The Energy Regulation and Markets Review

Transcription

1 The Energy Regulation and Markets Review Editor David L Schwartz Law Business Research

2 The Energy Regulation and Markets Review Reproduced with permission from Law Business Research Ltd. This article was first published in The Energy Regulation and Markets Review, 1st edition (published in June 2012 editor David L Schwartz). For further information please [email protected] 2

3 The Energy Regulation and Markets Review Editor David L Schwartz Law Business Research Ltd

4 Contents The Law Reviews The Mergers and Acquisitions Review The Restructuring Review The Private Competition Enforcement Review The Dispute Resolution Review The Employment Law Review The Public Competition Enforcement Review The Banking Regulation Review The International Arbitration Review The Merger Control Review The Technology, Media and Telecommunications Review The Inward Investment and International Taxation Review The Corporate Governance Review The Corporate Immigration Review The International Investigations Review The Projects and Construction Review The International Capital Markets Review The Real Estate Law Review The Private Equity Review The Energy Regulation and Markets Review 4

5 Contents Publisher Gideon Roberton business development manager Adam Sargent marketing managers Nick Barette, Katherine Jablonowska marketing assistant Robin Andrews editorial assistant Lydia Gerges production manager Adam Myers production editor Joanne Morley subeditor Anna Andreoli editor-in-chief Callum Campbell managing director Richard Davey Published in the United Kingdom by Law Business Research Ltd, London 87 Lancaster Road, London, W11 1QQ, UK 2012 Law Business Research Ltd No photocopying: copyright licences do not apply. The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of June 2012, be advised that this is a developing area. Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed to the Publisher [email protected] ISBN Printed in Great Britain by Encompass Print Solutions, Derbyshire Tel:

6 acknowledgements Afridi & Angell Anderson Mōri & Tomotsune Banwo & Ighodalo D Empaire Reyna Abogados Djingov, Gouginski, Kyutchukov & Velichkov, attorneys and counsellors at law Goltsblat BLP Gómez-Pinzón Zuleta GonzÁlez Calvillo, SC Hengeler Mueller Hogan Lovells Kvale Advokatfirma DA L O Baptista Schmidt Valois Miranda Ferreira Agel LALIVE Latham & Watkins AARPI Latham & Watkins LLP Makarim & Taira S Mannheimer Swartling i

7 Acknowledgements Minter Ellison Paksoy Attorneys at Law PotamitisVekris Law Partnership Schoenherr Attorneys at Law Stek Stikeman Elliott LLP Trilegal White & Case LLP (South Africa) Zul Rafique & Partners ii

8 contents Editor s Preface...ix David L Schwartz Chapter 1 Australia... 1 Mitzi Gilligan, Eliza Bartlett, Carolyn Vigar, Darshini Nanthakumar, Rudi Kruse, Genevieve Watt and Nicholas Liau Chapter 2 Austria Bernd Rajal and Guenther Grassl Chapter 3 brazil Guilherme Guerra D Arriaga Schmidt Chapter 4 Bulgaria Yassen Spassov Chapter 5 Canada Patrick Duffy, Brad Grant, Erik Richer La Flèche and Glenn Zacher Chapter 6 Colombia Patricia Arrázola-Bustillo and Fabio Ardila Chapter 7 France Fabrice Fages and Myria Saarinen Chapter 8 Germany Dirk Uwer Chapter 9 Greece Euripides Ioannou and Dimitra Rachouti Chapter 10 India Akshay Jaitly, Sitesh Mukherjee, Neeraj Menon and Vibhu Sharma iii

9 Contents Chapter 11 Indonesia Pudji W Purbo Chapter 12 Italy Simone Monesi Chapter 13 Japan Reiji Takahashi, Atsutoshi Maeda, Shun Hirota and Yuko Suzuki Chapter 14 Malaysia Lukman Sheriff Alias Chapter 15 Mexico Gonzalo A Vargas Chapter 16 Netherlands Jan Erik Janssen and Martha Brinkman Chapter 17 Nigeria Ken Etim and Ayodele Oni Chapter 18 Norway Per Conradi Andersen and Christian Poulsson Chapter 19 Russia Evgeny Danilov Chapter 20 South Africa Shamilah Grimwood and Zahra Omar Chapter 21 Spain Antonio Morales Chapter 22 Sweden Hans Andréasson, Martin Gynnerstedt and Malin Håkansson Chapter 23 Switzerland Georges P Racine Chapter 24 Turkey Zeynel Tunç iv

10 Contents Chapter 25 United Arab Emirates Masood Afridi and Haroon Baryalay Chapter 26 United Kingdom Elisabeth Blunsdon Chapter 27 United States Michael J Gergen, Natasha Gianvecchio and David L Schwartz Chapter 28 Venezuela Arnoldo Troconis Appendix 1 About the authors Appendix 2 Contributing Law Firms contact details v

11 Editor s Preface Safe and reliable delivery of electricity and natural gas has been the hallmark of energy policy and regulation in the industrialised world for the past 75 years. More recently, regulators, policymakers and the industry began to focus their attention on ways to improve economic efficiency, increase productivity and reduce costs through a seemingly endless series of reforms. In some countries, utilities were encouraged to enhance transmission and interconnection facilities with neighbouring systems in order to pool energy resources. More recently, utilities have been encouraged to participate in regional organisations to buy and sell power, and to administer transmission, dispatch and scheduling of a variety of energy products. Certain countries have encouraged utility efficiency through a variety of performance-based incentives. Policymakers have tried to reduce the barriers to entry by requiring non discriminatory treatment among transmission users, and prohibiting affiliate abuse. Utilities were encouraged to unbundle certain utility services; in some cases, regulators required the divestiture of generation or transmission facilities. Utilities have even been encouraged to provide retail wheeling services to facilitate competition for delivery service customers. Many markets have developed competitive bid-based electricity auctions to set energy and capacity prices, which often take into consideration the cost of transmission congestion. These markets tend to be administered by independent or governmental entities that do not have a market position bias. Clearing prices set in these markets are intended to send price signals to maximise short-term efficiency (scheduling, dispatching and selling energy), as well as long-term efficiency (building new or retiring old generation and transmission facilities). In certain countries, lawmakers and policymakers have encouraged developers to build and finance new renewable resources and to develop more effective means of conserving energy, through a variety of carrots and sticks. These measures have included subsidies such as feed-in tariffs and renewable energy credits, as well as utility ix

