Role and functions

The Australian Energy Regulator (AER) delivers strategy 5. The AER’s program and priorities are guided by the objectives of the national energy legislation and rules. The common objective in the legislation and rules is to promote efficient investment in, and efficient operation and use of, energy services for the long-term interests of end users of energy with respect to price, quality, safety, reliability and security.

The AER works across the energy supply chain to drive effective competition where it is feasible; and to provide effective regulation where it is not feasible largely because of the natural infrastructure monopoly of electricity transmission and distribution networks and gas pipelines.

Through our various regulatory, monitoring, compliance and enforcement responsibilities, our overall role is to drive the efficient delivery of energy supplies and services in a way that promotes positive price and reliability outcomes for consumers, as well as consumer confidence and trust.

The AER regulates energy businesses, equips consumers to make better choices and protects those who are unable to look after their own interests.

While the AER operates in the interests of current consumers, it also uses its expertise to inform debate about Australia’s energy future, the long-term interests of consumers and the regulatory landscape.

In 2019–20 the AER regulated energy markets and networks in eastern and southern Australia, as well as networks in the Northern Territory.

The AER monitors the retail and wholesale energy markets and implements energy market reforms. Our achievements in these areas of responsibility are detailed against our strategic deliverables below.

Priorities

The AER identified the following specific priorities for 2019–20 in support of strategy 5:

Powers

AER applies the following laws, regulations and rules, which together make up the national energy legislation and rules:

• National Electricity Law
• National Electricity Regulations
• National Electricity Rules (NER)
• National Energy Retail Law (Retail Law)
• National Energy Retail Regulations
• National Energy Retail Rules
• National Gas Law
• National Gas Regulations
• National Gas Rules.

The AER also assists the ACCC with energy-related issues arising under the Competition and Consumer Act 2010 (Cth) (CCA), including enforcement and mergers.

We empower consumers, look for opportunities to open up markets to competition, and shine a spotlight on the effectiveness of wholesale market competition, so that bills are as low as can be.

The AER is responsible for monitoring and enforcement in wholesale electricity and gas markets in all jurisdictions except Western Australia and the Northern Territory. We have regulatory responsibility for the National Electricity Market (NEM), which is a spot market in eastern and southern Australia; spot markets for gas in Adelaide, Sydney, Brisbane and Victoria; and gas supply hubs at Wallumbilla (Queensland) and Moomba (South Australia).

We drive network businesses, through our ‘reset’ processes and continuing oversight, to deliver good long-term outcomes for consumers in terms of price, quality, safety, reliability and security of supply, and we encourage innovation.

We give consumers confidence that individual energy businesses are operating properly, address non-compliance, help consumers make the best choice for their circumstances, and work to protect households in vulnerable situations.

We provide an independent, expert view of energy markets to policy-makers. We also assess industry performance and work with governments, market bodies and other regulators on emerging issues.

We make decisions considering the future, with the aim to foster confidence among households and businesses that the energy system is working well. We strive to be an authoritative and trusted source of information about energy markets.
This deliverable is met through projects that are not readily quantifiable. Further information about our work relevant to this deliverable is in the ACCC and AER Corporate Plan 2019–20.

Analysis of performance

The COVID-19 pandemic is having a significant effect on the energy market. Social distancing measures resulted in job losses and self-isolation, meaning that more people are at home using more energy and fewer people have sufficient income to pay their energy bills. Many small businesses with restricted operations are using less energy than usual.

The AER responded by reprioritising its work and shifting its focus towards protecting and supporting small businesses and residential consumers through the pandemic. The AER’s Statement of Expectations of energy businesses called on energy providers to go above and beyond their usual levels of service to support their consumers. The AER also undertook additional market monitoring and reporting to monitor the impact of the COVID-19 pandemic on consumers and energy businesses and proposed a rule change to support the economic impact on the energy supply chain. The proposed rule change to the NER was to provide support to electricity retailers by allowing them to defer payment of network charges by up to six months in respect of hardship customers or customers on deferred payment plans as a result of the COVID-19 pandemic.

The pandemic resulted in the AER adjusting timeframes in relation to its regulatory decisions. Following consultation with stakeholders, the AER decided to delay the release of the 2020– 2025 network revenue determinations from 30 April 2020 to 5 June 2020 so it could incorporate the Reserve Bank of Australia’s short-term inflation forecasts released on 8 May 2020. The AER delay in network determinations resulted in delays in revised retail prices that were scheduled for 1 July 2020. The AER worked closely with network businesses to minimise delays in the issue of retail prices.

The focus of the AER compliance work was to ensure that customers received the level of support they required and were entitled to. During this reporting period the AER instituted eight civil proceedings against six energy businesses and secured enforceable undertakings from three energy businesses. In addition, six businesses paid a total of $500 000 in infringement notice penalties. The AER also undertook three targeted compliance reviews and initiated 10 compliance audits under the Retail Law, National Electricity Law and National Gas Law and the related Rules.

The annual benchmarking reports included consideration of the characteristics of each network business with comparisons in productivity and consumer outputs. Longitudinal data sets will contribute to our future assessments on the long-term benefits for consumers.

In 2019–20 the AER began releasing regular quarterly data on the retail energy market to provide more timely insights to the wholesale market and to complement the biennial effective competition report, which is scheduled for release at the end of 2020. The data showed that wholesale electricity prices across the NEM fell to their lowest first quarter level since 2015 and gas prices continue on the downward path established in 2019. The AER expects lower prices for households and businesses in the coming year.

In the 2019–20 financial year the AER published six high price event reports in the electricity market and none in spot gas markets. This is consistent with previous years. The AER reports on these events were published in line within statutory requirements and timeframes. There was a minimal delay in the release of the State of the energy market report (which was published on 1 July 2020) to include data from the delayed 2020–25 network revenue determinations in the analysis.

