Hi Everyone,

Please see below our business updates relating to the following topics:

• integrated distribution system planning (IDSP) public forum
• distribution system operator (DSO) consultation response
• capital efficiency sharing scheme (CESS) guideline
• network resilience plans
• life support rules in Victoria.

We trust you’ve seen Amanda’s latest email booking in our next CAP session on Monday 8^th September at 9am –10:30am.

Regards,

The Regulation Engagement Team

The Australian Energy Market Commission (AEMC) held a forum on the integrated distribution system planning (IDSP) rule change. The session provided indicative directions rather than positions that the AEMC may take. They are now in the process of developing a discussion paper.

The AEMC will consider whether the planning process needs to be completely replaced or amended in the context of integrating more consumer energy resources (CER). To this end, they will provide alternatives that may better address the issues raised in the rule change that align with the National Electricity Objectives. Considerations include approaches that are less costly to implement or result in a greater net benefit for consumers.

The below summarises what the AEMC are taking from the submissions it has received.

• the planning process does not account for rapidly evolving nature of distribution networks: the planning process should be amended to integrate additional CER. This includes ensuring there is a focus on strategic network planning, aligning CER integration with reset processes and supporting the development of non-network solutions.
• Consensus on better coordination needed between the planning process and the Integrated System Plan (ISP): The AEMC has concluded submissions support distributor’s IDSPs aligning with AEMO’s inputs, assumptions and scenarios. The AEMC will consider whether distributors should be compelled to collect data to contribute towards the ISP and whether this may be addressed through AEMO’s Demand Side Factors Information Guidelines (a consultation to which we are also currently responding to).
• Stakeholders lack the network information to make informed CER investments: AEMC will focus on how to make the planning process more transparent. They acknowledge there is ongoing work in the network visibility space and will seek, where possible, to integrate with these processes. This includes alignment with the use cases identified for the M3/P5 – Redefine roles for market and power system operations and M2 - National Consumer Energy Resources (CER) Roadmap - Data Sharing Arrangements reform priorities. AEMC will be paying careful attention to protecting customer privacy in whatever solution is deemed appropriate.
• Improvements should be made to the planning process, including more granular data and modelling to better inform decision making. There was support for greater transparency and data sharing: The AEMC noted there was no consensus on a biennial IDSP. Of the responses supporting the proposal, they cited the benefit as improved planning and coordination with the ISP. Other stakeholders identified concerns a biennial IDSP could result in duplication of current reforms, additional costs, and limited benefits. Stakeholders were generally supportive of collecting more granular low voltage (LV) data. It was noted that doing so would entail further costs and potential duplication with other reforms and there hence was a need for a rigorous cost/benefit analysis. Stakeholders were supportive of improving CER forecasts and sharing CER data to improve visibility of network constraints and robustness of network planning.

The Federal Department of Climate Change, Energy, Environment and Water (DCCEEW) has released Redefining roles and responsibilities for power system and market operations in a high CER future consultation paper. The consultation paper is focused on integration of CER and its interaction with wholesale market and DSO function.

We supported harnessing CER and agreed its value is maximised when it is effectively integrated into energy markets. Whilst there is some clarity that is lacking around market roles, this does not require wholesale change to markets. The industry is on a journey; markets remain immature and the regulatory and contractual arrangements to support the energy transition have lagged. These issues are all manageable.

The key points in our submission are:

• our networks already perform most of the functions identified as distribution system operator (DSO) responsibilities, supported by advanced operational systems and more than 15 years of smart meter penetration across our entire networks
• more can be achieved, but the current regulatory framework does not recognise many DSO functions as distributor responsibilities. If the National Electricity Rules (Rules) clarified DSO responsibilities, and the incentive framework modified to reflect these responsibilities, a lot more could be achieved
• the rate of change, and penetration of CER, will be limited by the physical constraints of the network and the need to maintain compliance, safety and stability. These challenges require constant attention and will be more challenging moving forward. Without a stable, efficient and reliable network, market-based solutions are problematic
• harnessing and maximising the value of CER is about more than a DSO or distribution market operator (DMO) functions. Our engagement with our customers over the past 4 years has demonstrated that customers are reluctant to hand-over CER control to third parties This has a lot to do with the absence of a robust contractual and customer protection frameworks and the failure to regulate CER installers and providers. These issues need to be tackled to restore trust
• there are opportunities to improve how DSO functions maximise customer benefits. These opportunities are best realised under a combination of two of the 4 options presented. These options, together provide a targeted response to the issues identified in the consultation paper. They represent the least cost option to harnessing and maximising CER integration

