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Department of Treasury and Finance
Notes on Clauses
Electricity Reform (Implementation) Bill 2013
Clause 1 This clause establishes the short title of the Act.
Clause 2 This clause provides that the provisions of the Act commence upon
proclamation.
Clause 3 This clause provides that the amendments in Part 2 of the Bill relate to the
Electricity Supply Industry Act 1995.
Clause 4 This clause adds a number of new definitions to the Electricity Supply Industry
Act 1995, including definitions necessary for the new wholesale regulatory
arrangements and the definition of a Regulated Offer Retailer.
It also removes a number of definitions that are no longer required in an
FRC environment.
Clause 5 This clause establishes a new function for the Tasmanian Economic Regulator
to monitor and provide reports in relation to the development of
competition in the Tasmanian electricity supply industry. The clause also
provides that the Regulator must take into account the policy that it is
desirable that electricity businesses operating in Tasmania are financially
sustainable.
Clause 6 This clause substitutes a new section relating to administrative fairness to
ensure that the Regulator cannot discriminate between various parties in
undertaking its functions under the Act.
Clause 7 This clause substitutes a new clause 24A in the Act to replace specific
mention of Transend Networks with the more general reference to the
`holder of a transmission licence'. This will enable the clause to operate
effectively both pre and post the planned integration of the distribution and
transmission network businesses.
Clause 8 This clause establishes a new Subdivision in Part 3 of the Act that provides
for a number of matters that are required for the transition to FRC.
Clause 9 This clause automatically repeals Aurora's legislative monopoly on non-
contestable customers in Tasmania immediately prior to the commencement
of FRC on 1 January 2014.
Clause 10 This clause establishes three new sections to deal with transition to FRC
and to establish key concepts relating to retail price regulation that interact
with existing provisions under the National Energy Retail Law (Tasmania)
Section 38A provides for certain limitations on the retailers that
customers may contract with during the period 1 January to 30 June
2014, and provides the head of power for the Minister to establish
certain conditions relating to the transfer of customers, including
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limitations of on the number of customers that can transfer between
retailers in a specified time period. . These transitional provisions i are
necessary to enable the necessary systems to be developed to support
the move to unlimited customer transfer capacity under FRC;
Section 38B provides for the Minister to declare, by Order, one or
more retailers to be Regulated Offer Retailers. The Regulator will be
empowered to set the maximum prices of the standard retail contracts
offered by Regulated Offer Retailers. Every small customer on mainland
Tasmania will have a designated Regulated Offer Retailer for their
premises that will be obliged to offer them a standard retail contract at
the prices set by the Regulator, should the customer request this;
The section also provides that the Aurora retail is taken to be the
Regulated Offer Retailer for the entire State until such time as the
retailers that purchase the retail customer bundles can be nominated as
the new Regulated Offer Retailers from 1 January 2014;
The requirement for a retailer to have more than 50,000 small
customers to be a Regulated Offer Retailer will ensure that the
legislative framework is robust to changes in the Tasmanian retailers
over time;
Section 38C provides for the Minister, by order, to declare a Local Area
Retailer. The role of Local Area Retailer is currently undertaken by
Aurora Retail. One of the purchasing retailers will undertake this role
from 1 January 2014. The Local Area Retailer will have financial
responsibility for all electricity consumption that is unallocated when the
market is settled, including non-contestable unmetered supply; and
Aurora Retail will be taken to be nominated as the Local Area Retailer
until the nomination of the new retailer to undertake this role takes
effect.
Clause 11 This clause inserts a new heading into the Act after s39, to accommodate
the new sections introduced by virtue of clause 12.
Clause 12 This clause establishes three new sections in the Act:
Section 40AA relates to the determination by the Tasmanian Economic
Regulator of the maximum prices for the standard retail contracts of
Regulated Offer Retailers:
section40AA(1) provides the head of power for the Regulator to
undertake this role;
section 40AA(2) requires the Regulator to make a separate
determination (pricing instrument) for each Regulated Offer
Retailer;
section 40AA(3) provides that the Regulator may amend or
revoke a determination.
section 40AA(4) limits the ability for the Regulator to amend a
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determination where an amendment would be inconsistent with
the principles that the Regulator is required to take into account
when making a determination;
section 40AA(5) provides for the making of regulations in relation
to the price determination process;
section 40AA(6) provides that a determination made by the
Regulator under this section remains in force for the period
determined in accordance with the regulations; and
section 40AA(7) requires that if regulations are made then the
making, amendment or revocation of a determination must be
done in accordance with those regulations.