12 Editor s Preface requirements through renewable portfolio standards. In certain competitive markets, conserving electricity has been converted into a demand-side product ( negawatts ) with near or equal value to supply-side generation (megawatts). New smartgrid technologies have been created to increase the efficiency of transmission, generation, distribution and individual consumers energy use. Now, however, the myriad of efficiency mechanisms faces new and unprecedented challenges. Transmission and distribution systems are ageing and desperately need upgrading. Severe new environmental requirements are leading to mass retirements of baseload coal-generation resources. Fuel prices are volatile, adding long-term uncertainty to energy prices. Spikes in the price of raw materials are making the development of new infrastructure all the more expensive. Cyber-security threats are exposing the vulnerabilities of our energy networks. And the global economy continues to threaten our ability to obtain the necessary credit to build and finance energy infrastructure. This is the sobering backdrop for this inaugural edition of The Energy Regulation and Markets Review. I would like to thank all of the authors for their thoughtful consideration of these difficult challenges. As can be seen in these chapters, we have much to consider and resolve before we can achieve the kinds of energy security and efficiency that we have been pursuing. David L Schwartz Latham & Watkins LLP Washington, DC June 2012 x

13 Chapter 1 Australia Mitzi Gilligan, Eliza Bartlett, Carolyn Vigar, Darshini Nanthakumar, Rudi Kruse, Genevieve Watt and Nicholas Liau 1 I OVERVIEW In order to understand the regulation of energy industries and the energy markets in Australia, it is important to first understand the political and regulatory system in which they operate. Australia is a federation of six states. Legal and political power is divided between the federal government and the state governments in accordance with the Federal Constitution. The Federal Constitution confers power on the federal parliament to legislate for specific matters, including taxation, foreign investment, the banking and monetary system, and interstate and overseas trade. The states retain the power to legislate for all other matters. The six states forming the federation are Queensland, New South Wales ( NSW ), Victoria, Tasmania, South Australia and Western Australia. The federal government created the Australian Capital Territory ( ACT ) and the Northern Territory as politically autonomous legislatures under its legal control. Each Australian state and territory has the power to make laws with respect to its electricity and gas industries. Consequently, the regulation of each state and territory s electricity and gas industries originally developed separately. Significant reform has occurred in Australian energy markets in recent years. The states of Queensland, NSW, Victoria, Tasmania and South Australia and the ACT have combined to form a single interconnected National Electricity Market ( NEM ), which operates under a largely consistent legal and regulatory framework within the participating jurisdictions. The NEM is a wholesale market for the supply and purchase 1 Mitzi Gilligan is a partner, Eliza Bartlett is a senior associate, Carolyn Vigar is a special counsel, Darshini Nanthakumar, Rudi Kruse, Genevieve Watt are lawyers and Nicholas Liau is a graduate at Minter Ellison. 1

14 of electricity combined with an access regime to enable connection to the transmission and distribution networks in the participating jurisdictions. The key features of the NEM are as follows: a electricity is predominantly traded through a centralised pool (spot market). Generators bid to supply electricity at prices of their choice and are dispatched in increasing bid price order; the price they receive is the pool clearing price for each 30-minute trading interval; b c wholesale purchasers buy their electricity requirements from the pool; and charges for use of network assets are separate from the pool price for electricity paid to generators. The electricity networks making up the NEM stretch more than 45,000 kilometres from Cairns in Queensland to Port Lincoln in South Australia and Hobart in Tasmania. NEM participants may enter into financial hedge contracts (contracts for differences) to manage their exposure to pool price fluctuations. These contracts operate independently of the NEM, establishing a set price for electricity that will be obtained or consumed at a particular time. While not regulated by the NEM, these contracts may be subject to other requirements, such as financial services licensing. A wholesale gas trading market exists in Victoria and a short-term trading market operates in each of Sydney, Adelaide and Brisbane. Australia s natural gas reserves are linked to major domestic markets by over 25,000 kilometres of high-pressure pipelines. Australia s gas distribution system comprises over 80,000 kilometres of local reticulated pipelines. II REGULATION i The regulators The key energy regulator in Australia is the Australian Energy Regulator ( the AER ). 2 The AER is responsible for the economic regulation of gas and electricity transmission and distribution networks and for enforcing the gas and electricity laws and rules in all jurisdictions, except for gas in Western Australia. The AER is a part of the Australian Competition and Consumer Commission ( the ACCC ), 3 but it operates separately. The ACCC is responsible for administering the Competition and Consumer Act 2010 (Cth) ( the CCA ) and ensuring compliance with Australia s competition, fair trading and consumer protection laws. Responsibility for electricity distribution pricing and access to distribution networks was transferred from the states and territories to the AER from 1 January Western Australia and the Northern Territory continue to regulate their own distribution networks as they are not jurisdictions that participate in the NEM. Each state and territory regulates technical and safety matters in respect of the electricity industry and retains electricity rationing powers

15 The regulator for Western Australia is the Economic Regulation Authority ( the ERA ). 4 The ERA regulates monopoly aspects of the gas, electricity and rail industries and is responsible for providing licences to providers of gas, electricity and water services in Western Australia. The regulator for the Northern Territory is the Utilities Commission of the Northern Territory. 5 Other key energy regulators and bodies in Australia include the following: a the Australian Energy Market Commission ( the AEMC ), which is responsible for rulemaking in relation to the economic regulation of electricity distribution network services, gas transmission and distribution services, access to natural gas pipeline services and other elements of broader natural gas markets, and electricity and gas market rulemaking; b the Standing Council on Energy and Resources ( the SCER ), which replaced the Ministerial Council on Energy 6 in February 2011; c the Australian Energy Market Operator ( AEMO ), 7 which is a single, industryfunded, national electricity and gas market operator and network planner. Its role includes management of the NEM and the retail and wholesale gas markets in Victoria, NSW, the ACT, Queensland and South Australia, and overseeing system security of the NEM electricity grid and the Victorian gas transmission network; and d the National Competition Council ( the NCC ), 8 which makes recommendations to relevant government ministers on the coverage of natural gas pipeline systems. Separate regulators also exist in each state and territory for generation and electricity and gas retail licensing (although this is about to change see discussion of the NECF below): a in NSW, the Independent Pricing and Regulatory Tribunal; 9 b in Victoria, the Essential Services Commission; 10 c in the Northern Territory, the Utilities Commission of the Northern Territory; d in Western Australia, the ERA; e in Tasmania, the Economic Regulator; The Ministerial Council on Energy comprised federal, state and territory energy ministers, was the national policy and governance body for electricity and gas. It had the power to issue statements of policy principle to the AEMC and to direct reviews by the AEMC with respect to rulemaking and market development;

16 f in Queensland, the Director-General of the Department of Employment, Economic Development and Innovation; 12 g in South Australia, the Essential Services Commission of South Australia; 13 and h in the ACT, the Independent Competition and Regulatory Commission. 14 Legal framework The legal framework in Australia for the regulation of both electricity and gas industries consists of: a the National Electricity Law ( the NEL ) and National Gas Law ( the NGL ) in participating jurisdictions; b legislation of each state and territory; c the National Energy Retail Law; d legislative instruments, including the National Electricity Rules ( the NER ) and the National Gas Rules ( the NGR ); e regulations under the NEL and NGL, limited to minor processes and procedural matters in the NEL and NGL and the prescription of civil penalties; and f statements of policy and principle from regulators, subject to the procedures set out in the NEL and NGL. The NGL is contained in a schedule to the National Gas (South Australia) Act 2008 (SA). An application statute for each participating jurisdiction governs the extent to which the national gas legislation and national electricity legislation applies in that jurisdiction. To date, the NGL and NEL have been adopted, in various forms, in each Australian state and territory. The NEL is contained in a schedule to the National Electricity (South Australia) Act 1996 (SA). The NEL is applied as law in each participating jurisdiction of the NEM by application statutes. ii Regulated activities Electricity Unless a person is exempt or is a registered participant with respect to that activity with AEMO, it is prohibited from: a owning, controlling or operating a generating system connected to the NEM; b owning, controlling or operating a transmission system or distribution system that forms part of the NEM; c operating or administering a wholesale exchange for electricity; or d purchasing electricity directly through a wholesale exchange. By registering with AEMO, a person becomes bound to comply with the NER

