150302 submission to emrwg new products and services final · simply energy (abn 67 269 241 237) is...

Simply Energy (ABN 67 269 241 237) is a partnership comprising IPower Pty Ltd (ACN 111 267 228) and IPower 2 Pty Ltd (ACN 070 374 293)

20 March 2015 COAG Energy Council Secretariat GPO Box 9839 Canberra ACT 2601 Submitted by email to: [email protected] Dear Sir/Madam

New products and services in the electricity market New products and services in the electricity market New products and services in the electricity market New products and services in the electricity market –––– Consultation on regulaConsultation on regulaConsultation on regulaConsultation on regulatory implicationstory implicationstory implicationstory implications

Thank you for the opportunity to provide a submission to the Energy Market Reform Working Group (EMRWG) paper “New products and services in the electricity market – Consultation on regulatory implications” (the Paper). Simply Energy retails electricity and gas in Victoria, South Australia, New South Wales and Queensland. With over 500 000 customers, Simply Energy has become one of the largest second tier retailers since it commenced retailing in 2005. Presently, the rapid pace of technological development is driving significant change in the industry and, as the EMRWG notes, the traditional, centralised electricity supply model is being challenged by emerging products and services. Simply Energy welcomes this challenge and we ourselves look forward to offering our current and future customers a range of products and services that enhance their experience and interaction with the electricity industry. Notwithstanding these developments, there are legitimate concerns where loopholes or oversights in the regulatory architecture result in customer choices that are inefficient over the long term. Unless regulation is well designed (and currently with respect to these issues it is not) then consumers will be driven to certain choices due to regulatory settings rather than because those choices represent the best way of meeting consumers’ needs. This outcome fails to provide for allocative efficiency and does not meet the National Electricity Objectives. For example, if grid-delivered energy continues to be heavily regulated and other energy supplies are not, then the non-grid delivered supplies will be chosen (for price reasons, for example) even when they are not the best way of meeting the consumer’s needs for energy. This will result in an inefficient allocation of resources between grid-delivered and non-grid delivered energy. Grid-delivered energy is not an outdated technology. This is shown by the arguments of advocates of non-grid delivered energy who argue that non-grid delivered energy does not need to be subject to energy industry regulation because the customer can fall back on regulated grid-delivered energy into the future. As it stands, grid delivered electricity remains the most reliable form of supply, able to meet a consumer’s needs with a certainty that other sources of supply cannot match. Yet, grid-delivered electricity attracts a level of scrutiny that is not currently applied to other sources of supply. Perversely, this is undermining the competitiveness of grid-delivered electricity in favour of alternative sources which will likely reduce allocative efficiency through over-investment in non-grid delivered energy and dynamic efficiency as consumer’s make long term investments that may ultimately not match their best interests.


Given grid delivered energy is essential to maintain access to reliable and secure energy that consumers’ value, regulatory biases which undermine the ability of the grid to fulfil its role in a cost effective manner are unsustainable. If this approach to regulation continues then it will have the result of ‘picking winners’ with respect to technology regardless of reliability and cost instead of allowing the market, through consumers, to pick the optimal mix of technology. Such an outcome calls into question the overall benefits of the existing framework. For Simply Energy, the cross-roads we find ourselves at relates particularly to the continued application and relevance of the National Energy Consumer Framework (NECF). The EMRWG needs to decide whether there is merit in continuing the NECF in its existing form or whether the prescriptive requirements that it dictates is ultimately standing in the way of innovation. Given that customers are essentially voting to opt out of the NECF requirements by taking up supplies offered by those parties not subject to its requirements would suggest that the NECF arrangements do not reflect market or customer requirements. As highlighted in response to the EMRWG’s questions, the NECF was created to address specific concerns around the way that customers interact with the complexity of the products and services offered by the industry. This complexity is the same regardless of whether energy is grid-delivered or non-grid-delivered and thus there is an ongoing role for some level of energy-specific customer protection to apply regardless of the business model used to deliver the supply. At the same time, there are parts of the NECF that are now redundant given the highly competitive markets retailers now operate in and which stand in the way of innovation. Simply Energy would welcome a discussion on the future of NECF, and the best way to promote innovation in the market and deliver value to customers, while also delivering a core set of customer protections to energy consumers. Simply Energy has responded to the questions set out by the EMRWG in the Paper in the following sections of this submission. If you have any questions concerning this submission, please contact either myself on (03) 8807 1132 or James Barton, Regulatory Policy Manager, on (03) 8807 1171. Dianne Shields Senior Regulatory Manager


1.1.1.1. Which products and services?Which products and services?Which products and services?Which products and services? In this section, we address the EMRWG’s question of whether the three markets identified in the Paper cover all new products and services that could be offered to small electricity customers. The three markets identified in the Paper are the electricity supply market, the demand management market, and the energy information market. Simply Energy believes that this is a useful way of categorising the products and services. However, we would caution against thinking too unilaterally along these categories. If this occurs, it could lead to regulatory decisions that are inappropriate where a product or services crosses the boundaries, or even where a product or service fits neatly into one of the categories but has characteristics or impacts on the customer that it should be treated differently to other products and services in the same category.


