Energy businesses must go above and beyond to support customers doing it tough”

Australian Energy Regulator (AER), News release dated 27 March 2020

The current global health crisis has forced energy businesses to act in unprecedented ways to ensure the continued safe and reliable supply of energy to consumers across the country and to protect households and businesses who may fall into hardship as a result of COVID-19.

Our team outlines key announcements by national energy market bodies and energy networks in response to the COVID-19 pandemic.

Energy Networks Australia – Relief for small business and residential customers

Energy Networks Australia (ENA) is a national industry body representing Australia's electricity transmission and distribution and gas distribution networks. Earlier this month, ENA released a 'relief package' comprising a suite of measures that have been put in place by energy networks in New South Wales, Victoria and South Australia to support customers enduring hardship as a result of the COVID-19 pandemic.

Energy networks across Australia have already been undertaking critical preventative maintenance works to ensure a safe and secure energy system.

Networks in New South Wales, Victoria and South Australia are now in the process of putting in place the relief package, which is aimed at small business and residential customers and which will 'ensure energy retailers can better assist those facing hardship'.

Key objectives of the relief package are:

• To provide full tariff relief via rebates to small business customers experiencing financial stress and who are mothballing as a result of COVID-19;
• To provide relief for residential customers of large retailers who go on payment plans or in respect of whom hardship arrangements are put in place as a result of COVID-19 via the deferral of network charges;
• To provide relief to small retailers via rebates in respect of network tariffs for residential customers that go into default as a result of COVID-19; and
• Commitment to customers that the networks will adhere to the AER's principles (which are set out in the AER's Statement of Expectations of Energy Businesses, some of which are outlined in the section below).

Eligible small business customers are 'those that consume less than 40MWh or 400GJ per annum (based on 2019 consumption) and use less than 25% of historical average consumption for the period', being 1 April to 30 June 2020. The ENA has classified the 'large retailers' as AGL Energy, EnergyAustralia, ERM Power, Lumo Energy, Momentum Energy, Origin Energy, Red Energy, Simply Energy, Stanwell Corporation and all of their affiliates.

The ENA has acknowledged that the above measures will have a 'real impact' on the network sector, and that it 'will be necessary to reconsider network expenditure to ensure that credit metrics and loan covenants are maintained'.

Further details in relation to the relief package are available in ENA's media release dated 2 April 2020.

Australian Energy Regulator – Expectations of energy businesses

At the end of March, the AER published a set of ten principles in its Statement of Expectations of Energy Businesses, which it expects retailers, distributors and exempt sellers to adhere to during the COVID-19 pandemic to the maximum extent possible.

The key principles include:

1. No disconnections of large business customers, without their agreement, before 31 July 2020, and potentially beyond that date.
2. No disconnections of residential or small business customers who may be in financial distress, without their agreement, before 31 July 2020 and potentially beyond that date.
3. Offer of payment plans or hardship arrangements to all residential and small business customers who indicate they may be in financial distress, regardless of whether the customer meets the 'usual' criteria for that assistance.
4. Waiver of disconnection, reconnection and/or contract break fees for small businesses that have ceased operation, along with daily supply charges to retailers, during any period of disconnection until at least 31 July 2020.

Whilst the AER has stated that it will closely monitor compliance with the provisions of the National Energy Retail Law, National Energy Retail Rules and exemption guidelines, it has encouraged energy businesses to raise compliance concerns with the AER at an early stage. The AER has also indicated that it will consider 'a more flexible approach to ensure market participants can continue to operate in the long-term interests of end users', where this would be appropriate. 

Australian Energy Regulator – Default market offer price determination

The default market offer (DMO) price is the maximum price that retailers can charge a standing offer customer for electricity in non-price regulated network distribution regions (south-east Queensland, New South Wales and South Australia).

In another public acknowledgement of the significant impact that the COVID-19 pandemic is having on the Australian community and stakeholders, the AER invited further submissions on COVID-19 impacts that the AER should take into account in making its DMO price determination for the 2020-21 period. Submissions were due Thursday 9 April 2020 and the AER is now considering those submissions.

