AER to seek penalties to strengthen ring-fencing rules

The Australian Energy Regulator (AER) is seeking changes that will allow it to fine energy network companies to prevent them from dominating the market for energy services where competition is possible.

Releasing the AER’s first annual report on compliance with the Electricity Distribution Ring-Fencing Guideline, AER chair Paula Conboy said consumers would benefit from these changes.

“We intend to seek an amendment to the regulatory framework so that civil penalties can be imposed for breaches of the Guideline. We think these steps will further strengthen the ring-fencing arrangements to drive competition and promote better consumers outcomes,” she said.

Ring-fencing aims to promote competition in the provision of electricity services by providing a level playing field for third party providers in contestable markets. The AER introduced the Guideline in 2017 to prevent monopoly distribution businesses from cross-subsidising or discriminating in favour of their own business affiliates operating in competitive markets.

Third party providers can offer services like customer connections or metering in competition with distribution businesses, and strong ring-fencing arrangements are needed to ensure these businesses compete fairly.

Distributors were required to comply with the Guideline from 1 January 2018, and this report outlines instances where distributors have breached or not been compliant with the ring-fencing requirements.

“We take instances of non-compliance seriously and are expecting greater levels of compliance in future,” said Ms. Conboy.

Evoenergy failed to implement suitable systems to prevent breaches of the Guideline. SA Power Networks was found to have inadequate staff sharing, information access and confidentiality handling systems. The AER also found Ausgrid’s arrangement of sharing offices with its affiliate was in breach of the Guideline requirements.

“Effective ring-fencing arrangements are vitally important for promoting good consumer outcomes. They create better conditions for truly competitive markets to emerge and develop, which means better services for consumers.

“We want to see new entrants and distribution businesses be appropriately rewarded where they meet the needs of consumers. This is best delivered through competition, with regulation advancing the long-term interest of consumers where necessary,” said Ms. Conboy.

Sector: 
Issued date: 
21 March 2019
AER reference: 
NR 06/19
Contact: 
AER Media 0466 409 921 media@aer.gov.au