Related article: Electricity retailers Mojo Power and QEnergy collapse

The initiation of this process ensures a continued supply of essential energy services to these customers.

The AER applied the market safeguard after the company was suspended from trading in the National Electricity Market by the Australian Energy Market Operator (AEMO) for failing to comply with electricity wholesale market settlement requirements prescribed in the National Electricity Rules.

Maximum Energy’s suspension will impact approximately 800 customers across Victoria and South Australia. Customers are not required to take any immediate action.

Under the Retailer of Last Resort process, each customer will be transferred to one of Origin Energy, AGL or EnergyAustralia, who will contact them directly to explain the new arrangements.

Customers are under no obligation to remain with their new retailer once they are transferred.

The AER is responsible for overseeing the national Retailer of Last Resort scheme.

Recent amendments to the National Energy Retail Law (Victoria) Act 2024 and the National Energy Retail Law (Victoria) Regulations 2024 give the AER the responsibility of managing Retailer of Last Resort events in Victoria, along with the National Energy Customer Framework regions (being Queensland, New South Wales, ACT, South Australia and Tasmania).

Related article: Energy retailers on notice with AEMC’s pricing review

This is the first RoLR event to occur under the new arrangements for Victoria.

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HumeLink is a proposed 500kV transmission line that will expand the transmission network in New South Wales, and is an actionable project under the Integrated System Plan. The project will reinforce the grid, and provide electricity customers with increased access to generation and storage opportunities in Southern and Southwest New South Wales.

Related article: UGL and CPB Contractors to construct HumeLink West

AER chair Clare Savage said that after a rigorous assessment the regulator had accepted project costs that were $314.4 million less than what was originally proposed by Transgrid in its application—approving $3,964.8 million in capital expenditure compared with Transgrid’s proposed $4,279.1 million (later revised to $4,173.4 million after accounting for new information).

“While HumeLink is a complex project of national significance, we recognise that it affects landholders and local communities on the transmission route and impacts electricity bills,” Savage said.

“There has been considerable stakeholder interest in this project and a diverse range of views were put forward throughout our consultation process. We valued the input of all stakeholders and sought to balance the breadth of interests and feedback in our decision-making.

“We are conscious that this decision comes at a difficult time for energy consumers, with many customers facing challenges to absorb higher electricity prices in the current economic climate.”

Related article: GenusPlus AND Acciona JV win HumeLink East contract

The AER noted in its decision that it was critical for Transgrid to continue to engage with communities to achieve and maintain their support in delivering the HumeLink project.

Following the AER’s decision to approve reduced costs for Stage 2 of HumeLink, Transgrid will be able to deliver the remainder of the HumeLink project.

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The draft determination also extends beyond VPPs to include community batteries, flexible large loads, and other price-responsive small resources such as such as back-up generators.

AEMC chair Anna Collyer said, “By integrating VPPs and similar resources, we’re not just enhancing market efficiency; we’re empowering consumers and paving the way for a more sustainable energy future.”

Related article: Project EDGE shows big impact of small-scale resources

Currently, there is no mechanism for the market to predict how these resources will respond to daily price fluctuations.

This gap in market knowledge creates significant operational challenges for the Australian Energy Market Operator (AEMO) and could lead to costly system operations.

“Fully integrating these resources will allow energy, security, and reliability services to be provided more efficiently,” Collyer said.

“Over time, this integration will reduce the need for large scale generation and storage infrastructure, ultimately decreasing costs and emissions for all consumers.”

Recent modelling indicates that VPP market participation could result in cost savings of $834 million between 2027 and 2050, benefiting all customers through more efficient market operation. This underscores the critical importance of encouraging VPP participation.

The AEMC is calling on governments to recognise these resources officially. Once they participate in dispatch, they will be as technically capable as any other generator and should be eligible for schemes such as the Capacity Investment Scheme.

To encourage broad participation, the draft determination includes a mechanism to provide payments to early entrants. However, recognising that a mechanism in the rules may not be the ideal fit, the AEMC is also calling on the Australian Renewable Energy Agency (ARENA) to consider a trial grant program for early entrants.

Collyer said the reform wasn’t just about integrating new technology but also about rethinking our approach to energy generation and distribution.

“By incentivising early participants, we’re accelerating the transition to a more responsive, efficient, and sustainable energy market,” she said.

The draft determination also addresses the current gap in the market knowledge regarding the impact these resources are having on operational forecasting. Under the proposal, AEMO and the Australian Energy Regulator would have new monitoring and reporting functions to provide additional transparency.

