Amendments to the Consumer Advocacy Panel Regulations

Amendments to the Consumer Advocacy Panel Regulations

Public Consultation Paper – March 2013

1. Introduction

Energy Ministers have requested officials to examine the Consumer Advocacy Panel’s criteria of grant allocations to ensure it continues to operate in the interests of energy consumers. The purpose of this paper is to identify areas of improvement for the criteria for grant allocation of the Consumer Advocacy Panel.

Stakeholders are asked to provide submissions on the options presented within this paper or to explore alternative options that can be considered by the Standing Council on Energy and Resources (SCER) Energy Market Reform Working Group (EMRWG). Submissions are invited to the Manager of the SCER Secretariat at by COB Wednesday 10April2013.

The EMRWG will then progress a final proposal of amendments to the Regulations, if required, through SCERto meet the Council of Australian Governments’ (COAG) delivery date of June 2013.

This paper has been developed by officials and has not been considered by Energy Ministers.

1. Background

The National Electricity Consumers Advocacy Panel was established in 2001 with a purpose to grant funds to representatives of domestic and business electricity consumers for advocacy on the development of the National Electricity Market (NEM) and the National Electricity Rules. It was created because households and business did not have access to sufficient resources to ensure a proper voice in the NEM decision-making process. Members were composed of equal numbers of consumer and market participant representatives, with an independent Chair.

In 2008, as a result of an amendment to the Australian Energy Market Commission (AEMC) Establishment Act (the Act), it was reconstituted as the Consumer Advocacy Panel (the Panel) with responsibility for granting funding for advocacy and research that benefits electricity and natural gas consumers. The consumer advocacy amendments to the Act came into force on 1July2008.

The Panel currently consists of a chair and three board members. The Panel also has an executive director. Panel members are subject to appointment processes through theMinisterial Council on Energy (MCE; now SCER).

In accordance with section 45 of the Act, the Panel is required to develop Grant Allocation Criteria and Application Guidelines which are consistent with the MCE’scriteria set out in the AEMC Establishment Regulations (the Regulations).

The functions of the Panel include identifying areas of research that would benefit consumers of electricity and/or natural gas, with particular regard to small to medium consumers. Grants are allocated to organisations and individuals to undertake advocacy and/or research on behalf of electricity and gas consumers in the NEM. The functions of the Panel are prescribed in section 29 of the Act, and include:

29—Functions of the Panel

(1)The Panel has the following functions:

1. to identify areas of research that would be of benefit to consumers of electricity or natural gas (or both);
2. to develop, and submit for the approval of the MCE, guidelines for the allocation of grants for consumer advocacy projects and research projects for the benefit of consumers of electricity or natural gas (or both);
3. to prepare, and submit for the approval of the MCE, annual budgets for the allocation of grants for consumer advocacy projects and research projects for the benefit of consumers of electricity or natural gas (or both);
4. to determine (subject to the approved guidelines and the approved budget) how grants for consumer advocacy projects and research projects for the benefit of consumers of electricity or natural gas (or both) are to be allocated;
5. to prepare, and submit for the approval of the MCE, guidelines for the assistance of applicants for grants for consumer advocacy projects and research projects for the benefit of consumers of electricity or natural gas (or both);
6. to publish on the Panel's website and in other appropriate ways the results of research supported by a grant under Part 4 of the Act and other research of interest to consumers of electricity or natural gas (or both);
7. to perform other functions conferred on the Panel by the National Energy Laws or the Jurisdictional Energy Laws or by this or any other Act or law;
8. to perform any other function that is reasonably incidental to any of the foregoing.

(2) The Panel may, in performing its functions with respect to the allocation of grants—

1. initiate its own research projects to be funded through the provision of grants;
2. invite or accept applications for grants from other persons or bodies.

(3) objectives of the Panel in performing its functions are—

1. the Panel must have regard to any relevant objectives set out in a National Energy Law; and
2. the Panel must seek to promote the interests of all consumers of electricity or natural gas while paying particular regard to benefiting small to medium consumers of electricity or natural gas.

Ministers decide the criteria for grant allocation in schedule 1 of the Regulations (at Attachment A), and approve the grant allocation and application guidelines developed by the Panel (section 29(1)(b)). The Panel must consult with AEMC and other interested stakeholders in the development of guidelines for grant allocation. The current Panel guidelines for application reflect these criteria under the Regulations.

Once the Guidelines are approved, the Panel makes its decisions independent of the AEMC or SCER. Section 31 of the Act stipulates that the Panel is not subject to direction by the AEMC or the MCE in the performance of its functions.

Any changes to the function and allocation of grants of the Panel must be addressed through a review and amendment of the legislative framework under which the Panel operates.