17 In addition to the requirements of the NER, each state and territory currently has its own licensing regime for electricity industry participants, such that participants require a licence to generate, transmit, distribute or supply electricity in each state and territory. Applicants are generally required to show they are a fit and proper person to hold the licence, that they are in a position to meet the applicable financial and prudential requirements, and that they have the requisite technical and operational capacity to undertake the activities permitted under the licence. This means that electricity entities participating in the NEM have to register as NEM participants under the NER and also obtain any requisite electricity licence under the relevant state or territory legislation. State and territory regulation of retail licensing is, however, set to be standardised under the National Energy Retail Law ( the NERL ) and Rules, which are due to commence in the NEM jurisdictions on 1 July 2012 and which will be administered by the AER. The NERL is part of the National Energy Customer Framework ( the NECF ) and is also part of the overall trend towards the centralisation of gas and electricity regulation. Under the new laws, retailers will only need one licence to sell electricity in NEM jurisdictions. The NECF will introduce a consistent set of rules in each jurisdiction, however, there is still scope for jurisdictional differences on some matters. Gas Unless exempt, a person is prohibited from engaging in the sale or distribution of gas unless that person holds a licence to undertake the activity. As with electricity, licensing for gas is regulated on a jurisdiction-by-jurisdiction basis. This means, for example, that a gas retailer operating in Victoria, South Australia, NSW and Queensland must be separately licensed as a gas retailer in each of those jurisdictions. As with electricity laws, however, state-based regulation of the gas industry will soon be standardised under the NECF, meaning that gas retailers in the national gas market jurisdictions will only need to hold one licence to operate in each of those jurisdictions. For onshore and offshore petroleum activities, a person also requires the following authorisations: a an exploration permit in order to carry out petroleum exploration; b a production licence in order to produce petroleum from a specified licensed area; and c a licence in order to construct or operate a gas pipeline. Process AEMO is responsible for the registration of participants in energy markets operated by AEMO. These are the markets regulated under the NEL and NGL. Applicants must also submit their licence applications to the relevant state regulator where required. iii Ownership and market access restrictions Foreign investment restrictions Foreign investment in Australia is regulated by the Foreign Investment Review Board ( the FIRB ). International investors must apply to the FIRB to acquire a substantial 5

18 interest in an Australian company, generally taken to be 15 per cent or more of such a company. This requirement only applies if the value of the company to be acquired is greater than A$244 million, or A$1.06 billion for US investors. If the investment flows from a foreign government, then no monetary guidelines apply. Once conduct is notified to the FIRB, the FIRB will consider the proposed conduct but may disallow it if the FIRB determines the investment is against the Australian national interest. Competition restrictions The CCA prohibits acquisitions of shares or assets that have the purpose or actual or likely effect of substantially lessening competition in a market. This applies to both foreign investment and to the transfer of control or assignment of assets by or to domestic companies (see below). In addition, in Victoria there are cross-ownership rules under the Electricity Industry Act 2000 (Vic) and the Gas Industry Act 2001 (Vic), which restrict the degree to which operators in the electricity or gas industries can own a business in a different sector of the supply chain. For example, the relevant provisions of the Electricity Industry Act are designed to prevent a transmission, generation or distribution licensee from holding a controlling interest in another kind of licensee, or from holding a substantial interest in two or more licensees. The restrictions under both Acts may be waived where the ACCC does not consider that the acquisition would substantially lessen competition in breach of the Australian Consumer Law. The Bill currently before the Victorian Parliament for the introduction of the NERL in Victoria seeks to repeal the cross-ownership restrictions. iv Transfers of control and assignments Within the energy industry, merger controls represent a significant barrier to the purchase of new assets. The ACCC has expressed concerns about the accumulation of market power by merger in the electricity sector and about the potential anti-competitive effects of vertical integration in the sector. The ACCC administers and enforces the merger provisions under the CCA. There are three main ways a proposed acquisition or merger may be assessed under the CCA: a informal clearance the ACCC may give an informal view on whether a particular proposal is likely to breach the competition provisions of the CCA and, by implication, whether the ACCC would challenge the proposal; b formal clearance the ACCC may grant clearance to a proposal if it is satisfied that the proposal would not have the effect or likely effect of substantially lessening competition in a market or markets. Clearance may be conditional or unconditional; and c authorisation by the Australian Competition Tribunal the Australian Competition Tribunal may grant an authorisation for a proposal if it is satisfied in all the circumstances that the proposal would result or is likely to result in such a benefit to the public that the proposal should be allowed to occur even though the proposal may have the purpose or actual or likely effect of substantially lessening competition in a market. Clearance can take up to three months. 6

19 III TRANSMISSION/TRANSPORTATION and DISTRIBUTION SERVICES i Vertical integration and unbundling There has been a trend towards the separation of transmission from the production and retail sectors, with energy industry operators generally specialising in either network infrastructure, including transmission, or the non-network areas of production, generation and retail. This trend has been linked to capital markets and the limited efficiency benefits of full-scale integration. It also reflects national competition policy pursued by the Commonwealth, state and territory governments in the 1990s. There has, however, tended to be greater integration and ownership consolidation within each sector. The ACT, South Australia and Tasmania have only one major electricity distribution network each, and while there are multiple networks in Queensland, NSW and Victoria, each is a monopoly provider in a particular area. Cheung Kong Infrastructure and Power Assets Holdings, for example, jointly own 51 per cent of two Victorian distribution networks, as well as holding a 200-year lease of the South Australian distribution network. In both states, the other 49 per cent is owned by Spark Infrastructure, in which Cheung Kong Infrastructure has a direct interest. 15 The distribution and transmission sectors are not generally integrated. In Tasmania and the ACT, there is some common ownership in the distribution and retailing sectors. 16 There is a mix of both government-owned and privately owned distribution or retail businesses, with a trend to privately owned utilities in all states and territories: a the transmission network and the five distribution networks in Victoria are privately owned; b the transmission and distribution networks in South Australia are leased to private interests; c the transmission and distribution networks in the ACT have joint government and private ownership; and d the transmission and distribution networks in Queensland, NSW and Tasmania are government-owned. There has been a trend towards vertical integration of generation and retail activities, a trend sometimes referred to as gentailing. There is an acceptance in the industry that gentailing enables generators or producers and retailers to manage the risk of volatile wholesale prices and to enhance security of supply. Gas and electricity are also increasingly being marketed jointly, with customers being able to obtain dual supply under a single contract. AGL Energy, TRUenergy and Origin Energy now jointly supply more than 80 per cent of small electricity retail customers, and control almost 30 per cent of generation capacity in the mainland regions of the NEM. Similarly, those entities each have interests in gas production or gas storage, or both. 15 AER, State of the Energy Market 2011, available at 16 Id. 7

