AER: Ring-Fencing Guidelines

AER – Australian Energy Regulator

Sep 03
AER: Ring-Fencing Guidelines

On 15 August, the Australian Energy Regulator (AER) published its draft Ring-Fencing Guidelines.  The AER recommends that the ring-fencing guidelines are required to “prevent network businesses from shifting costs into the regulated business or taking unfair advantage of their regulated position in the energy market“.

The AER states that a review of the ring-fencing guidelines is required to account for the treatment of emerging technologies (such as the installation of battery storage and embedded generation by distribution network companies).  In addition, given that the emergence of new technology is widespread, a consistent nation-wide approach to the treatment of such activities is required.  The ring-fencing guidelines require distribution network service providers to physically and legally separate their business activities. costs and revenues between:

  • regulated monopoly services; and
  • additional services into competitive markets.

This is to prevent companies from cross-subsidising competitive activities with returns from regulated operations and from using customer information collected in the execution of regulated network operations to support activities in competitive markets.  Practically, this translates as the distribution network company:

  • cannot advertise or promote the services provided by its affiliate;
  • must operate independent and separate offices to a related body corporate/affiliated service provider that provides non-network energy-related services; and
  • must ensure that staff directly involved in the provision or marketing of a regulated service are not also involved in the provision or marketing of non-network energy-related services.

The timetable for the review of ring-fencing guidelines is as follows:

  • 20 Apr – AER published a preliminary position paper
  • 15 Aug – AER published the draft ring-fencing guidelines
  • 28 Sep – submissions close for the draft guidelines
  • 1 Dec – final guidelines are published and will apply from this date.