12 Jun 2014
Significant changes proposed to Queensland's electricity market
by Dan Howard, Damien Cooling
Queensland's modifications of the National Energy Retail Law will ensure that regional electricity customers can still access supply if market competition is weak.
On 20 May 2014 the Queensland Government introduced two Bills that will result in significant structural changes to the regulation of the electricity market in Queensland.
The Electricity Competition and Protection Legislation Amendment Bill 2014 will remove retail price regulation in South East Queensland and establish an independent market monitoring program.
The National Energy Retail Law (Queensland) Bill 2014 will introduce the National Energy Retail Law into Queensland, with some modifications to reflect Queensland electricity market-based issues.
Electricity sector reform in Queensland
The basis for legislative reform in this area stems from recommendations made by the Interdepartmental Committee on Electricity Sector Reform in 2013.
In its Report, the Interdepartmental Committee concluded that comprehensive structural reform is required in the electricity sector in order to remove cost pressures and to protect customers.
The Committee proposed three broad strategies for reform:
- stop building unnecessary infrastructure and improve the efficiency of network businesses;
- maximise the benefits of competition while protecting consumers; and
- develop a more effective role for government.
The Bills relate to, and seek to support, the second and third of these three strategies. In relation to the second strategy, the Committee specifically recommended:
- removing price controls in South East Queensland by 1 July 2015;
- adopting nationally harmonised laws for customer protection, subject to variations to:
- boost customer engagement;
- detail information about the cost of poles and wires on electricity bills; and
- examine fees and charges in retail contracts; and
- developing an affordable and effective hardship and concession framework.
Because competition is limited in regional Queensland, the Committee only recommended lifting price controls in South East Queensland. It further concluded that a review of regional Queensland issues should not prevent reform in South East Queensland.
Removing retail price regulation in South East Queensland
The Electricity Competition Bill proposes to significantly amend the Electricity Act 1994 (Qld) by:
- removing retail price regulation in South East Queensland. The Minister would no longer be able to decide regulated retail electricity prices within "Energex's distribution area" under the Electricity Act. This means that retail electricity prices in South East Queensland are to be regulated by market competition; and
- establishing a market monitoring regime. This will be done by allowing the Minister to direct the Queensland Competition Authority to undertake a market monitoring function and to publish an annual market comparison report about electricity prices in SEQ. If market settings in SEQ prove ineffective, the Minister will retain the power to reintroduce price controls.
A new enforcement regime and other changes to the Electricity Act
The Electricity Competition Bill will also:
- remove provisions in the Electricity Act about retail authorities, special approvals for retailing and the sale of electricity by on-suppliers. Current retail authorities granted under the Electricity Act will cease to have effect on the commencement of the National Energy Retail Law;
- adjust terminology to bring it in line with the National Energy Retail Law; and
- ensure that remaining customer protections continue to operate effectively and can be enforced. In particular, as the Electricity Act will no longer regulate retail authorities, the Bill will introduce direct obligations on retailers to enter into agreements with the State:
- for the provision of community services; and
- to cover small customers with small photovoltaic generators.
The Bill would also establish a new enforcement regime in sections 135AA to 135AL of the Electricity Act as the introduction of the new National Energy Retail Law (see below) will mean the Queensland Government can no longer suspend or take other action in relation to a retailer's retail authority in order to encourage compliance under the Electricity Act.
Under the new enforcement regime, retailers may be given warning notices, fines or be subject to injunctions for breaches of the new direct regulatory obligations.
Introducing the National Energy Retail Law into Queensland
The National Energy Bill aims to introduce the National Energy Retail Law into Queensland with a number of modifications.
Briefly, the National Energy Retail Law, as contained in a Schedule to the National Energy Retail Law (South Australia) Act 2011, will:
- incorporate a detailed electricity sales framework and control;
- implement a price comparison service;
- place regulatory obligations on retailers to operate programs to help customers experiencing hardship;
- establish a comprehensive "exempt seller" framework that gives small customers in 'on-supply' situations broadly equivalent protections to other customers;
- include processes and requirements around billing and credit management; and
- apply a National Connections Framework that sets out processes for new connections including response times to customer requests.
Queensland and Victoria are the only states yet to adopt the National Energy Retail Law.
… with some modifications
While the National Energy Retail Law will be adopted to a large extent by the National Energy Bill in Queensland, it will be modified to ensure that regional electricity customers can still access supply if market competition is weak, and to ensure additional customer protection.
The key derogations are:
- existing obligations on Ergon Energy and Origin Energy to deliver the Uniform Tariff Policy to large customers will continue. This means that large customers on Ergon's distribution network will still receive the standard large customer retail price;
- expressly requiring retailers to offer customer retail services to large customers where they are the financially responsible retailer for the premises, so customers can continue to access supply despite weak competition;
- providing specialised standard retail and connection contracts for card-operated meter customers that set out clear rights and obligations within technical limitations of the service; and
- still restricting retail competition in some areas where technical limitations exist or where there is no economic benefit to do so.
Where to from here?
Both Bills are currently under consideration by the State Development, Infrastructure and Industry Committee.
The Committee must provide its recommendations to Parliament by 28 August 2014 and public submissions may be made to the Committee by 4.00pm, 30 June 2014.