REGULATORY OBSERVERInternational and Australian regulatory developments and decisions

1 REGULATORY OBSERVER

02

UK Joint Regulators Group releases report examining different regulatory approaches in the UK

03

International Regulatory Round-up

07

Australian Regulatory Round-up

5 April 2013

Issue 48

The Joint Regulators Group (the JRG), the association of the UK’s economic and competition regulators, has released a report (the Report) examining different regulatory approaches towards setting tariffs and charges adopted in a number of regulated industries across the UK. The report was prepared by four UK regulators: the Office of Rail Regulation (ORR); the Civil Aviation Authority (CAA); the Office of Gas and Electricity Markets (Ofgem); and the Water Services Regulation Authority (Ofwat). Key areas of common interest were examined. Namely: charging governance and setting; the role of the charging methodologies; how charges vary by location and according to service quality; and the interaction between regulated charges and competition (pp. 4-5).

The Report found that the focus of regulation varies between regulators. Some regulators approve charges, while others approve charging methodologies. In general, regulators have stepped back from setting charges, instead setting out principles or methodologies for businesses to set their own charges. For example, the Ofgem approves the energy network charging methodologies that the businesses use to set charges. In contrast, the ORR and the Ofwat approve charges. The CAA sets a charging cap.

Efficient use of capacity was identified as a key issue for the regulation of charging in all sectors. Regulators adopt different approaches, depending on the circumstances of the regulated sector. For example, the approach adopted by a regulator may be affected by the level of unbundling, the number of operators within the industry, and how ‘mature’ the industry is. All regulatory regimes examined include some form of incentives and rewards to encourage companies to efficiently manage capacity.

The Report found that cost-reflectivity principles are not homogenously applied in every regulated sector. Regulators take different approaches to ensuring cost-reflectivity of their charging regimes. For example, the Ofgem has licence requirements for the electricity and gas network companies to ensure their methodologies are cost reflective. In the UK rail industry, charges are required to reflect marginal cost, with any shortfall potentially being met by state subsidy.

The role of charges in facilitating or promoting competition also differs between regulated industries. In some industries, competition is actively promoted by the regulator through the design of charging policies. In electricity and gas networks, the charging regime supports the competitive provision of distribution network extensions by independent network operators. The charging regime also supports competition through an offshore transmission regime where operators compete to own and operate certain assets. In other industries, the role of the regulator is limited to that of a supervisor that ensures that the market remains competitive. In other cases, the regulator may not have a statutory duty to promote competition. However, there may be statutory requirements to further the interests of users and promote efficiency. This is the case of the CAA, where only designated airports have price controls to ensure the protection of airport users.

The JRG meets four times a year to discuss and exchange information on issues relevant to regulation within the UK. The JRG also conducts cross regulator working groups that aim to pool resources and expertise to examine topics of specific interest. It is comprised of: the CAA; Monitor (Independent Regulator for NHS Foundation Trusts); the Ofcom (Office of Communications); the Ofgem; the Ofwat; the ORR; the Utility Regulator (Northern Ireland Authority for Utility Regulation); and the WICS (Water Industry Commission for Scotland). The Office of Fair Trading is an observer of the JRG.

2 REGULATORY OBSERVER

UK Joint Regulators Group releases report examining different regulatory approaches in the UK

International Regulatory Round-upCOMMUNICATIONSAmericasCanada: Competition authority requests changes to cell phone contractsCanada's Competition Bureau has made a submission to the Canadian Radio-television and Telecommunications Commission, proposing changes to regulations governing mobile phone contracts. The proposals include the abolition of ‘hidden fees’ and processes that make it difficult for consumers to change service providers.

US: Annual report and analysis of competitive market conditions with respect to mobile wirelessThe Federal Communications Commission (FCC) has released a report providing an overview of the state of the mobile wireless services industry in the US. The report contains market share data, entry and exist conditions in the industry, and the availability of mobile spectrum for use by suppliers of mobile wireless services.

US: FCC issues guidance on obtaining experimental authorizations for commercial space launch activities The FCC has released a Public Notice to provide guidance for commercial space launch activities and related spacecraft that require the use of spectrum for operational communications related to launch, cargo delivery, and/or re-entry.

