ACCC & AER annual report 2016-17

Summary of performance

Promote efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers with respect to price, quality, safety, reliability and security

Role

Strategy 4 is the Australian Energy Regulator (AER) strategy, which reflects the objectives of the national energy legislation. This strategy is important because it is about ensuring consumers pay no more than necessary for a safe, reliable and secure supply of energy. The AER operates under the Competition and Consumer Act 2010 to promote a competitive, innovative and flexible energy sector with appropriate consumer protections. The AER seeks to

  • provide effective network regulation, in particular relating to the natural monopoly infrastructure elements of the supply chain (energy networks)
  • build consumer confidence in retail energy markets and support efficient wholesale energy markets through its compliance and enforcement regime.

In 2016–17 we regulated energy markets and networks in eastern and southern Australia, as well as networks in the Northern Territory.

Our functions include:

  • setting the amount of revenue that network businesses can recover from customers’ use of regulated energy networks (electricity poles and wires, and gas pipelines), and ensuring that networks comply with electricity and gas laws and rules
  • wide-ranging responsibilities in retail energy markets, including:
    • operating the Energy Made Easy comparator website (www.energymadeeasy.gov.au)
    • promoting compliance with, and enforcing, retail energy laws and rules
    • authorising or exempting new market entrants
    • approving retailers’ policies for dealing with customers in hardship
    • administering the national Retailer of Last Resort (RoLR) scheme
    • reporting on retailer performance and market activity
  • monitoring wholesale electricity and gas markets to ensure compliance with legislation and rules, taking enforcement action where necessary
  • publishing information on energy markets, including the annual State of the energy market report.

Deliverables

Deliverable 4.1

Provide effective network regulation

Deliverable 4.2

Build consumer confidence in retail energy markets

Deliverable 4.3

Support efficient wholesale energy markets

Priorities

The AER’s priorities for 2016–17 were:

  • delivering regulatory outcomes to promote efficient investment in energy network services that customers value, including preparing for the application of the National Electricity Law in the Northern Territory
  • building consumer confidence in energy markets.

Powers

The 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
  • National Energy Retail Law
  • National Energy Retail Regulations
  • National Energy Retail Rules
  • National Gas Law
  • National Gas Regulations
  • National Gas Rules.

From 2017–18 the AER will receive additional funding to ensure we are equipped to meet the challenges of our expanded roles and functions. This will strengthen our ability to make Australian energy consumers better off, now and in the future.

Performance indicators

Deliverable 4.1: Provide effective network regulation

This deliverable is about regulation that promotes economically efficient investment in, and efficient operation and use of, energy network services for the long-term interests of consumers. Such regulation also supports competition in upstream and downstream markets.

Table 3.63: Performance indicators for Deliverable 4.1

Performance indicator

Annual target

Outcome

Number of revenue reset determinations for electricity networks and gas pipelines and distribution networks completed

3

3

Percentage of revenue reset determinations for electricity networks and gas pipelines and distribution networks completed within statutory timeframes

100%

67*

Number of annual tariff approval applications assessed

26

26

Number of annual benchmarking and performance reports for electricity networks

2

2

* The revised proposal from AusNet Services contained a significant amount of material, including consultancy reports. In order to consider the new material submitted by AusNet Services the AER revised the release date of the final decision from 31 January 2017 to 28 April 2017

Deliverable 4.2: Build consumer confidence in retail energy markets

This deliverable is about ensuring that consumer confidence—which is essential to effective participation in markets—is strong enough to drive competitive outcomes and innovation. We seek to empower consumers in retail energy markets through activities to raise awareness and understanding of their rights and choices.

