AER publishes paper on ring-fencing

AER – Australian Energy Regulator

Apr 22
AER publishes paper on ring-fencing

On 20 April 2016, the Australian Energy Regulator published its preliminary position paper for a ring-fencing guideline.

To date ring-fencing has mostly focused on separating regulated network services (poles and wires) from contestable services such as electricity retail and generation.  Existing arrangements are State-based, with no national standard.

Ring-fencing is needed when both regulated and contestable services are provided by a single network business and seeks to prevent network service providers from:

  • cross-subsidising an affiliate’s services in the contestable market with revenue derived from its regulated services;
  • discrimination in favour of an affiliate operating in a contestable market;
  • providing the affiliate with access to commercially sensitive information acquired through the provision of regulated services; and
  • restricting the access other participants in the contestable market have to the infrastructure services provided by the regulated entity, or providing access on less favourable terms than its affiliate.

In 2015, the Australian Energy Market Commission (AEMC) introduced changes to the National Electricity Rules (NER) as part of its ‘Power of Choice’ programme.  Some of the rule changes will lead to increased competition in the provision of metering services and as a consequence of this and other reforms, the AER is required to develop a national ring-fencing guideline by 1 December 2016.  The guideline will underpin the increasingly important role third party service providers will play in the supply of metering and other network services to consumers.  The ring-fencing guideline will support the development of these contestable markets by separating regulated monopoly services from services offered competitively.

The purpose of the preliminary position paper is to identify key issues that will need to be considered in drafting a national ring-fencing guideline and draws on previous work undertaken in 2012 to examine ring-fencing, including submissions received.

Submissions on the preliminary position paper are required by 30 May 2016.  The remaining time frame is as follows:

Time Activity
To mid-June 2016 AER holding workshops with key stakeholders
June 2016 AER issues draft guideline
Early August 2016 AER hold further workshops
On or before 30 November 2016 Final guideline published