In the 2011/12 financial year, the Panel allocated funding to organisations through global advocacy funding grants, capacity-building grants, electricity and/or gas advocacy grants and electricity and/or gas research grants. Funded projects included a broad range of consumer energy issues and covered all energy users, including business, residential, rural, environmental and low-income/vulnerable consumers. An outline of projects and research funded by the Panel for each financial year is available on the Panel website or through its Annual Report.

1. Why are the grant allocation criteria being examined?

Energy Ministers have requested officials to examine the Regulations under which the Panel allocates grantsto ensure it continues to operate in the interests of energy consumers. On 7 December 2012, COAG endorsed a comprehensive energy market reform package aimed at mitigating energy price rises for consumers, while ensuring supply reliability. The package was developed with jurisdictions through SCER, which has policy responsibility for energy market reform.

As part of the reform package, COAG agreed to SCER’s recommendation to examine the criteria for the Panel’s grant allocation within the Regulations under which the Panel currently operates. The purpose is to review the scope of the Regulationsto determine if improvements can be made to have a greater focus on addressing priority needs of average energy consumers, including in AEMC processes, and to consider the appropriate mechanism and location of the function for the allocation of consumer grants.Changes to the Regulations, as outlined in the COAG implementation plan, were requested to be progressed through SCER by June 2013.

There is a divergence of views around the extent to which the Panel’s funding strategies serve the needs of “average consumers”. However, this is not an easy criteria to assess by looking at recipients, as there are currently few organisations in Australia that focus exclusively on representing the needs of ‘average’ consumer groups, and applications for funding from such groups have not been received by the Panel.

It is also noted that changing criteria to better achieve this objective is problematic. Excluding projects based on their key focus or issues may create perverse outcomes which limit or exclude organisations from accessing funding, or limit outcomes for consumers in general. Similarly, limiting funding opportunities based on the interests of advocacy bodies (for example, a focus on vulnerable consumers) may negatively impact on the range of consumer groups applying for Panel funding.

It is important to note that projects awarded grants or research funding may have a primary focus on advocacy for certain groups of consumers (for example, low socio-economic or vulnerable consumers), however, the reports produced through these projects are often broadly applicable to all residential and/or small business electricity and gas consumers. In addition, many smaller consumer advocacy bodiesmay have a heavy relianceon Panel funding and may be disproportionately affected, regardless of their contribution of their work to average consumers.

It should be noted that the COAG recommendation to examine the appropriate mechanism and location of the function for the allocation of consumer grants in relation to consumer advocacy are currently being considered through the National Energy Consumer Advocacy Body consultation process.

1. Draft Options

EMRWG has considered these issues and developed some draft amendments to the Regulations. In the main, they are minor changes at the margins to better reflect the COAG energy market reform agenda to ensure the Panel continues to operate in the interests of average energy consumers.

A copy of the Regulations with marked changeswhich mirror the recommendations below can be found at Attachment A.

Option1:amend the definition of small to medium consumer, under section 3A of the Regulations to reflect the definition of small consumers under the National Energy Retail Law (NERL).

The National Energy Customer Framework (NECF) is a national regime for retail customers of electricity and gas, designed to harmonise most state and territory regulatory requirements in relation to the sale and supply of energy to customers. The NECF commenced in Tasmania and the Australian Capital Territory (ACT) on 1 July 2012 and in South Australia on 1 February 2013. It is expected to be introduced in all National Electricity Market jurisdictions by no later than 2014, subject to the resolution of jurisdictional-specific issues.

For historical reasons, the functions of the Panel sit within the Act. The National Energy Retail Law (NERL), which gives effect to theNECF, defines a small customer differently to the definition of a small to medium customer in the current AEMC regulations. There is currently a large disparity between the definition of small business consumers under the AEMC Regulations and the NERL. Under the current Regulations (schedule 1.3A), small to medium business consumers are defined as using 4,000 (MWh) megawatts hours of electricity or 100 terajoules (TJ) of gas per annum. Typically consumers of electricity and gas at these levels are industrial or large commercial users. The NERL, however, defines a small customer as either a residential customer, or a business customer who consumes energy at a business premises below the upper consumption levels, which in the National Energy Retail Regulations are 100 MWh per annum for electricity and 1 TJ per annum for natural gas.

It is proposed to amend the definition of consumers under the Regulations. The definition of a small consumer would be changed to include all residential customers, and business consumers of up to 100 MWh per annum for electricity and 1,000 gigajoules (1 TJ) per annum for natural gas. Types of business that typically consume more than 100 MWh (up to 160 MWh per annum) per annum of electricity, as informed generally by retailers, include petrol stations, bakeries or small dairies. This amendment would alter the allocation of funding under the Panel to focus on the needs of average energy consumers by lowering the consumption thresholds to which the Regulations apply and ensure greater consistency with other national energy laws. A change of definition to the Regulations does not appear to affect any other sections under the Act.

