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Energy transformation era

Deakin law students gain an insider-view into the challenges of energy regulation

In the past two decades, Australia’s energy market has undergone a revolution. Gone is the traditional one-way model of generation, transmission, distribution and retail, now replaced by new technologies, new providers and new customer choices.

But what does it mean for regulators who must now meet the challenges of a rapidly-changing energy sector?

At a recent seminar presented by the Deakin Law School and the Centre for Energy and Natural Resource Law (CENRL), Deakin law students gained an insider-view from one of Australia’s leading experts in energy regulation.

Hosted by Corrs Chambers Westgarth, the well-attended event featured keynote speaker Michelle Groves, CEO of the Australian Energy Regulator (AEC), who explored the topic of regulatory and policy environment in the transitioning energy sector.

Ms Groves has held the position of CEO since May 2005 and has over 20 years’ experience implementing national competition policy, energy market reform and utility regulation.

Outlining the transformation that’s swept across the energy sector in the past two decades, she said one of the most significant shifts was in customer demand.

‘Customers no longer have a one-way flow of energy from a one-provider system,’ she explained. ‘Bringing that into the [energy] market – and the potential that it provides for customers who are now taking control of their energy use – is absolutely revolutionary.’

But the move that takes customers from being ‘passive recipients’ to centre-stage position is just the start of a long line-up of changes she suggests.

‘We’re only just beginning to appreciate what that might mean and over the next five years we’re going to see some interesting times. It’s quite a disruptive environment and for regulators, policymakers – and customers – there are growing challenges as it becomes a more complex.’

Outlining the role of the AEC, Ms Groves said that it was based on the foundation of facilitating competition and regulating monopolies.

‘Principally, it’s the same as we’ve been doing for the past 10 years. The philosophy is that if there’s competition then there needs to be regulation as this is the most efficient way of dealing with market failure. Regulation may not always be perfect but it’s better than monopoly pricing.’

With the consumer taking a more central role in energy choices, she added that sound economic regulation meant the AEC needed to consistently demonstrate open, transparent and predictable processes.

‘Nobody like a regulatory surprise is so our aim is to set out how things should happen as clearly as possible. Some of our guidelines are binding but they’re set around how we approach the rules so it provides information to the stakeholders … stakeholder engagement is becoming increasingly important as consumers take charge.’

Examining the AEC’s regulatory process and its role in network revenues, incentive schemes and tribunal and judicial review decisions, Ms Groves explained that the energy sector was in an ‘extremely active space’ that now poses many interesting legal questions.

‘The rules are phenomenally complex around 100s of provisions and we have teams of lawyers who defend these decisions. Courts are often deeply uncomfortable about applying economic frameworks … that’s why we have a competition tribunal as a review body.’

However, despite the changing and uncertain energy sector environment, she said that many of the AEC’s responsibilities will remain constant.

‘Promoting competition is still the primary mechanism for achieving well-functioning energy markets. And in the absence of competition, we still rely on effective regulation to achieve efficient outcomes,’ she explained.

Acknowledging that the AEC remains somewhat cautious about ‘being ahead of the curve’, Ms Groves said that good regulation will continue to play a key role in facilitating future change.

‘Even though we’re seeing a more competitive market, more market players and more ways of getting energy, we’re not seeing a decline in the need for regulation. In fact it’s one of the first things that new market participants talk to us about. So from a regulatory point of view this is going to be a really interesting space for quite some time.’

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