option of reconnecting to the grid.” 27 However, some stakeholders noted that the option to reconnect to the grid may not always be available at low cost, and so may not be an effe ctive form of ‘last resort’ consumer protection. Talking about the case where a group of customers are in a micro-grid, Networks NSW argued that:
“[i]t cannot be assumed that the DNSP’s network can easily connect or re-connect to a private network or micro-grid without major upgrades, as increasingly with cost reflectivity it may not be feasible for DNSPs to retain backup supply capacity in limited circumstances should a private network or micro-grid fail; it would be inequitable if risk mitigation required these back supply costs to be borne by a DNSP’s customer base and would represent a cross subsidy from the DNSP to the private network or microgrid.” 28 .
SACOSS argued that reconnecting customers shouldn’t be cross-subsidised by customers who remained on-grid.
SACOSS suggested that consumer protections should include requiring customers to be informed about the potential costs of re-connecting to the grid 29 . The Clean Energy Council argued that protections for off-grid customers should include a clear path to reconnection.
There is clearly a wide range of stakeholder views on consumer protections for off-grid supply, and whether these should be equivalent to those afforded to consumers who are connected to the grid. Currently many of the NECF protections could not be readily provided to an off-grid customer as they are predicated on a customer having a network connection. In addition, regulatory frameworks relating to off-grid installations can differ between jurisdictions and these will need to be considered further. Therefore issues relating to new products and services that enable a customer to go off-grid will need to be considered separately to those same issues in the context of on-grid customers.
Authorisations and exemptions
Some stakeholders commented that the authorisations and exemptions framework may not be fit for purpose for much longer. Simply Energy noted that the current framework means that the AER is being placed in a policy making role rather than enforcement role 30 . That is, with each new technology and each new business model, the AER has to interpret the rules and decide on the appropriate regulatory options, rather than the rules themselves providing appropriate guidance. Simply Energy suggested that this could be addressed by creating an intermediate ‘small scale authorisation’ that would sit between a full retailer authorisation and exemption 31 .
The Energy Supply Association of Australia (ESAA), the ATA and the CUAC suggested that the definition of ‘sale of energy’ should be expanded to include ‘sale (or provision) of energy services’ 32 . This would mean that businesses providing energy services would be regulated under the same framework, which could still allow different products and services to be treated differently according to their level of risk to customers.
24
South Australian Council of Social Service, p.4.
25 South Australian Council of Social Service, p. 4.
26 Ergon Energy p.2.
27 Clean Energy Council, p.4.
28 Networks NSW, p.13.
29 South Australian Council of Social Service, p.4.
30 Simply Energy, p.5.
31 Simply Energy, p.5.
32 Energy Supply Association of Australia pp.2-3, Alternative Technologies Association and the Consumer Utilities Advocacy Centre pp.6-7.
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The original intent of exemptions under the retail law was to deal with situations where businesses are selling energy but it would be too costly or impractical to require them to become authorised retailers. At the time, examples included caravan parks, shopping centres and airports, industrial parks and some residential developments. However, since the NECF commenced new business models have emerged where an exemption is sought as the path to market entry. In particular, solar power purchase agreements, where customers pay companies for the energy produced by a solar system at their premises, are becoming common in the market.
The authorisations and exemptions framework was designed to provide the AER with significant discretion. The AER has discretion in relation to the conditions that it imposes on businesses that sell energy and in situations where businesses need to apply to the AER for an exemption. For example, the AER’s exempt selling guideline identifies a number of exemption categories, including for deemed exemptions, exemptions that must be registered with the AER, and exemptions that must be applied for 33 .
Case study: Generation and storage
Depending on the end product they are selling, companies providing distributed generation and storage are currently regulated in a number of ways:
companies selling generation and storage equipment outright to customers are not covered by the NECF, because they are not selling energy;
similarly, companies that lease solar equipment and storage to customers are not covered by the NECF, because there is a fixed lease charge rather than a ‘sale of energy’;
companies providing solar power purchase agreements, where the output of a system is sold to the customer per kilowatt hour, are covered by the NECF because energy is being sold; the AER is generally granting exemptions to these companies at the moment.
