Regulatory Overhaul of WA Electricity Sector: Implications of the Electricity Industry Amendment (Distributed Energy Resources) Act 2024 (WA)

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Introduction

The regulatory framework for WA’s electricity sector is set to undergo significant transformation after the WA Parliament passed the Electricity Industry Amendment (Distributed Energy Resources) Act 2024 (WA) (DER Act) in late February 2024.

Summary – Key Takeaways

The DER Act is intended to create a modernised regulatory framework which is better equipped for the current industry landscape and encourage the uptake of renewable technologies. The key changes are:

• The introduction of a State Electricity Objective which provides a unifying theme for electricity sector regulation (focusing upon environmental considerations) and requires regulatory decisions to be made in accordance with the long-term interests of energy consumers.
• Consolidating disparate legislative instruments into a singular set of rules, to be known as the Electricity System Market Rules. This will eventually lead to the consolidation of the Electricity Networks Access Code 2004 (Access Code), Western Power Technical Rules and the Electricity Industry (Metering) Code 2012 (Metering Code) (among other things) with the existing Wholesale Electricity Market Rules.
• The implementation of regulations regarding Distributed Energy Resources (which is currently a regulatory blind spot) to enable proper management of power system risks, and to capture the uncapitalised benefits of integrating cost-efficient, low-emission technologies into the SWIS. 

The wide-ranging changes, which are not yet fully formed, will be further developed and implemented throughout a complex transition process that is likely to last for several years.

The WA Government is also set to enact the Electricity Industry (Alternative Electricity Services) Bill 2023 (WA) (AES Bill) to provide consumers with enforceable protections against new and emerging electricity services and businesses that fall outside the scope of current regulations.

Key Features of the DER Act

Overhaul of existing framework

The new legislation, which amends the Electricity Industry Act 2004 (WA) (EI Act) and related legislation,[i] was developed in consultation with key market stakeholders to address perceived shortfalls of the current framework, namely that it is outdated and ill-equipped to tackle the rapid transformation of WA’s electricity sector.[ii]

Improved governance of current and emerging issues in the electricity sector

The DER Act seeks to improve the governance of current and emerging issues facing WA’s electricity sector in three ways:

State Electricity Objective

The three limbs of the SEO

The SEO, which replaces objectives outlined under existing legislative instruments, provides a unifying theme for regulating the electricity sector and is a guiding principle for any decisions made under relevant legislation. It requires decision-makers, being the Minister for Energy (Minister), the Economic Regulation Authority, the Coordinator of Energy and Electricity Review Board, to make decisions according to the long-term interests of electricity consumers by weighing three competing considerations (limbs):[1]

• Limb one – the quality, safety, security, and reliability of electricity supply.
• Limb two – the price of electricity.
• Limb three – the environment, including (but not limited to) reducing greenhouse gas emissions.

The three limbs may be weighted flexibly in accordance with the relevant circumstances.

Creation of uniform regulatory standards

In relation to the first limb, the DER Act provides further defined terms to give meaning to the SEO and to streamline regulatory standards across the electricity sector:[2]

• Quality – means the extent to which electricity supply meets technical requirements prescribed by the Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA) (EI Regulations) or ESMR.
• Reliability – refers to the consistency of an electricity supply to customers.
• Security – refers to the ability of a power system and/or electricity supply to withstand disruption or changes circumstances.

Environment is crucial to regulation and decision-making

The inclusion of the third (environmental) limb, in addition to the more traditional considerations, may have broad regulatory implications for the future governance of the Wholesale Electricity Market (WEM). For instance, future rules may reward or penalise technologies based on environmental impacts.[3]

Electricity System and Market Rules

Creation of the ESMR

The ESMR will be an expansion of the Wholesale Electricity Market Rules (WEM Rules) made under the EI Regulations pursuant to the EI Act.[4] The overarching purpose of the ESMR is to reduce the complexity, uncertainty and inefficiency of the regulatory framework governing the electricity sector.[5] Any inconsistent or duplicated provisions (governing similar subject matter) under subsidiary instruments will be amalgamated and streamlined into the ESMR as a singular set of rules.