20 ii Australia Transmission/transportation and distribution access Electricity The NER sets out a regime that enables generators to connect generation equipment to the national grid. Transmission and distribution network operators are obliged to connect generators equipment, as long as certain conditions are met. For example, a generator s equipment must meet certain technical standards before it can be connected to the grid. The network operator is required to consult with AEMO about the technical requirements of connecting a generator s equipment, and any changes to the network that may need to be made to accommodate that equipment. Gas The NGL and NGR set out a coverage process, which determines whether a gas pipeline should be subject to mandated third-party access arrangement and in what form. The NCC must recommend that the pipeline be covered if the NCC is satisfied that the following coverage criteria are met: a that access (or increased access) to services provided by the pipeline would promote a material increase in competition in another market or markets (whether or not in Australia); b that it would not be economical to develop another pipeline to provide the same services; c that access (or increased access) to the services provided by the pipeline can be provided without undue risk to human health or safety; and d that access (or increased access) to the services provided by the pipeline would not be contrary to the public interest. In making a coverage determination, the NCC must also bear in mind the national gas objective, which is to promote efficient investment in, and operation of, electricity services in the long-term consumer interest. Typically, a pipeline will be covered where a monopoly exists on its particular transmission route. Since the early 2000s, increased investment in gas transmission pipelines around Australia has increased competition between pipeline operators, resulting in fewer pipelines being covered under the law. Pipelines that are not covered are subject only to the general competition law provisions of the CCA and third-party access to them is a private matter between the pipeline owner or operator and the access seeker. Accordingly, operators of uncovered pipelines may negotiate freely with access seekers without regulatory interference. Alternatively, a form of light regulation applies in some circumstances with a low level of regulatory intervention that does not include setting tariffs. iii Rates Electricity Regulated transmission businesses must periodically submit revenue proposals, together with a proposed pricing methodology and negotiating framework, to the AER (typically, every five years). The pricing methodology is a formula for the business to allocate its revenue allowance and determine the prices it may charge for its services. 8

21 The AER s regulatory approach involves determining a revenue cap for each transmission business, which is the maximum revenue a business can earn during the regulatory period. The AER applies a building block model to determine the revenue that a transmission business needs to cover its efficient costs and a commercial return to the business. The building blocks cover: a operational and maintenance expenditure; b capital expenditure; c asset depreciation costs; d taxation liabilities; and e a commercial return on capital. The AER will also determine whether a service target performance incentive scheme (service standards scheme) or efficiency benefit-sharing scheme will apply to that business: a an efficiency benefit-sharing scheme encourages transmission businesses to achieve efficient operating and maintenance expenditure in running their networks by sharing efficiency gains between businesses and customers (through lower prices); and b a service target performance incentive scheme encourages businesses to maintain or improve network service performance and thus balances the efficiency benefitsharing scheme so businesses do not reduce costs at the expense of service quality. The regulatory framework for distribution businesses is similar to the framework for transmission businesses but there are differences. In particular, where the AER is the regulator (state and territory regulators in Western Australia and the Northern Territory still regulate distribution businesses in those jurisdictions), the process commences when the AER releases a draft framework approach for a network. Unlike transmission businesses, which must all be subject to a revenue cap, distribution businesses must be subject to some form of control mechanism, but the AER may choose the form of incentive. In addition to revenue and price caps, the following approaches are available in Australia and have been used by regulators in some of the jurisdictions or networks: a revenue yield models, which link the revenue a business may earn to the volume of electricity sold; b weighted average price caps, which set a ceiling on distribution prices but allow flexibility in individual tariffs within that ceiling; and c schedule of fixed price caps, whereby a list or schedule of prices is set for each individual service that the business provides. When using any of the above control mechanisms, the AER is also required to forecast the revenue requirement of the business over the regulatory period. This is achieved using a building block model, with building blocks covering: a investment forecasts; b the operating expenditure allowances that a benchmark distribution business would require if operating efficiently; c asset depreciation costs; 9

22 d e a commercial return on capital; and taxation liabilities. Gas The NGL applies nationally to Australian gas pipeline operators both transmission pipelines and distribution networks. Pipelines that are covered under the law are subject to set pricing regimes, determined by the AER. When determining the pricing regime to apply to each gas pipeline, the AER will take into account the same factors as are outlined above for electricity transmission rates. iv Security and technology restrictions AEMO is responsible for managing system security of the NEM electricity grid and the Victorian gas transmission network. AEMO manages the market and power system from two control centres, each of which is in a different state. The entire NEM can be operated from one or both centres. This means that in the event of a natural disaster or other emergency, continuous supply can be ensured. If a critical supply shortfall occurs because system security or reliability of supply is threatened, AEMO has a range of powers under the NER to restore supply and demand balance, including: a demand side management; b the power to direct generators to produce energy when a supply shortfall is expected; c the power to instruct network service providers to shed customer load (only permitted when there is an urgent need to protect the power system by reducing demand); and d tender for contracts for electricity supply from sources such as emergency generators and other generators connected to the distribution network, who are not usually factored into AEMO s forecasting process. The states and territories also have reserve emergency powers under legislation to take over and prioritise the use of the utilities in emergency situations. In Queensland, for example, the Gas Supply Act 2003 (QLD) gives the relevant state minister power to regulate the supply, distribution and sale of gas to customers in the event of a shortage of gas supply. IV ENERGY MARKETS i Development of energy markets Electricity Each Australian state and territory has the power to make laws with respect to its electricity industry. Consequently, each state s and territory s electricity industry originally developed separately, and each operated a vertically integrated electricity industry. Major reforms in Australia s electricity markets since the 1990s have radically altered this model. 10

