Regulatory Observer Issue 35 1 March 2012

Issue 35, 1 March 2012 Contents International Regulatory Round-up 1 Australian Regulatory Round-up 5

INTERNATIONAL REGULATORY facilitate more efficient use of these bands. The ROUND-UP deadline for submissions is 30 April 2012. UK: Ofcom Publishes Consultation on Communications Consumer Switching The Ofcom has published a consultation on Americas proposals for switching fixed voice and US: FCC Proposes Reforms to Cellular broadband services delivered over the Licensing Requirements Openreach copper network. The review of consumer switching processes is focused on The Federal Communications Commission ensuring that an individual consumer's (FCC) has issued a notice of proposed experience of switching communications rulemaking (NPRM) and adopted an order services is easy, and that the switching proposing to revise the licensing model for the processes do not prevent providers from Cellular Service from a site-based to a competing in terms of lower prices, greater geographically-based approach. The proposal choice, innovation and value for money. The reduces regulatory requirements in the most- review focuses on addressing current problems licensed markets while preserving the current as well as ensuring that switching processes model for a period to foster the provision of and systems are capable of providing good service in less-licensed markets. The reforms consumer and competition outcomes. Future aim to provide licensees with greater flexibility to parts of the review will consider cable provide advanced communications service in technologies, next generation access (NGA) areas currently unlicensed in the 800MHz technologies, mobile and Pay TV services. The Cellular Service. deadline for submissions is 23 April 2012.

Europe UK: Ofcom Publishes Proposed Changes to BT and KCOM’s Regulatory and UK: Ofcom Publishes Consultation for Financial Reporting Spectrum Review The Ofcom has published a consultation that The Ofcom has initiated a review to consider proposes minor changes to enhance the changes to spectrum management policy across presentation and improve the quality of BT's bands between 1.4 GHz and 86 GHz that are regulatory financial statements (RFS). The currently available to fixed links. A total proposed changes reflect developments over bandwidth of 12 GHz spread across fourteen the last 12 months in the regulatory, different bands is managed by the Ofcom with technological and competitive environment. It access available via fixed-link licence products also reflects the Ofcom’s ongoing analysis and that are subject to close technical coordination. use of the RFS, comments from users of the The Ofcom welcomes initial views on the policy RFS and discussions with BT. The regulatory issues and regulatory changes which could financial reporting regime is also applicable to

1 KCOM. The deadline for submissions is 5 high-speed broadband networks. This paper March 2012. follows a technical issues paper published on 19 December 2011, and an issues paper looking at Oceania e-health and e-education published on 24 January 2012. NZ: NZCC Publishes Final Determination of Transpower’s Capital Expenditure Input Methodology Energy

The New Zealand Commerce Commission Americas (NZCC) has published the final determination of Transpower’s capital expenditure input US: FERC Proposes to Update Standards methodology. The input methodology was for Business Practices for Interstate Gas developed after an open consultation process Pipelines across the electricity industry. The input The Federal Energy Regulatory Commission methodology replaces the former electricity (FERC) has proposed a rule that amends its governance rules for approving Transpower’s regulations to incorporate by reference, with grid-upgrade expenditure. It integrates all exceptions, the latest version of business regulation of Transpower’s capital spending with practice standards adopted by the Wholesale Part 4 of the Commerce Act 1986. The release Gas Quadrant of the North American Energy of the input methodology almost completes the Standards Board (NAESB) applicable to natural work programme for establishing the NZCC’s gas pipelines. The new standards, known as regulation of Transpower. Other elements in the version 2.0 standards, include provisions that regulatory framework include Transpower’s support coordination between the natural gas individual price-quality path, effective from 1 and electricity industries, standards for pipeline April 2011, and other input methodologies, postings of information regarding waste heat, released in December 2010. The new and general revisions to the standards designed Transpower information-disclosure rules will be to allow more efficient processing of wholesale released in the second half of 2012. natural gas transactions. The deadline for NZ: NZCC Releases Final Issues Paper on submissions is mid-March 2012. High-Speed Broadband Demand-Side Study Europe The NZCC has released the last of three issues CEER Publishes Evaluation of Responses papers relating to the uptake of high-speed to Work Programme 2012 Consultation broadband for The Future with High Speed The Council of European Energy Regulators Broadband: Opportunities for New Zealand (CEER) has published its Work Programme conference held in Auckland on 20 and 21 2012: Evaluation of Responses document February 2012. This paper investigates the together with the responses to the public willingness of consumers and businesses to pay consultation on the work programme. for high-speed broadband, and potential content and applications. In particular, this paper Ireland and Northern Ireland: CER and considers the level of interest in high-speed Utility Regulator Publish CAG Industry broadband services from consumers, and small Update and medium-sized businesses, and includes an The Commission for Energy Regulation (CER) assessment of video content delivered over and the Northern Ireland Authority for Utility