US: FCC increases spectrum available for unlicensed devicesThe FCC has issued a media release proposing to release additional spectrum to accelerate the growth and expansion of new Wi-Fi technology. The FCC has proposed to make up to 195 megahertz of additional spectrum available in the 5 GHz band for use by unlicensed wireless devices. It also proposes to create a more flexible regulatory environment, and to streamline existing rules and equipment authorization procedures for devices throughout this band.

EuropeEU: BEREC Releases Opinion on Phase II investigation on Italian draft telecommunications lawsThe BEREC has adopted an Opinion on its investigation in relation to whether a draft measure concerning the Italian market for call termination on individual public telephone networks would create a barrier to the internal market. The BEREC found that the serious doubts expressed by the European Commission are justified.

EU: BEREC adopts Opinion on non-discrimination and costing methodologiesAt its first Plenary of 2013, the BEREC has agreed on the headline messages of its Opinion on the European Commission’s draft recommendation on cost orientation and non-discrimination. The BEREC agreed that: effective non-discrimination rules are essential for competition; wholesale pricing flexibility has an important role to play in supporting investment; and that ex ante economic replicability tests may be needed to prevent abusive pricing behaviour by dominant operators

France: Current regulation of the wholesale market of ‘leased lines’ extendedThe French Competition Authority (Autorité de la concurrence) has issued an opinion supporting a proposal to extend by one year the current regulation of the wholesale market of ‘leased lines’. The proposal was made by the authority that regulates post and electronic communications (ARCEP). The extension will provide the ARCEP with an opportunity to analyse the market for: leased lines, local loop access and high-speed network access.

France: Terms governing mobile network sharing and roamingThe Autorité de la concurrence has released a decision on the terms governing mobile network sharing and roaming. The Competition Authority recommended that network sharing agreements be examined in relation to three criteria: the degree of competition between the two parties; their joint market power; and the features of the areas covered by the agreement.

France: Skype refuses to register as an operatorThe ARCEP has announced that it has informed the Paris public prosecutor of Skype Communications SAR’s possible failure to comply with obligations to declare itself as an electronic communications operator in France. A business is not required to obtain administrative approval to become an electronic communications operator in France, but only to ‘declare’ themselves beforehand. A failure to comply with this obligation may constitute a criminal offence.

3 REGULATORY OBSERVER

Germany: Bundesnetzagentur widens quality measurement campaignIn a media release, the Bundesnetzagentur, has announced that it has widened its nationwide internet quality measurement campaign. Internet users can now check whether there are different speeds for data traffic using different applications. The aim is to examine the issue of net neutrality and to test whether there are any differences between providers, technologies and geographic regions.

Netherlands: Formation of the Netherlands Authority for Consumers & Markets (ACM)On 26 February 2013, the Dutch Senate approved the merger of the Netherlands Consumer Authority, the Netherlands Competition Authority (NMa) and the Netherlands Independent Post and Telecommunication Authority (OPTA), thereby creating the Netherlands Authority for Consumers & Markets (ACM). The new regulator was officially launched on 1 April 2013. Chris Fonteijn, the Chairman designate of the Board of the ACM, said, ‘By merging our organizations, we bring together the best of three worlds, allowing us to increase the effectiveness of our oversight.’

UK: Report released on UK’s broadband progress The Ofcom has released a report on the coverage, take-up, usage, price and choice of fixed and mobile broadband services in the UK compared with other European countries. The report includes data from France, Germany, Italy, Spain and the UK.

UK: Proposal to reduce prices for high speed data links The Ofcom has proposed to reduce prices for high speed data

links used by UK businesses, as well as mobile and broadband providers. The Ofcom is proposing that BT’s very high-bandwidth, wholesale leased line services at speeds above 1 Gbit/s should be subject to regulation. The proposal relates to areas outside London and Hull. BT has been found to have ‘significant market power’ in this market.

Oceania New Zealand: NZCC announces next step in setting UBA priceThe New Zealand Commerce Commission has released an updated timetable for completing its determination of a cost-based price for wholesale broadband – the unbundled bitstream access (UBA) service. The NZCC expects to finalise the UBA determination in August 2013.

ENERGYAmericasUS: Agreement on hydrokinetic projectsThe Federal Energy Regulatory Commission (FERC) and the US Coast Guard have signed a Memorandum of Understanding (MOU) to cooperate on the development of hydrokinetic projects. Hydrokinetic projects generate power from waves, tides, ocean currents, and the flow of rivers. The MOU is designed to ensure navigation safety, maritime security, and protect environmental resources when considering license proposals for hydrokinetic energy development.

