2025 Ring-fencing compliance: what electricity transmission providers need to know

TNSPs must operate as separate legal entities and are generally prohibited from providing services other than transmission services, except in limited circumstances (such as emergencies or with an approved waiver).

Internal accounting procedures must be established and maintained to clearly demonstrate the nature and extent of transactions with affiliated entities.

Costs must be allocated between transmission and other services in accordance with the AER’s Cost Allocation Principles and the TNSP’s approved Cost Allocation Methodology.

TNSPs must not discriminate between related electricity service providers and their competitors in the provision of transmission services.

Strict controls are imposed on the sharing and disclosure of ‘ring-fenced information’ (confidential information acquired through regulated activities), with disclosure only permitted under specific circumstances (ie with customer consent, as required by law, or for emergency response).

Staff involved in the marketing of contestable electricity services must be separated from those involved in the provision of prescribed transmission services.

TNSPs must maintain a public register of all related electricity service providers and other legal entities that request access to ring-fenced information.

An information sharing protocol must be published, detailing how and when information will be made available to eligible parties.

Agreements with service providers must require compliance with key ring-fencing obligations as if the service provider were the TNSP itself.

TNSPs are required to submit an annual ring-fencing compliance report to the AER within four months of the end of each calendar year. The report must detail compliance measures, breaches, and relevant transactions, and be accompanied by an independent assessment and a senior executive’s attestation.

The Guideline sets out the commencement date is 24 February 2025, and the compliance date is 24 August 2025.

For connection applications received before the commencement of version 5 of the Guideline, the previous version continues to apply. However, all TNSPs must be fully compliant with version 5 by the end of this month, unless specific transitional provisions apply (notably for Powerlink under Queensland regulations).

Until a TNSP is fully compliant with version 5 of the guideline, they will be required to continue to comply with version 4 of the guideline; except to the extent that non-compliance with version 4 of the guideline is necessary in order to comply with

For TNSPs to comply with the new Ring-Fencing Guideline, TNSPs will need to undertake a wholesale compliance review and update of its entire operations across the provision of prescribed transmission services, negotiated transmission services and other contestable electricity services. Part of this will involve TNSPs considering whether, and the extent to which, its current practices in the provision of negotiated transmission services comply with the expanded non-discrimination practices, and develop and implement compliance, monitoring and reporting processes. While current practices may already comply with the non-discrimination obligation in practice, TNSPs do not actively manage compliance in the same way as for prescribed transmission services, which are expressly subject to the current guideline.

TNSPs may also need to recruit, onboard and train a significant number of new staff as part of the regulatory compliance team to ensure that these teams have sufficient human resources to undertake the implementation and continued monitoring of the updated guideline. As the AER appreciates, there is a tight labour market and limited number of candidates with the requisite skillset and experience.

In addition, if TNSPs need to engage external consultants to assist with the review and implementation, then there are limited-service providers across Australia who have the necessary expertise, experience and scale to provide this assistance. A short transitional period of six months is likely to result in TNSPs being unable to receive comprehensive external assistance, or any external assistance at all, in order to ensure that their internal systems, processes and people are adequately trained and prepared for full compliance with the updated guideline.

Waivers may be sought for obligations relating to legal separation (clause 3.1), staff separation (clause 4.3), and service provider conduct (clause 4.4.1(a)). No waivers are permitted for accounting separation, cost allocation, non-discrimination, or information protection requirements.

A service provider may apply to the AER for an exemption from one or more of the requirements under section 139, 140, 141, 147 or 148 of the National Electricity Law (NEL).

• An exemption under section 139 of the NEL is satisfied if either;
  • the relevant network asset is not a significant part of the network system for any participating jurisdiction; or
  • the service provider does not have a significant interest in the relevant network asset and does not actively participate in the management or operation of the network asset; and
• the cost of compliance with the relevant requirement for the service provider and its associates would outweigh the public benefit resulting from compliance; and
• the service provider has, by arrangement with the AER, established internal controls that substantially replicate the controls that would apply to associate contracts if the related business was carried on by an associate of the service provider and sections 147 and 148 of the NEL applied.

An exemption is to be granted from section 140 or section 141 of the NEL if the AER is satisfied that the cost of compliance with the relevant requirement for the service provider and its associates would outweigh the public benefit resulting from compliance.

If compliance with a relevant requirement would, in the AER's opinion, lead to increased competition in a market, the AER must, in carrying out an assessment under subrule (3)(b) or subrule (4), disregard costs associated with losses arising from increased competition in upstream or downstream markets.

A service provider granted an exemption under this rule must notify the AER without delay if circumstances change such that the service provider no longer qualifies for the exemption.

TNSPs must submit a detailed application justifying the waiver, including the nature of the service, reasons for the waiver, proposed duration, compliance costs, and consumer benefits.

The AER will consider the National Electricity Objective, the risk of cross-subsidisation or discrimination, and whether the benefits of compliance outweigh the costs.  Public consultation may be undertaken.

The AER may also grant class waivers applicable to multiple TNSPs, with appropriate notice and consultation.

All waivers and their terms must be recorded in a public register maintained by the TNSP.

• Existing arrangements protected
  Transmission assets or business arrangements that were in place before the commencement of new ringfencing rules may be allowed to continue operating under the old regulatory framework for a specified period or indefinitely, depending on the specific provision.
• Transitional periods
  The NEL and NER may specify a transitional period during which TNSPs must bring their operations into compliance with the new ringfencing requirements. During this period, certain pre-existing arrangements are "grandfathered" and not subject to immediate compliance.

Grandfathering typically applies to:

• ownership structures of transmission assets
• existing contracts or service agreements
• shared personnel or systems that pre-date the new rules

Grandfathering does not generally apply to new assets, contracts, or arrangements entered into after the commencement of the new rules. Any material change to a grandfathered arrangement may trigger the need for compliance with the current ringfencing requirements.

For precise details on the application of grandfathering to a specific asset or arrangement, it is necessary to consult the relevant sections of the NER, the AER’s Transmission Ring-fencing Guideline and any transitional instruments issued at the time of rule changes.