2.2.2.2. What are the current regulatory frameworksWhat are the current regulatory frameworksWhat are the current regulatory frameworksWhat are the current regulatory frameworks???? The EMRWG set out some principles for determining whether the National Electricity Law (NEL) and Rules (NER) or the National Energy Retail Law (NERL) and Rules (NERR) should apply to new products and services. In this section of the submission, we set out our views on the appropriateness of the proposed principles. National Electricity Law and RulesNational Electricity Law and RulesNational Electricity Law and RulesNational Electricity Law and Rules The Paper proposes the following three principles for identifying whether the National Electricity Law (NEL) and National Electricity Rules (NER) should apply to a product or service:

• It affects the operation of or confidence in the wholesale electricity market; • It is a monopoly activity; or • It affects power system quality, safety, reliability and security.

Simply Energy considers that these are useful principles for deciding whether the NEL and NER should apply to a product or service. National National National National Energy RetailEnergy RetailEnergy RetailEnergy Retail Law and RulesLaw and RulesLaw and RulesLaw and Rules The Paper proposes the following principle for determining whether the NERL and NERR (or NECF) should apply to new services and products.

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

We believe that this principle is a good start but it needs further development if the integrity of the NECF is to be preserved. Simply Energy is of the view that the following principles should apply:

• The competitive market is unlikely to supply energy universally;

• The complexity of the products or services makes it difficult for the customer to make an effective choice;

• Barriers exist that could prevent or inhibit consumers’ engagement in the competitive market; and

• Regulation is competitively neutral and does not distort efficient market outcomes. To formulate these principles, we revisited the reasons energy-specific customer protection exists in the first place. There are three reasons it exists:

1. Energy is an essential service and thus it has merit good characteristics in that everyone should have a supply of it (i.e. it is a universal service). The competitive market is unlikely to provide everyone with supply because some may be unable to pay and thus be excluded from that service. Hence, the NECF specifies an obligation on the financially responsible retailer to provide supply and requires that retailer to offer hardship to those who are unable to pay.1

1 Energy concessions complement the NECF by contributing toward the cost of supplying customers who would not otherwise be able to pay.


2. The second driver of energy-specific customer protections is the complexity of the product that is being sold. Energy is complex and it can be difficult for the customer to engage effectively in the competitive market because of the transactions costs (typically time) involved in making an informed decision.

3. Without regulation, barriers could arise that prevent or inhibit customer engagement in the competitive market and thus restrict choice.

While energy-specific customer protection aims to address these concerns, at same time, retail contestability is seen as a driver of efficiencies across the industry. A key component to maximising those efficiencies was a regulatory framework that met the principles of good competition policy and did not try to ‘pick winners’ or create biases in customer choice driven by the regulatory setting alone. Thus, the energy-specific customer protection framework applies to all retailers regardless of whether the retailer is an established incumbent with an inherited customer base, a second tier retailer or a new entrant. It also applies regardless of the business model the retailer chooses or the technology the retailer uses to deliver products and services to the consumer. Simply Energy gets the sense that there is a unstated policy preference for encouraging competition and new products in electricity supply over consumer protection. This seems to derive from the view that as consumers have recourse to engage with traditional suppliers then the relationship with alternative suppliers can be left to the discretion of the market. Leaving aside the potential for consumers to be stuck in long term contracts with alternative suppliers, if this policy preference were correct, then arguably second tier retailers should be equally exempt given their dominant role in incentivising competition and new products and given the role of tier one retailers. However, this position has not been adopted for the same reason that a blanket exclusion for alternative energy sellers appears to be inappropriate.