Table 3.64: Performance indicators for Deliverable 4.2

Performance indicator

Annual target

Outcome

Number of annual reports on compliance in, and performance of, retail energy markets

2

2

Number of retailers’ hardship policies and proposed amendments assessed

N/A (externally driven)

3

Percentage of retailers’ hardship policies and proposed amendments assessed within 12 weeks of receiving all relevant information

100%

67%

Number of retail authorisations/exemptions assessed

N/A (externally driven)

8 authorisations

9 individual exemptions

Percentage of retail authorisations/exemptions applications assessed within 12 weeks of receiving all relevant information

100%

100%—authorisations

89%—exemptions

Support the timely transfer of affected customers in the event of a retailer failure

N/A (externally driven)

1 electricity RoLR event (Urth Energy)

Number of formal energy retail enforcement interventions (court proceedings commenced, s. 288 (NERL) undertakings accepted, infringement notices issued)

N/A (externally driven)

2 s. 288 undertakings accepted

21 infringement notices paid

Percentage of new/replacement offers published on Energy Made Easy website within 48 hours of receipt from retailers

100%

100%

Deliverable 4.3: Support efficient wholesale energy markets

This deliverable is about conducting monitoring activities that allow the AER to assess whether the market is operating efficiently and, where we identify issues, to take action to prevent further detriment. Targeted enforcement action encourages broad compliance across the market.

Table 3.65: Performance indicators for Deliverable 4.3

Performance indicator

Annual target

Outcome

Number of quarterly compliance reports on wholesale markets and networks

4

4

Percentage of quarterly compliance reports published within six weeks of the end of the quarter

100%

50%

(see text)

Audit the compliance systems of selected energy businesses, and report on outcomes

2

0

(see text)

Number of weekly electricity and gas monitoring reports

104

94

Percentage of weekly reports published within 12 business days of the end of the relevant week

75%

70%

Number of reports on extreme price events in wholesale electricity and gas markets

N/A (externally driven)

25

Percentage of reports on extreme price events in wholesale electricity and gas markets published within statutory timeframes

100%

68%

Number of targeted reviews of compliance with the national energy rules

4

2

Publish the State of the energy market report

Yes

Yes

Factors affecting performance

The AER’s focus in 2016–17 reflected challenges posed by our operating environment and market conditions. In particular, we completed a number of regulatory reviews of energy networks and commenced the framework and approach papers for the next round of energy network decisions. We undertook this work concurrently with preparations for and responses to the South Australian and Victorian/ACT matters in the Australian Competition Tribunal (the Tribunal). SA Power Networks has also sought judicial review in the Full Federal Court of the Tribunal’s decision. We sought judicial review in the Full Federal Court of the Tribunal’s decisions on the New South Wales and ACT networks. These ongoing appeals processes absorbed significant resources during the year.

Recent developments and policy reviews on wholesale energy markets led us to direct resources to those processes, with the aim of improving market efficiency. Much activity related to upstream gas markets and the impacts of a changing generation fleet on power system security in the electricity market.

Reprioritisation of our wholesale and retail market branch resources throughout the year meant that we missed some target deadlines for producing this work—for example, the percentage of retail authorisation/applications assessed within 12 weeks. Similarly, resourcing constraints limited the extent to which we could update and proactively promote the AER’s energy price comparator website, Energy Made Easy, and other resources for consumers.

Our wholesale market branch resources were necessarily diverted from recurrent matters to focus on high-priority events in the wholesale electricity and gas markets. These included a major South Australian blackout and several high-price, high-impact events during the 2016–17 summer.

Energy markets are undergoing significant change and require a flexible approach to managing resources. Future challenges include the emergence of new products, services and technologies that are changing the way consumers produce, buy and use energy. Innovative ideas are allowing the development of new business models that are reshaping the energy market. We are aware of, and engaging with, these challenges.

AER reporting

This annual report meets the AER’s formal reporting requirements under the Public Governance, Performance and Accountability Act 2013 and s. 44AAJ of the Competition and Consumer Act. The AER publishes a separate annual report (available on the AER website) to provide more detail on its performance indicators, as well as information on activities, staff and expenditure.