Express law No. 67

12 February 2008

Amendment to arrangements for the national electricity
market and electricity distribution businesses

Key amendments to national electricity legislation
have established an open access regime for electricity
distribution networks within the national framework governed
by national institutions, similar to that which has operated
since 2005 for electricity transmission networks. The
amendments include a number of other important initiatives.

These amendments, to the National Electricity Law (NEL),
a schedule to the National Electricity (South Australia)
Act 1996 (SA), and the National Electricity Rules (the
Rules) made under that Act, commenced operation on 1 January
2008 (see the National
Electricity (South Australia) (National Electricity Law–Miscellaneous
Amendments) Amendment Act 2007 (SA)
and Ch 6 of
the Rules).

Legislative framework for electricity market

The NEL and the Rules are applied as law by the Commonwealth
in the offshore area (see the Australian Energy Market
Act 2004) and are applied as law by each other state
and territory (other than Western Australia and the Northern
Territory).

The key institutions with functions under the NEL are:

  • the Australian Energy Regulator (AER) (established
    by the Trade Practices Act 1974 and responsible
    for economic regulation of the relevant networks and
    enforcement)
  • the Australian Energy Market Commission (a South Australian
    statutory authority responsible for rule making and market
    development)
  • the National Electricity Market Management Company
    (NEMMCO, a corporation that is the market operator but
    which is proposed to be replaced in 2009 by an Australian
    Energy Market Operator).

Background

Transmission networks transport electricity from generators
to distribution networks using high-voltage transmission
lines. Although electricity transported at high voltage
minimises its loss when transmitting over long distances,
it cannot be safely used by business and residential customers.
So distribution networks move electricity from transmission
networks to those customers.

Since 1998 a wholesale exchange has operated for participants
in the National Electricity Market, and from 2005 electricity
transmission networks have operated under an open access
regime regulated by the national institutions.

The reforms that commenced on 1 January 2008 establish
an open access regime for electricity distribution networks
(in addition to electricity transmission networks) within
the national framework governed by national institutions.
Prior to the reforms, electricity distribution networks'
revenue was regulated by state and territory regulators.

Outline of reforms

The key areas for change resulting from the amendments
are as follows:

  • There are two available forms of regulation for
    regulating the revenue of monopoly electricity distribution
    network service providers.
  • The AER has new information-gathering powers.
  • The Australian Competition Tribunal will conduct merits
    review of specified regulatory decisions.
  • Access disputes will be resolved by the AER under
    a procedure broadly consistent with that in the Trade
    Practices Act 1974.
  • The decision-making framework for the AER in
    carrying out regulatory decisions for the amount of revenue
    a distribution business may earn has changed so that
    there is scope for the Rules to determine the ambit of
    the AER's discretion.
  • The AER will be able to publish reports on the financial
    and operational performance of transmission and
    distribution network service providers.

AGS was closely involved with the Department of Resources,
Energy and Tourism in formulating the reforms, with two
of its officers outposted for the duration of the project.

For further information please contact:

Robert Orr QC
Deputy General Counsel
T 02 6253 7129 F 02 6253 7304
robert.orr@ags.gov.au

Leo Hardiman
Senior General Counsel
T 02 6253 7074 F 02 6253 7304
leo.hardiman@ags.gov.au

Peter Nicholas (outposted to Department of Resources,
Energy and Tourism)
Counsel
T 02 6276 1009 F 02 6276 7110
peter.nicholas@ags.gov.au

Iain Gentle
Counsel
T 02 6253 7281 F 02 6253 7303
iain.gentle@ags.gov.au

Jenny Francis (outposted to Department of Resources, Energy
and Tourism)
Counsel
T 02 6213 6813 F 02 6213 7110
jenny.francis@ags.gov.au

Important: The material in Express law is
provided to clients as an early, interim view for general
information only, and further analysis on the matter
may be prepared by AGS. The material should not be
relied upon for the purpose of a particular matter.
Please contact AGS before any action or decision is
taken on the basis of any of the material in this message.