3.3.3.3. Electricity Supply MaElectricity Supply MaElectricity Supply MaElectricity Supply Marketrketrketrket Are there other products and services emerging in the electricity supply market (beyond distributed Are there other products and services emerging in the electricity supply market (beyond distributed Are there other products and services emerging in the electricity supply market (beyond distributed Are there other products and services emerging in the electricity supply market (beyond distributed generation and storage) that we should consider in our advice to Ministers?generation and storage) that we should consider in our advice to Ministers?generation and storage) that we should consider in our advice to Ministers?generation and storage) that we should consider in our advice to Ministers? The concepts of storage and distributed generation fully cover non-grid energy supply. Nevertheless, your advice may wish to consider the potential impacts of different types of distributed generation. For example, systems based on solar PV or wind turbines are intermittent sources. Even with storage added they cannot generally be relied on to meet all of a consumer’s needs for energy. In contrast, household-scale gas-fired cogeneration is being rolled out in parts of Europe. This is a non-intermittent source of energy, which could play the same role in a customer’s electricity supply solution as is currently played by grid-delivered electricity. Is the NECF flexible enough to to allow the AER to ensure customers of alternative energy sellers have Is the NECF flexible enough to to allow the AER to ensure customers of alternative energy sellers have Is the NECF flexible enough to to allow the AER to ensure customers of alternative energy sellers have Is the NECF flexible enough to to allow the AER to ensure customers of alternative energy sellers have appropriate consumer protections?appropriate consumer protections?appropriate consumer protections?appropriate consumer protections? The EMRWG’s preliminary view is that the NERL is flexible enough to ensure appropriate consumer protection through either a full authorisation or an exemption that carries ‘appropriate’ conditions. This view fundamentally undermines the governance framework that was established for the NEM. The governance framework set in place was based on a separation of powers:

• the Energy Council would establish the broad framework and direction of policy across the NEM;

• the AEMC would establish the Rules that would effect this policy direction; and

• the AER would enforce the Law and Rules established by the Energy Council and AEMC. This structure was created to provide regulatory certainty so that industry could invest with a degree of confidence over the longer term. By relying on the current authorisation/exemption framework, the EMRWG is placing the AER in a policy making position. It should be the Energy Council deciding which consumer protections should apply to alternative energy sellers and not the AER. To preserve the existing governance structure, we believe the EMRWG should be recommending the creation of a ‘small scale authorisation’ that would sit between a full authorisation and an exemption and attract a subset of the obligations that apply to a full authorisation retailer. Such an outcome would be proportionate to the risk consumers face whilst limiting exposure to unnecessary regulatory requirements. Simply Energy’s submission to the AER’s own review highlighted the protections that Simply Energy believes should apply to the business models currently receiving exemptions. We refer the EMRWG to that submission which is attached to this submission. In summary, Simply Energy was of the view that the following protections should apply:

• The requirement to obtain and record the customer’s explicit informed consent (Division 5 of the NERL)

• A requirement to provide or offer interpreter services (Rule 55 of the NERR)

• Requirements around information provision to small customers (Subdivision 2 of the NERR)


• Requirements in regard to energy marketing activities (Subdivision 3 of the NERR)

• Small customer complaint and dispute resolution information (Rule 50 of the NERR)

• Termination of contract requirements (Rule 49 and 49A of the NERR)

• Cooling off period and right of withdrawal (Rule 47 of the NERR)

• Tariffs and charges (Rule 46 of the NERR)

• Security deposit requirements if the supplier requires this (Division 6 of the NERR)

• Some form of hardship policy or at least a requirement of a statement on how the supplier will address situations where the customer falls into hardship and can no longer keep up payments

• Overcharging and undercharging requirements (Rules 30 and 31 of the NERR)

• Billing disputes (Rule 29 of the NERR)

• Estimation as basis for bills (Rule 21 of NERR)

• Ombudsman scheme membership

• Procedures to manage removal of the non-grid energy supply (similar to the de-energisation procedures for grid-delivered energy), including overdue payment warnings, notice periods, supply withdrawal warning, and collection attempts