The use of ‘off market mechanisms’ such network tariffs, dynamic operating envelopes (DOEs), non-network solutions and augmentation will achieve CER optimisation which maximises network capacity. We believe it is premature for DCCEEW to be considering the need for a DMO. This is because:

• presently this is not the case with evidence strongly indicating VPP uptake has limited customer appeal
• DMO assumes customers are comfortable having their data and devices controlled by a wide range of industry participants. This may be a reasonable assumption for some CER, such as pool pumps and other low impact devices, but when it includes critical parts of everyday life such as electric vehicle (EV) chargers, air conditioning, and other flexible devices, it starts to become intrusive and result in negative outcomes for customers
• DMO assumes all CER must be visible and controlled by AEMO to ensure network security. We believe network security can be achieved through alternate means that are less costly to customers
• the cost to stand up a DMO function would be extraordinarily high, and it is not clear those costs would be offset by consequent benefits to customers.

The immediate focus should be on implementing, and embedding, flexible connections through ‘off market mechanisms’ and doing them well. This is best achieved through fostering flexible CER management systems in the marketplace so that multiple CERs can coordinate successfully within the ‘guiderails’ defined by distributors, fostering CER management system standards, enabling interoperability testing of CER management systems and a consistent data sharing approach between market participants.

The AER has issued its final capital efficiency sharing scheme guideline.

The guideline has amended the treatment of connections-based capital expenditure for future resets. Small connections (residential, small business, sub-divisions) volumes will be excluded from future CESS calculations. Unit costs for these connection categories will remain within scope. Large connections (likely to only consider data centres), will be ‘trued up’ in the CESS calculation in circumstances where a distributor’s actual total capital expenditure exceeds its forecast total expenditure. Otherwise there will be no adjustment for actual volumes or unit costs.

DEECA has outlined its proposals for network resilience plans which will be taking to Victorian Cabinet.

A network resilience plan must be prepared by any distributor that proposes resilience-based expenditure in its regulatory proposal. Following the AER’s final; determination, the distributor is required within 30 days to submit to Energy Safe Victoria a network resilience plan for approval. The intention, unlike other capital expenditure, is for the ESV to approve and monitor specific expenditure categories under the resilience banner. The resilience plan once approved can be amended, but only with ESV’s approval. The intention is for the resilience plan to span the regulatory period.

Each year on 30 September, the distributor will need to prepare an annual report tracking its progress against the resilience plan. The annual report will be reviewed by ESV each year to assess compliance with the resilience plan. The ESV will have powers to issue information requests. Should ESV find a distributor to not to comply with its resilience plan, it may issue civil penalties.

The Essential Services Commission has commenced a consultation on proposed changes to life support rules in Victoria.

The review follows recommendations from the Network Resilience Review and Network Outage Review, which found that life support customers did not receive appropriate assistance during the major 2022 and 2024 power outages. The proposed changes build on the #BetterTogether – Better Protections for Life Support Customers’ rule change request submitted to the AEMC by Essential Energy and SA Power Networks. The ESC’s consultation is occurring in parallel with the AEMC’s review to enable alignment between national and Victorian rules, where possible. However, any changes made by the AEMC will not apply to Victoria.

The proposed reforms includes introducing new definitions to distinguish between customers requiring critical and assistive life support equipment. With the aim of improving the life support registration and medical confirmation processes the proposed change includes mandating deregistration from the life support register when a medical confirmation is not provided or when there is a change in customer’s circumstances. This introduces the possibility of nominating a secondary contact person to receive notifications about life support in addition to the life support customers, expanding the methods of contacting life support customers and publishing a ‘Medical Confirmation Form for Life Support Equipment’ template.