Australian electricity and gas markets - October 2022 update

What you need to do

Stakeholders should note the new rules and reports published below, and note the deadlines for making submissions.

National Electricity Rules

Earlier this year, the Energy Security Board (ESB) consulted on amendments to the National Electricity Rules to increase the flexibility of the interim reliability reserve and to provide Australian Energy Market Operator's (AEMO) with more options when procuring out of market reserves.  Following initial consultation, the ESB released a draft rule which proposed to remove a restriction on AEMO entering into multi-year interim reliability reserve contract until it expires on 31 March 2025.  On 6 October 2022, the South Australian Minister made this rule under the National Electricity Law based on the unanimous recommendation of the Energy Ministers.  The ESB responded to stakeholder feedback in its final recommendation paper.

On 20 October 2022, the Australian Energy Market Commission (AEMC) released its final determination and final rule in relation to the Recovering the cost of AEMO's participant fees rule change.  From 1 July 2023, Transmission Network Service Providers (TNSPs) will be charged a portion of the AEMO participant fees (excluding National Transmission Planner function fees).   The final rule will allow TNSPs to directly recover the costs of AEMO's participant fees from customers during a transitional period which has been specified for each TNSP.  Following the transitional period, TNSPs will then have the opportunity to recover participant fees  through existing mechanisms under the incentive-based revenue determination framework.  The final rule commenced on 27 October 2022.

On 27 October 2022, the AEMC published a final determination and final rule for the Material change in network infrastructure project costs rule change. The final rule makes several amendments to the National Electricity Rules which aim to provide greater clarity and transparency around the process for determining whether a material change in circumstances has occurred during the regulatory investment test (RIT) process.  The final rule also seeks to improve cost estimate accuracy by clarifying the rules governing the Australian Energy Regulator's (AER) guidelines for RITs.

National Energy Retail Rules

On 13 October 2022:

• the AEMC self-initiated a market review into the arrangements for failed retailers' electricity and gas contracts in response to the surge in retailer failures over the past five months.  The AEMC published a consultation paper and terms of reference to facilitate stakeholder consultation in relation to whether changes should be made to the Retailer of Last Resort scheme or other legislation to minimise the risks and costs associated with retailer failure.  Submissions on the consultation paper are invited until 10 November 2022, ahead of the AEMC's expected publication of a Stage 1 final report in February 2023; and
• the AEMC published a final determination and final rule in relation to the Delaying implementation of the AER Billing guideline rule change.  The final rule that commenced on 20 October 2022 changes the implementation date for new provisions in the AER's Better Billing guideline from 31 March 2023 to 30 September 2023 to give retailers more time to comply with the new provisions, although retailers may choose to use the new provisions prior to that date.

National Gas Rules

No gas rule change requests were received and no AEMC determinations relevant to the National Gas Rules were published in October 2022.

Market Reviews

On 27 October 2022, the AEMC published a final report as a part of Stage 2 of the Transmission planning and investment review.  The AEMC made recommendations as part of its report which seek to address uncertainty in certain key areas of transmission planning identified by stakeholders, namely, financeability, social licence, cost recovery of planning activities and feedback loop in order to support the timely and efficient delivery of major transmission projects.  The AEMC anticipates that these recommendations may be fully implemented by mid- to late-2023.  The AEMC will be holding a virtual public forum on the key findings and final recommendations of its Stage 2 final report on 3 November 2022.  Interested stakeholders can register to attend the public forum here.

On 28 October 2022, the Energy Ministers agreed to amendments to the National Gas Law and Regulations to bring hydrogen blends, biomethane and other renewable gases under the national gas regulatory framework as part of the AEMC's Review into extending the regulatory frameworks to hydrogen and renewable gases.  The AEMC is expected to provide Energy Ministers with a proposed final rules package for agreement in November 2022.  More information can be found here.

Reports

On 27 October 2022, the AEMO released its Quarterly Energy Dynamics – Q3 2022 report which provides energy market participants and governments with information on the electricity market dynamics, trends and outcomes for the 1 July to 30 September 2022 period.

On 28 October 2022, the AEMO published the Victorian Annual Planning Report 2022.  The report provides information on the electricity supply, demand, network capability and development of Victoria's electricity transmission declared shared network.

Other updates

On 11 October, the AER released its draft Connection charge guideline and accompanying guidance note in light of changes to the National Electricity Rules in August 2021.  The AER has invited submissions from energy consumers and other interested parties until 21 November 2022. More information can be found here.

On 19 October 2022, the AER published an issues paper on the introduction of flexible export limits by distribution network service providers across the National Electricity Market.  The AER has invited stakeholder submissions until 9 December 2022 on the proposed capacity allocation principles and methodology by distribution network service providers, consumer participation and accountability and governance arrangements.  More information can be found here.

On 25 October 2022, the AER published an updated version of its Contingency FCAS compliance bulletin. Following a recent Federal Court judgement relating to contingency frequency control of ancillary services (FCAS), the bulletin outlines the AER's expectations of electricity market participants regarding compliance with a number of critical obligations relating to contingency FCAS under the National Electricity Rules.  More information can be found here.

On 28 October 2022, the AER released an options paper as part of its Review of consumer protections for future energy services. The AER's preliminary position is that the current consumer protections framework will not be fit for purpose for the future energy market and has invited stakeholder submissions until 16 December 2022 on three possible reform model options for the future framework.

On 31 October 2022, the AER published its draft Network Exemptions Guideline (version 7) for consultation.  The AER proposes various changes to the guideline, including changes which:

• are intended to protect energy customers;
• introduce a voluntary primary registrant model where exemption holders can nominate one party to comply with specific conditions; and
• clarify the exemption classes that apply to Small Generation Aggregators. 

The AER has invited stakeholder submissions on the draft guideline until 9 December 2022. More information can be found here.

On 31 October 2022, the AER published a draft guidance note on how it will assess the impact of capitalisation differences between Distributed Network Service Providers on its electricity distribution benchmarking.  Following stakeholder submissions and further analysis, the AER's preferred approach is to benchmark on the basis of allocating a fixed proportion of overhead expenditure to operating expenditure, a departure from the approach proposed in its consultation paper. The AER has invited stakeholder submissions until 23 December 2022 on its preferred approach and the implementation of this approach.  More information can be found here.

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Authors: Paul Newman, Partner; Andre Dauwalder, Senior Associate; Harriet Curran, Associate; and Alexia Cuss, Graduate.