Section 40AB specifies the principles that the Regulator must take into
in making retail price determinations and specifies the range of
operational costs of a Regulated Offer Retailer that are to be captured
by a determination:
section 40AB(1) requires the Regulator to determine maximum
prices for standard retail contracts by making an estimate of the
operational costs incurred by Regulated Offer Retailers in
supplying electricity to customers. It also establishes a number of
other principles that the Regulator is to take into account in
making a determination, including that customers should be
protected from the adverse effects of market power, that there is
a need for efficiency in retail service provision and that Regulated
Offer Retailers should be able to make a return in providing retail
services;
section 40AB(2) defines the relevant operational costs of
Regulated Offer Retailers to be the purchase of wholesale
electricity, transmission and distribution costs, retail costs and any
other costs the Regulator considers relevant;
section 40AB(3) requires the Regulator to estimate the costs of
purchasing wholesale electricity by adopting the price of the
regulated load-following swap product offered by Hydro Tasmania.
This product is the lowest risk financial product and would be
purchased by a retailer with a low risk tolerance to movements in
wholesale electricity prices;
section 40AB(4) provides that transmission and distribution costs
are those established by the relevant determinations made by the
Australian Energy Regulator; and
section 40AB(5) provides for the Regulator to determine the
relevant retail cost to serve incurred by Regulated Offer Retailers
in supplying electricity to customers on standard retail contracts.
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Section 40AC sets out arrangements for the making of the first retail
price determination and deals with timing issues with regard to the
making of price determinations prior to the nomination of the new,
acquiring retailers as Regulated Offer Retailers.
Section 40AC(1) provides for the making of regulations to
establish a process for the first determinations in relation to
Regulated Offer Retailers, including that the Minister is to make
submissions to the Regulator with regard to the structure and
methodology, period and tariff structure that is to apply with
regard to the first determinations;
Section 40AC(2) provides that if regulations are made which
specify that the Minister is to make a submission with regard to
the first determinations and the Minister specifies certain matters
in his submission, then the determination must be done in
accordance with this;
Section 40AC(3) provides that a first determination made in
relation to Aurora Retail may effectively be transferred to apply to
other authorised retailer(s) who are to become Regulated Offer
Retailers once FRC commences; and
Section 40AC(4) provides that determination can be specified to
apply to an authorised retailer prior to their nomination as a
Regulated Offer Retailer, but that the determination does not
apply with regard to that retailer until they formally become a
Regulated Offer Retailer (from 1 January 2014).
Section 40AD provides for the Regulator to declare and make
determinations relating to other declared electrical services:
section 40AD(1) provides the head of power for the Regulator to
undertake this role;
section 40AD(2) specifies that determinations under this section
are not to include retail services to small customer or distribution
or transmission services;
section 40AD(3) establishes the two tests that must be met
before the Regulator can declare an electrical service. These are
that an electricity entity or authorised retailer has substantial
market power and the promotion of competition, efficiency of the
public interest warrants declaration;
section 40AD(4) provides for the revocation or amendment of a
declaration under this section;
section 40AD(5) provides that if the Regulator declares an
electrical service, it can determine the maximum tariffs and
charges for that service. This clause provides the head of power
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for price regulation of declared services;
section 40AD(6) provides that the relevant entity offering a
service that has been declared by the Regulator must only charge
for that service in accordance with the maximum prices set by the
Regulator and establishes a penalty for non-compliance; and
the remaining clauses in the new Section 40AB are administrative
in nature and deal mainly with the making of regulations to
support the operation of this section
Clause 13 This clause replaces references to Aurora Retail with references to
Regulated Offer Retailers, for the purposes of determining maximum
standing offer prices.
Clause 14 This clause replaces references to `tariffs and charges' with references to
`standing offer prices' to reflect the appropriate terminology used elsewhere
throughout the Bill
Clause 15 This clause replaces references to Aurora Retail with references to
Regulated Offer Retailers, for the purposes of the Regulator recovering the
costs of determining maximum prices for standard retail contracts.
Clause 16 This clause inserts a new heading into the Act after s43B to accommodate
the new sections introduced by virtue of clause 17.
Clause 17 This clause establishes a new Subdivision in Part 3, Division 4 of the Act
relating to Community service obligation concessions:
section 43C establishes a number of new definitions relating to the
provision of electricity concession under FRC;
section 43D provides for the Minister to make a concession order,
which will be the instrument that requires all authorised retailers to
provide the Government's electricity concessions to eligible customers;
section 43D(1) provides the head of power for the Minister to make
a concession order in relation to specified eligible customers;
section 43D(2) provides guidance on how a concession specified in a
concession order may be expressed;
section 43D(3) provides guidance on how a concession order may be
expressed;
section 43D(4) requires a retailer that is the subject of a concession
order to provide that concession to an eligible person, and
establishes a penalty for non-compliance;
section 43D(7) provides for information regarding customer eligibility
for concession to be transferred to the new retailers. This will
provide for the seamless transition of concession from Aurora Retail
to an FRC environment; and
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the remaining clauses in section 43D are administrative in nature.