The AER is currently in the situation of needing to assess numerous applications for exemptions received from providers of solar power purchase agreements, because these businesses are selling the energy from these systems to their customers in kilowatt hours. The ATA and the CUAC noted that while these companies are regulated by the AER, other companies providing basically the same service are not, because they are offering a leasing arrangement 34 . This could be an argument that the energy consumer protections should be extended to other companies offering the same basic service, perhaps by changing the threshold from ‘sale of energy’ to something else that would capture these other business models.
A different argument would be that the energy consumer protections shouldn’t apply to solar power purchase agreements. It’s difficult to understand what the real differences are between purchasing a system outright versus paying for it in cents per kilowatt hour or in dollars per month. These are different ways of paying for the equipment, with different ownership outcomes and with maintenance services included. Protections for similar purchases of goods and services are available under general consumer law.
Informed choice
Under the NERL and the related rules, customers are required to provide explicit informed consent when entering into a market contract for the sale of electricity, and in some other situations 35 . This ensures that customers are provided with the information that they need in order to make a decision, and that there is a record of their decision should there be a dispute about whether consent was given.
Some stakeholders considered that requiring explicit informed consent is a useful regulatory tool when consumers are faced with complex decisions. TasNetworks noted that:
“We concur with the Consultation Paper that explicit informed consent provides effective assurance that the terms and conditions associated with a product or service are fair and reasonable. It is particularly important to focus on the need for explicit informed consent in markets that are immature, especially where the risks to customers’ access to reliable and safe energy are potentially significant.” 36
33 www.aer.gov.au/retail-markets/retail-exemptions
34 Alternative Technology Association and Consumer Utilities Advocacy Centre, p.8.
35 National Energy Retail Law, Division 5.
36 TasNetworks, p.5.
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The ESAA took this idea further, arguing that “the ESAA supports the proposition that adults, through explicit informed consent, should be able to negate the need for consumer protections in the NERL, over and above those found in the
ACL.” 37
Other stakeholders were concerned that explicit informed consent is not always an effective consumer protection, because it assumes a level of engagement and understanding that consumers may not always have. The Ethnic
Communities Council of NSW had concerns with the effectiveness of explicit informed consent with regard to culturally and linguistically diverse (CLAD) communities. Special attention to providing information in community languages, by people with cultural appropriate cultural understanding, is needed to make sure that consent is actually well informed.
Our understanding from the consultation process is that stakeholders are as much concerned with the nature of the information provided to customers before they make decisions relating to their electricity supply as they are with customers giving consent to new supply arrangements.
We consider that further analysis of decisions points and the information provided to consumers at these points is warranted.
Dispute resolution
Under the NERR, authorised retailers have obligations to provide customers with information about their complaints and dispute resolution procedures. Retailers must also join the ombudsman schemes in the states and territories where they operate. Ombudsmen can make binding decisions regarding customer disputes with retailers 38 .
Some stakeholders argued that applying consistent dispute resolution arrangements to energy products and services would reduce confusion for customers and increase confidence to engage in emerging markets.
For example, the CALC argued that bringing different energy products and services under a single regulatory framework, with a single regulator, would lead to better outcomes for consumers, and that “without a comprehensive consumer protection framework, consumer detriment is likely to arise, leading to consumer distrust.” 39 The Energy and Water Ombudsmen of Victoria (EWOV) and EWON argued that consumer protections should be consistent and easy to access regardless of the provider. EWOV argued that “all energy consumers, including those of alternative energy sellers, should have access to a free and independent dispute resolution mechanism.” 40 EWON argued that access to independent dispute resolution is an important consumer protection, and recommended that officials engage with ombudsmen about extending the current schemes to new products and services 41,42 .
We consider that further work should examine the dispute resolution options available when customers choose alternative electricity supply arrangements.