The AER continued to report on the retail market, including a first glimpse of the impact of the Default Market Offer (DMO), through quarterly reports and an annual report. Between July 2019 and January 2020 standing offer prices for residential consumers fell by 11–13 per cent in New South Wales, 12 per cent in South Australia and 10 per cent in south-east Queensland.

The AER assessed 22 retail authorisation applications and 14 individual exemption applications to sell energy. The AER has a responsibility to protect customers under the Retail Law and requires any entity selling energy to customers for use at premises to hold a retailer authorisation or have a retail exemption.

During the reporting period the AER added new features to its Energy Made Easy price comparator website. Among the new features are translation into over 30 languages, the ability to factor solar tariffs into plans, and easier ways to upload bills for comparison. The Energy Made Easy website had 2 835 980 visits by 1 671 363 users in 2019–20.

Drive effective competition where it is feasible

The AER is responsible for driving effective competition where it is feasible and acts to:

• increase competitive pressures by empowering consumers to choose the products, services and suppliers they want
• look for opportunities to open up markets to competition—the AER does not assume all network services must stay as regulated monopolies
• shine a spotlight on the effectiveness of competition in the wholesale market and enforce compliance with the rules so that bills are as low as can be.

Deliverable 5.1: Drive effective competition where it is feasible

The AER took a number of actions to drive effective competition and provide benefits to the consumer where feasible, including:

• publishing four quarterly retail and three wholesale reports, one affordability report and one annual retail report to provide market transparency and identify areas where the AER may need to act quickly
• monitoring compliance with ring fencing requirements to prevent market monopolies and granting waivers where appropriate so that distributors do not provide advantage to affiliates operating in contestable markets.

To support the delivery of affordable and reliable energy for Australian consumers, the AER monitors and reports on the performance of the national wholesale and retail electricity and gas markets.

The AER annual retail market reports and quarterly performance updates provide insights on and transparency of price and behaviour.

This reporting period the AER began to publish quarterly wholesale reports to bridge the gap between the weekly reports, high price event reports and longer term performance reports. These reports identify significant trends in the electricity and gas wholesale markets and facilitate independent evaluation of market developments. Since the first quarter of 2020 the AER has also reported on outcomes and trends in ancillary services markets.

The AER publishes data collected from energy retailers on a range of indicators, including consumer numbers, contract types, complaints, energy debt, payment plans, hardship programs, disconnections and reconnections. The AER publishes this data, as well as information relating to energy affordability, on a quarterly and annual basis. Following the release of the initial Statement of Expectations of energy businesses in March 2020, the AER requested that retailers supply additional data to provide visibility of the effect of the COVID-19 pandemic on the retail energy market, including any special arrangements, such as deferred payments, being introduced by retailers to assist their consumers.

The collection and analysis of retailer performance data assists the AER to act quickly to support consumers and the market. Retail performance data provides a high level of transparency of how retailers meet their consumer obligations and informs the development of retail policy.

As detailed above, the annual State of the energy market report provides independent and reliable information on Australia’s wholesale electricity and gas markets, the transmission and distribution networks and the rapidly evolving retail sector. The biennial Wholesale electricity market performance report looks at the effectiveness of competition and the efficient operation of the electricity markets.

These reports play an essential role by providing a trusted source of market information and identifying when markets are not performing effectively.

The AER’s Electricity Distribution Ring-fencing Guideline places clear obligations on distributors not to cross-subsidise or provide a discriminatory advantage to affiliates operating in contestable markets. Ring-fencing aims to promote a level, efficient and competitive energy market that empowers consumers through choice. The guideline requires distribution network service providers (DNSPs) to prepare annual compliance reports, accompanied by an assessment of compliance by an independent auditor.

On 31 October 2019 the AER received compliance reports and independent assessor reports for DNSP compliance covering the 2018–19 regulatory year (except Victorian DNSPs, which report separately on a calendar year basis). In March 2020 the AER released its second Electricity distribution ring-fencing annual report, highlighting aspects of DNSP compliance with the Electricity Distribution Ring-fencing Guideline and reflecting an overall improvement in ring-fencing compliance and a corresponding improvement in consumer outcomes. DNSPs (with the exception of those in Victoria) will report on compliance against the ring-fencing guideline for the 2019–20 period in October 2020.

The AER will strengthen the effectiveness and transparency of the ring-fencing framework through a review of the Electricity Distribution Ring-fencing Guideline. The AER is consulting with stakeholders on a range of updates to the guideline that are aimed at resolving ambiguities, making compliance clearer and easier to achieve, and simplifying some ring-fencing requirements. The AER will also review requirements for compliance reporting to strengthen the role of annual independent assessments of the effectiveness of the ring-fencing framework.

The AER fosters innovation by working collaboratively with distributors, providing guidance or granting waivers to undertake innovative projects where appropriate. In 2019–20 the AER granted three ring-fencing waivers. The AER has recently supported the proposal by the Australian Energy Market Commission (AEMC) to waive parts of the energy rules to support innovative trials and develop a ‘sandbox’ waiver mechanism through a guideline. In preparing the AER submissions to the AEMC on sandboxing waivers, the AER drew on lessons from the ring-fencing waiver process. The AER anticipates dynamic interactions between ring-fencing and sandboxing waivers in the future.

Provide effective regulation where competition is not feasible

The AER is responsible for providing effective regulation where competition is not feasible and acts to:

• drive the network businesses, through the ‘reset’ processes and continuing oversight, to deliver good long-term outcomes for consumers in terms of price, quality, safety, reliability and security of supply
• encourage and enable innovation by network businesses and show the same spirit of innovation in its own work
• use insight and expertise to improve the ways networks are regulated, by both developing AER approaches and proposing changes to rules and policies.