Section 43E provides for the Minister to enter into a community service
obligation agreement with a retailer. The CSO agreement will establish
the administrative arrangements under which concessions are provided
by the retailers to customers, and reimbursed by the Government.
Section 43F requires the Minister to ensure that a retailer is reimbursed
by the State for providing a concession under a concession order.
Clause 18 This clause establishes a new Division 4A in Part 3 of the Act relating to the
regulation of Hydro Tasmania's wholesale electricity contracts in Tasmania:
Section 43G requires the Tasmanian Economic Regulator to make a
number of approvals regarding the regulated contracts that Hydro
Tasmania is to offer;
section 43(G)(1) requires the Regulator to approve:
o the types of regulated contracts that Hydro Tasmania is
required to offer (such as financial swaps and caps);
o the standard forms for each approved contract. This will ensure
that all retailers will have the same non-price terms and
conditions for each approved contract;
o the methodology that must be used to calculate prices for each
approved contract;
o the period over which Hydro Tasmania is to offer the approved
contracts (for example: 12 quarters forward); and
o the formula that is to be used to determine the volume of
approved contracts that Hydro Tasmania is to make available;
section 43(G)(2 provides for the formula used to determine the
volume of approved contracts that Hydro Tasmania must offer to
take into account other (non-regulated) contracts that have been
entered into by Hydro Tasmania in Tasmania. This is to ensure
that Hydro Tasmania does not have to offer an unreasonable
volume of contracts well in excess of that required to contract the
Tasmanian load.
section 43(G)(3) mandates that the Regulator must declare a
load-following swap product as an approved contract in any
approval under section 43(H)(1). This product is the lowest risk
financial product used in the National Electricity Market and will
be used by the Regulator to set the wholesale allowance in the
standard retail contracts that must be offered by Regulated Offer
Retailers;
section 43(G)(4) provides for the revocation of an approval;
section 43(G)(5) provides that a revocation may be made if the
Regulator believes an approval no longer reflects principles that
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the Regulator must take into account when making an approval;
section 43(G)(6) provides for the making of regulations to support
the operation of this section, including the charging to an
electricity entity of a cost relating to the making or revocation of
an approval;
section 43(G)(7) specifies that if regulations are made then the
making or revocation of approvals must be done in accordance in
with the regulations;
section 43(G)(8) requires the Regulator to inform
Hydro Tasmania and authorised retailers if it makes or revokes an
wholesale approval and publish a copy of the approval or
revocation on its website. This will ensure that all relevant parties
are made aware of changes to the wholesale instrument.
section 43G(9) provides that an approval remains in place for the
period as determined by the regulations; and
section 43G(10) provides that the making or revocation of an
approval does not retrospectively affect contracts made before
the date of the approval or revocation. This is an avoidance of
doubt provision that will provide confidence to retailers that any
contracts they enter into will not become invalid by virtue of a
change to the regulatory arrangements.
Section 43H specifies the principles that the Regulator must take into
account when approving contracts:
section 43(G)(1) outlines two principles that the Regulator must
have regard to in deciding which contracts Hydro Tasmania is
required to offer.;
The first principle is that authorised retailers should have a choice
of different contracts to entire into with Hydro Tasmania. This will
encourage retail competition by enabling authorised retailers to
adopt different hedging strategies;
The second principle is that the types of contracts should be
consistent with the contracts used in the National Electricity
Market. This will ensure consistency with other NEM regions and
prevent retailers from having different risk management
arrangements across NEM jurisdictions;
section 43(G)(2) outlines two principles that the Regulator must
have regard to in determining the standard form of each approved
contract.
The first principle is that the terms and conditions of the approved
contracts should be similar to those offered in those contracts in
the NEM.
The second principle is that the total period over which
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Hydro Tasmania is required to offer the approved contracts
should be of a similar duration to that offered in the NEM.
Again, these principles are aimed at ensuring consistency in the
regulated contracts offered by Hydro Tasmania with other NEM
regions; and
section 43(H)(3) outlines two principles that the Regulator is to
take into account in approving the methodology for determining
the prices for the approved regulated products.