The proposed amendments for section 3A of the Regulations are as follows:

3A—Definition of small to medium consumer

For the purpose of the definition of small to medium consumers under the Act, a small to medium customer is a customer—

a)who is a residential customer; or

b)for a consumer of electricity, a rate of 100MWh per year, or

c)for a consumer of natural gas, a rate of 1,000 gigajoules per year.

For the purposes of the definition of small to medium consumer under the Act—

(a)for the purposes of paragraph(a) of that definition—a level of 4000megawatt hours is fixed;

(b)for the purposes of paragraph(b) of that definition—a level of 100terajoules is fixed.

Option2: under the currentRegulations, amend the Criteria for Grant Allocations (Schedule 1) to better reflect current energy consumer priorities, and to deviate from the unintentional consequences of funding niche consumer projects that may be necessary under the current ‘diversity’ criteria.

The current regulations require the Panel to take into account diversity in terms of the number and range of consumers benefiting from projects, the nature of projects and the issues to which the projects will relate. It has been suggested that the current requirement for diversity in grant allocations may reduce the focus on a broad representation of key consumer issues facing average energy customers.

It is proposed the diversity criterion be removed from Schedule 1, item 1 of the Regulations. Instead, a general requirement that funding should be to the maximum benefit of consumers would be contained within the criteria.

The proposed amendments for Schedule 1, item 1 of the Regulations are as follows:

Schedule 1 – Criteria for grant allocation

1Allocation of funding should be to the maximum benefit of consumers of electricity and/or natural gas while recognising (from a general perspective) the Panel’s objective set out in section 30(b) of the Act.

There should be diversity in the allocation of funding after taking into account—

(a)the number and range of consumers who may benefit from the relevant projects; and

(b)the nature of the interest represented across the projects; and

(c)the issues to which the projects will relate,

while recognising (from a general perspective) the Panel's objective set out in section30(b) of the Act.

Option 3:amend Schedule 1, item 6 of the criteria for grant allocations to include an additional clause requiring applicants to outline the advocacy need for the project.

As the Regulations currently sit, an applicant must outline the objectives, type of consumer benefitting from the project (electricity and/or natural gas) and proposed budget including amount of funding sought from the Panel. There are currently no requirements for applicants to identify the advocacy need for the project or to link project work to current energy market reform priorities.

The energy market reform agenda, endorsed by COAG and to be implemented through SCER processes, outlines a number of key areas to be progressed to support the long term interests of energy consumers. A key component of the package is to enhance the regulatory framework to ensure network expenditure is efficient and avoids undue price pressures for consumers. The package promotes greater demand side participation by empowering consumers to better understand and manage their energy use and costs.

It is proposed that an additional clause be added to schedule 1, item 6 of the Regulations to require applicants to outline the advocacy need for the funding being sought from the Panel. This will allow applicants to identify the current gaps in funding in the energy advocacy landscape to ensure there is a need for funding in this area, and ensure project applications have a focus on the energy advocacy reform priorities. This will also allow the Panel to identify any gaps in advocacy areas for organisations applying for future funding.

The proposed amendments for Schedule 1, item 6 of the Regulations are as follows:

Schedule 1—Criteria for grant allocation

6An applicant for funding must furnish a project plan that includes—

(a)an outline of the objectives of the project; and

(b)information identifying whether the project is intended to be for the benefit of consumers of electricity, consumers of natural gas, or both consumers of electricity and consumers of natural gas; and

(c)a proposed budget; and

(d)the amount of funding sought from the Panel

(e)an outline of the relevance of the work to existing or proposed issues where there is a need for advocacy.

Option 4:amend Schedule 1, items 2 and 3 of the criteria for grant allocations to include reference to the National Energy Retail Law(NERL).

The NERL was introduced to establish a national energy customer framework for the regulation of the retail supply of energy to customers; to make provision for the relationship between the distributors of energy and the consumers of energy; and for other purposes.

The Regulations currently refer to the National Electricity Law and National Electricity Rules and the National Gas Law and National Gas Rules. The Regulations should be amended to include reference to NERL as the most recent energy retail legislation.

The proposed amendments for Schedule 1, items 2 and 3 of the Regulations are as follows:

Schedule 1—Criteria for grant allocation

2A project intended to benefit consumers of electricity should—

(a)relate to the development, design or operation of, or policies associated with, the national electricity market or the retailing of electricity, or relate to other issues covered by the National Electricity Law, the National Electricity Rules,the National Energy Retail Law or the National Energy Retail Rules; or