23 While there remain jurisdictional differences in the structure and regulation of the electricity industries in each Australian state and territory, all Australian states and territories have now restructured their respective electricity industries, generally to: a separate the electricity service providers into distinct generation, transmission, distribution and retail supply entities; b remove the responsibility for performing regulatory functions from the electricity service providers; and c introduce competition into the generation and retail supply sectors. Under the NEL and NER, AEMO administers a spot market for the wholesale supply and purchase of electricity, operated through a central pool. Generators make offers every five minutes to supply the market with a set amount of electricity at a certain price. Based on these offers, AEMO decides which generator is required to produce electricity to meet the current demand at the best price. The selected generators are then dispatched into production, and a dispatch price is set every five minutes. The spot price for each trading interval is set by averaging the six dispatch prices given each half hour (in five-minute intervals), within a maximum and minimum (floor) spot price. This is done for each region in the NEM. Gas Victoria established a wholesale spot market in 1999 to manage gas flows on the Victorian transmission system and to allow market participants to buy and sell gas at spot prices. More recently, the National Gas Market Bulletin Board ( the BB ) and short-term trading markets in major hubs (Sydney, Adelaide and Brisbane) have also been established. In the Victorian wholesale spot market, participants submit daily bids ranging from $0 per gigajoule to $800 per gigajoule. Bids may be revised at designated scheduling intervals during the day. At the beginning of each day, AEMO stacks supply offers and selects the least-cost bid to match demand in the market (the clearing price). AEMO can also schedule additional gas injections (typically liquefied natural gas or LNG ) at above-market price to alleviate short-term constraints. Approximately per cent of wholesale gas volume is traded on the spot market. The remaining gas is sourced via contracts or vertical ownership between producers and retailers. The short-term trading market was launched in September 2010 in Sydney and Adelaide and was extended to Brisbane in December The hubs link transmission pipelines and distribution systems. Each hub is scheduled and settled separately but each operate under the same rules. The market sets a daily ex ante clearing price at each hub, based on scheduled withdrawals and day-ahead offers by gas shippers to deliver gas. Participants may buy some or all of their gas requirements on a spot basis. The BB, which commenced in July 2008, is a single electronic communications system (website) covering all major gas production fields, major demand centres and natural gas transmission pipeline systems of South Australia, Victoria, Tasmania, NSW, the ACT and Queensland. The BB aims to facilitate trade in gas and capacity over the relevant pipeline systems through the provision of real-time system and market information. It covers: a supply-demand outlook (including forecast pipeline flows, capacity outlook and linepack capacity adequacy); 11

24 b c actual flow data; and standing data (including standing capacities and standing peak day demand forecasts). ii Energy market rules and regulation Electricity The NEL and the NER provide the framework for the operation of the NEM. The NER sets out detailed rules for the operation of the spot market, power system security, access to electricity networks, connection to networks and methods to be used for pricing network services. It also defines the responsibilities of market participants. Gas The NGL and NGR provide a national framework for the regulation of gas transmission and distribution networks, as well as for the gas and electricity trading markets. The NGL and NGR replace the old Gas Pipelines Access Law and the National Gas Code. iii Contracts for sale of energy Price regulation Each state and territory, except Victoria, applies some form of retail electricity price regulation. Price caps are set so that retailers can: a recover the costs that each state regulator considers an efficient retailer would incur; and b make a reasonable margin (ranging from 3 to 10 per cent). State and territory governments are currently reviewing their use of retail price caps and have agreed to remove them where effective competition can be demonstrated. Consumer unfair contract terms Consumer energy contracts are also subject to the unfair contracts regime set out in the CCA. Under the unfair contracts regime, an unfair term in a standard form consumer contract will be unenforceable. Further, a court can injunct a supplier from relying on a particular term. A term will be unfair if: a it causes a significant imbalance in the parties rights and obligations arising under the contract; b it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and c it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. The NECF The NECF also contains a range of consumer protections, including the making of model terms and conditions for standard retail customers that gas and electricity retailers must adopt. If a retailer s retail contract is inconsistent with the model terms and conditions, the retail contract has no effect to the extent of that inconsistency. 12

25 iv Market developments Australia AEMC priorities In 2011, the AEMC undertook an assessment of the Australian stationary energy sector, to identify current challenges and to develop a set of key priorities for the development of this sector. On the basis of this review, the AEMC developed three key strategic priorities: a creating a predictable regulatory and market environment for rewarding economically efficient investment; b c building the capability and capturing the value of flexible demand; and ensuring the regulation of transmission and distribution networks promotes timely investment and efficient outcomes. 17 The challenges identified included the interaction between the gas market and the NEM as a result of growth in gas-fired electricity generation, which may lead to vulnerability of the NEM to gas supply shortages. The AEMC also identified significant future investment requirements to improve transmission networks throughout the NEM. Significant investment in low emissions intensity generation capacity will also be required to address climate change policy such as the carbon emissions pricing and the Renewable Energy Target ( RET ) under the Australian Government s Clean Energy Future Plan. Climate change policy is also predicted to produce an increase in wind generation and gas plant, which could lead to greater spot price volatility, potentially affecting the resilience of energy markets. The AEMC has predicted that, as a result of this, generators and retailers may change their financial risk management strategies. Mechanisms will also need to be established to limit the extent of disruption of the market as a whole if individual participants experience financial hardship. 18 Liquefied natural gas and coal seam gas In addition to Australia s national gas reserves, Australia also has substantial reserves of coal seam gas ( CSG ) in both NSW and Queensland. This, together with long-term projections of rising international energy prices, has spurred the development of several Liquefied natural gas ( LNG ) projects. Construction of three export LNG projects is underway, with first CSG LNG exports expected in late Five further proposals are under consideration. If all current proposals are developed to full capacity, this would represent a potential LNG export market for Queensland of more than 50 million tonnes per annum. 19 CSG production has also reshaped the domestic market by providing a new source of gas supply. 17 AEMC, Strategic Priorities for Energy Market Development 2011, available at au/media/docs/strategic%20priorities%20for%20energy%20market%20development%20 -%20low%20resolution%20pdf-a702b945-89b9-4d09-a8b0-7c31aa7a47de-2.PDF. 18 Id. 19 Queensland Department of Employment, Economic Development and Innovation, Queensland s coal seam gas overview, February 2012, available at gov.au/assets/coal-pdf/new_csg_cc.pdf. 13

26 V RENEWABLE ENERGY AND CONSERVATION i Development of renewable energy The Australian Government s Clean Energy Future Plan, 20 including the introduction of the carbon price mechanism ( CPM ) on 1 July 2012, will result in a significant boost to the renewable energy sector in Australia. It is expected that the combined incentives from the carbon price package and ongoing RET will accelerate the deployment of renewable energy in Australia by driving forward around A$20 billion in investment in renewable energy in the period to In the year ending September 2011, the contribution of renewable energy rose to 9.6 per cent of the total electricity produced during that period, up from 8.7 per cent the year before. 22 The breakdown of renewable energy generation, by fuel source, was as follows: a hydro: 67.2 per cent; b wind: 21.9 per cent; c bioenergy: 8.5 per cent; d solar PV: 2.3 per cent; e solar thermal: per cent; f marine: per cent; and g geothermal: per cent. Clean Energy Finance Corporation The establishment of a commercially oriented A$10 billion Clean Energy Finance Corporation ( the CEFC ) as part of the Clean Energy Future Plan is a key policy initiative designed to drive investment in renewable energy, energy efficiency, low-emissions technologies and adaptation assistance for manufacturing. The object of the CEFC is to help to overcome capital market barriers to commercialising clean energy technologies by leveraging private sector financing. 23 The CEFC will be run independently by a board of experts in banking, investment management and clean energy and low-emissions technologies and is proposed to commence operating in Australian government, Securing a Clean Energy Future The Australian Government s climate change plan, Canberra, July 2011, available at 21 Department of Resources, Energy and Tourism, Draft Energy White Paper 2011: Strengthening the foundations for Australia s energy future, Canberra, December 2011, available at gov.au/energy/documents/ewp/draft-ewp-2011/draft-ewp.pdf. 22 Clean Energy Council, Clean Energy Australia Report 2011, November 2011, available at www. cleanenergycouncil.org.au. 23 Australian government, Financing Clean Technologies, 24 Australian government, 12 October 2011, Clean Energy Finance Corporation: experts appointed, available ar 14

