Bills Digest no. 25, 2017
PDF version [779KB]
Sophie Power
Science, Technology, Environment and Resources Section
4 September 2017
Contents
The Bills Digest at a glance
List of abbreviations
Purpose of the Bill
Background
Energy regulation in Australia
Key energy market
institutions
Australian Energy Regulator
Limited merits review of AER
decisions
Limited merits review process
COAG reviews of the regime
Proposed COAG reforms to limited
merits review
Federal Court decisions
Commonwealth decision
Other relevant and related reviews
Review of Governance Arrangements
Finkel Review of Australia’s electricity
market
ACCC electricity supply and prices
inquiry
Committee consideration
Selection of Bills Committee
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Industry groups
Consumer groups
Australian Energy Regulator
Others
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues and provisions
Provisions removing merits review
No review by state or territory
bodies
No review by the Australian
Competition Tribunal
Unilateral Commonwealth action
Impact on electricity prices
Merits review and accountability
Judicial review still available
Number of reviews
Other provisions
Transitional arrangements
Concluding comments
Date introduced: 10 August 2017
House: House of Representatives
Portfolio: Environment and Energy
Commencement: The day after Royal Assent.
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.
When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.
All hyperlinks in this Bills Digest are correct as at September 2017.
The Bills Digest at a glance
Purpose of the Bill
- The
purpose of the Bill is to amend the Competition and
Consumer Act 2010 (the CCA) to provide that certain decisions
made by the Australian Energy Regulator (AER) are no longer subject to merits
review by the Australian Competition Tribunal or any state or territory body.
The Government considers that this will reduce pressure on electricity prices.
Background
- Under
the limited merits review regime, affected parties may apply to the Australian
Competition Tribunal for review of certain decisions by the AER, including
determinations relating to the revenue of electricity networks.
- The
regime was introduced in 2008 and was intended to improve accountability in
regulatory decision making and allow regulatory errors to be corrected.
- The
limited merits review regime was amended in 2013, and was reviewed again by the
Council of Australian Governments (COAG) Energy Council in
2016.
- The
details of the regime are contained the National Electricity Law and National
Gas Law. These laws are part of a cooperative legislative scheme between the
Commonwealth, states and territories. South Australia is the lead legislator,
so these laws are contained in schedules to South Australian legislation, with
legislation in other relevant jurisdictions applying this South Australian
legislation.
- This
cooperative scheme to regulate Australia’s energy markets is
underpinned by an intergovernmental agreement, the Australian
Energy Market Agreement. This political agreement
provides that national energy laws may only be amended with the agreement of
the COAG Energy Council.
Key issues
- The COAG Energy Council has not agreed to abolish the limited merits review regime, and was actually in
the process of developing reforms to the regime following the 2016 review.
- Through this Bill, the Commonwealth is taking unilateral action to
abolish the regime.
- Although the details of the limited merits review process are primarily
set out in South Australian legislation, the Commonwealth has consented, under
the CCA, to the conferral of the limited merit review functions on the
Australian Competition Tribunal. This Bill removes that consent and provides
that decisions of the AER cannot be subject to merits review by any state or
territory body. This means that the relevant provisions relating to
limited merits review in state energy legislation will be inoperative.
- The
precise impact of the limited merits review regime, and its proposed abolition,
on electricity prices is difficult to quantify. The Bill also seems to be
pre-empting the findings of the current inquiry into electricity pricing being
conducted by the Australian Competition and Consumer Commission.
- The
Bill does not affect the right to seek judicial review of AER decisions. This is
a more limited form of review in that it focusses on the correct legal process
being followed, rather than the merits of the decision. A possible consequence
of abolishing limited merits review could be an increase in judicial review
proceedings.
Stakeholder views
- Many
industry groups, such as Energy Networks Australia, the Australian Pipelines
and Gas Association, and the Business Council of Australia, do not support the
proposed abolition of the limited merits review regime.
- Others,
such as the Minerals Council of Australia and the Consumer Action Law Centre,
have welcomed the removal of the regime.
- The
AER has stated that, without limited merits review, it will change its approach
to stakeholder engagement, including by engaging with network business and
consumers earlier in its decision-making.