Service and product quality
Consumer groups raised issues about the potential impact of poor quality distributed generation or storage equipment on consumers and how these risks should be addressed. ATA and CUAC’s submission noted, in an off-grid situation, equipment failure could result in significant costs for back up generation or complete loss of power if access to backup had not been planned for. The submission recommended that specific protections should be offered by providers of these products, including performance guarantees and full disclosure of detailed product information to allow for easy repair and replacement of parts.
Consumer guarantee provisions in the ACL do appear to provide a good general protection regime addressing these types of issues including provisions around product quality, ensuring any representations of performance, including warranties and guarantees, are disputable, ensuring services are carried out with reasonable care and skill, and repairs and spare parts are reasonably available.
Industry codes, such as those developed by Clean Energy Council also appear to provide a means to raise service standards and offer a higher level of quality assurance.
37 Energy Supply Association of Australia, p.4.
38 See for example National Energy Retail Rule 50.
39 Consumer Action Law Centre, p.2.
40 Energy and Water Ombudsman Victoria, p. 5.
41 Energy and Water Ombudsman NSW, p.3.
42 NSW is the only jurisdiction where the energy ombudsman scheme applies to exempt energy sellers. These exempt sellers do not currently contribute to the financial operation of this scheme. No energy ombudsman scheme currently applies to other kinds of new products and services, such as energy advice, home energy management or direct load control.
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Clean Energy Council’s Solar Photovoltaics (PV) Retailer Code of Conduct
The Clean Energy Council (CEC) has developed an Industry Code for Solar PV which has been authorised by the
ACCC. It is a voluntary scheme for retail businesses selling solar PV to households and businesses.
The CEC manages the code and ensures the signatories comply with its requirements which include:
demonstrating compliance with relevant consumer protection laws prior to accreditation;
demonstration of best practice pre-and post-sale activities; and
whole of system 5 year warranty.
In March 2015, the independent Code Review Panel decided to extend the application of the code to solar power purchase agreements (PPAs) and leases. This will also include details on the financial arrangements offered for these types of products including:
the comparative cost of that same product if the consumer was to purchase it outright;
under a solar leasing offer, the aggregate amount payable over life of the financing term;
under a PPA, the aggregate amount payable over the contract term based on an estimate of solar-generated electricity consumed;
details of any exit payments or penalties associated with the finance arrangement; and
whether the consumer owns the system at the conclusion of agreement.
Prior to considering the need for further extension of energy specific laws to cover these types of products, it would be worth exploring whether ACL provisions and industry codes can address key concerns raised by consumer groups in relation to new electricity supply products and services. This could be used to understand if additional gaps or issues remain, and whether other potential options are necessary or appropriate to address them.
Recommendations
1. We recommend that officials undertake further work to inform Ministerial decisions on whether the scope of energy consumer protections needs to change when customers have a range of electricity supply options. This will include assessing the appropriateness of the ACL to manage risks from new electricity supply options, and any implications for the national energy laws and rules of changing the scope of energy consumer protections, including further consideration of the issues discussed in this paper.
2. Separately, we recommend that officials undertake a review of the appropriate framework for off-grid installations, including distributed systems and individual customer off-grid systems.
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National Electricity Law
The NEL works alongside the NERL to achieve important outcomes for consumers of electricity. Parties with obligations under the NEL generate and transport electricity to customers in accordance with reliability, quality and security requirements, and trade electricity in the wholesale market to achieve the best price outcomes.
The objective of the NEL (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” 43 .
The NEL and the related NER 44 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 5-6 A); and
defining metering arrangements (Chapter 7).
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).
In our consultation paper, we proposed the following principles 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, reli ability and security (referred to as ‘power system operations’ in the rest of this paper 45 ).
Stakeholders did not particularly comment on these principles, other than to note that words like ‘affects’ could be too broad to help in making decisions about whether activities should be regulated. Stakeholders were more focussed on how emerging products and services, particularly demand aggregation, could affect power system operations or the wholesale market.
