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					   Retail Competition in the
 Tasmanian Electricity Supply
           Industry

           Information Session



               May 2004

Treasury
     Retail Competition in the
   Tasmanian Electricity Supply
             Industry

                   Introduction

               Richard Sulikowski

           Director, Energy Markets Branch

Treasury
                    Objectives
 The aim of today‟s Information Session is to;

   provide an overview of the policy framework supporting the
    introduction of retail competition;

   discuss some of the issues underpinning the framework;

   give key stakeholders opportunity to comment on implementation
    issues.

 An “Information Paper” has been released as well as a
  number of “Information Briefs”on selected retail
  competition topics.

Treasury
                          Today‟s Agenda
                  1. Introduction
Over




                  2. Key Issues
                      •   Contestability Timetable
                      •   Contestability Criteria
                      •   Customer Choice

                  3. Contractual Framework
                      •   Standard Customer Retail Contract
                      •   Negotiated Contract
                      •   Deemed Fallback Contract

                  4. Role of the Energy Regulator
                  5. Questions and Discussion
       Treasury
       Energy Reform Initiatives
 Major energy infrastructure projects underway

     Basslink, Tasmania Natural Gas Project, wind

 Implementation of market-based arrangements

     Tasmania‟s entry to the NEM

     retail competition in electricity and gas

     separation of Bell Bay Power from Hydro Tasmania

 Efficient and effective regulation across energy markets, undertaken by
  State and national regulators

 These initiatives will fundamentally alter the nature of the Tasmanian
  ESI
Treasury
     Energy Reform Initiatives                               (cont)



 Tasmania has made a decision to join the National
  Electricity Market (NEM) in conjunction with the Basslink
  project.
 In the NEM there is:
   competition in the generation and retail sectors;
   regulated transmission and distribution (poles and wires); and
   A wholesale market which operates on spot price basis.

 Tasmania‟s energy reform framework has been reviewed
  by the ACCC,



  Treasury
           The Energy „Big Picture‟
                               Basslink benefits
                  National     • Facilitates NEM entry and
   Basslink      Electricity     competitive framework for
                  Market         energy investments
                               • Mitigation for drought
                               • Joins energy constrained
                                 Tasmania to capacity
                   Wind          constrained mainland
                               • Local wind turbine
                                 manufacture

  Tasmanian
                  Natural
   Natural                     Gas benefits
                   Gas
     Gas                       • Diversifies energy sources
                  Market
   Pipeline

Treasury
                   Key Timelines
 April 2003:    Amendments to ESI Act passed

 Nov 2004:      Power system security transition commences

 29 May 2005: NEM Entry

 29 Nov 2005: Basslink in commercial service

 1 July 2006: Retail contestability commences (first
               tranche)

 1 July 2010: Full retail contestability, subject to public
               benefit test

  Treasury
  Retail Competition Objectives
  Provide choice of supplier to eligible customers;

  Ensure orderly introduction of contestability – for both
   customers and industry;

  Ensure that Aurora is placed on level playing field with
   potential new entrants;

  Maintain quality of services for all customers; and

  Ensure adequate customer protection measures are in
   place.


Treasury
    Retail Competition Benefits
 The aim of introducing competition is to encourage:

   freedom to negotiate supply arrangements with the retailer of your
    choice;

   price competition between generators and between retailers;

   better customer services;

   a wider variety of more innovative energy services; and

   ability to enter into a single supply contract covering contestable
    sites throughout the NEM.


Treasury
                    Conclusions
 The way in which electricity is sold to business
  customers in Tasmania is set to change following
  NEM Entry:
    customers will be able to choose how they purchase
     electricity and from whom

 The retail market will take shape gradually as
  contestability is rolled-out in tranches – starting with
  the biggest electricity users
    in the final analysis, it will be the customers who will shape
     the retail market



Treasury
     Retail Competition in the
   Tasmanian Electricity Supply
             Industry

                    Key Issues

                   Sue Morrison

      Assistant Director, Energy Markets Branch

Treasury
              Retail Contestability
 Implementation process deliberately staged over time in „tranches‟.

        introduced for larger customers first.

        phased-in for other customers over 4 years.

 Contestability for small business and household to be subject to
  public benefit test.

 Contractual arrangements between individual customers and Aurora
  will not be affected by the roll-out of retail contestability.




Treasury
 Retail Contestability Timetable
 Needs to be a period of market history before the
  commencement of the contestability timetable.

 Timetable commences -

    12 months after NEM arrangements;

    6 months after commissioning of Basslink.