2 Regulation (Utility Regulator) have published an plans and proportionate treatment, and how to update on the Common Arrangements for Gas enhance stakeholder engagement. The (CAG) project. The update advises stakeholders deadline for submissions is 2 April 2012. of the next steps in the CAG project. The CER and the Utility Regulator have been working UK: Ofgem Issues Consultation on together, and with government departments and Proposed Licence Changes to Facilitate Open Governance of the CCCM the industry, to progress the CAG project since 2008. The CER and the Utility Regulator will The Ofgem has issued a consultation on the keep stakeholders updated on CAG drafting of proposed changes to the electricity developments and expect to issue the next distribution licence. The proposed changes are update in the second quarter of 2012. designed to facilitate open governance of the common section of the distribution network Northern Ireland: Utility Regulator Issues operators’ (DNOs) connection charging Statement on Phoenix Natural Gas Price methodologies, referred to as common Control connection charging methodologies (CCCM). The Utility Regulator has issued a statement The changes will allow third parties to propose confirming that Phoenix Natural Gas Limited changes to key parts of charging methodologies. (PNGL) has rejected the Utility Regulator’s The deadline for submissions is 30 March 2012. price-control determination and proposed licence modification. The Utility Regulator’s UK: Ofgem Proposes Environmental price-control decision aims to strike a balance Discretionary Reward between the interests of consumers and PNGL, The Ofgem has issued a consultation on the and is expected to lead to lower business and form of an environmental discretionary reward domestic consumer prices. The price control will (EDR) to complement the existing RIIO-T1 price- result in a £10 per annum saving on gas bills for control package. The EDR aims to facilitate the average domestic consumer. Compared to electricity transmission’s role in the transition to the PNGL proposals, the Utility Regulator’s price a low-carbon energy sector. This follows the control will lead to domestic consumer bills that release of the March RIIO strategy document, will be £25 lower per annum. The Utility where the Ofgem committed to adding a Regulator now has until mid-April to decide reputational incentive and to consult on the whether to make a reference to the Competition introduction of a financial incentive for this Commission for determination. purpose. This has been implemented by the Ofgem to satisfy the RIIO requirement for UK: Ofgem Issues Consultation on transmission operators to promote the Electricity Distribution Price Control sustainable development of the energy sector. Review (RIIO-ED1) The deadline for submissions is 3 April 2012. The Ofgem has issued a consultation for the upcoming electricity distribution price-control UK: Ofgem Publishes Consultation and review (RIIO-ED1), which is due to start on 1 Impact Assessment on National Grid April 2015. The consultation outlines the Proposal on Enduring User Commitment Ofgem’s plans for the price-control review (RIIO- The Ofgem has published an impact ED1) and identifies key issues for the review. In assessment and consultation on the Connection particular, the consultation considers the impact and Use of System Code (CUSC) Modification of low-carbon technologies, smart grids, smart Proposal 192 (CMP 192), which relates to user meters, the length of the price control, business commitment arrangements. CMP 192 was