AEMO – authorisation from the ACCC

On 30 March 2020, the Australian Energy Market Operator (AEMO) applied to the Australian Competition and Consumer Commission (ACCC) for urgent interim and final authorisation to engage in conduct which has the purpose of:

• Ensuring the safe, secure and/or reliable operation of energy systems and/or the continued operation and integrity of the wholesale markets;
• Ensuring ongoing energy supply during the COVID-19 pandemic;
• Minimising the risk of energy outages during the COVID-19 pandemic;
• Ensuring sufficient resources to maintain and operate energy infrastructure; or
• Planning or preparing for the impacts of the COVID-19 pandemic in relation to the above, (Proposed Conduct).

The application was made by AEMO on behalf of participants in the Australian gas and/or electricity markets and their related bodies corporate, and any other parties involved in energy or related sectors who in the future wish to engage in the Proposed Conduct. AEMO quoted the communique released by the COAG Energy Council on Friday 20 March 2020 in support of its position that the Proposed Conduct, involving the coordination of energy market participants, is required to ensure the safe, secure and reliable operation of Australia's energy systems in face of the COVID-19 pandemic.

On 3 April 2020, the ACCC granted (and later revoked) interim authorisation for the parties to commence some elements of the Proposed Conduct. Following revision of the scope of the Proposed Conduct by AEMO, the ACCC then granted interim authorisation on 17 April 2020 to permit the parties to engage in a wider range of conduct. The parties are now authorised to engage in the following conduct, to the extent that the conduct has one or more of the purposes of the Proposed Conduct:

• Coordinating repairs and maintenance;
• Sharing essential personnel;
• Sharing essential inputs;
• Deferring non-essential works;
• Managing system stability;
• Sharing information regarding ongoing operation; and
• Other conduct notified by AEMO to the ACCC (other than sharing information in relation to gas supply or availability).

The parties are not authorised to:

• Share confidential information relating to retail pricing matters, costs or profits; or
• Enter into agreements regarding the wholesale or retail price of energy, or the supply or acquisition of gas.

The ACCC commenced the public consultation process on the conduct permitted by the interim authorisation on 22 April 2020.

AEMO's application and the ACCC's authorisations can be found on the ACCC's Authorisations Register.

Energy market bodies' response

In response to pressure within the energy industry that there be 'consideration of the timeframes for implementation of market reforms' to ease the additional pressures on the energy sector stemming from the COVID-19 pandemic, the energy market bodies, being the AER, the Australian Energy Market Commission (AEMC) and AEMO, are collaborating to manage the impact of COVID-19 on the energy sector.

The energy market bodies have agreed a set of objectives and criteria for amending implementation dates for changes to the National Electricity Rules, the National Energy Retail Rules and the National Gas Rules.

Those objectives and criteria were outlined in letters to the Hon Angus Taylor MP on 7 and 9 April 2020:

Objective 1: urgent needs to address an immediate issue arising from the impact of COVID-19 will be assessed according to the following criteria:

• Whether they present direct security impacts that must be addressed immediately and implemented within a 6 to 12 month timeframe;
• Whether they give rise to urgent policy issues relating to the impact of COVID-19 on consumers; and
• Whether measures are required to support market participant resilience.

Objective 2: change impacts to industry and consumers of continuing projects will be assessed according to the following criteria:

• The materiality (costs and availability of industry) of implementation to industry;
• The impact to consumers should the change not be progressed, and the aggregate impact on industry;
• The impact of unnecessary delay;
• The prioritisation of work to support the recovery and ongoing operation of the energy market; and
• The ability of stakeholders to engage in consultation.

The energy market bodies have also assessed and categorised the current regulatory work for which each of the three bodies are responsible as follows:

• Continue as planned;
• Continue with a reduced scope or where the energy market bodies continue to progress the work while industry implementation and/or consultation is 'paused'; and
• Deferred to a later date or grouped with other reform projects.

Importantly, regulatory work which falls into the first category to 'continue as planned' includes:

• Implementation of the five minute settlement;
• Implementation of the interim reliability measures;
• Progress of the interim security initiatives;
• Development of a two-sided market, ahead market and the coordination of generation and transmission investment;
• Finalisation of the wholesale demand response mechanism; and
• Implementation of recent rule changes relating to mandatory primary frequency control and systems restart services.

The energy market bodies will be looking to provide flexibility for participants, to actively engage with stakeholders and to group regulatory work in order to improve coordination and cost efficiencies.