US: Recommendations for Assessing Resource AdequacyA report has been released by the US Department of Energy that examines the ‘resource adequacy’ in the Eastern Interconnection. The report provides

recommendations for better assessing generation sufficiency. Resource adequacy is a term for ensuring each utility and region has enough generation resources to keep lights on during extreme hot or cold weather. If a region or utility does not have enough generation for peak demand, for example, it may be forced to implement rolling blackouts to keep the electricity network from crashing.

EuropeBelgium: Report identifies abuse of market positionThe Belgian Competition Council has released a report finding that Electrabel (GDF Suez) abused its dominant position in the Belgian market for generation, wholesale and trading of electricity. The report follows a study by the Belgian Regulator for Electricity and Gas (the CREG) of 860 incidents in the wholesale market for electricity in Belgium in 2007 and the first six months of 2008.

EU: CEER Releases Core Strategy and ObjectivesThe Council of European Energy Regulators (CEER) has published its strategy in relation to its international cooperation efforts with international regulators and regulatory associations.

EU: Release of CEER Status ReviewThe CEER has released a Status Review presenting an assessment of access conditions to liquefied natural gas (LNG) terminals in Europe. The Status Review considers recent developments in the EU gas market and is based on data provided by National Regulatory Authorities. The Status Review examines the rules in place, the level of capacity utilisation, spot contracting, secondary market functioning and the application of congestion management procedures at LNG terminals over the past three years (2009-2011).

4 REGULATORY OBSERVER

EU: ACER recommends the adoption of the Network Code on Demand Connection The Agency for the Cooperation of Energy Regulators (ACER) has released an opinion and a recommendation in relation to the Network Code on Demand Connection. Proposals relate to the roles and responsibilities of different parties, including aggregators, in relation to the demand side response requirements. Other proposals include clarification of the different possible approaches to demand aggregation and compliance testing and monitoring for small grid users.

EU: ACER publishes position on the draft methodology for the electricity cost-benefit analysis The ACER has issued a position on draft methodology for cost-benefit analysis (CBA) for electricity projects of common interest. The draft methodology has been release in preparation of the Ten Year Network Development Plan (TYNDP) proposed by the European Network of Transmission System Operators for Electricity (ENTSO-E) on future investment in electricity transmission systems at European level. The ENTSO-E represents 41 transmission system operators from 34 countries.

Italy: Strategic works selected to reduce congestion and prices in the electricity marketThe Authority for energy (l’Autorita per l’energia elettrica e il gas) has announced that it has selected 25 strategic development projects designed to improve the national transmission grid. The objective is to reduce congestion and reduce the costs of electricity transmission.

Netherlands: Report on rollout of smart metersThe Netherlands Competition Authority (NMa) released a report in relation to the rollout of smart meters by regional network operators. About 500,000 households are expected to have smart meters by the end of 2013. Using smart meters, consumers are able to keep track of energy consumption. Smart meters also provide information on energy sold back to the grid through the use of solar panels.

Northern Ireland: Regulator publishes comparative electricity pricesThe Utility Regulator has published a report providing a comparison of electricity prices in Northern Ireland with the rest of Europe.

Northern Ireland: Utility Regulator approves renewable generation investmentThe Utility Regulator has approved over £30 million of investment to facilitate renewable generation in the north and west of Northern Ireland. The investment is part of NIE’s Medium Term Plan and follows a public consultation on the original investment proposal.

UK: Scottish and Southern Electricity fined for misleading consumersThe Ofgem has announced that it intends to fine Scottish and Southern Electricity (SSE) £10.5 million for breaches of its obligations relating to telephone, in-store and doorstep sales activities. The Ofgem found failings at all stages of SSE’s sales process, including by SSE’s management, which enabled misleading and unsubstantiated statements to be made by sales agents regarding potential savings.

UK: New rules ensuring fair treatmentThe Ofgem has announced that new standards of conduct, in relation to how energy suppliers treat Britain’s small businesses, will come into force soon. The suppliers must operate in an ‘honest, transparent and professional way’. This will apply to when suppliers are billing, contracting with and switching customers.