Deliverable 5.2: Provide effective regulation where competition is not feasible

The AER took the following actions to provide effective regulation where competition is not feasible:

• We approved five revenue determinations for electricity and gas networks that will deliver efficient prices, quality, safety, reliability and security of supply to consumers and also approved tariff structure statements for a number of electricity distributors to ensure accountability.
• We undertook and approved the regulatory investment tests for the South Australia to New South Wales and Queensland to New South Wales interconnectors, ensuring the best economic outcomes were achieved.
• We assisted in the implementation of gas market reforms that resulted in lower prices for consumers when they use their appliances at home, and enhanced our regulation of gas businesses subject to light regulation and non-scheme gas pipelines, helping to facilitate negotiation with service providers and drive competition (see comments in our compliance and enforcement priorities section at Compliance and enforcement priorities).
• We commenced a review of our treatment of inflation in regulatory determinations to derive the best method to estimate inflation to help us accurately understand future impacts on consumers and stakeholders.
• We developed the AER’s first Value of Customer of Reliability (VCR), which sets out how much consumers are willing to pay for unplanned outages of up to 12 hours in duration and will inform network planning.

The AER requires network businesses to submit periodically—usually every five years—regulatory proposals (for electricity networks) and access arrangement proposals (for gas pipelines) for review.

The AER’s role is to assess proposals against criteria set out in the gas and electricity rules and laws while accounting for issues raised in consultation. The AER does this with the view to ensuring networks have enough money to provide safe and reliable energy and that consumers pay as little as possible. Network businesses may apply to the Federal Court for judicial review of our decisions. For more information on the final determinations and the process, see the Determinations and access arrangements web page on the AER website.

In the reporting period the AER published final decisions for five electricity and gas networks.

In addition to making these final revenue determinations, the AER is progressing regulatory reviews for the five Victorian electricity distribution businesses. The Victorian electricity distributors submitted regulatory proposals for review on 31 January 2020. The AER draft decisions on these determinations are expected to be published by the end of September 2020.

The Consumer Challenge Panel (CCP) contributes to the AER decision-making process by providing advice on whether proposals are in the long-term interests of consumers. The CCP also considers the effectiveness of network businesses’ customer engagement activities and how this is reflected in the development of their proposals. For further detail concerning the operations of the CCP, see the Consumer Challenge Panel web page on the AER website.

In 2019–20 CCP sub-panels provided the AER with advice on a total of nine network regulatory determinations, of which four were completed in 2019–20.

In 2019–20 the AER approved the tariff structure statements for Energex, Ergon Energy and SA Power Networks. These AER approvals progressed the network pricing objective to ensure the tariff charges to retailers reflect the cost of the service provided to their customers. The AER’s involvement in the Distributed Energy Integration Program supported the work of various taskforces exploring issues such as access and pricing arrangements and the emergence of electric vehicles.

In January 2020 the AER approved ElectraNet’s energy transformation regulatory investment test for transmission (RIT-T) for the new interconnector from South Australia to New South Wales.

The RIT-T is a cost benefit analysis that transmission businesses apply before making network investments in excess of $6 million. The purpose of the RIT-T is to identify the network or non-network investment option that addresses an identified need with the highest net economic benefits across the NEM. This promotes efficient investment decisions and helps ensure that consumers pay no more than necessary for electricity network infrastructure.

The preferred investment option as identified by ElectraNet through the RIT-T process is a new 330 kV transmission interconnector between Robertstown in South Australia and Wagga Wagga in New South Wales. This is expected to be completed between 2022 and 2024. The AER expects the project will provide net benefits to the participants in the NEM because it will:

• reduce the cost of providing secure and reliable electricity in South Australia
• facilitate the long-term transition of the energy sector across the NEM to low-emissions energy sources
• enhance system security in South Australia.

In March 2020 the AER approved the RIT-T for the proposed upgrade to the Queensland to New South Wales interconnector. The AER completed its review of the RIT-T in three months—approximately half the statutory allowed time. The preferred investment option as identified by TransGrid in the RIT-T will increase indicative network interconnection capacity to 690 MW northwards and 1120 MW southwards and is expected to be completed by September 2021. The AER expects the project will provide net benefits to the participants in the NEM because it will:

• reduce the need for new generation and large-scale storage in New South Wales to meet demand following the closure of the Liddell power station
• reduce generator fuel costs to meet demand in the NEM
• avoid capital costs associated with the integration of renewables in the NEM.

Contingent projects are significant network augmentation projects that may arise during a regulatory control period but where the need and or timing of the project is uncertain. Subject to the occurrence of defined trigger events, network service providers may apply to the AER to amend their revenue determinations to include the incremental revenue required to deliver these projects.

TransGrid applied to the AER to amend its revenue determination to account for delivery of the Queensland to New South Wales interconnector upgrade project within the current regulatory control period. In April 2020 the AER determined that TransGrid can recover the efficient costs of upgrading the interconnector from consumers.

The efficient capital cost of delivering the preferred investment option for this project identified through the RIT-T is estimated to be $218 million. The AER’s decision will allow TransGrid to recover additional revenue of $28.2 million from energy customers in 2021–22 and 2022–23 to account for the efficient costs of delivering the upgrade. The AER fast-tracked its consideration of TransGrid’s proposed investment to support the timely completion of this significant project.

This reduced the timeframe for regulatory approval by around three months, which will assist TransGrid in delivering the expanded interconnector capacity prior to the expected closure of the Liddell power station.

Following stakeholder feedback, in April 2020 the AER initiated a review of the treatment of inflation in the regulatory framework, including the method likely to result in the best estimate of expected inflation. The AER applies this best estimate model in its regulatory determinations for electricity and gas networks to derive the real rate of return that service providers receive. The AER approach to choosing the best estimate of expected inflation has a direct and potentially material impact on returns to service providers and how much consumers pay for electricity and gas services.

