Welcome to the post-Easter edition of our energy regulatory update.  The Easter season has brought plenty of regulatory developments, together with our eggs.

Of course, all of the talk this week is about deals (whether it is the Prime Minister trying to match make AGL and Alinta around Liddell) or the $13.5 billion tilt by Harbour for Santos – which has its own implications for gas supply policy.  Such ongoing commercial dynamism highlights the opportunities that continue to emerge across the sector.

Notable regulatory developments over the last few weeks:

• The Feds took full ownership of Snowy Hydro – clearing the way for Snowy 2.0.  The project was also given Critical State Significant Infrastructure status by the NSW State Government.

• As flagged in the last update, the ACCC’s focus has been on increasing gas supply.  This included a speech in late February targeting blanket state moratoria, including the Victorian Government preventing development of conventional reserves.

• COAG has kicked off an important review into the effectiveness of Energy Consumers Australia (ECA).  The consumer voice will play a more significant role in regulatory processes moving forward and so ensuring relevant peak bodies such as the ECA are ‘fit for purpose’ is an important step.

• COAG agreed and published the implementation report (first provided to COAG by the Energy Council in August 2017) for its response to the Finkel recommendations.  Some changes have already been implemented such as the removal of limited merits review, establishing the Energy Security Board (ESB) and fast tracking of gas arbitration rules (to take effect from 1 August).  However the report highlights the full slate of reform that remains to be done across the next 3 years.

• The Energy Council released draft legislation to remove rate of return governance from the AEMC and provide the AER with power to make a binding rate of return instrument.  The draft bill would give the AER wide discretion and direct law-making power when creating the instrument.  However, it then removes any scope for the AER to act flexibly around rate of return issues in individual resets.  It remains to be seen where this goes – but such rigidity in setting of returns for networks looks to sit uncomfortably with also wanting to facilitate greater risk taking and innovation in network investment.

• Still with rate of return issues – the AER has established the investor and retailer reference groups and has released discussion papers on gearing, financial performance and risk and judgment.

• The Gas Market Reform Group published the implementation package for capacity trading and the day ahead market.

• Both the AER Retail Exempt Selling Guideline and the Network Exemption Guideline have been updated.  Both are important documents for many in the retail and embedded network space.  The major change to the Retail Guideline is the need for all exempt retailers to be members of an ombudsman scheme.  The changes to the Network Exemption relate to new exemption classes for some direct connection assets and increased requirements around generation connected through embedded networks (where aggregate capacity is over 5MW).

• AEMO published a thought piece with observations on operational and market challenges it faces delivering reliability and security to the NEM.  Most of the insights are unremarkable, although it usefully pulls together a number of the key themes.  One surprising graphic was the impact of variable generation on the number of AEMO operational directions for system security purposes over the last few years - below.

• The AEMC has also been busy.  Without playing favourites, its report proposing a fundamental overhaul of the regulation of covered pipelines (both full and light) is a very significant development for the pipeline sector.  The AEMC has also kicked off its 2018 electricity network framework review with a series of workshops, focusing on network revenue incentives and Distributed Energy Resources (DER).  AEMC is also consulting on the proposed national register of DER, including small scale battery and rooftop solar.

• The Clean Energy Regulator announced a 41% increase in installed renewable over 2017.  A remarkable increase – with more than 1057MW installed over the calendar year. 

• At a state level, both IPART and the ESC are looking at, or have implemented, changes to their feed in tariff arrangements.  A number of state regulators are also looking at pricing and hardship policies.

If Australian developments are not enough to keep you occupied, I came across an interesting paper by the US new energy group, Advanced Energy Economy, that provides useful and sophisticated insights into alternative incentive models for grids to encourage take up of service-based solutions.  The paper is available here.  At present, the debate in Australia is focused largely on totex as a solution to the capex/opex conundrum, but it is worth acknowledging the range of regulatory alternatives.

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