UK: Ofgem takes over management of the Confidence CodeThe Ofgem has taken over management of the Confidence Code. The Confidence Code is a code of practice for household energy price comparison websites. Websites accredited through the code must ensure that quoted prices and the information given about offers, are provided in a fair and unbiased manner.

UK: Consumer empowerment roundtableThe Ofgem has hosted a roundtable discussion in relation to the role of consumers in the energy market. The objective was to examine some of the key trends emerging in this area. Participants reviewed case studies provided by organisations that are developing services designed to facilitate opinions from consumers.

UK: Ofgem sets targets to improve electricity network services for consumersThe Ofgem has published its new framework for electricity distribution networks (DNOs) which will run from 2015 – 2023. The control, known as RIIO-ED1, is designed to ensure that businesses deliver improvements in customer satisfaction, reliability, stakeholder engagement and sustainable services.

5 REGULATORY OBSERVER

UK: Price controls explainedThe Ofgem has released a factsheet explaining why price controls are needed in the energy sector, how they work and what they mean for the domestic consumer. The Ofgem sets price controls for businesses that operate Britain’s gas and electricity networks.

UK: Consultation on incentives for electricity system operatorThe Ofgem has released a consultation in relation to proposals for an incentive scheme for the electricity system operator (SO). The aims include incentivising the SO to: minimise the system balancing costs; and to improve the SO’s performance in relation to the information that it provides to the market.

OceaniaNew Zealand: Commerce Commission (NZCC) sets prices and quality standards for gas pipeline services The NZCC has released a final decision on the first default price-quality paths for gas pipeline services. The path set the maximum prices and minimum standard of quality that gas pipeline businesses must comply with from 1 July 2013.

POSTSEuropeUK: Regulation of the provision of post boxes The Ofcom is conducting a consultation concerning the regulation of the provision of post boxes in the UK. The Ofcom considers that the criteria determining ‘access points’ are not fit for purpose. Access points are any box or other facility provided for the purpose of accepting postal items into Royal Mail's network.

The Ofcom proposes extending regulatory protection to all UK delivery points by modifying the designated universal service provider (DUSP) conditions.

RAILEuropeUK: Statement on joint consultation conclusions publishedThe Office of Rail Regulation (ORR) and Department for Transport (DfT) have published a statement on conclusions of a joint consultation carried out between December 2011 and March 2012 on a greater role for the ORR in regulating passenger franchisees in England and Wales.

6 REGULATORY OBSERVER

Australian Regulatory Round-up COMMUNICATIONSACCC proposes cost-based prices for wholesale broadband services The Australian Competition and Consumer Commission (ACCC) has released a draft report on making a final access determination (FAD) for the declared wholesale ADSL service. The service is used by retail telecommunications service providers to provide broadband internet products to consumers and businesses over Telstra’s copper network.

ACCC issues draft decision on NBN Co Special Access UndertakingThe ACCC has released a draft decision on the revised Special Access Undertaking (SAU) lodged by NBN Co. If accepted, the SAU would be a key part of the framework that governs the price and other terms upon which NBN Co will supply services over its fibre, wireless and satellite networks to telecommunications companies.

ACCC Telecommunications Reports: Prices fall, interest in broadband growsThe ACCC has released the Telecommunications Report for 2011–12. The report shows that average prices for the provision of telecommunication services fell during the period by 2.2 per cent in real terms in 2011-12. Prices are now almost 20 per cent lower than they were in 2006-07. Real prices for wireless internet services increased by 1.7 per cent in 2011-12. This price rise contrasts with significant falls in previous years, which helped drive strong take-up of wireless internet services.

ENERGYAustralian Energy Market Commission (AEMC) requested to provide advice to Standing Council on Energy and Resources (SCER) on differences between actual and forecast demand in network regulation The AEMC has published the terms of reference received from the SCER seeking advice on implications of differences between actual and forecast demand within the operation of the economic regulatory frameworks for network service providers. The SCER sought the AEMC's advice by 31 March 2013.

A national approach to electricity network reliability The AEMC has published terms of reference for a review to develop new approaches for electricity distribution and transmission reliability across the National Electricity Market. The joint Review of National Frameworks for Transmission and Distribution Reliability follows the Council of Australian Governments package of reforms announced on 7 December 2012.