The first principle is that the pricing methodology reference
electricity hedging contracts in the Victorian region of the NEM,
adjusted to take into account the supply/demand balance for
electricity in Tasmania. The Victorian region is both competitive
and liquid and, due to Basslink, Tasmanian prices are heavily
leveraged to the Victorian market.
The second principle is that the prices should reflect the risks
that a retailer entering into a contract faces with regard to supply
demand variations associated with retailing to small customers
under standard retail contracts;
Section 43I establishes the head of power that will require
Hydro Tasmania to offer the approved regulated financial contracts to
authorised retailers, and enter into these contracts at the request of an
authorised retailer.
Section 43J provides for the regulation of Hydro Tasmania's
requirements of retailers with regard to credit risk:
section 43J(1) provides that Hydro Tasmania is to submit to the
Regulator its proposed credit risk management requirements for
retailers where Hydro Tasmania is compelled to enter into
contracts under s43I
section 43J(2) provides the head of power to the Regulator to
approve Hydro Tasmania's proposed requirements on retailers
section 43J(3) provides that it is defence against the offence by
Hydro Tasmania of not offering a retailer a contract or contracts
under 43H if the retailer has not met the minimum credit
requirements approved by the Regulator. This is to ensure that
Hydro Tasmania is not forced to contract with retailers that pose
a financial risk to Hydro Tasmania by not being able to meet their
obligations under the contract.
Section 43K sets out arrangements where Hydro Tasmania is not
required to offer a contract under section 43I because its minimum unit
volume in relation that contract would be exceeded by offering the
contract:
section 43K(1) provides that it is a defence against an offence
under section 43I of failing to offer or enter into a contract with a
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retailer if Hydro Tasmania determines its minimum volume would
be exceeded by doing so;
section 43K(2) prescribes the specific circumstances where the
minimum volume limit are exceeded; and
section 43K(3) provides that Hydro Tasmania is required, at the
request of a retailer., to provide information to that retailer
regarding its contracted volumes in relation to its minimum total
quantities.
Section 43L deals with the application and monitoring of approved
methodologies for setting prices under contracts offered by Hydro
Tasmania:
section 43L(1) requires the Regulator to publish guidelines
outlining how Hydro Tasmania is to apply the approved pricing
methodology to the approved regulated contracts. The guidelines
will specify matters such as when and how Hydro Tasmania is to
publish the prices of its regulated contracts;
section 43L(2) requires Hydro Tasmania to comply with the
guidelines; and
section 43L(3) provides the power to the Regulator for it to
monitor and report on the offering and entering into by Hydro
Tasmania of contracts under 43I, as well as Hydro Tasmania's
application of an approved price-setting methodology under an
approved contract.
Section 43M provides for the Regulator to step in and fix the prices for
Hydro Tasmania's regulated contract products under certain
circumstances:
section 43M(1) provides for the Regulator to approve the fixing
the prices for regulated products if the Regulator is satisfied that
there has been a significant, deliberate or repeated failure by
Hydro Tasmania to correctly apply the approved pricing
methodology. This clause could be invoked in the extreme event
of mispricing by Hydro Tasmania;
sections 43M(2) and (3) provides for the Regulator to fix prices
where there has been a `supply disruption event', which could
include, for example, a prolonged outage of Basslink or sustained
failure of Hydro Tasmania's major generating plant. A `supply
disruption event' does not include a drought in Tasmania
because this is a normal commercial risk for Hydro Tasmania
that will be reflected in the methodology for pricing the
approved contracts. The Regulator must consult with the
Treasurer before invoking this clause;
section 43(M)(4) provides that an approval to fix prices may be
revoked by the Regulator;
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section 43M(5) provides for the making of regulations to support
the operation of this section; and
section 43M(6) provides that an approval or revocation does not
apply retrospectively to any contract entered into before the
date of the approval or revocation. This is an avoidance of doubt
provision that will provide confidence to retailers that any
contracts they enter into will not become invalid by virtue of a
change to the regulatory arrangements.
Section 43N establishes the processes under which the Regulator may
fix prices under an approval made under 43M(1):
section 43N(1) provides that the Regulator may fix prices where
an approval to fix prices is made under 43M(1);
section 43N(2) provides that if the Regulator is to fix prices in
response to an event of mispricing by Hydro Tasmania, it is to
do so using the approved pricing methodology for those
contracts. This will remove uncertainty for authorised retailers;
sections 43N(3) and (4) provides that where the Regulator is to
fix prices in response to a supply disruption event, the Regulator
does not have to use the approved pricing methodology for
those contracts. This is because the supply disruption events are
likely to cause the approved pricing methodology to be no
longer valid (for example, a suspension of the Victorian contract
market or a prolonged disruption to electricity supply);
section 43N(5) provides that the Regulator can revoke notices
for the fixing of prices in response to either a mispricing event or
a supply disruption event;
section 43N(6) requires Hydro Tasmania to continue to offer
the approved regulated contracts to authorised retailers,
regardless of how the Regulator decides to price those
contracts;
section 43N(7) provides that if regulations are made relating to
fixing prices, the regulations must be complied with;; and
section 43N(8) provides that the issuing or revocation of a
notice an approval under this section does not apply
retrospectively to any contract entered into before the date of
the approval or revocation. This is an avoidance of doubt
provision that will provide confidence to retailers that any
contracts they enter into will not become invalid by virtue of a
change to the regulatory arrangements.