27 Australian Renewable Energy Agency Another component of the Clean Energy Future Plan is the establishment of the Australian Renewable Energy Agency ( ARENA ) under the Department of Resources, Energy and Tourism on 1 July ARENA is to be an independent statutory body that will administer A$3.2 billion in funding to support renewable energy technology development, including research, development, demonstration, deployment and commercialisation across technologies such as solar (including large-scale solar), biomass, biofuels, ocean and geothermal. A$1.5 billion is already committed to existing projects from programmes and initiatives that will be consolidated into ARENA, while the remaining A$1.7 billion of funding is currently uncommitted and will be available for ARENA to provide early-stage grants and financing assistance for renewable energy projects. 26 Furthermore, ARENA is responsible for developing skills in the renewable energy industry and promoting knowledge sharing and collaboration on renewable energy technology innovation with Australian and international governments and institutions. 27 Renewable energy target As mentioned above, the RET will continue in operation once the CPM is in effect. The RET is established under the Renewable Energy (Electricity) Act 2000 (Cth) and is designed to ensure that by 2020, renewable generation accounts for 20 per cent of overall electricity generation. Since January 2011, the existing RET scheme has operated in two parts: the Small-scale Renewable Energy Scheme and the Large-scale Renewable Energy Target. The RET requires electricity retailers to acquire and surrender a certain number of renewable energy certificates ( RECs ) as an incentive to bridge the gap between the price of green energy and the price of black energy. The number is determined as a proportion of the retailer s overall acquisitions of electricity. Following changes to the RET that commenced on 1 January 2011, there are now two forms of RECs that retailers can purchase to satisfy their liability: a large-scale renewable energy certificates, which can be created by accredited renewable energy power stations (e.g., wind farms and large solar installations); and b small-scale technology certificates, which are created from small units (e.g., solar PV panels and solar water heaters). 25 Australian Renewable Energy Agency Act 2011 (Cth). 26 Department of Resources, Energy and Tourism, Draft Energy White Paper 2011: Strengthening the foundations for Australia s energy future, Canberra, December 2011, available at gov.au/energy/documents/ewp/draft-ewp-2011/draft-ewp.pdf. 27 Martin Furguson (Minister for Resources and Energy and Minister for Tourism) and Greg Combet (Minister for Climate Change and Energy Efficiency), 12 October 2011, media release: Legislation introduced to establish ARENA, minister/combet/2011/media/october/mr pdf. 15

28 Prior to the amendments to the RET, Australian states and territories had similar measures in place. These state-based schemes have since been superseded by the national RET. ii Energy efficiency and conservation National Energy Savings Initiative Various Australian states have implemented energy efficiency certificate schemes (e.g., the Victorian Energy Efficiency Target scheme, or VEET, the New South Wales Energy Savings Scheme, or EES ). Under schemes of this kind, liability is imposed on electricity (and in some cases, gas) retailers in a similar manner to that described above for the RET. These retailers acquit their liability by purchasing and surrendering energy efficiency certificates, which can be generated for certain eligible energy efficiency activities, such as retrofitting lights and other appliances, or on the purchase of eligible energy-efficient appliances. In 2009 the Australian government established the Prime Minister s Task Group on Energy Efficiency to report on options to deliver a step change in energy efficiency in Australia by The Task Group s report recommended that the government agree to the introduction of a transitional national energy savings initiative ( NESI ) to replace existing and planned state energy-efficiency schemes, subject to detailed consultation on its design. 28 In response and as part of its Clean Energy Future Plan, the Australian government has established a NESI working group which released an issues paper inviting submissions from the public on the design and implementation of a NESI in December Subject to further analysis and consideration of responses to the issues paper, economic modelling and a regulatory impact study to be conducted in the latter part of 2012, the Australian government will make a final decision on whether to establish a NESI. Establishment of a NESI will also be conditional on the endorsement of the Council of Australian Governments and agreement that existing state schemes will be folded into any national scheme. 30 The Energy Efficiency Opportunities Act 2006 (Cth) (EEO Act) The Energy Efficiency Opportunities Act 2006 (Cth) (EEO Act) came into force on 1 July 2006 as a result of an initiative first announced in the federal government s 28 Australian government, Report of the Prime Minister s Task Group on Energy Efficiency, Canberra, July 2010, p. 3, available at 29 Australian government, issues paper: National Energy Savings Initiative, Canberra, December 2011, available at for more information see 30 Australian government, Securing a Clean Energy Future The Australian Government s climate change plan, Canberra, July 2011, available at 16

29 2004 White Paper, Securing Australia s Energy Future. 31 The EEO Act is aimed at encouraging energy efficiency in the estimated 250 Australian businesses using more than 0.5 petajoules of energy per year (large energy users). The EEO Act requires large energy users to undertake a detailed energy assessment and publicly report on identified opportunities that have payback periods of four years or less. This provides a rich source of comparative data that can assist in identifying common points of saving and provides business specific information for potential energy-efficiency investments. 32 As part of its carbon price package, the government has announced that it will expand the existing programme by extending base funding to 30 June 2017, including energy transmission and distribution networks, major greenfield and expansion projects, enhancing assessment and verification requirements and by establishing a voluntary scheme for medium-sized energy users. 33 iii Technological developments The Australian government has committed up to A$17 billion in funding to support the development, commercialisation and deployment of clean energy technologies. This includes the establishment of the CEFC and ARENA, as well as support for large-scale carbon capture and storage demonstration. 34 Carbon capture and storage Australia is one of the first countries to have established regulatory frameworks specifically for carbon capture and storage ( CCS ) activities. Under the framework, offshore CCS activities in waters administered by the Federal Government will be governed by the Offshore Petroleum Amendment (Greenhouse Gas Storage) Act 2008 (Cth), while onshore CCS activities and those in state waters are regulated by separate state regimes. The Australian government funds the Carbon Capture and Storage Flagships Program, which supports the construction and demonstration of large scale integrated CCS projects. Additional government support for technological development in CCS is provided via the A$315 million Global Carbon Capture and Storage Institute and the A$370 million National Low Emissions Coal Initiative Australian government, Securing Australia s Energy Future, Canberra, June 2004, available at 32 Department of Resources, Energy and Tourism, Draft Energy White Paper 2011: Strengthening the foundations for Australia s energy future, Canberra, December 2011, available at gov.au/energy/documents/ewp/draft-ewp-2011/draft-ewp.pdf; for further details see www. ret.gov.au/energy/efficiency/eeo/about/pages/default.aspx. 33 Department of Resources, Energy and Tourism, Draft Energy White Paper 2011: Strengthening the foundations for Australia s energy future, Canberra, December 2011, available at gov.au/energy/documents/ewp/draft-ewp-2011/draft-ewp.pdf. 34 Id. 35 Id. 17