As this decision could impact consumer prices, in June 2020 the AER appointed a Consumer Reference Group for the Inflation Review 2020. The group of eight members and their wealth of experience across consumer advocacy, economics, finance, and regulatory decision-making represent the perspectives and interests of consumers in these critical review processes.

For more information on the 2020 Inflation Review see the project web page on the AER website.

Case study: Valuing reliable electricity supply and costing severe outages
The AER’s VCRs are intended to reflect the value different types of customers place on a reliable electricity supply under different conditions. They are primarily used in network planning.

This is the largest VCR study ever conducted in Australia, with over 9000 residential, small business and industrial energy customers completing the survey.

Given that investment costs form a significant portion of customer bills, the VCRs help energy businesses to identify the right level of investment to deliver reliable services to customers.

The AER is required to conduct a review of the VCRs at least every five years for the NEM and the Northern Territory. As part of the review it must develop a methodology and publish the VCRs. On 18 December 2019 the AER released the final report on its first VCR review, setting out the VCRs relating to unplanned outages of up to 12 hours in duration (that is, standard outages).

The last review of VCRs was undertaken in 2014 by the Australian Energy Market Operator (AEMO). The AER review updates the methodology AEMO employed to determine VCRs, to take account of changes in the NEM since 2014.

The AER review found:

• in general, the VCRs are similar between the 2014 and 2019 VCR studies
• business customer VCRs continue to be higher than residential customer VCRs
• residential customers have a preference to avoid longer outages and outages at peak times (defined as 7 am to 10 am and 5 pm to 8 pm)
• residential VCRs are lower in 2019 than in 2014, with the exception of customers in suburban Adelaide
• the 2019 VCRs are lower than the 2014 VCRs for agricultural and commercial customers and
• higher for industrial customers
• overall, the 2019 NEM-wide VCRs are higher than in 2014. This increase is primarily driven by industrial customers, who consume a significant proportion of total energy

Our VCR reflects value customers place on reliable electricity supply. It is an important input into regulatory and network investment decision-making to ensure consumers pay no more than necessary for safe and secure energy.

Equip consumers to participate effectively, and protect those who are unable to safeguard their own interests

The AER is responsible for equipping consumers to participate effectively, and protect those who are unable to safeguard their own interests and acts to:

• give consumers confidence that individual energy businesses are operating properly and that they will be protected if things go wrong. The AER takes action against businesses that do not play by the rules, to address non-compliance and improve future behaviour
• encourage consumers to engage in the market and assist them to make the best choice for their circumstances
• help consumers to play a growing role as participants, not just recipients, in the energy system
• protect households in vulnerable situations, focusing on those who are less able to help themselves and/or might suffer more harm as a result of vulnerability.

Deliverable 5.3: Equip consumers to participate effectively, and protect those who are unable to safeguard their own interests

The AER took a number of actions to equip consumers to participate effectively in energy markets and to protect those who are less able to help themselves:

• We established our first compliance and enforcement priorities to inform where the AER will target its efforts.
• We protected vulnerable consumers by implementing new protections that ensure consumers in financial difficulty received better levels of assistance from their provider.
• We improved retailer transparency and gave consumers the power of comparison and choice through enhancing our price comparator website, Energy Made Easy. This included improved design and search functionality, as well as a dynamic language translation feature.
• We supported consumers through the COVID-19 pandemic by issuing our Statement of Expectations outlining our expectations of energy providers during the pandemic.
• We commissioned work on customer vulnerability to better understand how to deliver regulatory responses to vulnerable consumers.
• We proposed a number of rule changes to improve the operation of energy markets and provide more efficient outcomes for consumers.
• We emphasised the provision of accurate information to AEMO and the AER to help improve consumer confidence, planning and regulatory responses and undertook civil proceedings against a number of businesses for their failure to do so.
• We set DMO prices in New South Wales, south-east Queensland and South Australia to reduce bills for consumers who are less engaged with their energy purchases.

In 2019–20, for the first time, the AER set out five compliance and enforcement priorities.

The AER priorities outline its approach to promoting compliance with obligations under the National Electricity Law, National Gas Law and Retail Law and the respective rules and regulations. The compliance and enforcement priorities also provide guidance on how the AER responds to potential breaches and the factors it may have regard to when deciding whether to take enforcement action.

Our compliance and enforcement priorities for 2019–20 were:

1. ensuring that customers in financial difficulty receive the required assistance, with a focus on the new hardship guidelines
2. ensuring that customers using life support equipment are protected, with a focus on the new life support rules
3. the provision of accurate and timely information:
   1. to AEMO, which is critical to ensuring power system security and/or the efficient outcomes in or effective operation of wholesale energy markets, and
   2. to the AER, which is critical to the performance of the AER’s economic or market monitoring functions
4. supporting the transition to metering contestability to ensure consumer and market benefits are delivered
5. implementing capacity trading markets under the East Coast Gas Reforms and improving gas market transparency through the strengthening of the Gas Bulletin Board.

People who are having trouble paying their energy bills have a right to protection under national energy laws. The AER prioritised this in its compliance and enforcement work, instituting civil proceedings against EnergyAustralia for alleged failures to implement its customer hardship policy and offer payment plans to customers in financial difficulty. Origin Energy paid infringement notice penalties and gave an enforceable undertaking in relation to alleged disconnections of small customers that were not permitted under energy laws.

The AER published guidance on implementing new, more stringent hardship protections and on ensuring that customers are not denied energy supply due to poor payment history.