Impacts of new products and services
Many new products and services will give consumers more choice in how they source and manage their supply of electricity. Many will also create challenges for managing the electricity network and the wholesale market. For example, self-supply from generati on and storage will increase the variability of customers’ demand for grid-supplied electricity. Direct load control products and home energy management systems will have similar impacts. Energy efficiency options are also intended to reduce the amount of electricity drawn from the grid.
The key questions in this review are whether these impacts will be material and if so, whether regulation under the
NEL is the appropriate response.
43 National Electricity Law, section 7.
44 These Rules can be accessed from http://aemc.gov.au/Energy-Rules/National-electricity-rules/Current-Rules
45 ‘Power system security’ has a specific meaning in the NER, and we are interested in a wider range of issues in this paper.
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Low risk products
Our review found that there are a suite of new products and services where there is little justification for additional regulation.
In particular, products and services that operate at the discretion of the customer should remain outside the NEL.
Energy laws are not intended to regulate choices about how customers use energy. The energy laws are intended to create a system that operates to meet customer demand. For this reason, products and services such as home energy management systems operated by the customer, information based services such as energy efficiency advice, and energy efficient products fall outside the scope of the energy laws. We don’t see any reasons for this to change.
Material risks of aggregation
However, where decisions about how energ y is used at a customer’s premises are not being made by customers, there may be risks to power system operations. In our consultation, stakeholders raised concerns about the aggregation of load control, generation and storage, particularly by third parties outside the current regulatory framework.
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 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 NEL. As it is not selling electricity, it is also not required to be authorised or exempted as a retailer.
Network providers highlighted the potential for large aggregators to reduce diversity in how customer loads operate 46 .
Currently, changes in the timing, quantity and location of electricity use are randomised by the independent choices of users. Where companies are operating aggregated load, generation or storage, some of this randomisation would be lost, resulting in potentially large swings in demand which would be difficult for networks to manage. The ENA suggested that, in the worst case, large-scale outages could result from these kinds of sudden swings 47 .
Options to address these risks could include regulating information flows between networks and aggregators, or requiring aggregators to register in a new category under the NEL. In its submission, AEMO recommended expanding registration under the rules to parties controlling greater than 5 megawatts of demand that is dispatchable within 5 minutes 48 . This is analogous to generators above 5 megawatts, which must be registered with AEMO. These participants would then need to give AEMO information about its operations that could be used in forecasting, and
AEMO could direct aggregators to operate their loads to protect system security in emergencies. Energex made a similar proposal, that the obligations on demand aggregators should be similar to the generator registration rules, with thresholds related to the amount of load under control, or the number of customers in a particular network area 49 .
However, some stakeholders argued that additional regulation is not needed at this time due to the early stage of market development 50 . Some stakeholders also thought that aggregators should be able to cooperate with networks to avoid consumer detriment, potentially using commercial agreements or agreed management protocols, since this is in the interests of all parties 51 . Regulation at this early stage of development could also create a barrier to entry 52 .
We agree that there is the potential for aggregation of load, generation and storage to create risks for power system operations, particularly where large volumes of aggregation are concentrated in a particular area of the network.
46 E.g. Networks NSW, p.14.
47 Energy Networks Association, Network Load Management Principles (workshop presentation attached to submission), p.5.
48 Reference AEMO
49 Energex, p.3.
50 E.g. TasNetworks, p.4.
51 E.g. Embertex, p.3.
52 Energy and Water Ombudsman NSW, p.2.
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Recommendation
3. Further work should be undertaken to identify options to manage any risks to power system operations from the aggregated control of large amounts of load that could be difficult for network operators to manage. These options would need to recognise both the operational requirements of networks and the commercial needs of aggregators.
Distributed generation and storage
New generation and storage options will have a major impact on how electricity is generated and transported throughout the national grid. Many customers are choosing to invest in generation options to better control their energy use and costs, which are likely to be combined with storage in future. This will affect the timing and flow of energy within networks, and change patterns of demand in the wholesale market.