Treasury
Customer Contestability Timetable
 Date               Power Consumption No. of Installations
                        (GWh pa)          in Tranche
1 July 2006                       >20                                 19
1 July 2007                       >4                                  41
1 July 2008                       >0.75                             293
1 July 2009                       >0.15                            1233
1 July 2010                       <0.15                         244 000
                                 Indicative Customer
July 2006     electricity bills of $1 million + per annum – mineral processors, heavy
              manufacturing plant.
July 2007     electricity bills of $250,000 + per annum – food processing plant, multi
              storey office complexes
July 2008     electricity bills of $75,000 + per annum – supermarket, engineering
              workshop
  Treasury
Contestability Timeline – Tariff Customers (Tranche 1)
               Status notified                      Contestability           1 July
               1 October 2005                        1 July 2006             2007



              Regulated Tariff                               12 Month
                                                            Grace Period

                                   Resolve issues
                                 about contestability

         Consider
                                                                           Customer
          market
                          Consider                                          choices
                          metering




  Treasury
Contestability Timeline – Contract Customers (Tranche 1)
                Status notified                      Contestability
                1 October 2005                        1 July 2006



                                                                        Contract
              Existing Contract
                                                                      continues on
                                                                        its terms
                                    Resolve issues
                                  about contestability

          Consider
                                                                      Customer
           market
                           Consider                                    choices
                           metering




   Treasury
Contestability Timeline – Tariff Customers (Tranche 2)
              Status notified                      Contestability           1 July
              1 October 2006                        1 July 2007             2008



             Regulated Tariff                               12 Month
                                                           Grace Period

                                  Resolve issues
                                about contestability

         Consider
                                                                          Customer
          market
                         Consider                                          choices
                         metering




  Treasury
Contestability Timeline – Contract Customers (Tranche 2)
                   Status notified                      Contestability
                   1 October 2006                        1 July 2007



                                                                           Contract
                  Existing Contract
                                                                         continues on
                                                                           its terms
                                       Resolve issues
                                     about contestability

              Consider
                                                                         Customer
               market
                              Consider                                    choices
                              metering




   Treasury
    Retail Contestability Issues
 Contestability is based on a customer‟s annual
  electricity consumption at a single site
    aggregation of customer loads will be consistent with the
     arrangements which currently apply.

    customers who have multiple connection points at a single
     geographical location (site) may aggregate their electricity
     usage for the purposes of assessing their eligibility to be
     contestable.

    consumption at separate locations will generally not be able
     to be aggregated.



Treasury
              What is a “site”?

 separate buildings or installations on one title;

 separate buildings or installations on adjacent titles
  (that share a common boundary);

 separate buildings or installations on titles that are
  only separated by a right of way or minor road.

    NB    installations must be under single ownership.




Treasury
           Clarifying Contestability
Contestability is based on meeting threshold
 level in a 12 month period.

    what about new customers?

    what about customers with increasing
     consumption?

    what about customers seeking to aggregate
     loads?


Treasury
           Clarifying Contestability
There will be a process for review, conducted
 by the Regulator, to consider requests to
 declare customers as contestable.

This process can be undertaken in the lead up
 to the commencement of contestability.




Treasury
             The Grace Period
 Newly contestable tariff customers have a „grace period‟
  of 12 months where they may remain on the existing
  tariff supply agreement.

 In the event that a contestable customer enters a retail
  contract and that contract ends prior to the expiry of the
  grace period, the customer is not entitled to move back
  on to the regulated tariff.




Treasury
    The Grace Period – Deemed
         Fallback Contract
 A Deemed Fallback Contract will apply where a tariff
  customer becomes contestable, and the 12 month
  grace period expires without the customer entering into
  a retail contract with a retailer.

 A Deemed Fallback Contract will not apply to a
  customer who takes supply directly from the
  transmission network. Such customers should have the
  relevant experience, commercial interest and
  negotiating ability to enter into tailored contracts.

Treasury
Contestable Customer Choices
                                                              Tariff Customer   Buy from host retailer (Aurora) at
                                                                                regulated tariff

                            Satisfy contestability criteria


                                                                Contestable     Choice     of     supplier   NEM
                                                                 Customer       (wholesale) or Retail Market




                                        Retail Market                            NEM (Wholesale)


   Purchase electricity                                                                             Purchase electricity
   through Retail Market                                                                            through Wholesale Market

                       Host Retailer                    Other Retailer                Register with
                         (Aurora)                                                      NEMMCO




Treasury
     Retail Competition in the
   Tasmanian Electricity Supply
             Industry