3 proposed by National Grid in response to standardised element of a standard tariff under concerns about the inconsistencies and interim the Ofgem’s retail market review (RMR). The nature of the existing user commitment document outlines the Ofgem’s proposed arrangements. Existing arrangements for approach to setting each element that may be generators already connected to the included in a fixed charge. It also presents two transmission system differ significantly from options for the treatment of regional cost those generators that are awaiting connection. differences in standard tariffs under the RMR. Arrangements for connected generators were The RMR aims to make it easier for consumers only introduced on a temporary basis and are to choose a tariff. If adopted, these proposals due to expire on 1 April 2012. This document should help to enhance engagement and presents the Ofgem’s assessment of the competition in the energy market as part of the impacts of CMP 192, which builds on the wider RMR package of remedies. The deadline methodology developed during the industry for submissions is 2 April 2012. process. The Ofgem intends to make a final decision on whether to accept CMP 192 or any UK: Ofgem Publishes Initial Assessment of of its alternatives in April 2012, following a RIIO-GD1 Business Plans review of the responses. The deadline for The Ofgem has published a consultation letter submissions is 12 March 2012. assessing the four gas distribution networks’ business plans for the next price control period UK: Ofgem Publishes Consultation on (RIIO-GD1). The letter sets out a proposed level System Operator Incentive Scheme of regulatory scrutiny for each of the companies’ The Ofgem has published a consultation on plans, and provides reasons for the Ofgem’s proposed objectives, policy and principles for the earlier decision not to retain any gas distribution regulation of the gas and electricity system network within the RIIO-GD1 fast-track process. operators (SO) from April 2013. This document The deadline for submissions is 30 March 2012. contains the Ofgem’s views on the SO regulatory framework, including preliminary SO Rail outputs and cost incentive schemes. The proposals are based on the RIIO principles for Europe regulating monopoly energy companies, which encourages long-term thinking through a clear, UK: ORR Publishes Latest Network Rail transparent and stable regulatory framework. Monitor The Ofgem intends to fix the central SO The Office of Rail Regulation (ORR) has regulatory framework (objectives, principles and published its analysis of Network Rail’s the overall policy) for a period of eight years, performance from 16 October 2011 to 7 January albeit acknowledging that changes to the SO’s 2012, highlighting key areas where substantial role may require development of the regulatory improvements need to be made as well as framework. The deadline for submissions is 27 illustrating positive developments. The ORR’s March 2012. analysis finds that Network Rail achieved mixed results during this period. There have been UK: Ofgem Publishes Consultation on the Standardised Element of Standard Tariffs significant underperformance issues in the long- under the Retail Market Review distance and freight sectors, a slight decline in overall customer satisfaction among train The Ofgem has published a consultation operators, and the ORR has concerns with outlining a proposed methodology for setting the some aspects of asset management. However,

4 there has also been progress in relation to Federal Government in 2009. The undertaking enhancing the network over the Christmas implements structural separation through holiday period, alliancing plans are developing, migration to the national broadband network. and some work has been done regarding winter- Telstra's structural separation responds to long- weather preparedness. standing competition concerns arising from Telstra's involvement in both wholesale and AUSTRALIAN REGULATORY retail markets. The SSU has been the subject of ROUND-UP extensive consultation and public discussion. ACCC Invites Further Comments on NBN Communications Co Special Access Undertaking The ACCC has released a supplementary ACCC Declares Wholesale ADSL consultation paper inviting further comments on The Australian Competition and Consumer the special access undertaking (SAU) lodged by Commission (ACCC) has published its decision NBN Co on 5 December 2011. The SAU sets to declare the wholesale ADSL service under out a range of regulatory commitments that NBN section 152AL of the Competition and Consumer Co proposes shall apply until 30 June 2040. Act 2010. The ACCC considers that the This supplementary paper continues the declaration will promote the long-term interests ACCC’s public consultation on the SAU that of end-users of fixed-line broadband internet commenced in December 2011. Interested services throughout Australia. Telstra currently parties provided submissions to that paper and retains a dominant position in the markets for the ACCC has had regard to these submissions both retail and wholesale fixed-line broadband in preparing the supplementary paper. Key services. Despite the deployment of competitive issues include: the scope for independent broadband infrastructure in some areas over the review throughout the SAU’s proposed term past decade, the ACCC has determined that (including of price related matters), the competition in the supply of ADSL services is interaction between the SAU and NBN Co’s not effective. The declaration is aimed at wholesale broadband agreement, particularly removing impediments to competitive internet with respect to the non-price commitments, and service providers gaining access to Telstra's the proposed mechanisms for establishing national ADSL network on efficient terms in service levels, setting prices for new products order to supply retail services, including to and ensuring efficient investment. The ACCC around 11 per cent of premises where Telstra's intends to hold an industry forum in mid-April network architecture has prevented competitors 2012 to discuss key issues associated with the from using their own infrastructure. SAU. The deadline for submissions is 30 March 2012. ACCC Accepts Telstra's Structural Separation Undertaking Access ACCC Publishes Wholesale ADSL Interim Determination Access Determination The ACCC has accepted Telstra's structural The ACCC has published its Wholesale ADSL separation undertaking (SSU) and approved its (WDSL) interim access determination, which draft migration plan. Telstra submitted its SSU to sets out terms and conditions of access for the the ACCC as a result of the legislative next 12 months. The interim access framework established in the package of determination sets the following key price terms telecommunications reforms introduced by the for the monthly per-user access charge and the

