Nexa Advisory welcomes the opportunity to respond to the Australian Energy Regulator’s Call for Input on its review of the Ring-fencing guideline (electricity distribution) v4 & Shared asset guideline v2.
Nexa’s recommendations in this submission are guided by a clear objective: the ring-fencing and shared-asset frameworks should promote the long-term interests of consumers.
In consumer energy markets, competitive delivery has helped reduce costs, accelerate innovation and expand choice in technologies and services including rooftop solar, batteries and electric vehicle (EV) charging. Protecting the competitive process is therefore a consumer-outcomes issue. Nexa’s concern is not to protect any particular competitor or business model, but to ensure providers succeed on their merits and consumers receive the benefits of efficient investment and genuine rivalry.
Ring-fencing matters because DNSPs are regulated monopolies with advantages that independent providers cannot readily replicate. If used to support related commercial activities, those advantages may reduce entry and investment, limit choice, slow innovation, increase long-run costs and transfer commercial risks to regulated customers.
Accordingly, Nexa’s recommendations seek to make competitive neutrality more observable and enforceable; keep waivers evidence-based and limited to exceptional circumstances; improve accountability for affiliate dealings, information access and consumer-facing representations; and strengthen compliance, monitoring and reporting.
While the AEMC considers Nexa’s rule-change proposal and the broader Electricity Network Regulation Review, the AER should use its existing powers to improve its guidelines and deliver more immediate protection and better outcomes for consumers.
Recommendations
- Consumer outcomes should guide the review. The guidelines should support efficient investment and service delivery, protect consumers from risks arising when a regulated monopoly advantages related commercial activities, and preserve the conditions for innovation, choice and lower long-term costs.
- The AER should act while the AEMC considers broader reforms. While the AEMC considers Nexa’s rule-change request and related reforms, the AER should use this review to implement, within its existing powers, the reforms proposed in Nexa’s rule change request that can be given effect through the Ring-fencing Guideline (Guideline). To protect consumers and competition, at a minimum, the AER should formalise the conditions specified in AER’s recent decisions on the CitiPower, Powercor and United Energy (CPU) waiver for EV charging infrastructure and Ausgrid Community Power Network trial waiver to be able to draw on them consistently in future decision.
- The treatment of RESPs should be clearer and proportionate to the competition risk. The Guideline should distinguish clearly between internal and affiliated RESPs. Legal and functional separation should reflect the risks to competition and economic efficiency created by the relevant arrangement. The AER should also replace, or clearly qualify, the defined term “contestable electricity services”.
- Competitive neutrality must be observable and verifiable. Broad non-discrimination obligations should be supported by transparent protocols, equal and timely access to information, auditable records, clear branding requirements and reporting that allows the AER and market participants to compare the treatment of affiliated and independent providers.
- Waivers must remain evidence based and limited to exceptional circumstances. The Guideline should require applicants to demonstrate why a waiver is necessary (by identifying the relevant market failure), what measurable long-term consumer benefits it will deliver and why less competition-distorting alternatives are insufficient. Network-controlled barriers should be addressed before being relied on to justify DNSP participation. Waivers should be narrowly scoped, time-limited, supported by published reasons and measurable conditions, and accompanied by an exit or transition plan.
- Compliance and enforcement should be transparent. DNSP compliance reports and external assessments should be published, subject to legitimate confidentiality protections. The AER should also strengthen assurance requirements and targeted auditing, publish an annual national ring-fencing compliance and enforcement report, and establish a clear and confidential complaints pathway.
- Cost allocation should be reviewed alongside ring-fencing and shared assets. The AER should expand the present review, or commence a parallel process, to review the Distribution Cost Allocation Guideline and its application. If that is not presently possible, substantive changes to the Shared Asset Guideline should be postponed until the cost-allocation framework can be reviewed.
Read our full submission here: Nexa Advisory submission – AER Review of the ring-fencing and shared asset guidelines