Related article: Community housing tenants invited to join Tesla VPP in SA

“By making price-responsive behaviour visible, we’re allowing the market to operate more efficiently. It’s like giving the system a pair of glasses—suddenly, it can see and respond to consumer actions that were previously invisible,” Collyer said.

“This improved visibility will lead to more efficient generation use, lower system costs, and potentially reduced energy prices for all consumers. It’s a win-win that doesn’t require changing behaviour, just smarter market operation.”

Stakeholders may provide feedback on the draft determination until September 12, with a final determination expected by the end of the year.

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In a trend consistent with previous years, the end of warmer months saw wholesale electricity prices increase between $65/MWh (SA) and $87/MWh (NSW), and the price in Queensland decrease by $29/MWh compared to the previous quarter.

Related article: Flexible gas backs record demand in NEM during chilly winter

This quarter saw electricity demand and price increases across all regions except for Queensland compared to the same time last year.

AER Board member Jarrod Ball said both seasonal weather patterns and tight market conditions contributed to prices during the quarter.

“While we would expect to see wholesale prices rise as weather in southern states cools and demand rises to keep people warm, the combined impact of cold snaps, planned and unforeseen network outages, combined with rebidding and lower solar and wind output has pushed electricity prices higher than this time last year,” Ball said.

Decreased solar generation as the days get shorter is typical for the second quarter of the year. However, wind generation this quarter contributed 12% of total NEM generation—its lowest share for any quarter since Q2 2021 when it contributed 11% of total generation.

To compensate, higher-priced gas and hydro generation both increased this quarter, with gas-powered generation (GPG) rising by 70% (from 973MW to 1,653MW) compared to the previous quarter and 16% (from 1,420MW) on this time last year.

There were also 19 high price events during the quarter, which led to the cumulative price exceeding the cumulative price threshold in energy for the second time in the history of the NEM. These contributed around $55/MWh to NSW’s price increase from the last quarter.

Related article: AER report shows wholesale energy prices down in 2023

Average forward prices for electricity for the 2025 calendar year increased in all regions, ranging from $24/MWh (QLD) to $41/MWh (SA), indicating an expectation of higher spot prices going forward.

One new wind generator in South Australia entered the market this quarter and will be able to contribute up to 201MW when fully commissioned. An increase in new generation is expected during the rest of 2024 and first half of 2025.

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This year’s Australian Clean Energy Summit, held from 16-17 July at the Sydney International Convention Centre, was a thought-provoking exercise highlighting Australia’s progress thus far in the transition to renewables.

There is energy everywhere in the universe. The challenge for humanity is to extract it at a sufficiently fast rate to raise and cool temperatures, to produce artificial light, to raise concrete blocks at building sites, to run production machinery, etc. The fewer transformations energy has to undergo the more we have available to power modern societies. Power is the time-based rate of energy extraction and therefore it’s also the rate of its depletion—something to bear in mind when it comes to the not inexhaustible sources of coal, oil and gas. The second law of thermodynamics basically tells us that ‘there is no such thing as a free lunch’. Energy extraction depletes the opportunity for future extractions (the so-called increase in entropy). Solar energy is also not inexhaustible, but our take-off is miniscule with the almost frictionless rotation of the earth providing hot and cold sinks for its conversion to mechanical power, i.e., wind, and for solar photons to convert to electrons.

Related article: Takeaways from Australian Energy Week 2024

The fewer transformations energy has to undergo, the better off we are. This wasn’t the major theme at the Australian Clean Energy Summit but elements shone through in a number of presentations, for example in the subject of energy storage. Conservation of energy requires giving thought to using it with as few transformations as possible because every transformation, unless it is carried out infinitely slowly, causes energy wastage. The media is filled from time to time with announcements of battery projects and also pumped hydro. Compressed air, on the other hand, is a rarity but such a project was presented at the energy storage stream.

The facility is planned for Broken Hill and will have a 200MW, 8-hour capacity utilising disused mines. The electricity will be ‘stored’ and generated by compressor pump/air driven turbine-generators to power a mini-grid. A point made by the presenters, Hydrostor, was that a synchronous generation capacity is being provided. Pumped hydro, similarly topologically restricted, was also a feature with ex-prime minister Malcolm Turnbull being a notable presence. Converting hydraulic head to electricity or for that matter to heat is a limited-efficiency process, and that also applies to compressed air as the heat generated by the compression process is not necessarily captured but it is in the case of the Hydrostor project. In that regard, one of the interesting presentations by MCA of Tomago described direct use of heat from industrial processes without intermediate conversions to electricity. Imaginative solutions will be required including the use of biogas which can be carbon neutral inasmuch as its formation extracts CO2, later released in the generation cycle.