Will offWill offWill offWill off----grid energy supply arrangemegrid energy supply arrangemegrid energy supply arrangemegrid energy supply arrangements create specific consumer protection issues if this becomes a massnts create specific consumer protection issues if this becomes a massnts create specific consumer protection issues if this becomes a massnts create specific consumer protection issues if this becomes a mass----market option?market option?market option?market option? Yes. As identified by the Paper, off-grid energy supply is not currently covered by the NECF. This needs to change in order to apply the essential service principle identified in the Paper and discussed above. In addition, off-grid supply raises additional consumer protection issues that are not present in relation to grid-delivered electricity. For example, the reliability of grid-delivered energy is regulated and individual consumers do not need to consider this issue when contracting with suppliers of grid-delivered electricity. With respect to off-grid supply, in contrast, consumers will need to understand the trade-off between cost and reliability when choosing their off-grid supply arrangements. Explicit informed consent and information requirements will need to be developed to ensure that off-grid consumers are fully informed and explicitly consent to the reliability of the supply arrangements they choose. Additionally, even when consumers maintain a grid connection, the contract lengths for non-grid delivered energy raise new customer protection issues. Long term contracts for non-grid delivered energy (the ‘Solar Plus Storage’ submission to the AER states that a 25 year contract length is necessary due to the cost of the equipment) are potentially more of a problem for consumer choice than anything currently posed by grid-delivered energy. Energy retail contracts for grid-delivered energy are much shorter (typically two years) and exit fees are minimal or non-existent. Consumers are able easily to switch to a new supplier of grid-delivered energy, but will be locked in to a contract with a non-grid delivered energy supplier for a long period, with high costs to exit the contract. The high exit costs will reflect the costs to the supplier of reclaiming infrastructure that was deployed at the customer’s site. This raises significant customer protection issues in ensuring that consumers are able to access the energy supplies that meet their needs in the long term.


Are specific consumer protections required to help consumers make informed decisions about going offAre specific consumer protections required to help consumers make informed decisions about going offAre specific consumer protections required to help consumers make informed decisions about going offAre specific consumer protections required to help consumers make informed decisions about going off----grid?grid?grid?grid? Yes. See the discussion above in relation to consumers being well informed about the reliability of the supply arrangements they select. Are there other consumer protection issues we should consider in this market? If so, how could these be Are there other consumer protection issues we should consider in this market? If so, how could these be Are there other consumer protection issues we should consider in this market? If so, how could these be Are there other consumer protection issues we should consider in this market? If so, how could these be addressed?addressed?addressed?addressed? Yes. We refer the EMRWG to Simply Energy’s submission in response to the AER’s review.


4.4.4.4. Demand Management MarketDemand Management MarketDemand Management MarketDemand Management Market Are there other products and services emerging in the demand management market that we should consider Are there other products and services emerging in the demand management market that we should consider Are there other products and services emerging in the demand management market that we should consider Are there other products and services emerging in the demand management market that we should consider in our advice to Ministers?in our advice to Ministers?in our advice to Ministers?in our advice to Ministers? We are not aware of any products or services other than those identified in the Paper. Could direct load control products create material risks for power system operations? If so, how could these Could direct load control products create material risks for power system operations? If so, how could these Could direct load control products create material risks for power system operations? If so, how could these Could direct load control products create material risks for power system operations? If so, how could these risks be managed within the regulatory framework?risks be managed within the regulatory framework?risks be managed within the regulatory framework?risks be managed within the regulatory framework? As mentioned in the Paper, the Energy Networks Association (ENA) and the Energy Retailers Association of Australia (ERAA) have worked together to consider ways in which the potential impact on networks of non-network initiated load control can be managed. This work identified that the simultaneous switching on or off of high levels of load creates risks for distribution networks. The risks are greater than for the notional 5 MW generator considered in the Paper due to the connection requirements of the generator, which will provide for capacity to manage its output. This is not the case for general network infrastructure, which is not designed to support high levels of simultaneous load switching, relative to the total load on the relevant pieces of infrastructure. In order to manage these risks, demand management aggregators need to be registered and required to comply with the load management protocol. Are there similar implications for power system operations where distributed generation and storage are Are there similar implications for power system operations where distributed generation and storage are Are there similar implications for power system operations where distributed generation and storage are Are there similar implications for power system operations where distributed generation and storage are being controlled remotely?being controlled remotely?being controlled remotely?being controlled remotely? We believe there are. If the network sees a sudden change in load, the impact is the same whether the change in load is due to consuming appliances being switched on or off, or due to distributed energy supply sources being switched on or off. Power system development and operations are based on models of network usage. Weather-based models have been used to forecast consumer load and PV and wind power output. The addition of storage and non-intermittent distributed generation (such as the household level gas-fired cogeneration being rolled out in parts of Europe) means that these models no longer apply. Rather than power system requirements reflecting an external variable, the weather, they will now reflect market responsive decisions to charge or discharge storage and run distributed generation. This is inherently more complex and increases the operational risks to the power system, especially at the level of distribution network elements. Should parties offering direct load control products to customers have similar obligations to retailers and Should parties offering direct load control products to customers have similar obligations to retailers and Should parties offering direct load control products to customers have similar obligations to retailers and Should parties offering direct load control products to customers have similar obligations to retailers and distributors regarding informed consent? If so, how could these obligations be created for parties not covered distributors regarding informed consent? If so, how could these obligations be created for parties not covered distributors regarding informed consent? If so, how could these obligations be created for parties not covered distributors regarding informed consent? If so, how could these obligations be created for parties not covered by the National Electricity Retail Law?by the National Electricity Retail Law?by the National Electricity Retail Law?by the National Electricity Retail Law? From Simply Energy’s perspective, businesses that offer direct load control (DLC) products sit on the boundary of where the NERL does and does not apply. In Simply Energy’s view, if the product means that the customer is signing over their rights of control of the device subject to DLC, then there is a case for the application of some customer protection obligations. The customer should be fully informed about the consequences of their entering into the agreement with the DLC