Energy businesses have an obligation to maintain a register of customers who are using life support equipment. This critical obligation ensures that these customers receive important protections, including from disconnection. As part of our work in this priority area, the AER instituted civil proceedings against EnergyAustralia for alleged breaches of registration requirements and failure to comply with a related enforceable undertaking. Momentum also paid infringement notice penalties for alleged failure to maintain its life support register by incorrectly removing customers requiring life support from its life support register, some for over 400 days. TasNetworks paid infringement notice penalties and gave a court enforceable undertaking in relation to alleged failures to notify life support customers of planned interruptions.

The AER also required three retailers (Mojo Power, Ergon Energy and Momentum Energy) and three distributors (Endeavour Energy, Evoenergy and Essential Energy) to undertake audits of compliance with life support obligations and to address identified areas for improvement.

Energy businesses have obligations under the law and rules to provide a range of information and data to the AER. The provision of timely data and information is critical to the AER’s economic and market monitoring functions, which help ensure market transparency and effective policy-making. This information and data is also essential to AEMO’s operation of wholesale energy markets in a reliable, secure and safe manner. It is critical that energy businesses have systems and processes in place to ensure that the information and data they provide can be relied on.

In 2019–20 the AER instituted civil proceedings against:

• subsidiary retailers of AGL Energy for alleged failures to submit to the AER information and data in the manner and form (including by the date or dates) required by the AER performance Reporting Procedures and Guidelines
• Pelican Point Power Limited, for alleged failures to submit accurate generator availability information to AEMO
• several South Australian wind farm operators for alleged failure to comply with generator performance standards and obligations under the NER during the 2016 South Australian black system event.

The AER also required four energy retailers to commence independent audits of compliance with performance reporting obligations under the Retail Law.

The AER undertook an industry-wide review of network businesses’ and generators’ compliance with requirements to notify AEMO of risks to power system security, and published a National Energy Market summer readiness compliance bulletin setting out best-practice compliance with obligations critical to AEMO’s ability to operate the NEM and manage power system security.

The AER also monitored retailers’ compliance with metering installation timeframes and undertook targeted compliance activities to establish compliance plans for high voltage meter installation testing requirements.

As a result of the AER enforcement work to ensure the delivery of consumer and market benefits of new smart meters, M2 Energy (Dodo Power and Gas), Origin Energy and EnergyAustralia paid infringement notice penalties for alleged failures to promptly appoint metering coordinators when notified of a faulty customer meter.

A number of the AER regulatory functions in relation to gas pipelines address potential market failures such as information asymmetry between service providers and shippers. Addressing these issues assists market participants to achieve efficient outcomes that may not occur in the absence of regulation.

On 31 October 2019 the AER released its first financial reporting guideline for light regulation gas pipelines. This guideline was released following rule changes implemented by the AEMC in July 2018. It is intended to provide prospective users of light regulation pipelines with financial information to facilitate negotiation with service providers on an informed basis. This guideline complements the guideline released in 2017 for non-scheme pipeline financial reporting. The first reporting is due in October 2020.

The AER will continue to monitor compliance with the non-scheme pipeline reporting guidelines to ensure that they are providing useful information to facilitate access to pipeline services. This is in addition to AER’s continuing work in assisting the former Council of Australian Governments (COAG) Energy Council with the development of a full Regulation Impact Statement to revise the tests used to apply gas pipeline regulation (for example, the coverage test), examine the number and forms of regulations (full regulation, light regulation and Part 23) and examine the governance arrangements for pipeline regulation. Consultation on this reform is designed to identify and
evaluate options to deliver a more efficient, effective and integrated regulatory framework for gas pipelines.

The AER maintains public registers of exemptions from Part 23 reporting obligations for non-scheme pipelines. In 2019–20 the AER accepted and published five exemptions and revisions to exemptions.

Since July 2012 the AER’s Energy Made Easy website (www.energymadeeasy.gov.au) has been the Australian Government’s primary tool giving consumers and small businesses the power to compare energy plans from all providers.

During the reporting period the AER completed its $8 million two-year project to enhance the website so that it continues to help Australians to make informed energy choices.

The AER enhanced the Energy Made Easy website, with new underlying technology and software to make it more robust, efficient and flexible to accommodate future improvements. This includes the new public-facing website and a new secure data portal website. This is the portal through which retailers submit their energy plan data to Energy Made Easy and through which the AER and other authorised bodies conduct market monitoring, analysis and compliance activities.

In 2019–20 the AER continued to engage with its three project reference groups, comprising representatives from consumer, small business, and industry and government organisations and from energy retailers. The website’s enhancements were informed through this stakeholder engagement process, together with previous consumer and market research the AER commissioned, and real user research and testing activities. All consumers were also given a direct opportunity to preview the new website and provide their feedback.

The improved Energy Made Easy website was made available to consumers in April 2020. The AER has since published further information on the website about the improvements and how Energy Made Easy has changed. Following the new website launch, the AER sought to raise awareness of Energy Made Easy and how its new features benefit users. Communication activities, which ran throughout May 2020, included a media release, organic social media (primarily through our @EnergyMadeEasy Twitter account), two online videos, articles in newsletters and engagement with key stakeholders.

The website has been translated into over 30 languages and had 2 835 980 visits by 1 671 363 users in 2019–20.

The DMO is a price cap to protect energy customers on electricity retail standing offers. There are between 8 per cent and 12 per cent of residential and between 15 per cent and 23 per cent of small business customers not actively engaged in the energy market.¹ The DMO price also acts as a ‘reference price’. When advertising offers, retailers must show the price in comparison to the DMO price to assist customers to compare deals more easily.

We are required to set the DMO prices annually for small business and residential customers in regions where there is no other price regulation: South Australia, south-east Queensland and New South Wales.

The AER’s first DMO price determination came into effect on 1 July 2019. The prices balanced the goal of protecting standing offer customers from being charged excessive prices with the goal of allowing retailers to recover their costs to supply customers.