Christiaan Zuur of the Clean Energy Council stressed the gravity of storage capacity associated with renewable energy generation because of ‘dunkelflaute’, the absence of wind and sun, and wind droughts experienced in the Australian continent. A presentation by Julia Souder of the Long Duration Energy Council and the commentary by Clare Savage of the Australian Energy Regulator once again raised the wasted opportunities of storage and the need for more energy independence in distribution networks. Savage stressed the need for more investment in this sector and that it might well be at a level equalling the need of transmission networks. She said that a change of philosophy regarding distribution networks is needed.

Matthew Warren, previously CEO of the CEC made an interesting comment; ‘rooftop solar lacks parenting’. He opined that rooftop solar was crowding out VRE generation, and his view sheds light on an increasingly acute situation in which distribution’s ‘duck curve’ drops transmitted power to lows, requiring voltage control amelioration measures. Put this in the context of Savage’s rejoinder that ‘rooftop solar needs harnessing’ and a worrying picture emerges in that as Shane Rattenbury, representing the ACT, indicated; consumers are missing out on low energy prices, notwithstanding solar rooftop growth. He saw the solution in smarter smart meters. Furthermore, Rattenbury says that he feels pessimistic because energy policy has become a culture war.

This was echoed by Penny Sharpe, NSW’s energy minister who said that the planning system was not coping with the transition target and that a nuclear generation option with 20-year time window was unrealistic as a solution. Balance this comment with that of Sharpe’s reference to NSW’s statutory review of the state’s 2016 Biodiversity Act, chaired by Ken Henry. In short, biodiversity considerations make demands on the selection of solar and wind farms. Combining biodiversity limitations with social license and you have a recipe for delays in project approvals.

Tasmania’s energy minister Nick Duigan made an interesting observation; ‘building large transmission systems for a relatively small number of customers must have a big cost effect’. The same comment can be made for distribution networks, as Dr Gabrielle Kuiper, DER specialist of IEEFA, pointed out that 53% of distribution wiring caters for 3% of electricity consumers.

Highlights of the summit were an address by Climate Change and Energy minister, Chris Bowen (unfortunately not attended by the writer) and one by Opposition Shadow, Ted O’Brien. He made the case for nuclear generation based on his assessments that emissions have flatlined, prices for electrical energy are up by 39% relative to 2022, and security is impaired through the loss of coal-fired generation. O’Brien’s comments, stripped of any political policy implications, require inspection in that, irrespective of baseload disappearing with the increase in battery storage, technology-wise synchronous capacity is likely to be required in the foreseeable future.

A long-term role for gas is implied, and given the uncertainty in commercialisation of hydrogen, imaginative solutions will be required including the use of biogas which can be carbon neutral inasmuch as its formation extracts CO2, later released in the generated energy cycle. There appeared to be a consensus that gas cannot be eliminated from the renewable transition journey and that a capacity scheme in addition to energy pricing policies will continue to be needed.

A comment on the sidelines of the summit by Matthew Warren, points to the experimental nature of the renewable transition journey. This is privately endorsed by AEMO technologists as a grid without synchronous capacity invites speculation as to its stability and security. A presentation by James Lindley of AEMO highlighted stability aspects including decreasing system strength and the concomitant tripping of distributed solar systems following power system disturbances brought on by decreases in inertia and increasing, sharper power variations.

The role of markets for renewable energy evoked some interesting comments, particularly in regard to services such as VPP and FFCAS. Lachlan Blackhall (ANU) answered his own question ‘what do consumers want’? ‘They want to be left alone, and they want low cost!’ He verbalised what many in the renewable sector feel and/or suspect—“stop the ‘to do lists’ and start some doing”. Surveys taken of conference participants views brought some insights.

A summary of the question ‘what are the most pressing risks to Australia becoming a clean energy superpower?’ and participants comments appears below.

1. Market reform too slow to ‘find’ the missing money (37%)
2. Climate wars/lack of policy stability and certainty (23%)
3. Can’t expand build needed for transmission fast enough (20%)
4. Global capital pulls back from Australia (7%)
5. Insufficient workforce (7%)
6. Contracts market lose too much liquidity (3%)
7. Keeping the system strong and stable.

