Australia: A Partial Welcome to the National Energy Customer Framework (NECF)

Introduction

A national energy retail regime that aims to solve the problematic discrepancies between energy regulation in the eastern States and Territories commenced on 1 July 2012, but only in two of the six participating jurisdictions. The four remaining jurisdictions are still expected to implement the regime. However, the lack of unified approach means that the long hoped-for consistency in this area has not yet come to pass.

A further step towards harmonising energy regulation

After several years of concerted development, the National Energy Customer Framework (NECF) forms a further stage in Australia's transition to national regulation of energy markets, which has also included the establishment of a harmonised national legislative framework to govern electricity and natural gas markets.

Regulation of the sale and supply of electricity and natural gas will be transitioned into a single framework of national instruments enforced by the AER (mostly replacing separate State and Territory regulators of retail and distribution activities). Together, these laws and rules set out protections and obligations for energy customers and the retail and distribution businesses from whom they purchase their energy. The NECF also establishes a new regime for new customer connections to distribution networks.

Implementing a harmonised national system in the energy retail and distribution sector has the potential to be of great benefit to energy industry participants and customers. It can be expected to deliver improved efficiency in terms of regulatory certainty, reduce the regulatory burden (including compliance costs) on energy businesses operating across various jurisdictions and provide competitive benefits and consistent protections for consumers. This is particularly important with Australian domestic markets becoming increasingly contestable (in 2011, New South Wales, Victoria, South Australia and Queensland were ranked among the top ten most active switching markets globally¹).

In practice, however, the implementation of this harmonised national system has encountered some challenges.

Problems with implementation

1. The first is that instead of implementing the NECF as drafted, each participating jurisdiction decided to implement a framework which, while close to the NECF, contained a collection of additions and carve-outs particular to each jurisdiction. In most cases these idiosyncrasies are relatively minor and reflect additional customer protections which are (or were) available in the jurisdiction's previous energy retail regime which do not exist in the NECF.

The potential effect of these differences is that:

• energy retailers and distributors that operate in more than one participating State or Territory have had to spend considerable time and resources analysing the differences between the different jurisdictions and developing documentation (including contracts, customer communications, information packages, etc.) and operational processes that are compliant with the requirements of each NECF jurisdiction.
• it still remains somewhat difficult for energy consumers to understand exactly how the laws apply as it is necessary to read a number of pieces of legislation and rules together to understand all of their rights and obligations.

2. The second obstacle is that, with the exception of Tasmania and the Australian Capital Territory, the NECF jurisdictions have not met the planned 1 July 2012 commencement date. New South Wales recently announced that it does not plan to implement the NECF regime until 2014². Victoria and South Australia have indicated that they will implement the NECF sooner than New South Wales, but have not provided an exact commencement date. As mentioned above, the Queensland government is still considering its implementation strategy for the NECF.

New South Wales and Queensland, despite delaying formal implementation, have attempted to bring their current regimes into closer alignment with the NECF by amending their existing codes and regulations (effective 1 July 2012) to reflect some of the consumer protections contained in the NECF.

This has put pressure on energy businesses that were otherwise prepared for the full commencement of the NECF on 1 July 2012. As of 1 July 2012, in Queensland and New South Wales, neither the documentation that businesses may have prepared, nor the existing documentation that was compliant with the non-NECF regime could potentially fully comply with the obligations in the energy laws as amended. For many energy businesses, this fragmented approach to implementation has no doubt necessitated an eleventh hour scramble to comply.

Moving forward

The benefits of regulatory certainty, reduced compliance costs and consistent consumer protection to be realised under the NECF may not be seen for some time. However, the potential benefits are still attainable, and once fully implemented, the NECF will be an important piece of the puzzle for a consistent national energy market regulatory scheme in Australia.

Prudent energy market participants and investors should ensure they keep abreast of developments in this area as the implementation of the NECF will have broad implications across the energy retail and distribution market in the NECF jurisdictions.

Footnotes

¹According to the VaasaETT World Energy Retail Market Rankings Report 2011.
² http://www.trade.nsw.gov.au/__data/assets/pdf_file/0007/433699/Minister-Hartcher-med-rel-NECF.pdf

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