AEMC publishes the Schedule of Reliability Settings (indexation of the MPC and CPT for 2013-2014) The AEMC has calculated the market price cap (MPC) and cumulative price threshold (CPT) to apply in the National Electricity Market for the 2013-2014 financial year. The MPC and CPT are subject to indexation each financial year. The AEMC applies the formulae set out under the National Electricity Rules and publishes the values in a ‘schedule of reliability settings’.

Final report published on Annual Market Performance Review 2012On 27 March 2013, the Reliability Panel (Panel) published its final report on the annual market performance review which examined the performance of the National Electricity Market (NEM) in the 2011-2012 financial year against the reliability and frequency standards, and other standards and guidelines determined by the Panel.

Issues paper published on the Review of the national framework for transmission reliabilityThe AEMC has published an Issues Paper for public consultation to commence the Review of the national framework for transmission reliability, following a request from the Standing Council on Energy and Resources (SCER). Currently transmission reliability is regulated differently in each jurisdiction. The AEMC’s advice to SCER will set out a model for delivering transmission reliability that can be adopted in all jurisdictions in the National Electricity Market.

Household Electricity Price TrendsThe AEMC has released its Electricity Price Trends Report, which looks at trends in household electricity prices and examines the drivers of those trends. Electricity prices are made up of a number of components. In recent years the network component has consistently been the major driver of price increases. It is expected that increases in this component will moderate significantly after July 2013.

AER issues final decision on the Victorian gas price reviewsThe Australian Energy Regulator (AER) has released a final decisions on price reviews for the

7 REGULATORY OBSERVER

three Victorian gas distribution service providers SP AusNet, Envestra and Multinet and the gas transmission service provider, APA GasNet. The AER’s decision will determine prices for use of the Victorian gas distribution and transmission networks, and the Albury distribution network, for the next five years. This follows a thirteen month process of assessing the businesses’ spending proposals for the development, operation and maintenance of their networks.

AER seeks expressions of interest for consumer challenge panel membersThe AER is seeking Expressions of Interest from individuals to apply to be a member of the Consumer Challenge Panel (CCP). The AER is establishing the CCP as part of reforms to ensure that decisions on network costs properly incorporate consumers’ interests. The CCP will sit within the AER, providing expert advice as part of the AER’s assessment of energy network businesses’ spending and regulatory proposals. Applications close on 29 April 2013.

AER releases the Shared asset guideline issues paper - Request for submissionsThe AER has released an issues paper on shared assets as part of its Better Regulation program. A shared asset is any electricity supply asset providing both standard regulated electricity supply services and unregulated services. The shared asset guideline will set out the AER’s approach to reducing the regulatory value of such assets to reflect costs recovered through charging for unregulated services. Submissions are due by 17 May 2013.

AER request for submissions and public forum on SP AusNet's regulatory proposal 2014-17On 28 February 2013, SP AusNet submitted its regulatory proposal, proposed negotiating framework and proposed pricing methodology to the AER. The AER’s transmission determination for SP AusNet must set out the Negotiated Transmission Service Criteria (NTSC). The NTSC sets out the high level principles for negotiations between SP AusNet and persons wishing to receive negotiated transmission service. Submissions are due by 17 May 2013

AER releases Victorian gas distribution business performance report 2009-2011The AER has issued the 2009-2011 gas performance report for Victorian distribution network service providers (DNSPs). The DNSPs covered in the report are Envestra, Multinet and SP AusNet. The Victorian DNSPs deliver gas through low pressure pipelines directly connected to a customer’s premises. Distribution network charges generally make up about 40-60 per cent of a household customer’s bill.

PORTSACCC allows transferability of GrainCorp's port capacityThe ACCC will not object to GrainCorp Operations Limited’s proposal to allow its East Coast bulk grain port customers to transfer booked capacity to other customers. The ‘transferability’ of capacity is already allowed at the bulk grain ports operated by CBH in Western Australia and Viterra in South Australia. The ACCC considers that transferability helps reallocate capacity to its most economically efficient use.

Regulatory Observer is a regular publication of the Australian Competition and Consumer Commission. For editorial enquiries please contact Jason King (jason.king@accc.gov.au), and for mailing list enquires please contact Genevieve Pound (genevieve.pound@accc.gov.au).

8 REGULATORY OBSERVER