Related article: Barking up the wrong tree—an engineer’s perspective

The missing money is a refence to the inadequacy of pure energy markets, the point being made by one presenter that the close to zero marginal cost of wind and solar, presents the opportunity for artificial pricing there being no effective energy cost floor, and therefore also, how to price battery-stored energy. A capacity-based pricing mechanism would assist in overcoming this. Minister Sharpe made reference to the Capacity Investment Scheme as a success mentioning that there are currently 19 projects in place with 84 in the pipeline but it is uncertain how many are subject to the Bowen-introduced CIS bidding regime.

Keeping the system strong and stable, interestingly enough, had a near zero rating. Is this because we assume that whatever the technical challenges, they will not slow the transition speed?

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Related article: AER accepts Evoenergy pledge for ring-fencing breaches

The AER alleges, and Origin admits, that it breached the Retail Rules on more than 5,000 occasions. The breaches involved:

• Failing to register customers after being informed by either the customer or the relevant distributor that a person at the customer’s premises required life support equipment.
• Failing to inform the relevant distributor that a person at the premises of certain customers required life support equipment.
• Failing to provide customers with information packs notifying them of relevant protections and assistance.
• Improperly deregistering the premises of customers with a person requiring life support equipment without following all the steps required to check whether life support equipment was required. In some cases, Origin disconnected the customer’s energy supply.

As a result, some customers were unregistered and did not have the protections that the life support provisions provide for up to 188 days, while others were disconnected and without power for between one and 66 days. There was no loss of life associated with these breaches.

AER chair Clare Savage said, “The Retail Rules contain the obligations retailers must meet when they are informed of the life support needs of a customer. Failure to comply with these obligations can seriously compromise the health and safety of these vulnerable customers.

“The Australian Energy Regulator has previously published guidance to help retailers and distributors understand their responsibilities when it comes to customers who rely on life support equipment. We will continue to act when obligations to support vulnerable customers are not met.”

A number of these breaches involved third party agents Origin had engaged to assist it to comply with its life support compliance obligations. Origin also admits it failed to establish the policies, systems, and procedures necessary to efficiently and effectively monitor its compliance with the requirements of the Retail Rules.

In addition to bringing these proceedings, the AER has accepted a court enforceable undertaking from Origin in which Origin admitted to an additional 1,973 breaches of the requirement to provide information packs to life support customers.

Related article: Origin strikes deal with govt to delay Eraring closure

Origin has also undertaken to make a $1 million community-based contribution to organisations which assist sections of the community who use life support equipment.

The AER is seeking pecuniary penalties, declarations and costs.

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Related article: AER accepts Evoenergy pledge for ring-fencing breaches

The AER reviews its compliance and enforcement priorities every year, and the priorities for 2024-25 extend and update the AER’s priorities from 2023-24, with a focus on:

• Improving outcomes for customers experiencing vulnerability, including by improving retailer hardship policies and access to hardship and payment plan protections.
• Making it easier for consumers to understand their plan and engage in the market by focusing on compliance with billing and pricing information obligations, including the Better Bills Guideline and tariff change notifications.
• Supporting power system security and an efficient wholesale electricity market by focusing on generators’ compliance with offers, dispatch instructions, bidding behaviour obligations and providing accurate and timely information to AEMO.
• Improving market participants’ compliance with performance standards and standards for critical infrastructure.
• Monitoring and enforcing compliance with reporting requirements under the new Gas Market Transparency Measures.

AER chair Clare Savage said the compliance and enforcement priorities would protect energy consumers and keep the energy system stable and secure.

“With consumers facing ongoing cost-of-living challenges as well as the energy system continuing to transition, we received strong feedback from stakeholders that our current priorities remain relevant, and that there is an opportunity to advance work in these areas,” she explained.

“For these reasons we have extended our 2023-24 Compliance and Enforcement Priorities for 12 months and updated them to address important fields including the efficacy of retailer hardship policies, price and tariff change notifications, and network compliance with performance standards.”

Related article: Santos slapped with $2.75M fine by energy regulator

The AER will release its 2023-24 Compliance and Enforcement Annual Report in July, detailing work in the priority areas for the previous 12 months.

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Ring-fencing obligations encourage competition in the electricity distribution sector and play an important role in providing a level playing field for third-party operators in the sector, placing downward pressure on prices.

Related article: Santos slapped with $2.75M fine by energy regulator

In May 2023, Evoenergy self-reported breaches of its ring-fencing obligations since 1 January 2018, by providing maintenance, operation and inspection services, to a customer in the Australian Capital Territory, in breach of clause 3.1(b) of the Electricity Distribution Ring-Fencing Guideline (the Guideline) and clause 6.17.1 of the National Electricity Rules.