The 2020–21 DMO price determination updated the 2019–20 DMO prices to take account of the forecast changes in the costs to supply customers. These included wholesale electricity costs, network costs, the costs to comply with government environment schemes, and retailing costs.

Compared with 2019–20 the 2020–21 DMO prices were:

• lower in South Australia and Queensland
• slightly lower or generally flat in New South Wales (depending on the region).

The AER approach means the DMO prices for 2020–21 continue to protect standing offer customers from being charged excessive prices, while enabling retailers to recover their costs and compete with each other. The level at which the DMO price is set also retains incentives for customers to switch retail supplier, and the reference price makes it easier for customers to compare retail offers.

The AER takes a particular interest in energy providers’ conduct and performance relating to hardship policies and other measures aimed at supporting customers experiencing financial difficulty.

The enforceable Customer Hardship Policy Guideline became effective on 2 April 2019. The guideline was the product of a rule change the AER initiated in 2018. The rule change required retailers to have AER-approved hardship policies in place by October 2019. The guideline requires energy retailers to:

• proactively identify consumers who are struggling early on
• issue standardised statements outlining customers’ rights in relation to hardship assistance
• actively promote and provide accessible information about hardship programs so that consumers can more easily access them (and remove exclusions and unreasonable conditions to entry).

During the reporting period the AER executed a comprehensive consumer engagement strategy to connect people with information about their hardship rights and the assistance available. To raise awareness of consumers in need and enable every Australian energy consumer to access hardship support and be aware of their rights, the AER worked closely with stakeholders to deliver information in accessible formats and multiple languages, including Vietnamese, Chinese, Arabic and Nepali.

Since July 2019 we have approved 13 policies from newly authorised retailers, in addition to the 46 updated policies of existing approved retailers in 2019–20.

Case study: Supporting Australian energy consumers and industry through COVID-19
The COVID-19 pandemic has been a significant disruptor across most industries and the energy industry is no different. The AER has successfully shifted how it works and prioritised new projects to support consumers and industry during the pandemic.

A significant number of Australians have lost their jobs, taken a pay cut or had reduced working hours as a result of the COVID-19 pandemic. The AER knows this will affect people’s ability to pay their current and future energy bills.

One of the ways the AER is working to support energy consumers is through the launch of our Statement of Expectations of energy businesses: protecting consumers and the energy market during COVID-19.

The statement outlines 10 key expectations, calling on energy providers to go above and beyond in supporting their customers. The expectations call for energy businesses to:

• offer any residential or small business customers who indicate they may be in financial stress a payment plan or hardship arrangement
• not disconnect any residential or small business customers who may be in financial stress (including small businesses eligible for the JobKeeper Payment), without their agreement, before 31 July 2020 and potentially beyond
• defer referrals of customers to debt collection agencies for recovery actions, and credit default listings, until at least 31 July 2020
• waive disconnection, reconnection and/or contract break fees for small businesses that have ceased operation, along with daily supply charges to retailers, during any period of disconnection until at least 31 July 2020.

The AER is pleased with the extra support energy providers have shown their consumers.

The AER has also worked with the Essential Services Commission of Victoria on a joint effort to collect real-time data to monitor the experience of energy consumers during this time. The AER is requesting that energy providers volunteer more frequent information on payment plans, hardship, disconnections and credit referrals so that we can monitor the impact of the COVID-19 pandemic on consumers and act swiftly if further measures are needed. In addition, the AER has worked closely with consumer advocates on its Customer Consultative Group to gain perspectives on consumer experiences of COVID-19, in order to ensure that the AER is best placed to support consumers and is using the best tools and mechanisms to engage with consumers in hardship.

With the AEMO and the AEMC, the AER has agreed a set of objectives and criteria for prioritising existing work and is considering altering the implementation dates for some key market reforms and rule changes. In April 2020 the AER, AEMC and AEMO wrote to the Commonwealth Minister for Energy and Emissions Reduction outlining these proposals.

These letters are on our website.

In May the AER submitted a rule change proposal to the AEMC that would allow retailers to defer for six months payment of network charges incurred by consumers whose ability to pay their bills has been impacted by the COVID-19 pandemic. This rule change aims to support the financial resilience of retailers and mitigate the risk of financial contagion as a result of increasing consumer debt levels due to the impacts of COVID-19.

The impacts of COVID-19 will continue to be felt, and the AER will continue to monitor the market to ensure that Australian energy users remain protected.

Use our expertise to inform debate about Australia's energy future, the long-term interests of consumers and the regulatory landscape

The AER uses its expertise to inform debate about Australia’s energy future, the long-term interests of consumers and the regulatory landscape by acting to:

• provide an independent, expert view to government and other policy-makers, based on its in-depth, practical experience of how the market is working now and how well placed it is to deal with long-term challenges
• maintain effective relationships with the former COAG Energy Council, the Energy Security Board (ESB) and AER partners—the other market bodies, state-based regulators, Energy Consumers Australia and energy ombudsman schemes—on emerging issues and regulatory strategies
• assess and comment on industry performance and how this affects both competition and the consumer experience, to inform regulatory decision-making and improve long-term outcomes.

In July 2019 the AER engaged the Consumer Policy Research Centre (CPRC) to undertake a literature review of consumer vulnerability, with a particular focus on the approaches of other regulatory agencies in Australia and internally, and provide a report on the findings.

The report Exploring regulatory approaches to consumer vulnerability: a report for the AER explores the similarities and differences between approaches being taken to address vulnerability across consumer markets in Australia and internationally. It summarises why regulators are focusing on consumer vulnerability and on understanding and supporting consumers in vulnerable situations. It also provides key lessons and opportunities for change.