Scope of the ESMR

The ESMR will apply to anyone who is a ‘participant’, being anyone who is registered in accordance with the ESMR or has functions conferred on them by the ESMR.[6] The ESMR will cover ‘electricity systems and electricity markets’[7] and include some provisions which have ‘state-wide application’, rather than applying to only the WEM (previously governed by the WEM Rules).[8] The ESMR incorporates all matters covered under existing subsidiary legislation, and will provide for matters relating to:[9]

• meeting the SEO;
• any WA electricity system authorised to be covered by the ESMR;
• the WEM;
• the operation of the SWIS;
• network access or Pilbara networks;
• registrations required under regulations;
• technical codes (for access to services); and
• anything else which the EI Act permits to be covered by the ESMR.

Breaches of the ESMR are punishable by civil penalties.[10]

Expanded regulatory framework

In addition to consolidated provisions transferred from existing legislative instruments, the ESMR will have an expanded regulatory scope covering new or updated concepts introduced by the DER Act. The new framework will capture a wider range of operations within the electricity sector. Some of the key concepts include:[11]

• Connected facility – referring to electricity infrastructure (including DER) connected to, and managing the flow of electricity (to or from), the distribution system.[12] This concept has been introduced to enable regulations such as the development of technical standards (especially for DER, such as rooftop solar inverters) and other requirements for a broad range of equipment, reflecting the range of challenges and opportunities (e.g. power system security and reliability) that connected facilities present for electricity services.
• Electricity services – referring to services necessary for or incidental to the supply of electricity to consumers. The inclusion of this concept, which has a significant role in the SEO and the electricity sector generally, reflects the importance of regulating broader services beyond the direct supply of electricity (e.g. demand-side load reduction services).
• Electricity system – encompasses all physical elements underpinning the supply of electricity, ranging from distribution systems to wires.
• Embedded network – referring to distribution systems that are supplied with electricity by another distribution system and can operate autonomously for a period of time but are not part of a regulated network. For example, a shopping centre or apartment complex connected to a Western Power network that can service electricity demand with battery or solar power during any supply interruption.

The matters which the ESMR may provide for are deliberately broad and will evolve with further regulation. Some examples of additional matters the ESMR may regulate for (including requirements, technical standards, obligations and compensation provisions) include:[13]

• stand-alone power systems which are outside of covered networks;
• the reliability, safety, quality and safety of electricity supply and operations (pursuant to limb one of the SEO); and
• the collection, storage, transfer, confidentiality and protection of data relating to the operation of the electricity sector.

Increased flexibility of regulations

The new framework will also include changes enabling more flexible regulation of the electricity sector. For example, inflexible technical standards prescribing voltage requirements are removed from the EI Act and instead prescribed in subsidiary legislation.[14]

Regulation of Disributed Energy Resources

As part of the decarbonisation of WA’s electricity sector, the new framework will be modernised to facilitate and encourage the integration of clean technologies (DER) into the power system. WA has already experienced a rapid uptake of DER such as electric vehicles, solar generation and energy storage. However, these developments are currently a regulatory blind spot giving rise to risks to power system security. It is also a significant barrier to understanding and managing the impacts of DER, and to utilising such technologies as an asset. Given the low carbon emissions, regulation of DER is a significant component of achieving the SEO. Some of the key objectives of the incoming heads of power regarding DER regulations are to:[15]

• increase visibility regarding the location of and operation of DER in the power system;   
• plan for, manage and coordinate the ongoing and future uptake of DER;
• integrate DER into the power system with minimal risk to power system security and reliability;
• create a clear compliance framework through prescribing technical standards and obligations;
• empower network service providers (and other appropriate parties) to direct rectification for non-compliance with technical standards (both systemic and specific occurrences), take actions to rectify non-compliance, and recover the costs of doing so; and
• facilitate benefits to both consumers and the power system, such as enabling DER to provide services that actively support the power system.

The first round of amendments regarding the regulation of DER are anticipated to come into effect in June 2024.[16] Once data has been gathered through increased visibility over DER, and the financial and technical feasibility of DER orchestration has been assessed, the ESMR provide for the possible creation and regulation of a future DER market.[17]

Implementation – When the Changes Come into Effect

Though the DER Act came into force in March 2024, most provisions have not come into operation. To enable the consolidation of existing instruments within the new ESMR, the substantive amendments made by the DER Act will be implemented in two stages. Each stage will commence upon proclamation by the Minister, and different provisions may come into operation at different times.

