National Energy Customer Framework

Contents

Summary for Ministers

National Energy Customer Framework

National Electricity Law

Accessing and using information

Introduction

Objective

Overview

Consultation process

Scope

What are new products and services?

Who is providing new products and services?

Regulating providers or activities?

Consumer Protections

Overview: Implications of new products and services for energy consumer protections

Why are there energy-specific consumer protections?

How are energy-specific consumer protections provided?

General consumer law

Need for change in energy consumer protections

Off-grid

Authorisations and exemptions

Informed choice

Dispute resolution

National Electricity Law

Impacts of new products and services

Low risk products

Material risks of aggregation

Distributed generation and storage

Security issues posed by new products and services

Accessing and using information

What protections are appropriate?

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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 identifiedfundamental questions that should be further investigatedabout 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 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 toocostly 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 consumerprotection 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 infurther 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 supplywill receive the same level of information about the agreements they are entering into. 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 madeabout 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, self-supply 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 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.