List of abbreviations
Abbreviation |
Definition |
ACCC |
Australian Competition and Consumer Commission |
AEMC |
Australian Energy Market Commission |
AEMO |
Australian Energy Market Operator |
AER |
Australian Energy Regulator |
APGA |
Australian Pipelines and Gas Association |
CCA |
Competition
and Consumer Act 2010 |
COAG |
Council of Australian Governments |
DEE |
Department of the Environment and Energy |
ENA |
Energy Networks Australia |
NEL |
National Electricity Law |
NEM |
National Electricity Market |
NGL |
National Gas Law |
PIAC |
Public Interest Advocacy Centre |
Purpose of
the Bill
The purpose of the Competition and Consumer Amendment
(Abolition of Limited Merits Review) Bill 2017 (the Bill) is to amend the Competition and
Consumer Act 2010 (the CCA) to provide that certain decisions
made by the Australian Energy Regulator (AER) are not subject to merits review
by the Australian Competition Tribunal (the Tribunal) or any other state or
territory body.
Background
Energy
regulation in Australia
In 2004, the Commonwealth, states and
territories entered into an intergovernmental agreement, the Australian Energy Market Agreement.[1] This Agreement provided the
framework for a cooperative, national scheme to regulate Australia’s energy
markets. The Agreement provides for national legislation, implemented in each
participating state and territory, with South Australia as the lead legislator.
Australia’s energy markets have three key
components:
- the National
Electricity Market (NEM) is the wholesale electricity market for the
connected states and territories of eastern and southern Australia—Queensland,
New South Wales, the Australian Capital Territory, Victoria, South Australia
and Tasmania. The NEM is one of the world’s longest interconnected power
systems, and generates around 200 terawatt hours of electricity annually,
supplying around 80 per cent of Australia’s electricity consumption.[2]
Western Australia and the Northern Territory currently operate
their own electricity markets, with Western Australia in the process of examining
how it might enter the NEM[3]
- the
domestic natural gas market, which has three distinct regions, separated on the
basis of the gas basins and pipelines that supply them: the Eastern gas region;
Western gas region and the Northern gas region[4]
- energy
retail markets which provide the interface between retailers and their
customers, allowing energy retailers to sell electricity, gas and energy services
to residential and business customers.[5]
- These markets are governed by the following laws,
collectively known as the ‘national energy laws’:
- The
National Electricity Law (NEL), which governs the NEM and is set out in the schedule
to the National Electricity
(South Australia) Act 1996 (SA)
- the
National Gas Law (NGL), which regulates gas pipelines and gas wholesale markets,
and is in the schedule to the National
Gas (South Australia) Act 2008 (SA) and
- the National Energy Retail Law, which regulates the supply and
sale of energy to retail customers, and is in a schedule to the National
Energy Retail Law (South Australia) Act 2011 (SA).[6]
In essence, the national energy laws are a state-based
cooperative legislative scheme. As noted above, South Australia is the lead
legislator, so these laws are contained in South Australian legislation. Each
participating state and territory then has its own legislation applying the
relevant South Australian legislation.[7]
The relevant Commonwealth application legislation, the Australian Energy
Market Act 2004, applies the relevant energy laws to offshore areas as
well as certain territories (such as Christmas Island).
Key energy market institutions
The Australian Energy Market Agreement also provided for the creation of Australian
energy market institutions, with the aim of separating the major functions of
policy, rules and regulation, and compliance and market operations.[8] These energy market
institutions are:
- the Australian Energy Market Commission (AEMC),
which makes and amends the rules under the national energy laws: the National
Electricity Rules, National Gas Rules and the Energy Retail Rules under
authority derived from the national energy laws. The AEMC is established under
South Australian law[9]
- the Australian Energy Regulator (AER) which
regulates the energy markets and networks, and ensures market participants’
compliance with the energy market legislation and rules. The AER operates under
the Competition
and Consumer Act 2010 (Cth), but (as is discussed later in this Digest)
has functions conferred on it by the national energy laws.[10]
The AER has an independent board, but shares staff, resources and facilities
with the Australian Competition and Consumer Commission (ACCC)[11]
- the Australian
Energy Market Operator (AEMO), a company part owned by governments and part
owned by industry participants.[12]
AEMO’s functions include the operation of the wholesale national electricity
and gas markets, coordinating participants’ actions and planning for daily and
future energy demand and supply. The AEMO manages these markets according
to the energy market laws and rules.[13]
These bodies all report to the COAG Energy Council, which has policy
responsibility for monitoring and reforming national energy markets. The role
of the Council in energy market reform and the associated governance
arrangements is set out in the Australian Energy Market Agreement. Chapter
6 of the Australian Energy Market Agreement sets out the agreement for
each jurisdiction to enact co-operative legislation to recognise and confer
functions on the AER and AEMC.