Stage one

During the first stage (which will occur over several years), the SEO, new terms and concepts, and the ESMR will come into effect. Given the complexity of amalgamating the subsidiary instruments, the first stage enables provisions to be carefully reviewed and transferred to the ESMR over time.

Stage two

Once the first stage is complete and provisions have been transferred into the ESMR, the second stage will finalise the consolidation process through repealing any references to outdated instruments and by repealing the relevant instruments outlined above. The second stage is expected to commence no later than 31 December 2028.[18]

Transitional process

The DER Act sets out regulations dealing with issues arising during the transfer of provisions to the ESMR. The transitional regulations: [19]

• enable subsidiary instruments (to be incorporated into the ESMR) to be reviewed, amended, imported or repealed during the transitional period; and
• enable the EI Regulations to deal with any transitional issues not covered by the EI Act and enable such issues to be dealt with retroactively (provided that doing so does not prejudice the pre-existing rights of any person).

The transitional regulations also provide the Minister with broad interim powers to facilitate the transfer/consolidation of key subsidiary instruments into the ESMR (relevant instruments),[20] being:

• the Access Code;
• any technical codes, rules or instruments made under the Access Code (for example, the Western Power Technical Rules);
• the Metering Code; and
• the Electricity Industry (Network Quality and Reliability of Supply) Code 2005 (NQRS Code).

The Minister’s powers are broad and include the ability to:[21]

• Amend any relevant instrument without the requirement for public consultation, where doing so is necessary to facilitate and streamline the transfer of provisions to the ESMR.
• Decide which subsidiary instruments may be used to deal with relevant issues during the transition. For example, it is likely that both the ESMR and Access Code will operate in parallel during the transition. In this scenario, the Minister may decide which instrument is the most appropriate for including new material.
• Provide for the continuation of a relevant instrument which has been revoked, to ensure all matters will be addressed by an instrument while provisions are transferred to the ESMR.

The provisions of the ESMR will prevail over any provisions of a relevant instrument where any inconsistency arises during the transitional period. Further, the introduction of (and any amendments to) the ESMR will not affect the terms of any contracts entered into before that change came into effect.[22]

New provisions to be included in the ESMR, such as regulations surrounding DER and power system reliability and security, will be prepared parallel to the transition process.[23]

Further Electricity Sector Reforms – the Electricity Industry (Alternative Electricity Services) Bill 2023

The WA Government is set to enact the AES Bill as a further component of its electricity sector reforms. The AES Bill was passed by the Legislative Assembly on 16 November 2023 and was agreed to by the Legislative Council (subject to minor amendments) on 20 March 2024. The aim of the AES Bill is to create a regulatory framework which provides consumers of Alternative Electricity Services (AES) with enforceable protections and access to independent dispute resolution.[24]

Scope of the AES Bill

AES is not defined under the AES Bill but instead ‘means an activity prescribed by the regulations as an alternative electricity service’.[25] Broadly, a reference to AES is likely to encompass innovative/emerging electricity services, activities and business models. AES may include:[26]

• selling, storing, aggregating, generating and/or distributing electricity (for example, on-selling electricity within an embedded network such as a shopping centre);
• electricity management products, the collection of electricity data; or
• financing arrangements such as leasing or membership-based ownership of electricity assets.

 AES are generally exempt from or fall outside the scope of the current licensing and exemption framework, which is perceived to be inappropriate and impractical for AES (due to the onerous costs and regulatory burden, among other reasons).[27]

Requirements imposed by the AES Bill

The AES Bill introduces new heads of power for an AES code of practice and aims to establish a less costly and burdensome regulatory framework which:[28]

• may prescribe activities or services as AES;
• requires AES providers to register and comply with registration conditions; and
• prescribes requirements which can be tailored to the characteristics of the relevant AES.

 The AES framework will be inserted into the new section 3A of the EI Act. The Authority will be responsible for monitoring and enforcing compliance with the AES framework.[29] Contraventions of registration or regulatory requirements under the AES framework are punishable by fines. For example, any person or entity that provides AES without a registration may be punishable by a fine of up to $100,000 and a daily penalty of $5,000 for each day the offence continues.[30]