In urban networks, the majority of customers are likely to maintain grid connections for the foreseeable future.
Although falling technology costs and individual preferences mean going off-grid may become attractive for some customers, there are many benefits from remaining connected to the grid, which provides a cost-effective back-up supply, opportunities for trading energy and for accessing other services such as direct load control. Many customers also won’t want to or won’t be able to disconnect because of their own preferences and the characteristics of their premises.
Whilst significant work has been undertaken on the treatment of embedded generation under the rules, the treatment of energy storage under the NEL and the NER is unclear. This appears to be most relevant in the connections framework under Chapter 5 and 5A, where it is unclear how storage technologies should be treated, since they could be operated either to export (and be considered generators) or import (and be considered loads).
As storage becomes more common in future, these kinds of issues with definitions in the rules will become more significant and could create barriers to entry for innovative products and services. It will be important to address these issues proactively to avoid barriers to entry as well as any safety and network reliability impacts as new technologies are deployed.
The National Electricity Rules include a number of elements that will provide some flexibility as the electricity market changes in future.
The Australian Energy Market Commission (AEMC) has completed a rule change proposed by the COAG Energy
Council that will enable more cost reflective network prices in the NEM. These prices will start to be introduced from
2017 53 and will be important in providing signals to customers to operate their generation and storage technologies in a way that supports efficient integration into the grid. The AEMC is considering another rule change proposed by the
Energy Council to improve the incentives for distribution businesses to undertake demand management projects as an alternative to infrastructure investments 54 . The AEMC has also completed rule changes that clarify the processes for connecting embedded generators in distribution networks 55 .
In addition, the AEMC is undertaking a project that seeks to understand the regulatory impacts of integrating energy storage into Australia’s electricity sector. The project is examining storage technologies that may emerge in the next
15 years, how they may be used at various parts of the electricity supply chain and the impacts that will have.
The AEMC intends to identify the key regulatory issues that would result and to indicate a way forward for addressing those. Issues may include, but will not be limited to:
registration of storage assets;
connection processes;
interactions with network regulation and cost recovery; and
consumer protections.
We will consider the AEMC’s work in future policy work on the impacts of storage in the market.
53 www.aemc.gov.au/Rule-Changes/Distribution-Network-Pricing-Arrangements
54 www.aemc.gov.au/Rule-Changes/Demand-Management-Embedded-Generation-Connection-I
55 www.aemc.gov.au/Rule-Changes/Connecting-embedded-generators
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There are a number of technical issues around how distributed generation and storage are connected to and used within the electricity system. However, most of these issues are already being managed within the existing regulatory frameworks or are being considered through existing projects. For example, Australian Standard 4755 is being expanded to support demand response capabilities in storage devices. This will allow other parties, including networks but also third parties, to manage import and export capabilities on behalf of customers to provide customer, network and wholesale market benefits.
In the consultation, the Clean Energy Council commented on inconsistent standards for larger-scale inverter connections 56 , such as photovoltaic systems on commercial premises. Work being led by the Clean Energy Council and funded by the Australian Renewable Energy Agency is currently looking at a range of issues important to the future development of electricity networks, including options for developing standards that could provide consistency for network operators and embedded generation project proponents 57 .
Recommendation
4. We recommend reviewing the definitions in the rules, to make sure that they are technology neutral and adaptable to future trends in technology and service innovation.
Security issues posed by new products and services
New products and services could include control of how electricity is produced and used at a customer’s premises, including remote connection and disconnection of electricity via smart meters, control of appliances through direct load control and home energy management systems, and aggregation of generation and storage. Communications platforms for these products and services could include smart meter infrastructure, the internet, radio, power line carrier and cellular networks. The proliferation of technologies and service providers create cyber security risks both to individual customers and the power system.
These risks are currently managed through existing work around cybersecurity and protection of critical infrastructure.
We do not believe it is necessary to create additional work streams specific to new products and services. However, it will be important to ensure that new electricity products and services are considered in the existing work streams, given their potential to increase security risks.