Importantly, clause 6 of the Agreement provides that
Australian Energy Market Legislation may only be amended with the agreement of
the COAG Energy Council and that a party will not take ‘any action that would
limit, vary or alter the effect, scope or operation of the Australian Energy
Market Legislation’ without the agreement of the COAG Energy Council.[14]
Australian
Energy Regulator
As noted above, the AER is established by, and operates
under the Competition
and Consumer Act 2010 (CCA). Section 44AH of Part IIIAA[15]
provides that the functions of the Australian Energy Regulator are any
function:
- conferred under a law of the Commonwealth (for
example, the Australian Energy Market Act) or
- prescribed by Regulations made under the CCA.[16]
Section 44AI also provides that a state or territory
energy law may confer functions or powers, or impose duties, on the AER. Both
the NEL and NGL confer functions and powers on the AER.[17]
In general, these include:
- monitoring wholesale electricity and gas markets to ensure energy
businesses comply with the legislation and rules, and taking enforcement action
where necessary
- setting the amount of revenue that network businesses can recover
from customers for using networks (electricity poles and wires and gas
pipelines) that transport energy
-
regulating retail energy markets in Queensland, New South Wales,
South Australia, Tasmania (electricity only) and the ACT
- operating the Energy Made Easy website, which provides
a retail price comparator and other information for energy consumers
- publishing information on energy markets, including the annual State
of the energy market report ...[18]
The AER’s functions must be performed in a manner that is
likely to contribute to the achievement of the national electricity and gas
objectives.[19]
These objectives, set out in the NEL and NGL, are to:
... promote efficient investment in, and efficient operation
and use of, electricity/gas services for the long term interests of consumers
of electricity with respect to price, quality, safety, reliability and security
of supply of electricity/gas; and in the case of electricity the reliability,
safety and security of the national electricity system.[20]
For current purposes, the key functions of the AER relate
to its network revenue determinations (which generally set prices that business
may charge, and the revenue they may earn from customers, for the provision of
electricity network services).[21]
The AER also makes determinations in relation to access arrangements for
regulated gas pipeline providers.[22]
The regulation of these networks aims to ‘manage the risk of monopoly pricing,
where a business can charge higher prices or provide poorer services compared
with the situation in a competitive market’.[23]
In terms of the process for making these determinations, electricity network
businesses, for example, submit proposals to the AER on their required
revenues, generally every five years. The AER then reviews the proposals,
undertakes consultation and make decisions with reference to certain criteria,
in accordance with legislative timeframes.[24]
Certain AER decisions, including these determinations, are
currently subject to ‘limited merits review’ by the Australian Competition
Tribunal, as outlined in further detail below and in the ‘key issues and
provisions’ section of this Digest.