Section 43O provides for the Minister to make the initial approvals for
the wholesale regulatory framework by providing the Minister with the
necessary powers to make approvals as if it was the Regulator.
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Once the initial wholesale pricing instrument is made by the Minister, the
Regulator will be responsible for its administration.
Clause 19 This clause amends section 49B, to allow for the amendment of the
Tasmanian Electricity Code where it is required to facilitate the electricity
reforms. The Act does not currently allow for amendment of the Code to
support the reforms.
Clause 20 This clause provides for a new section 49I to be included in the Act that
clarifies that any instruments, determinations, approvals, notices or reports
made under this Part are not statutory rules.
Clause 21 This clause inserts a new section 119A, which provides that the Minister can
make various agreements, arrangements, orders, and approvals for the
relevant parts of the Act, notwithstanding any other law in Tasmania. This is
an `avoidance of doubt' provision relating to the Minister's authority to do
certain things following the completion of the sale process, including
nominating purchasing retailers as Regulated Offer Retailers.
Clause 22 This clause inserts a new section 121AA, which provides that the costs
incurred by a retailer in meeting its obligations under the National Energy
Retail Law (Tasmania) to comply with a request from a Pay as You Go
customer to revert to a standard metered product can be recovered by that
retailer from the distribution network service provider. These costs are
currently absorbed by Aurora, which is both retailer and distributor, but
with the commencement of FRC provision needs to be made for the retailer
to recover these costs from the distributor, as the owner of the PAYG
meters.
Clause 23 This clause makes a number of amendments to the regulation-making powers
in section 122 of the Act to reflect the transition to a competitive market.
Clause 24 This clause provides that the amendments in Part 3 relate to the National
Energy Retail Law (Tasmania) Act 2012.
Clause 25 This clause will remove the definition of Aurora Retail from the NERL
(Tasmania) Act to reflect the transition to a competitive market.
Clause 26 This clause will establish a new section 17A in the National Energy Retail Law
(Tasmania) Act to modify the definition of `designated retailer' and introduce
a definition of Regulated Offer Retailer:
section 17A(1) amends the definition of `designated retailer' in
order to 1) provide that the obligation to offer supply to
customers seeking a new connection (e.g. home builders) is
placed on the relevant Regulated Offer Retailer for that
customers' premises and 2) ensure that small customers with an
existing connection always have access to a designated Regulated
Offer Retailer that is obliged to offer them a standard retail
contract at regulated prices, even where their home is currently
being supplied by non-price regulated retailer;
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section 17A(2) inserts a new definition of Regulated Offer
Retailer to link the arrangements relating to retail price
regulation under the Electricity Supply Industry Act to relevant
provisions under the National Energy Retail Law (Tasmania)
section 17A(3) provides that Tasmania may nominate a Local
Area Retailer by way of Ministerial Order, consistent with the
nomination process proposed new s38C of the Electricity Supply
Industry Act. The current Law provides that the LAR must be
nominated under regulations.
Ministerial Orders provide the necessary flexibility to nominate a
purchasing retailer as a Regulated Offer Retailers and/or a Local
Area Retailer in the period between the completion of the sale
process and the commencement of FRC on 1 January 2014; and
section 17A(4) provides that where a customer is on a deemed
customer arrangement - which includes situations such as where
a customer moves in to a new property or where a contract has
expired, but electricity is still being supplied the retailer
supplying that customer must advise them as soon as practicable
that they are entitled to enter into a standard retail contract at
regulated prices with their Regulated Offer Retailer.
Clause 27 This clause amends section 18 to remove references to Aurora Retail and
replace them with references to a Regulated Offer Retailer'. This has the
effect of regulating the standing offer prices offered by the new Regulated
Offer Retailers in the same manner to how Aurora's prices are currently
regulated.
Clause 28 This clause repeals the Amendment Act one year after it commences. All
amendments will remain captured in the relevant Principal Acts, removing
the need to retain the Amendment Act itself.