As part of the work to introduce a competitive market for metering services in the NEM, supported by new technology platforms, the security obligations on metering service providers is being considered. Under draft rules published by the AEMC, parties would have obligations to maintain the security of smart meter infrastructure 58 . AEMO is also looking at the security requirements for a new technology platform that would support smart meter communications and other market operations.
Recommendation
5. We recommend that officials ensure that emerging cybersecurity risks from new electricity products and services are recognised in work streams dealing with cyber security and critical infrastructure protection.
56 Clean Energy Council, p.2.
57 www.cleanenergycouncil.org.au/policy-advocacy/arena/FPDI-project.html
58 www.aemc.gov.au/Rule-Changes/Expanding-competition-in-metering-and-related-serv
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Accessing and using information
Information about energy consumption is an important input to information services. The ongoing introduction of smart meters in the National Electricity Market will mean the volume and detail of metering data will increase. Easy access to and sharing of data will support development of innovative information and energy management services for customers.
Privacy will be a significant issue for many customers in deciding if they want to engage with these new opportunities.
Recent research by the CALC 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 services 59 .
There are two frameworks relevant to the privacy of metering data that work side-by-side in the NEM.
National Electricity Rules: For registered participants, the NER govern the collection and use of metering data, and 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 data 60 . Registered participants must use all reasonable endeavours to make sure that confidential information stays that way, but they can disclose confidential information with consent 61 .
The Privacy Act 1988 (Cth): This is Commonwealth legislation that includes thirteen (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 62 .
This $3 million threshold is sometimes a concern for stakeholders, since businesses offering information-based services such as energy efficiency advice could be small businesses, which would not be bound by the Privacy Act in the same way as larger businesses. However, these companies are bound by the Privacy Act if they use personal information ‘for benefit’, such as selling customer information to a marketer. In this case, customers would need to have consented to this use of their information.
Under the Privacy Act, ‘personal information’ is defined as “any information or an opinion about an identified individual, or a n individual who is reasonably identifiable” 63 . Among other things, the APPs require organisations covered by the Privacy Act to:
Be transparent about their personal information handling practices, including notifying individuals about how their personal information may be used or disclosed.
Only collect the minimum amount of personal information necessary to enable organisations to undertake their business activities.
Only use and disclose personal information for the primary purpose for which it was collected, unless an exception applies, such as where the information being used or disclosed is for a secondary purpose.
Destroy or de-identify that information once it is no longer needed.
64
In making decisions about managing metering data, policy makers need to consider:
the benefits that emerging, information-based products and services offer to customers;
barriers to entry that could result if it is difficult to access the data needed for these products and services;
not unintentionally infringing on the use of metering data by parties that need it for the operation of the electricity market;
any risks to privacy that are created if metering data is used inappropriately; and
not duplicating regulation if existing protections are sufficient.
59
60
Consumer Action Law Centre (2014) Smart Moves for a Smart Market , p.82.
http://consumeraction.org.au/report-smart-moves-for-a-smart-market/
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.
61 Rule 8.6.2(c)
62 http://www.oaic.gov.au/privacy/privacy-act/the-privacy-act
63 Office of the Australian Information Commissioner (2014) Australian Privacy Principle Guidelines , p.18. http://www.oaic.gov.au/privacy/applying-privacylaw/app-guidelines/
64 Australian Privacy Commissioner, p.2.
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What protections are appropriate?
In the consultation paper, we sought feedback on whether metering data is different to other forms of information that are currently protected by the Privacy Act. If consumption data is different, it may be necessary to create energyspecific privacy protections to manage the handling of this data. If it is not different, it would be appropriate to continue the current arrangements under the NER and the Privacy Act.
Several stakeholders argued that metering data is not more sensitive than other forms of data. For example, John
Herbst argued that potentially more sensitive data (for example financial data) is protected by the Privacy Act, which should be enough to protect metering data as well 65 . On the other hand, the CUAC believes that metering data will be able to provide detailed information about household behavior 66 .