The guideline requires Evoenergy and other electricity network businesses to provide only regulated electricity distribution and transmission services and not to provide any other services, thereby ensuring a level playing field for third party providers to compete in the sector.

By providing other services, Evoenergy may have impacted competition by inadvertently extending its distribution network service monopoly into maintenance, operation and inspection services that are supposed to be subject to competition and thereby potentially discouraging third party providers from entering the market.

The court-enforceable undertaking outlines the steps to be taken by Evoenergy to redesign systems and separate assets so that maintenance, operation and inspection services may be provided by another business and it may cease to provide the services. The court enforceable undertaking also requires regular reporting of progress to the AER as well as to the customer.

The AER has also granted a waiver to Evoenergy to provide the maintenance, operation and inspection services to the customer for 24 months, ensuring continued electricity supply to the customer while Evoenergy transitions away from providing the services and undertakes the steps outlined in the court enforceable undertaking such that it may cease to provide these services.

AER board member Justin Oliver said Distributed Network Service Providers had a serious responsibility to comply with ring-fencing requirements and maintain market competition.

Related article: Regulator fines Jemena over alleged gas breaches

“Since its introduction in 2016, the Electricity Distribution Ring-Fencing Guideline has promoted competition in the provision of electricity services by providing a level playing field for third party providers.

“It’s critically important that Distributed Network Service Providers are aware of, and continue to abide by, their obligations in the guideline and do not unfairly favour their own services in contestable markets,” Oliver said.

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Australian Energy Week congress featured an important plenary session, with some significant takeouts. In general, climate activism notwithstanding, there was clear message: commercial realism has to temper the community’s desire for progress in cheaper energy and the Government’s desire to stick to its COP commitments.

AEMO‘s Daniel Westerman announced a significant and welcome change to the integrated systems plan for 2026. The new ISP will introduce locations where generation sources can be developed, and will indicate expected energy losses on transmission lines. The ISP will also specify the use of gas-fired generation and the increasing importance of customer based energy resources (CER). The current energy statement of opportunities (ESOO) indicates a strong need for storage in addition to 6GW of new capacity added in the past 12 months. Westerman stressed the necessity of gas fired generation in the south eastern winter energy mix. When questioned by the ABC’s Dan Ziffer, Westerman was very clear that Australia’s green energy transition required certainty; “investors will not just hang around”. Serious challenges impeding a businesslike and therefore effective transition to renewable energy sources to meet the 2030 82% target, set much of the tone of the plenary sessions.

Related article: Australian Energy Week: the dichotomy exposed

Questions rather than solutions raised by a variety of presenters ranging from regulatory to network operating and construction, and legal and information technology, presented a faltering transition. Carbon emission reduction as a single issue is blinding us to the cost effectiveness of removing the “last 10% of emissions” from otherwise economical renewable energy source solutions according to Matthew Warren, Principal at Boardroom Energy. The panel discussion which was moderated by Mark Patterson of Energy Catalyst raised issues including renewable policies being subjected to public opinion, a lack of discipline in planning, letting consumers choose what they want (like 30kW solar) and having excessive intrusion of public opinion in policy formation.

Sobering views expressed by David Ryan of Herbert Smith Freehills raised uncertainty caused by differing agendas of Federal and State policies. According to him the National Electricity Rules are not fit for purpose. States are using their own powers to create regimes for transmission planning and approvals, cost recovery, access schemes and generator connection. Private capital is essential but is stymied by barriers that the government should remove, in particular in regard to social licence, land acquisition and finding solutions to key project gap risks. Major impediments mentioned by Ryan included a lack of clarity in biodiversity requirements. This has seen to a treacle like approval process for wind farms. It seems that much of this can be summed up as ‘renewables are good, but not in my backyard’. Highlighted areas included capacity constraints, slow connection approvals, and that consideration should be given to alternate transmission line construction, for example a PPP-style model as used by the NSW government for REZ infrastructure. Commercially, bankability of projects requires long-term offtake agreements and this is affecting offshore wind and pumped hydro schemes.

AEMO’s 2026 ISP currently in progress will include specified locations for new generation in order to provide realistic guidance for capital investment. This appears to gel well with above comments. However, referring to the above panel discussions, the role of consumer energy resources (CER), although to be given a new scope as mentioned by Westerman, lacks specifics as to how it would operate in the overall transmission space.