5 monthly charge for data aggregation (which addition, the report sets out best-practice relates to data usage): a monthly charge per recommendations for distribution reliability in end-user in Zone 1 (predominantly CBD and Australia. metropolitan areas) of $25.40; a monthly charge per end-user in Zone 2/3 (predominantly regional and rural areas) of $30.80; and a AEMC Issues Consultation on Payments to monthly charge per Aggregating Virtual Circuit AEMO Rule Change Request or Virtual LAN acquired in connection with The AEMC has issued a consultation on a rule- wholesale ADSL of $45.50 per Mbps (to 30 June change request from the Australian Energy 2012) and $33.65 per Mbps (from 1 July 2012). Market Operator (AEMO). The requested rule These prices will lower the costs of supply for a change involves changing the payment majority of access seekers currently acquiring arrangements for when transmission network WDSL services from Telstra. The ACCC has service providers (TNSPs) owe AEMO one type adopted Telstra's current wholesale pricing of settlements residue payment. The AEMC is construct for the interim access determination, asking stakeholders whether they object to the and has set prices using a methodology which AEMC assessing the rule change under its calculates wholesale rates based on Telstra's expedited process. retail prices minus the costs that it incurs in transforming network access into retail services. AER Publishes Electricity Transmission The ACCC has also commenced an inquiry into Sector Performance Report the making of a final access determination for The Australian Energy Regulator (AER) has the wholesale ADSL service. The deadline for issued the 2009-10 electricity performance submissions is 30 March 2012. report for TNSPs in the national electricity market (NEM). The performance report Energy provides information on the financial performance and reliability of transmission AEMC Consults on Cost Pass-through networks managed by the TNSPs and how they Rule Change Request from Grid Australia are performing in comparison to performance The Australian Energy Market Commission targets. The TNSPs covered in the report are (AEMC) has issued a consultation paper in ElectraNet, Ausgrid, Powerlink, SP AusNet, response to Grid Australia's rule-change request Transend, TransGrid, Directlink, and Murraylink. relating to cost pass-throughs. The paper aims The TNSPs manage the high-voltage lines that to assist stakeholders to prepare submissions. transmit electricity to cities, towns and across state borders within the five interconnected AEMC Publishes Consultant Paper on jurisdictions of the NEM – South Australia, Australian and International Approaches to Victoria, Tasmania, New South Wales and Electricity Distribution Reliability Queensland. The AER controls the TNSPs' The AEMC has published a paper by the Brattle maximum allowed yearly revenues. Group on approaches to delivering electricity distribution reliability outcomes across Australia Ports and internationally. The paper sets out key findings from its analysis of the alternative ACCC Consults on Auctions for SA Wheat approaches to distribution reliability, as well as a Ports comparison of the approaches used in Australia compared to other jurisdictions overseas. In

6 The ACCC has issued a Consultation Paper Variation Notice. The ACCC oversees port seeking submissions from stakeholders on access arrangements for wheat exporters as Viterra’s proposed auction system for the use of part of the deregulation of the wheat industry. its port services for bulk wheat export. Under Access undertakings are intended to ensure that the Access Undertaking accepted by the ACCC third-party exporters are able to access the port in September 2011, Viterra must replace its first- terminals operated by vertically integrated port come-first-served capacity allocation system terminal operators, ensuring competition in the with an auction. Viterra has proposed an market for the export of bulk wheat. auction system which is set out in its Auction

Regulatory Observer is a regular publication of the Australian Competition and Consumer Commission. For editorial enquiries please contact David Lander ([email protected]), and for mailing list enquiries please contact Genevieve Pound ([email protected]).