Stakeholders were generally split on whether the current privacy protections available under the National Electricity
Rules and the Privacy Act are sufficient. Many stakeholders considered that they are. The Australian Privacy
Commissioner argued that the APPs ensured that individuals’ personal information is protected throughout the information lifecycle and would apply to businesses of all sizes that trade in smart meter data.
67 EDMI submitted that the privacy regime in Australia provides a strong and proactive response to privacy challenges and that there is little reason to duplicate its protections 68 . The Energy Retailers Association of Australia (ERAA) supported this view 69 , as did Embertec, which argued that customers are free to choose companies with privacy policies that meet their needs 70 .
By contrast, the CALC believes that an energy-specific privacy regime should be created, to protect what they see as particularly sensitive information that could be revealed by metering data. This regime would:
include standard contract terms that cover all permitted uses of metering data;
set out the agreed primary and secondary uses of metering data; and
ensure customers need to opt-in, rather than opt-out, to any use of metering data for secondary purposes 71 .
Simply Energy argued that the NER go further than the Privacy Act in ensuring that information relating to a customer’s energy consumption is only used appropriately. They believe the approach in the rules should be extended to cover all providers of energy-related products and services. Simply Energy considered that without this protection, there is a risk that energy data will be used for purposes that currently aren’t permitted 72 . Ergon proposed that small businesses that are currently exempt from the Privacy Act should be subject to general confidentiality restrictions, albeit not the full coverage of the APPs 73 .
We do not consider that privacy protections for metering data need to be amended at this stage of market development.
The current protections for metering data are generally strong. The NER provide a good level of protection for metering data where it is used by participants in the electricity market. The AEMC has recently completed a rule change proposed by the COAG Energy Council that will improve customers’ access to their own metering data and concluded that privacy concerns are appropriately addressed through the application of privacy legislation to the extent that metering data is personal information 74 .
Officials are also working with AEMO to look at how a new ‘shared market protocol’ for smart meter communications could be used to support customer access to data 75 using appropriate authorisation and verification processes. These work streams support broader policy objectives of encouraging greater demand side participation in the market, including through better use of metering data.
65 Energy Supply Association of Australia p.2, John Herbst p.10.
66 Consumer Utilities Advocacy Centre (2014) Smart moves for a smart market , p.78. www.consumeraction.org.au/wp-content/uploads/2014/08/Smart-
Moves-for-a-Smart-Market-eVersion.pdf
67
Australian Privacy Commissioner p2-3
68
EDMI, p.8.
69 Energy Retailers Association of Australia, p.2.
70 Embertec, p.5.
71 Consumer Utilities Advocacy Centre (2014) Smart moves for a smart market , p.82.
72 Simply Energy, p.11.
73 Ergon, p.5.
74 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
75 www.scer.gov.au/workstreams/energy-market-reform/demand-side-participation/smart-meters/functionality-and-access/
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The Privacy Act protects personal information held by all parties, with some exceptions. The Act is considered sufficient to protect many types of important information, such as financial information. We do not consider that metering data is sufficiently different from other kinds of information to need a specific privacy protection regime.
Exceptions in the Privacy Act relate to small businesses with turnover below $3 million per year. Even in these cases, the Privacy Act applies to some situations, including when using that information ‘for a benefit’.
In their engagement with service providers, customers will also have visibility of the fact that these companies will be accessing and using their data. By agreeing to accept the service, customers should be aware that they are agreeing that their metering data will be used to provide the serv ice. In many cases, a business will also need their customer’s consent to access their metering data from a retailer or distributor.
Small businesses can choose to opt-in to the Privacy Act and be bound by its provisions. This would be one way for companies providing energy information services to distinguish themselves from their competitors.
If systemic privacy issues emerge in future, there is also an option in the Privacy Act to develop enforceable privacy codes that can relate to a specific type of information, a class of activities, an industry sector or a type of technology.
A code could be developed to manage the use of metering data by parties outside the electricity market, but we do not consider that there is a need to pursue this option at this stage.
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