product. In contrast, if the business is selling a product that enables the customer to provide their own DLC (e.g., a piece of software), then general customer protection legislation would be sufficient. In the former situation, there is an ongoing contract where there is the potential for the DLC to be operated in the provider’s favour (e.g., for arbitraging the wholesale market). In the second situation, the transaction with the customer is a one-off and it is the customer that is undertaking the DLC for their own benefit.


5.5.5.5. Energy information market Energy information market Energy information market Energy information market The questions posed in the Paper in relation to the energy information market are limited to questions about the privacy of metering data. This is surprising given the broader discussion relating to information in the Paper. For example, energy-related products and services offered to consumers include information about ways in which they can manage their energy use. Simply Energy considers that the quality of this information could have as big an impact on a consumer’s energy use as their choice of appliance. Consumers are well informed about the impact of their appliance choice by the mandatory MEPS scheme, and a similar scheme with robust testing and labelling is needed to ensure that consumers are well informed about the impact on their energy use of their choice of energy management information. Do the Do the Do the Do the National Electricity Rules protect metering data sufficiently where it is held by market participants?National Electricity Rules protect metering data sufficiently where it is held by market participants?National Electricity Rules protect metering data sufficiently where it is held by market participants?National Electricity Rules protect metering data sufficiently where it is held by market participants? Yes. The provisions of the NER go further than merely requiring that participants maintain the confidentiality of metering information. The NER includes energy data, metering data and NMI standing data in the list of information that is deemed to be confidential. Additionally, the NER does not just determine how participants must protect confidential information, but also requires that they only make use of it for the purpose it was disclosed to them. This is a critical provision, because market and grid operations require that some participants have information that could also be used inappropriately. For example, local retailers have metering data for all customers within their local area, which they need for market settlement. This information would enable a local retailer to determine the most profitable consumers in their local area that are served by other retailers, and make targeted offers in order to win these consumers. This is not permitted by the NER. Similar restrictions apply to participants’ use of NMI standing data, which includes information about the characteristics of the consumer’s site. This information could be used by participants to develop targeted sales strategies. This is not permitted by the NER because it is not the purpose for which this information is made available to participants. Is the Privacy Act sufficient to protect metering data where it is used by parties outside theIs the Privacy Act sufficient to protect metering data where it is used by parties outside theIs the Privacy Act sufficient to protect metering data where it is used by parties outside theIs the Privacy Act sufficient to protect metering data where it is used by parties outside the electricity market?electricity market?electricity market?electricity market? No. The discussion above shows that the NER goes much further than the Privacy Act in ensuring that information relating to a consumer’s energy use is only used appropriately. The NER approach needs to be extended to cover not just NEM market participants, but all providers of energy-related products and services. If this is not done then energy-related information that is currently only used appropriately will be increasingly used for purposes that are currently prohibited. This will lead to the negative outcomes for consumers that motivated the restrictions on information use that are included in the NER.


How can the privacy expectations of customers and the need for market How can the privacy expectations of customers and the need for market How can the privacy expectations of customers and the need for market How can the privacy expectations of customers and the need for market participants to access data best be participants to access data best be participants to access data best be participants to access data best be managed concurrently?managed concurrently?managed concurrently?managed concurrently? The NER currently successfully manages consumers’ privacy expectations with respect to their energy-related information, and the needs for market participants to use this data. This is achieved by the NER listing the permitted uses of the information: anything else is not permitted. As discussed above, this approach needs to be extended to cover not just NEM market participants, but all providers of energy-related products and services.

150302 submission to emrwg new products and services final · simply energy (abn 67 269 241 237) is...

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