Victor Finkel, of McKinsey Consulting pointed out that domestic solar is one bright spot in Australia’s energy landscape, “whereas the gas needle has not moved” and utilities being reluctant investors. Stephanie Unwin of Horizon Power stressed the importance of CER in distribution grids. She was a panellist in a panel including Rik de Buyserie of ENGIE, Guy Chalkley of Endeavour, and Brett Redman of Transgrid. Redman worried aloud about the slow investment in transmission infrastructure, a clear lack in project coordination as well as technical security issues. Contrary to the view that one can’t lose in transmission investment, Redman indicated that performance is below that in super funds. De Buyserie took issue with the very slow project approval processes and summed this up as “everyone wants renewables but not in my backyard”.

Anna Collyer of the AEMC accented the role of CER and smart meters in the energy transition. She stated “consumers are the hero in the road to net zero, but no hero walks alone”. She made particular reference to flexible CER market participation, for example by way of VPP. Justin Oliver of the AER rumbled worry stones about the oligarchic nature of transmission infrastructure and the need to strictly control network costs. He made mention of the increasing capital needs of distribution networks as they are being increasingly challenged by EV and batteries. He sees the big challenge in the renewable transition as shifting consumer demand although he thinks that many retailers will still shield customers from demand driven price variations.

Damien Nicks of AGL, who made a solo presentation expressed a strong note of optimism, mentioning that his company has 12GW of projects in the pipeline with 5.8 GW committed. Nicks stressed the importance of the energy contribution of AGL’s 4.5 million customers who generate 30% of the energy requirement, and the importance of V2G in the future, referring to the contribution made by vehicle batteries in the UK, where some 200,000 customers are involved. Interestingly, Nicks made little of the generally held view that coal-fired base load is inflexible, noting that Bayswater flexes between 30 and 70% of capacity.

Mark Collett of Energy Australia seemed less upbeat. Energy Australia has 1.6 million customers. Collett points to slow project approval processes. VRE projects are not coming on line fast enough and transmission projects are lagging behind. Furthermore returns on VRE are too low at 5% and require the intervention of government in order to boost investment. Collett accented the essential role of gas in the energy mix.

Gas is often cast in the role of bête noir, and in a panel discussion led by Telstra’s Ben Burge, the role of gas in a hypothetical example of an environmentally responsible company wishing to reduce its CO2 imprint on the planet was made eloquently. The aim of a carbon footprint reduction must answer to commercial realism. The theoretical case presented sketched a limited land area available in addition to roof area for the generation of solar electricity. Various scenarios presented including availability of surplus electrical energy from a neighbouring property with the aim of balancing internal rates of return against CO2 reduction. Complementing electricity shortfall with gas energy presented the best trade-off. Although playful in style, the seriousness of commercial realism rather than purist notions was made very plain.

Related article: Fibs about the renewables transition—and the cost of energy

Victor Finkel from McKinsey also stressed the importance of gas although the heavy lifting in the energy transition would be done by electricity, the more so because of conversion of many industrial processes to electrical energy. His company foresees Australia’s future in steel making, replacing coking coal with electrical energy and hydrogen.

No plenary session would be complete without a reference to AI, and more broadly without information system technology. The increasing complexity of dynamic distribution networks lends itself as suitable testbed. Unsurprisingly Amazon has entered this arena. Damien Buie of Amazon’s AWS company described an information system and complementary AI such as UK-based Octopus Energy’s Kraken platform covering some 40 million accounts and integrating with distribution SCADA. Buie’s presentation was echoed by Arun Biswa of IBM.

To conclude: this plenary session can be regarded in the light of ‘sleepers, awake!’ Our resources of wind and solar, notwithstanding, the general takeout has to be that a far more integrated, holistic approach is required for our renewable transition, free from political or carbonless ideation.

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South Australian oil and gas company Santos has been hit with a $2.75 million fine for breaching its record-keeping obligations.

The Federal Court ordered the fine for Santos Direct, a wholly owned subsidiary, for over 4,700 breaches of the National Gas Rules. The fine follows proceedings brought by the Australian Energy Regulator.

It’s not the first energy company the regulator has pursued recently for breaches to the gas rules. Last year, energy retailer EnergyAustralia and chemical company Incitec Pivot paid $406,000 and $223,000, respectively, for alleged infringements. Energy distributor Jemena also paid an infringement.

So, what are these rules? Why do the breaches matter?