This is the first time the AER has published a research report on consumer vulnerability.

Specifically, the report finds:

• all consumers can find themselves in vulnerable circumstances due to their individual characteristics, their stage of life, or unavoidable or unpredictable events
• market features can exacerbate vulnerabilities
• understanding the lived experience of consumers in markets is needed to deliver effective regulatory responses to vulnerabilities
• data plays an important role in vulnerability strategies
• regulators are increasingly using consumer vulnerability strategies as a mechanism to help drive and monitor positive outcomes for consumers in vulnerable circumstances.

The report recommends that the AER develop a consumer vulnerability strategy to enable us to provide direction and transparency in outlining our understanding of and response to consumer vulnerability in our regulatory work.

The CPRC highlights the opportunities a consumer vulnerability strategy provides in assisting the AER to take the lead in understanding vulnerability in the energy sector and clarifying our role as the regulator in supporting vulnerable consumers.

The AER seeks to use its expertise to inform the regulatory landscape through its submissions to the AEMC on rule change proposals and reviews. Key examples in this reporting period were the AER’s close engagement with and submissions to the AEMC’s review of the coordination of generation and transmission investment and AER advice to the COAG Energy Council on regulatory sandbox arrangements to support proof-of-concept trials. Other examples include our proposal for an urgent change to the NER to support electricity retailers by allowing them to defer payment of network charges by up to six months in respect of hardship customers or customers on deferred payment plans as a result of the COVID-19 pandemic. AER engagement in these processes helped to shape the design and implementation of reforms. All of the AER’s submissions are available on its website.

The AER also used its expertise to propose changes to the regulatory framework to ensure that it continues to be fit for purpose. As the AER role spans network regulation, market monitoring and ensuring compliance with and enforceability of the rules, the AER can identify where changes to the framework are required. In 2019 the AER proposed several changes to the regulatory framework governing system restart. These proposals arose from AER investigation of the events surrounding the 28 September 2016 black system event in South Australia. The AEMC’s final rule on system restart arrangements adopted the AER’s suggested changes. More information can be found in chapter 6.3 of the AER’s compliance report on the South Australian blackout.

In early 2020 the former COAG Energy Council asked the AER to develop two rule change proposals to support system security in the NEM. Specifically, the AER was requested to develop rule changes to ensure that:

• semi-scheduled generators be obligated to follow their dispatch targets in a similar manner to scheduled generators
• semi-scheduled generators be required to continually inform the AEMO of any restrictions on their available capacity due to physical factors, ambient weather conditions and their market intentions.

In June 2020, following a comprehensive consultation process, the AER published an issues paper on semi scheduled generator rule changes. The issues paper presented an analysis on the COAG Energy Council request for the AER to develop two rule change proposals to support system security in the NEM.

Take a long-term perspective while also considering the impact on consumers today

The AER is responsible for taking a long-term perspective while also considering the impact on consumers today and acts to:

• make considered decisions about the long term—some AER decisions will have an impact for the next 50 years or more. In doing this, the AER looks beyond the immediate implications of current issues
• foster confidence among households and businesses that the energy system is working well for them, as levels of public trust now can have a long-term impact on consumer engagement and the effectiveness of competition
• remain authoritative and a trusted source of information on energy markets.

Deliverable 5.5: Take a long-term perspective while also considering the impact on consumers today

The AER took the following decisions to take a long-term perspective while considering the impact on consumers today:

• We implemented the Retailer Reliability Obligation (RRO) to support reliability in the NEM, encouraging retailers, and some large energy users, to establish contracts for their share of demand for a prescribed period.
• In partnership with Energy Networks Australia and Energy Consumers Australia, we delivered the New Reg project, which helps to ensure that customers’ preferences drive energy network businesses proposals and regulatory outcomes.
• We published a benchmarking report for electricity network businesses, providing information to networks and governments to help them plan for an effective, efficient and affordable energy network. The report showed electricity distribution productivity grew by 1 per cent.
• We published performance information for electricity transmission and distribution businesses to inform the wider community about the usefulness and efficiency of the network service providers’ spending decisions. The report showed transmission productivity grew by 2.2 per cent.
• We developed new rules to make AEMO’s Integrated System Plan (ISP) actionable to ensure the sustainability and efficacy of an integrated 20-year NEM roadmap.
• We worked through the ESB to improve the security and reliability of electricity supply with our contribution of the VCR and our advice on developing a long-term, fit-for-purpose market framework to support reliability that could apply from the mid-2020s.

The RRO provides stronger incentives for market participants to invest in the right technologies in regions where it is needed, to support reliability in the NEM. It commenced on 1 July 2019. As a member of the ESB the AER was actively involved in the development of the RRO through an intensive project undertaken in 2018–19.

On 9 January 2020 the South Australian Minister for Energy and Mining triggered the RRO for the first time, issuing reliability instruments for the first quarters of 2022 and 2023. The AER has monitored trading information since the RRO was triggered in South Australia to ensure compliance with the Market Liquidity Obligations (MLO). The AER ensures MLO obligated parties make appropriate bids and offers each month with the necessary bid–offer spread that meets the necessary thresholds and volumes.

The AER has published five guidelines to support the implementation and operation of the RRO. Four interim guidelines—the Reliability Instrument Guidelines, the Market Liquidity Obligation Guideline, the Contracts and Firmness Guidelines and the Forecasting Best Practice Guideline-were published within three months of commencement of the RRO. A fifth guideline—the Opt-in Guideline—was published in June 2020.

The New Reg project was initiated by the AER, Energy Consumers Australia (ECA) and Energy Networks Australia (ENA). This is a new approach involving a customer forum to better reflect customers’ priorities and preferences in regulatory proposals through negotiation with regulated networks. It is intended that the starting point for the AER’s assessment is a proposal that customers want the network to deliver.