               Contractual Structure

                     Tony Snell

           Partner, Mallesons Stephen Jaques

Treasury
 Retail competition: contractual structure
   Contestable customer choices
   Retail market (host retailer)
   Retail market (other retailer)
   Wholesale market
   Distribution arrangements
   Negotiated Retail Contracts: Key Features
   Standard Customer Retail Contract: Key Features
   Deemed Fallback (Retail) Contract: Key Features
   Distribution Contracts: Key Features
   Co-ordination Agreements: Key Features
   Structure of Electricity Prices



Treasury
                      Contestable Customer Choices
                                                                          Tariff customer   Buy from host retailer (Aurora) at
                                                                                            regulated tariff

                                    Satisfy contestability criteria



                                                                           Contestable      Participate in retail market or NEM
                                                                            customer        (wholesale market)




                                                  Retail market                                NEM (wholesale)




Purchase electricity through                                                                                         Purchase electricity through
               retail mark et                                                                                        wholesale mark et


                         Host retailer                            Other retailer                   Register with
                           (Aurora)                                                                 NEMMCO




                                A                                     B                                   C




  Treasury
                             Retail Market (Host Retailer)
                                                                    Contestable
                                                                     customer




                                                               Host retailer (Aurora)


                                                                                           Customer continues to be supplied on the
                                                                                           basis of the existing tariff until the customer:
                                                                                           enters into a retail contract; or
                                                                  Grace period             the period of 12 months commencing on the
                                                                 (Max 12 months)           day after the customer becomes a contestable
                                                                                           customer, ends.


Enter into a contract with        Retail contract                                              Deemed fallback
                   Aurora                                                                         contract


                                                                                            No negotiated contract
                                                                                            results in a “deemed”
                                            Contract expires                                contractual relationship
                                                                                            with Aurora



                      New retail contract                       Rollover of contract                      Other Retailer
                                                                     (possible)                                 B


                                                               May apply to customers
                                                               who do not sign a new
                                                               contract after the expiry
                                                               of their retail contract

 Treasury
           Retail Market (Other Retailer)
                                      Contestable
                                       customer




                                     Other retailer
                                       (non host)




                                     Retail contract            Negotiate contract with retailer or
                                                                contract on retailer‟s standard
                                                                terms




                                     Contract expires




               New retail contract                      Rollover of contract                          Host retailer
                                                              (possible)

                                                        May apply to customers
                                                        who do not sign a new
                                                        contract after the expiry
                                                        of their retail contract


Treasury
                                      Wholesale Market
                                           Register with NEMMCO as              Market customers are required to meet
                                         market customer and purchase           NEMMCO‟s prudential and metering
                                          electricity through wholesale         requirements. Settle electricity purchases
                                                       market                   with NEMMCO on a weekly basis




      Buy from spot market                 Enter into hedge contracts,                                Monitor market
                                          other products, reallocations




Accept responsibility to pay spot        Manage the risk of volatile spot                   Monitor market and review
market prices to NEMMCO for              market prices by entering into hedge               consumption requirements. Adjust
electricity consumed and associated      contracts (standard ISDA terms),                   contract position as required
costs                                    other products, reallocations under
                                         the National Electricity Code




    Treasury
                         Distribution Arrangements
           Aurora                                                          Retailer
         Distribution                  Coordination Agreement




                          Connection                             Retail
                            contract                            contract




Key
             contracts
             contract payments




                                              Customer




      Treasury
  Negotiated Retail Contracts: Key Features
What is it?         Retailer promises to sell electricity and arrange for
                    connection.

                    Terms and conditions will be negotiated between
                    the customer and the retailer to suit individual
                    circumstances.
Price               Not regulated.


Other terms         Negotiated, although the starting point will often
                    be a set of standard terms prepared by retailer or
                    sometimes the customer (if the customer decides
                    to go through a tender process).
Obliged to offer?   Retailers will not be obliged to offer to enter into a
                    negotiated contract.



Treasury
 Standard Customer Retail Contract: Key Features
What is it?         Retailer promises to sell electricity and arrange for
                    connection.
                    The Terms and Conditions will be a standard set
                    prepared by the Retailer
                    The Standard Customer Retail Contract is
                    intended to be the base level contract.
Price               Not regulated.

Other terms         If the customer is happy with the terms of the
                    retailer‟s standard form contract and has agreed
                    price with the retailer, they will enter into a
                    contract with the retailer on those terms and at
                    that price.


Obliged to offer?   No. Any retailer may publish a standard contract.


Treasury
 Deemed Fallback (Retail) Contract: Key Features
              Comes into effect when there is no contract between a retailer and a contestable
What is it?     distribution customer for the sale of electricity and the customer is not
                participating directly in the wholesale market.