Related article: Santos slapped with $2.75M fine by energy regulator

Of gas rules and record-keeping

The breaches themselves sound dense. They concerned the non-reporting of what are known as “renominations” for uncontracted gas in day ahead auctions, which are conducted to determine if there’s excess capacity in pipelines which can be sold.

The fossil gas used in homes and industries is transported around Australia largely by pipeline. To boost competition in the east coast gas market, Australian state and federal governments introduced the day ahead auction in 2019 to let companies bid for access to unused capacity in these pipelines.

Day-ahead nominations determine the transportation capacity available in gas pipelines available for auction. To make this auction possible, companies that have existing entitlements to capacity have to make a nomination a day in advance of when they intend to move gas from one location to another, specifying how much capacity they intend to use the next day. Any spare capacity is then made available in the auction.

Renominations occur after the cut-off times on a gas day and they vary an earlier nomination for the use of transportation capacity.

Renominations can only be made in limited circumstances for specific reasons. Recording renominations is important because variations can affect auction prices if, for example, there ends up being less capacity so that participants pay more than they needed to.

Santos admitted it failed to make contemporaneous records for material gas renominations across six different gas auction facilities in breach of the National Gas Rules.

The Federal Court held that while the breach was not intentional and arose from inadequate internal compliance mechanisms, the significant penalty was necessary. It took account of the multiple reporting breaches, as well as the size and financial position of Santos, whose net profit from 2019 to 2022 ranged between $720 and $894 million per year.

Justice Penelope Neskovcin noted compliant record keeping is a critical part of ensuring the integrity and capacity of the auction. Proper records allow the regulator to understand the nature and frequency of renominations, and in so doing, ensure it is able to properly monitor the market.

While no actual loss occurred, the court focused on the potential damage that could have occurred given this action could have meant participants paid more in the auction.

Related article: Santos wins Barossa gas battle against Tiwi Islanders

Why did the AER pursue this?

As the regulator states in its media release: Timely and accurate record keeping is crucial in allowing the AER to effectively monitor the compliance of participants in the capacity auction.

In particular, the AER’s role of investigating and enforcing provisions […] [prohibiting] participants from making false or misleading day ahead nominations may be significantly hampered without the benefit of compliant records of material renominations.

In her judgement, Neskovcin said the penalty should be a “deterrent” against such conduct. She separately stated: [t]he failure to comply with [the rule], which has a substantive role in protecting the proper functioning of the capacity auction, heightens the need for deterrence in respect of this conduct.

The court emphasised the public interest underpinning clear, transparent and compliant reporting in accordance with the requirements of the National Gas Laws. It noted that Santos, as a major Australian gas and oil exploration and production company making hundreds of millions of dollars in profits over the relevant period, had to take full responsibility for its contraventions.

Disclosure statement: Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Republished from The Conversation under Creative Commons

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Related article: Santos and GFG ink green hydrogen deal for steelworks

In proceedings brought by the Australian Energy Regulator (AER), Santos admitted that between March 2019 and June 2021, it contravened rule 666(1) of the National Gas Rules on 4,701 occasions by failing to keep the required records of its material renominations for the Day Ahead Auction across six different gas auction facilities.

The Day Ahead Auction commenced in 2019 and is designed to improve competition in the gas market by providing access to contracted but unused capacity on gas pipelines.

In her judgment, Justice Neskovcin said, “[T]he failure to comply with r 666(1), which has a substantive role in protecting the proper functioning of the capacity auction, heightens the need for deterrence in respect of this conduct.”

Separately, Her Honour stated that the penalty imposed “should operate as a deterrent against such conduct being engaged in by Santos or other participants in the gas markets in the future.”

AER chair Clare Savage said the Court’s decision reinforced the importance of accurate record-keeping for gas market participants.

“The Day Ahead Auction is vital to moving gas between markets on the east coast and relies on companies both keeping accurate records and providing pipeline operators, and ultimately AEMO with the information it needs to operate the Auction.

“It is crucial that trust and confidence in the Day Ahead Auction is maintained for it to continue to deliver benefits to consumers.”

Related article: Regulator fines Jemena over alleged gas breaches

In addition to the penalty, the Court ordered the appointment of an independent reviewer to review Santos’ processes to ensure compliance with rule 666(1) and provide a report containing recommendations for any action to be taken by Santos.

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The DMO is an electricity price safety net that protects consumers from unjustifiably high prices. The DMO also acts as a reference price on bills so all customers can compare plans with other retailers.

