Fewer holes in the fence: Industry bodies seek rule change to rein in network ring-fencing waivers

An unlikely coalition of consumer and industry bodies is calling for a crackdown on networks being given waivers from consumer protection rules, and after years of shouting it from the sidelines, wants better ring-fencing safeguards written into the rules. 

A rule change request submitted to the Australian Energy Market Commission (AEMC) on Monday seeks to firm up the line of defence preventing network companies from playing in markets outside of their core business of poles and wires.

Ringfencing rules are overseen by the market regulator to avoid distortion in competitive markets. Under these, distributed network service providers (DNSPs) – being regulated monopolies – are not allowed to own and operate assets that compete with private companies.

But with the rise and rise of consumer energy resources and electric vehicles – and the need for battery storage at every level of the grid – networks are pushing to play a greater role in the transition, including soaking up and sharing solar, and installing more storage and EV chargers.

The DNSPs argue that they can do these things better, faster and more cost efficiently than most. And they have had some success with this line of logic, winning a number of ring-fencing waivers from the Australian Energy Regulator (AER), including to “sandbox” kerbside electric vehicle (EV) charging solutions, to install and own rooftop solar and batteries, and to install, own and operating community batteries.

But this week’s rule change request, being led by Nexa Advisory, wants less holes in the fence; a view supported by renewables and consumer advocacy groups the Smart Energy Council and Solar Citizens, as well as by the Australian Energy Council – the industry body for the big “gentailers” that currently dominate the consumer services side of the market and protect it fiercely.

Nexa argues that allowing DNSPs to play in competitive markets raises costs for consumers by pushing private investors away from emerging markets and paving the way for regulated monopolies to further monopolise.

“The persistent misuse of waiver applications by some of the distribution networks over the years clearly highlights why stronger ringfencing rules are needed,” says Nexa Advisory chief Stephanie Bashir.  

“Tightening the process is critical to preventing the misuse of monopoly network powers and protecting energy consumers from gold plating and cost blowouts.”

The rule change focuses on five big reforms, each of which has become a regular refrain in submissions on ring-fencing waiver requests.

It’s calling for networks to only be allowed to participate in competitive markets if they demonstrate a genuine market failure, ensure regulated consumer revenues are not used for commercial ventures, require networks to have equal-access data opportunities for both affiliates and competitors, and clearly separate branding from affiliates.

The biggest move would be for the AER to publish an annual report on ring-fencing compliance including any breach notifications. 

Nexa argues that DNSP trials are neither necessary nor helpful for commercial entities trying to get competitive versions off the ground or communities, such as in the nascent kerbside charging sector in Sydney and Melbourne. 

“There have been ongoing waiver applications over the years that have all been approved by the AER with no reporting or obligations to demonstrate outcomes intended,” Bashir says.  

“It’s basically set-and-forget with no accountability.

“That is also the case with the community batteries that some of the DNSPs signed up to roll out for the federal government, which according to ARENA analysis are substantially more costly and slower to rollout than those from communities and other third parties”

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