Limited
merits review of AER decisions
Merits review is the process by which a person or body,
other than the primary decision-maker, ‘reconsiders the facts, law and policy
aspects of the original decision and determines what is the correct and
preferable decision’:
The process of review may be described as ‘stepping into the shoes’
of the primary decision-maker. The result of merits review is the affirmation
or variation of the original decision.[25]
This can be contrasted with judicial review, where the
court is concerned only with the legal process by which the decision was made
(rather than the merits of the decision). In this case, if the court finds an
error of law in the making of the decision, or a breach of procedural fairness,
the court can set the decision aside and it is then up to the original
decision-maker to make a new decision.[26]
The limited merits review regime was introduced to both
the national electricity law and national gas law in 2008 as a mechanism to
review decisions by the AER.[27]
The original intention of the regime was to ‘balance outcomes between competing
interests’ and to ‘allow parties affected by decisions with appropriate
recourse to have decisions reviewed’. In particular, it was considered that the
regime would:
... enable correction of a greater range of regulatory errors
and improve accountability in regulatory decision making. The reforms also
introduced consistency, for the first time, between merits based appeals for
electricity revenue determinations and gas access arrangements.[28]
Limited
merits review process
The detail of the process and grounds for limited merits
review are primarily set out in the South Australian energy legislation.[29]
In short, an ‘affected or interested person or body’ may apply to the
Australian Competition Tribunal for a ‘limited merits review’ of certain AER
decisions (referred to as ‘reviewable regulatory decisions’). The Australian
Competition Tribunal is an administrative review body established under Commonwealth
legislation (the CCA).[30]
The Tribunal hears applications for review of certain decisions and
determinations, including by the ACCC and the AER. The Tribunal may perform all
the functions and exercise all the powers of the original decision‑maker
for the purposes of review. It can affirm, set aside or vary the original
decision.[31]
Key AER decisions that can be appealed to the Tribunal in this way include
electricity network revenue or pricing determinations and applicable access
arrangements for gas pipeline service providers.[32]
The merits review is ‘limited’ to information that was
before the AER and can be made only on the ground(s) that the AER’s decision
involved material error(s) of fact, was an incorrect exercise of discretion, or
was unreasonable, having regard to all the circumstances.[33]
The Tribunal must only grant leave if there is a ‘serious issue to be heard’
and certain financial thresholds must also be satisfied. An applicant must also
demonstrate how the Australian Competition Tribunal’s determination would be,
or would likely be, ‘materially preferable’ to the AER’s decision.[34]
In making its decision, the Tribunal must consider the AER’s determination as a
whole, and how the parts of the determination interrelate with each other, and
must also consult with relevant users and consumers.[35]
Alternatively, an affected person may apply directly to
the Federal Court for judicial review of an AER decision.[36]
However, the operation of the limited merits review in
practice has been criticised and the regime has been the subject of several
reviews, as outlined below.
COAG reviews
of the regime
An independent review of the limited merits review was conducted
in 2012, commissioned by the former COAG Standing Council on Energy and
Resources ‘in light of increasing concerns relating to the operation of the
regime’.[37]
For example, the Chair of the ACCC, Rod Sims, stated in 2012:
Merits review has not focused on whether the regulator’s
overall decision provides network businesses with sufficient revenues to
efficiently supply energy services. Rather, merits review has allowed
businesses to ‘cherry pick’ one or two issues from what inevitably is a
balanced decision weighing hundreds of complex issues, some of which would have
favoured the network businesses. The decisions of the review body, the
Australian Competition Tribunal, have increased the money recovered from
customers by approximately $3 billion.[38]
The 2012 review found that the regime was ‘not working as
policymakers intended’.[39]
Indeed, ‘significant flaws’ were identified, including that the ‘merits review
arrangements encourage businesses to ‘cherry pick’ elements of regulatory
decisions, are overly legalistic, and have not taken the interests of key
stakeholders, particularly consumers, into account’.[40]
Nevertheless, the 2012 review recommended that the regime
be maintained, but with a number of changes. The regime was subsequently
amended,[41]
with those reforms intended to:
... ensure that regulatory decisions promote efficient
investment, operation and use of energy infrastructure in ways that best serve
the long-term interests of consumers. This included avoiding lengthy and
excessively legalistic hearings that make it difficult for all stakeholders to
participate.[42]
Despite these reforms, concerns about the regime continued
and the COAG Energy Council reviewed the regime again in 2016.[43]
A consultation
paper was released which identified key issues for consideration including:
... the apparent ‘cherry picking’ of issues for review by
network businesses and the focus on correcting individual errors without
sufficient consideration of whether a different decision would lead to a
materially preferable decision that is in the long term interests of consumers
... the LMR regime is not delivering timely and predictable revenue
determinations and continues to present barriers to the participation of key
stakeholders, such as consumer groups.[44]
The review specifically considered a number of reform options
including removing access to limited merits review altogether.[45]
A number of submissions
were made in response to a consultation paper.[46]
Notably, many submissions did not support the option of abolishing the regime,
as discussed further in the ‘position of major interest groups’ section of this
Digest.