Related article: AER report shows wholesale energy prices down in 2023

“Electricity affordability remains a top cost-of-living issue for households. Many customers are facing challenges to absorb higher electricity prices in the current economic climate. In recognition of this, the AER has placed increased weight on protecting consumers,” the regulator said in its final determination.

As proposed in its draft determination, the AER has adjusted the approach used to calculate the retail allowance, ensuring a reasonable profit margin for retailers but deciding not to apply an additional competition allowance in DMO 6.

From 1 July 2024, most residential customers could have price reductions of between 1% to 6% while some may have increases between 2% and 4% depending on their region and whether they have controlled load (such as underfloor heating or a pool pump running overnight).

Most small business customers could see reductions between 1% and 9% while some could face modest increases of around 1% depending on their region.

AER chair Clare Savage said that since the 2023-24 DMO 5 was released, there has been movement in wholesale and network costs—the two largest cost components of the DMO.

The wholesale energy costs in DMO 6 have decreased by approximately 21% in South Australia and between 7% and 11% across NSW. In South East Queensland, costs have only decreased slightly (0.2%).

“The easing in wholesale prices has been offset by the pressures currently observed in the poles and wires—network prices,” Savage said.

Key drivers of increases in network prices include adjustments for under-recovery of revenue in prior years, updated capital and operating costs, increases in inflation and interest rates, increases in incentive payments and jurisdictional schemes, and for the NSW networks, the NSW Roadmap contribution allocations.

Costs associated with managing bad and doubtful debts and an expansion in the roll out of smart meters have also resulted in increases in the retail cost component.

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“The combined effect of these various changes in costs have resulted in prices decreasing in New South Wales and South Australia, and increasing in South East Queensland,”  Savage said.

Both the Queensland Government and federal government have announced financial assistance with electricity bills to help offset these increases. Some households will also be eligible for additional targeted support under schemes provided by the Queensland, New South Wales and South Australian governments.

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The infringement notices were issued as the AER had reasonable grounds to believe that Ergon Energy:

• failed to register a customer who advised that they required the use of life support equipment (as required by rule 124(1)(a) of the National Energy Retail Rules), and
• deregistered a customer’s premises without providing the customer with the required deregistration notices in breach of the requirements of rule 125 of the National Energy Retail Rules.

These alleged failures by Ergon Energy had the potential to harm customers because customers may not have received the life support protections they were entitled to.

AER board member Justin Oliver said all energy retailers had important obligations to support customers whose premises use life support equipment.

“Customers who use life support equipment can be especially vulnerable, so it’s vital that retailers have the systems and procedures in place to support these customers and provide them with the protections required under the National Energy Retail Rules,” Oliver said.

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The alleged contraventions were identified as part of an investigation undertaken by the AER after Ergon Energy self-reported possible breaches of life support rules to the regulator.

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Electricity transmission and distribution network businesses are required to submit revenue proposals to the AER every five years outlining how much they intend to recover from consumers over a five-year period to provide safe, reliable and secure electricity services and address important emerging issues such as network cybersecurity, climate resilience, integration of consumer energy resources, and digitalisation.

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AER chair Clare Savage said the final decisions seek to balance affordability with providing the necessary expenditure that will support the changing nature of the energy system.

“These revenue determinations have been developed during a challenging time for energy consumers and the sector more broadly. Cost-of-living pressure and affordability concerns continue to be front of mind for consumers.

“We have looked to ensure consumers pay no more than necessary for safe and reliable energy while supporting the transitioning energy market,” Savage said.

The main drivers of increased costs include inflation and rising interest rates, causing a higher rate of return in the businesses’ final proposals compared with levels in the last five years.

“We’ve seen a strong commitment from all six businesses to engage with customers and have their preferences considered and reflected in their revenue proposals,” Savage said.

The businesses have proposed expenditure in important emerging areas such as improved network resilience to address climate change-related risks, the uptake and integration of consumer energy resources (including rooftop solar, batteries and electrical vehicles), and cyber security and digitalisation measures. Innovation will enable customers, who are able to respond, with greater opportunities to reduce their bills.

“We believe there are efficient levels of funding in our decisions to allow the businesses to meet these challenges and address these priorities,” Savage said.

Related article: AER report shows wholesale energy prices down in 2023

“Our decisions support the accelerated roll-out of smart meters proposed by the Australian Energy Market Commission and the benefits they provide to the whole system by approving the cost recovery of old network-delivered meters in the quickest, lowest cost way to all customers.

“We continue to ensure the long-term interests of consumers by recognising the affordability challenges, while maintaining a focus on efficient and prudent investment to support the energy transition.”

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