AusNet Services (AusNet), in its 2021–2025 regulatory proposal, was the first utility to engage in the New Reg process. On 31 January 2020 AusNet and its customer forum completed negotiations, ending in the submission of the customer forum’s engagement report and AusNet’s 2022–2026 distribution regulatory proposal to the AER.

As a result of the New Reg process and negotiations between AusNet and the forum, the parties agreed on a number of outcomes. In particular, AusNet agreed to certain customer experience initiatives, including a customer satisfaction incentive scheme to incentivise improvement of key customer service interactions and publication of an annual customer interactions and monitoring report to record its progress against these initiatives.

Given its significance, the AER, ECA and ENA have undertaken live engagement on the New Reg trial. As part of this, the trial has been monitored by an independent consultant while another consultant reviews this material to provide insights on the trial. Both consultants have released reports at key stages throughout the trial, including monitoring and insights reports at the conclusion of negotiations between AusNet and the forum.

The insights reports will be used in the evaluation report on the first trial of the New Reg process that Cambridge Economic Policy Associates Ltd (CEPA) has been engaged to prepare. The evaluation will look at the impact the New Reg had on the AER’s determination, the costs of the trial and impacts on building blocks, as well as improvements to outcomes delivered to customers.

In November 2019 the AER published its annual benchmarking reports for electricity distribution and transmission businesses.

The reports play an important role in both providing information to stakeholders and informing AER network determination decisions. The benchmarking reports provide network businesses with information on their relative efficiency and government policy-makers with information about the impacts of regulation on network costs, productivity and ultimately electricity prices. The benchmarking reports also provide customers with accessible information about the relative efficiency of the electricity networks.

The AER uses the benchmarking reports as a source of information to examine the efficiency of historical network expenditures and the appropriateness of basing forecasts on them as a part of its network determination decisions that set future prices.

The AER’s annual benchmarking reports released in November 2019 noted the following:

• Electricity distribution productivity grew by 1 per cent over 2017–18 as measured by total factor productivity. This exceeded productivity growth for the overall economy and the utility sector and has now grown for three consecutive years. The increase was primarily due to reductions in operating expenditure.
• In 2017–18 electricity transmission productivity grew by 2.2 per cent as measured by total factor productivity. This was lower than achieved in 2016–17 (5.3 per cent) but higher than for the overall economy and the utilities sector.

In July and August 2019 respectively the AER published performance data for electricity transmission and distribution networks. This data includes key network performance indicators on network assets, expenditure and service outcomes. To support this expanded reporting, the AER undertook a series of activities that included:

• finalising the profitability measures review following extensive consultation with stakeholders resulting in a commitment to four profitability measures for inclusion in expanded network performance reporting
• consulting with stakeholders on objectives and priorities to guide forthcoming network performance reporting for electricity and gas networks, releasing a final set in June 2020
• collecting regulatory information notices to collect data to commence reporting in 2021 on the performance of gas networks.

The data assists stakeholders to undertake their own analysis of network performance against a key group of indicators.

Case study: Integrated System Plan framework
Integrated whole-of-system planning is critical to support the efficient transition to more decentralised renewable energy generation, including renewable energy zones and innovative new technologies, to deliver the best outcomes for consumers.

The AER contributed to the Energy Security Board’s development of new rules to make the ISP actionable. These set out a framework for the ISP to provide a biennial whole-of-system plan for the efficient development of the power system in the long-term interests of consumers. Under the new rules, the AER has an important role in providing additional governance and oversight to the new framework, including through the development of binding guidelines on cost benefit analysis and best-practice forecasting, as well as a transparency review on the key inputs and assumptions used in developing each ISP.

Given the significance of system planning to investment in the sector and the prices consumers pay for electricity, the AER undertook a highly consultative process in developing the guidelines. This consisted of a two-stage process (issues paper and draft guidelines), supported by several stakeholder forums/webinars and offers to meet with stakeholders upon request to further explain AER positions and/or discuss issues.

AER guidelines were finalised on 21 August 2020. They aim to provide certainty, transparency and accountability for the AEMO, transmission businesses and stakeholders to promote efficient investment in electricity services. This is supported by principles aligned with the ESB’s policy intent:

• rigorous cost benefit analysis to ensure investments provide net benefits to consumers
• streamlined regulatory processes to facilitate timely investment to meet power system needs
• flexibility for AEMO as the national transmission planner in developing the ISP, balanced with full transparency and informed by effective stakeholder engagement.

The AER consultative process has been well received by stakeholders, and AER guidelines will apply to AEMO’s 2022 ISP.

The NEM market design relies on a shared responsibility by all market participants to deliver reliability and security. The role of the AER is to ensure all participants comply with their obligations. To assist participants we develop and publish guidelines.

The AER also draws on its expertise to support policy development to improve the market design through our role on the ESB.

Through AER participation in the ESB, the AER contributes to the implementation of the COAG Energy Council’s energy market reforms and provides continuing advice on energy market development. In this reporting period the AER worked closely with the ESB on enhancing the reliability and security of the NEM, including on the following key projects.

In March 2020 the former COAG Energy Council agreed to implement interim measures to deliver further reliability through a tightening of the NEM reliability standard, establishing an out-of-market capacity reserve and exploring amending triggering arrangements for the RRO. The AER engaged closely in this process, and its work on the Values of Customer Reliability informed the ESB analysis of the reliability standard.

The AER is using its expertise to contribute to the ESB’s project to develop a fit-for-purpose, long-term electricity market framework beyond 2025. Through AER involvement in the ESB and its working groups, the AER is informing the thinking on potential changes to the existing market design and alternative market designs that will enable the future provision of the full range of customer services necessary to deliver a secure, reliable and lower emissions electricity system at least cost.