Proposed
COAG reforms to limited merits review
At its December 2016 meeting, the COAG Energy Council
noted that the regime ‘is failing to meet its policy intent and is leading to
higher prices for consumers’.[47]
There was ‘no consensus around the need for the LMR regime to be abolished’,
but Ministers did agree in-principle to ‘significant and immediate’ reform of the
limited merits review regime, including:
- tightening
and clarifying the grounds for review
- higher
financial thresholds for leave which apply to individual grounds for review
- reviews
to be conducted on the papers, rather than through expensive and adversarial
oral hearings
- introducing
strict timeframes for the conduct of reviews
- requiring
appellants to demonstrate that overturning the AER’s decision would not be of
serious detriment to the long term interests of consumers
- providing
more flexible arrangements for consumers to participate in reviews
- introducing
a binding rate-of-return guideline, with certain elements of the AER’s decision
not subject to merits review
- limiting
the timeframes in which material can be submitted to the regulator and
- providing
that costs of reviews, including those of the AER, would be borne by network
businesses.[48]
The COAG Council tasked a working group with developing
amendments to implement these changes in 2017, with a further review of the
regime to be undertaken two years after the implementation of those amendments.[49]
However, the Commonwealth Minister for the Environment and Energy, Josh
Frydenberg indicated following the meeting that the Commonwealth had been
pushing for abolition of the regime:
... consensus was not reached on the Commonwealth’s position to
save consumers money by abolishing the Limited Merits Review (LMR)
process, ministers did agree that the existing LMR arrangements were failing
and that immediate reform was required.[50]
In April 2017, the COAG Energy Council indicated that work
was continuing on the reforms, with the aim of finalising the changes at the COAG
Energy Council meeting in July this year.[51]
Federal
Court decisions
In May 2017, two Federal Court decisions[52]
were handed down which reignited debate over the limited merits review system.[53]
In short, the cases involved decisions made by the AER in 2015 of the maximum
revenue that certain network businesses (Ausgrid, Endeavour Energy, Essential
Energy, ActewAGL and Jemena Gas Networks (NSW)) could collect from customers to
operate networks. According to the AER:
The AER’s determinations for the 2014–19 period allowed less
revenue than proposed by the network businesses. These lower revenues were
driven by AER findings that the NSW and ACT electricity networks were not
operating as efficiently as other comparable networks. The AER also determined
a lower rate of return and corporate tax allowance, consistent with market
trends.
The network businesses sought a limited merits review of the
AER’s decisions in the Australian Competition Tribunal, seeking to recover
greater revenue from customers.[54]
In February 2016, the Tribunal found in favour of the AER
in some matters and in favour of the businesses in other areas. In short, the
Tribunal directed the AER to remake its decisions in relation to the networks’
operating expenses, cost of corporate income tax and cost of debt.[55]
The AER then applied to the Federal Court for judicial
review of the Tribunal’s decisions. However, the Federal Court dismissed most
of the AER’s applications:
The Federal Court has upheld the AER’s appeal in relation to
the Tribunal’s decision on the cost of corporate income tax but upheld the
Australian Competition Tribunal’s findings in relation to the networks’
operating expenses and the cost of debt.[56]
The AER described the decisions as ‘disappointing for NSW
and ACT electricity and gas consumers’.[57]
The NSW Public Interest Advocacy Centre (PIAC) was also
involved in this litigation, as part of its ‘Energy + Water Consumers’ Advocacy
Program’.[58]
Unlike the network business, which argued that they should be able to collect
greater revenue, PIAC challenged the decisions calling for greater price
reductions.[59]
PIAC suggested that ‘while the exact price implications of today’s decision are
unclear, these bill increases will come as higher wholesale electricity and gas
prices add hundreds of dollars per year to household energy bills’.[60]
Commonwealth
decision
The Minister for the Environment and Energy, Josh
Frydenberg, responded to these decisions by reaffirming the ‘Turnbull
Government's position of wanting to abolish the Limited Merits Review (LMR)
process to stop network businesses gaming the system’.[61]
He further stated that the decisions ‘will increase electricity prices for New
South Wales customers by around $3 billion’ and indicated:
The Federal Government has had a clear policy to reform the
LMR process but states who own network assets like Queensland and New South
Wales have stood in the way [of] those reforms.