30 In Australia, several large-scale projects are under development, including the Gorgon LNG project, which will commence operations in 2015 and is set to be the world s largest CO 2 storage project, 36 with an estimated 125 million tonnes of carbon dioxide to be injected under Barrow Island off the north-west coast of Western Australia. 37 Another significant project is the Callide Oxyfuel Project headed by CS Energy at the Callide Power Station in Biloela, Queensland, 38 which is designed to demonstrate oxyfuel combustion capture technology retrofitted to an existing Australian coal-fired power plant and to research how such technology may be applied to new power stations, as well as demonstrating geological carbon storage. A variety of other developments and research projects have also commenced, including the Cooperative Research Centre for Greenhouse Gas Technologies ( CO2CRC ) Otway Project involving an operational CO 2 storage pilot project in the Otways in South-Western Victoria, Delta Electricity s post-combustion CO 2 capture pilot plant at Munmorah Power Station on the NSW central coast and CO2CRC s precombustion pilot-scale capture project under which CO 2 emissions are being captured from HRL Ltd s research gasifier in Mulgrave, Victoria. 39 Solar energy Although Australia has the highest average solar radiation per square metre of any continent in the world, its large-scale solar industry is still in its formative years. 40 Presently, Australia s largest solar plant is a 3MW facility at Liddell in NSW that utilises solar thermal concentrators. The nation s largest solar photovoltaic plant is a 1.2MW facility at the University of Queensland s St Lucia campus. 41 In order to boost technological development in solar energy the Australian government has introduced the Solar Flagships Program (to be consolidated into ARENA), which will provide A$1.48 billion to support the construction and demonstration of large-scale, grid connected, solar power stations in Australia. In February 2012, the programme was re-opened and the government has sought updated applications from the four applicants that were shortlisted following round Id. 37 Shell Australia, see operations/upstream/. 38 Australian Coal Association, NewGenCoal, Australia, flagship-projects.aspx?view=13, also see aspx. 39 Australian Coal Association, NewGenCoal, Australia, 40 Clean Energy Council, Clean Energy Australia Report 2011, Victoria, November 2011, available at 41 Id. 18

31 Geothermal Geothermal energy is another focus area for technological development through the Emerging Renewables Program and Renewable Energy Demonstration Program (both to be consolidated into ARENA). As of 2011 only one Australian commercial geothermal plant with an installed capacity of 0.12MW and owned by Ergon Energy was operating in Birdsville, Queensland. However, other projects are under development. 42 Smart Grid, Smart City trial Under the Australian government s National Energy Efficiency Initiative Smart Grid, Smart City, Energy Australia, and its consortium partners (IBM Australia, GE Energy Australia, AGL Energy, Sydney Water, Hunter Water Australia, and Newcastle City Council) are deploying Australia s first commercial-scale smart grid demonstration project, based in Newcastle, NSW. 43 The A$100 million initiative aims to result in nationwide advances in energy management by gathering comprehensive information about the costs and benefits of smartgrids to inform future decisions by government, electricity providers, technology suppliers and consumers across Australia. 44 Smart meters are also currently being rolled out to residential and small business electricity customers across Victoria. 45 VI THE YEAR IN REVIEW Carbon The most significant legislative change for the Australian energy sector in the financial year, and indeed in recent times, has been the introduction of the Clean Energy Act 2011 (Cth) and associated legislation for the implementation of a carbon pricing mechanism ( the CPM ) in Australia. The object of the CPM is to reduce Australia s carbon emissions to 5 per cent below 2000 levels by The CPM forms part of the Commonwealth government s Clean Energy Future Plan and commences on 1 July The CPM will generally impose liability on a person who has operational control of a facility that has direct greenhouse gas emissions of 25,000 tonnes of carbon dioxide equivalent emissions or more for a given year. The Australian government has estimated that there will be approximately 500 entities with direct liability to acquire and surrender eligible emissions units under the CPM. The CPM will operate in two distinct phases: a the fixed-charge period, which will operate from 1 July 2012 for the first three financial years of the scheme; and b the flexible-price period, which will operate from 1 July 2015 onwards. 42 See 43 Australian government, 2011, Department of Resources, Energy and Tourism, Australia, www. ret.gov.au/energy/energy_programs/smartgrid/pages/default.aspx. 44 Department of Resources, Energy and Tourism, Draft Energy White Paper 2011: Strengthening the foundations for Australia s energy future, Canberra, December 2011, available at gov.au/energy/documents/ewp/draft-ewp-2011/draft-ewp.pdf. 45 Australian Energy Regulator, Australia, 19

32 During the fixed-charge period, carbon units will be available for purchase by liable entities from the Clean Energy Regulator for a fixed price. The fixed price starts at A$23 per unit in and will rise by 2.5 per cent for each subsequent year of the fixedcharge period. As the price of units is fixed during the fixed charge period, the scheme will have an economic effect that is like a tax. During the flexible price period, the price of units will generally be determined by the market. Liable entities will be able to obtain these units at auctions conducted by the Clean Energy Regulator, through secondary trading markets or, subject to certain restrictions, from international carbon trading markets. The number of units made available for any financial year will be determined by the overall carbon pollution cap set for that year. During this flexible price period, the scheme will operate more like an emissions trading scheme. In accordance with modelling by the Commonwealth Treasury, the overall impact of the carbon price on the Australian economy as a whole is expected to be minimal. The economy is projected to continue to grow, with real national income growth rising an average 1.1 per cent a year (compared with a business as usual 1.2 per cent per year to 2050); 46 however, the impact of carbon price pass-through is difficult to estimate given the many factors at play, including local and international competition, industry support, government assistance via the allocation of free eligible emissions units and government and private investment in the development and commercialisation of clean energy technologies. In addition to support provided through the CPM and the ongoing RET, the Australian government s commitment of up to A$17 billion in funding to support the development, commercialisation and deployment of clean energy technologies under the Clean Energy Future Plan is expected to fundamentally alter operational and investment dynamics in the electricity and gas markets by shifting the generation mix towards cleaner technologies and reducing the growth rate in electricity demand; 47 however, there remains a level of uncertainty for investors due to the lack of bipartisan support for the CPM and doubts surrounding the future of the Australian Labour Party remaining in government at the next election. Demand-side participation Since 2007, the MCE (now superseded by the Standing Council on Energy and Resources) has been undertaking a review of demand-side participation ( DSP ), which refers to the ability of energy consumers to determine the quantity and timing of their energy consumption, in order to improve the efficiency of the NEM. The NEM has traditionally only focused on supply-side demand. The AEMC released a report in December 2009, after concluding a review into the barriers to DSP. The MCE in March 2011 directed the AEMC to undertake a further review of DSP in the NEM (Stage 3 DSP Review), which aims to identify market and regulatory arrangements that would 46 Treasury, Strong growth, low pollution: modelling a carbon price, Treasury, Canberra, 2011 (updated in September 2011), available at content/report.asp. 47 Id. 20