              Will be created between Aurora Retail and the distribution customer by operation
                of legislation.
              Examples include:
               a tariff customer becomes contestable, and the 12 month grace period expires
                without the customer entering into a retail contract with a retailer;
               a contract customer‟s retail contract comes to an end, and the contract
                customer fails to enter into a retail contract with a retailer (and the contestable
                customer is not disconnected under the terms of the original retail contract);
               a new contestable customer takes over premises from another party and fails to
                enter into a retail contract with a retailer;
               a retailer terminates a retail contract with a contestable customer in accordance
                with its terms (for example, because the customer fails to pay), but the
                customer‟s premises are not disconnected; and
               a customer participating directly in the wholesale market is suspended or
                ceases to be registered as a market customer under the National Electricity
                Code, does not enter into a retail contract with a retailer and is not
                disconnected.


Treasury
 Deemed Fallback (Retail) Contract: Key Features                              cont.



Price         Regulated, with the form of regulation depending on the size of
              the customer.
              For a large distribution customer, the price will be the regulated
              network price plus the spot price plus a retail margin proposed
              by the retailer and approved by the Energy Regulator.



Other terms   Regulated. Aurora must develop deemed fallback contract
              terms and submit them for approval by the Energy Regulator.
              Terms and conditions may not vary from those approved.


Obliged to    No, happens automatically, by operation of legislation.
offer?        However, there will be an obligation to advise contestable
              customers that a Deemed Fallback Contract is in place and
              also other contract options.



Treasury
    Distribution Contracts: Key Features
What is it?   Distributor promises to supply connection services.
              Most likely, will be created between Aurora Retail and the
              customer by operation of legislation.
              Could be negotiated between the customer and the retailer, for
              example if the customer is a large manufacturing concern with
              particular quality of supply issues.

Price         Regulated by the Energy Regulator.


Other terms   Regulated. Aurora must develop deemed distribution contract
              terms and submit them for approval to the Regulator.
              However, Aurora Distribution will be able to negotiate and enter
              into contracts with retailers and distribution customers that depart
              from the approved terms.


Obliged to    No, happens automatically.
offer?
Treasury
   Co-ordination Agreements: Key Features
What is it?   Will cover:
              provision of connection services to Retailer‟s customers at request of
              Retailer;
              collection/payment of distribution charges by Retailer;
              disconnection of Retailer‟s customers at Retailer‟s request.
              Terms and conditions will be negotiated between the retailer and Aurora
              Distribution.
Price         Not regulated.

Other         Negotiated, although the starting point will likely be a set of standard terms
              prepared by Aurora Distribution.
terms
              However, the Energy Regulator will have a fall-back power to require
              Aurora Distribution to have a standard co-ordination contract approved by
              the Regulator.
Obliged to    Yes. Aurora Distribution will be required to offer to enter into co-ordination
              agreements with Retailers.
offer?
  Treasury
                                      Electricity Prices
    CURRENT ARRANGEMENTS                                            NEM ENTRY / RETAIL COMPETITION
Wholesale energy price for tariff customers                         NEM spot prices and “hedging” contracts, other
reflects a physical vesting contract between                        products and reallocations. Spot prices will be set by
Hydro Tasmania and Aurora.                                          the competitive market.
                                                     Energy and
System controller and ancillary service costs                       Contracts negotiated, but generally on standard ISDA
                                                   purchase costs
overseen by Energy Regulator.                                       terms.
                                                                    Other charges such as NEMMCO fees and ancillary
                                                                    service costs apply.
Revenue cap set by the ACCC covering all                            Revenue cap set by the ACCC covering all
customers.                                                          customers.
                                                   Transmission
Prices determined by Transend in accordance            costs        Prices determined by Transend by applying rules in
with the TEC and revenue cap.                                       the NEC and revenue cap.

Maximum allowable revenue cap set by Energy                         Maximum allowable revenue cap set by Energy
Regulator.                                                          Regulator.
                                                    Distribution
Prices determined by Aurora in accordance              costs        Prices determined by Aurora Distribution in
with the TEC and subject to oversight by                            accordance with the TEC and subject to oversight by
Energy Regulator.                                                   Energy Regulator.
Gross retail margin for tariff customers set by                     Negotiated between customers and retailers.
Energy Regulator, with tariff charges subject to
constraints set by Energy Regulator.                Retail margin




   Treasury
                             Feedback
 Comments are sought in relation to:

     Customer, Retailer and Distributor relationship models

     Should retailers be required to offer contracts on standard terms
      approved by the Energy Regulator?

     Should Deemed Fallback Contracts be between:

           Customer and incumbent retailer?

           Customer and last retailer?

     Is pricing structure for Deemed Fallback Contracts appropriate?




Treasury

				
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