33 enable the participation of both supply participants and demand side consumers. The Stage 3 DSP Review is due to be completed by September Key decision In Australian Energy Regulator v. Stanwell Corporation Limited, 49 the Federal Court dismissed the action brought by the AER against Stanwell Corporation Limited for breach of the good faith bidding obligations set out in the NER. Rule A requires generators and market participants to make dispatch offers, dispatch bids and rebids in good faith. The AER had alleged that a series of rebids made by Stanwell on 22 and 23 February 2008 were not made in good faith because they were made with the intention that if the dispatch price did not rise sufficiently as a result of the rebid, Stanwell would make a further rebid in an effort to increase the dispatch price. In determining whether the rebids occurred in good faith, the court took the view that the market must be considered as a whole. It was necessary for the AER to demonstrate, on the balance of probabilities, that the relevant trader did not have a genuine intention to honour the bid at the time that it was made. The decision is the first judicial consideration of the good faith bidding obligations in the NER. NECF and NERL As mentioned previously, another major change in the energy industry is the ongoing introduction of the NECF. The Joint Implementation Group in 2011 consulted with interested parties across all sectors, and received discussion papers from all affected jurisdictions. The key legal instrument giving effect to the NECF is the National Energy Retail Law (South Australia) Act 2011 ( the NERL ), which will be adopted by each participating jurisdiction. The Bills to implement the NERL are currently being debated in each participating jurisdiction s parliament. VII CONCLUSIONS and OUTLOOK Recent years have seen a tremendous amount of change in the energy markets in Australia. One of the biggest challenges facing decision-makers is determining how to best transition to a lower carbon energy sector. The transition will involve significant change to how electricity and gas is generated, transported and consumed. In particular, significant levels of new generation investment will be required to maintain reliability of supply and to meet the objectives of the Clean Energy Future Plan. In a report released in 2011, the AEMC identified the following key challenges facing energy markets: 50 a rising peak demand; b investment challenge; [2011] FCA 991, available at 50 AEMC, Strategic Priorities for Energy Market Development, Sydney, August 2011, available at 21

34 c d rising prices; and market resilience. In response to the aforementioned challenges, the AEMC has developed the following strategic priorities for the further development of the stationary energy sector: 51 a a predictable regulatory and market environment for rewarding economically efficient investment; b building the capability and capturing the value of flexible demand; and c ensuring the regulation of transmission and distribution networks promotes timely investment and efficient outcomes. The above strategic priorities will form the basis of the AEMC s market advisory role. 51 Id. 22

35 Appendix 1 About the authors Mitzi Gilligan Minter Ellison Mitzi Gilligan has been practising in commercial law and regulation since A respected adviser to corporate clients, government and public sector agencies, she is specifically recognised for her work in climate change and energy and resources. She advises clients in a range of industries including electricity, oil and gas, telecommunications, higher education, public transport and water. Her extensive expertise encompasses utilities regulation; acquisitions and sales; due diligence; procurement; and projects. She also drafts and negotiates industry contracts and advises on regulatory dispute resolution processes. Drawing on a sound understanding of the complex regulatory and legal framework surrounding climate change, Ms Gilligan advises regarding greenhouse and energy reporting, emissions trading, carbon capture and storage and renewable energy initiatives. Over the past five years she has been consistently named as a leading individual in the area of energy and resources in guides including Chambers Asia Pacific 2011, Chambers Global 2010 and 2009 and Australian Legal Business Guide 2009, 2008 and She has also been recognised in the area of climate change by Best Lawyers International: Australia 2010 and A member of the Australian Mining and Petroleum Law Association and the Resources, Environment and Energy Law Committee of the Australian Law Council, Ms Gilligan regularly presents conference papers and lectures on legal issues in energy and climate change. 357

36 Eliza Bartlett About the Authors Minter Ellison Eliza Bartlett is a commercial and regulatory lawyer with specialist experience in the energy sector. She advises on the commercial and regulatory aspects of major energy transactions, including gas, electricity and renewable projects. Ms Bartlett experience has included two lengthy secondments as in-house counsel to a state-based government department responsible for energy regulation in Victoria and an Australian publicly listed energy company. Carolyn Vigar Minter Ellison Carolyn Vigar specialises in commercial public law issues and regulatory design for major public and government sector projects and clients. She has extensive experience in regulatory and legislative reform, administrative law, constitutional and commercial issues, responsible government, public sector accountability, and the Charter of Human Rights and Responsibilities. Ms Vigar has particular skill in energy sector regulation, market reforms and commercial transactions including relating to renewable and co generation, tri generation and carbon geosequestration projects. An expert in regulatory design, she has helped develop and structure regimes across the energy, water, transport infrastructure, primary industries and professional sectors. She also advises on the streamlining and reform of regulation to facilitate major infrastructure projects. Carolyn has been closely involved in implementing major government policy initiatives such as national energy market reforms, the national competition policy, national social housing reforms, reform of the vocational education and training sector, electricity privatisation and public transport reforms. Darshini Nanthakumar Minter Ellison Darshini Nanthakumar advises on commercial and regulatory matters with a particular focus on the energy and resources sector. Her experience in the government sector includes advising on a range of matters for both Victorian departments and agencies. Ms Nanthakumar recently completed a lengthy secondment as in-house counsel to a state-based government department responsible for energy regulation in Victoria. Rudi Kruse Minter Ellison Rudi Kruse joined Minter Ellison in February 2011 as a graduate after completing a JD degree from the University of Melbourne and a combined bachelor of science and bachelor of arts degree from the University of Sydney. Mr Kruse has a keen interest in regulatory matters within the energy and resources sector. He has previously advised both public and private sector clients on regulatory matters and has published on the law and policy of Australia s climate change regulations. 358

37 Genevieve Watt About the Authors Minter Ellison After graduating from Monash University with a combined bachelor of laws and bachelor of arts degree, Genevieve Watt joined Minter Ellison in March 2011 as a graduate. During her time at Minter Ellison, she has advised both public and private sector clients on a range of general commercial, regulatory and technology matters. Nicholas Liau Minter Ellison Nicholas Liau graduated from the University of Melbourne with a bachelor of laws (honours) and bachelor of science (honours). As a graduate, Mr Liau has assisted in advising on regulatory-related matters, in particular within the electricity and gas sectors. Minter Ellison Rialto Towers, 525 Collins Street Melbourne 3000 VIC Australia Tel: Fax: [email protected] 359