By blocking attempts to stop network businesses gaming the
system the Queensland and New South Wales governments have given a green light
to higher electricity prices.
For some time the Turnbull Government together with the
strong support of Victoria and South Australia has been trying to get the
states to agree through the COAG Energy Council to stop this rort but
self-interest by those looking to increase the value of their assets has hung
consumers out to dry ...[62]
On 20 June 2017, the Government announced that it was ‘taking
immediate action to put downward pressure on power prices and ensure reliable
energy for all Australians’. The measures announced included strengthening the
Australian Energy Regulator by providing it with an additional $67.4 million
‘to stop energy network companies gaming the system and overturning rulings in
the courts’. The abolition of limited merits review was also foreshadowed:
We will stop big electricity companies from running to the
courts to try to overturn the Australian Energy Regulator’s decisions.
Companies have made 52 appeals and the courts have ruled against consumers 31
times. This will end.[63]
In announcing the Bill, the Minister stated that ‘review decisions
have only ever resulted in increased revenues for energy businesses and higher
bills for consumers’:
Since it was introduced in 2008, the regime has seen
consumers pay $6.5 billion more in energy bills than would have been the case
if the Australian Energy Regulator’s decisions had been upheld.[64]
At its meeting in July 2017, the COAG Energy Council
‘noted’ that the Commonwealth will abolish limited merits review.[65]
Other
relevant and related reviews
Other recent reviews, as outlined briefly below, have also
considered, or were considering, the limited merits review regime. However,
none of these reviews have recommended the abolition of the regime.
Review of
Governance Arrangements
In October 2015, the Review
of Governance Arrangements for Australian Energy Markets,[66]
prepared for the COAG Energy Council, found that the availability of a merits
review appeal regime was one of the ‘key elements of the governance of the
energy market which help establish credibility with investors and provide them
with the confidence to invest in the sector’.[67]
The review also suggested that limited merits review appeals ‘have become fewer
over time’.[68]
Finkel Review
of Australia’s electricity market
The recent review
of Australia’s electricity market by Chief Scientist Alan Finkel (Finkel
Review) also considered the limited merits review regime.[69]
The review stated that a detailed analysis of the regime and ‘the case for its
reform or abolition’ was beyond the scope of the review, but noted the COAG
Energy Council had agreed to further reforms of the regime. The Finkel Review therefore
recommended that ‘by end-2017, the COAG Energy Council should finalise and
implement the proposed reforms to the Limited Merits Review regime’.[70]
The COAG Energy Council (and the Commonwealth government) accepted this
recommendation (along with 49 of the 50 recommendations of the Finkel Review).[71]
ACCC
electricity supply and prices inquiry
On 27 March 2017, the Treasurer, Scott Morrison, directed
the ACCC to hold an inquiry into the supply of retail electricity and the
competitiveness of retail electricity prices. This inquiry will look at
‘factors influencing the price paid by Australians for electricity’.[72]
An issues paper released by the ACCC in May 2017 noted:
Other factors may also have contributed to higher retail
electricity prices. The COAG Energy Council has recently noted that the limited
merits review process that applies to certain AER determinations is leading to
higher prices.[73]
The issues paper also referred to the reforms to the process
being developed by COAG.[74]
The ACCC must deliver a preliminary report to the Federal Treasurer by 27 September
2017, with a final report due by 30 June 2018.[75]
Committee
consideration
Selection
of Bills Committee
On 17 August 2017, the Selection of Bills Committee deferred
consideration of the Bill to its next meeting.[76]
Senate
Standing Committee for the Scrutiny of Bills
The Senate Scrutiny of Bills Committee had no comment on
the Bill.[77]
Policy
position of non-government parties/independents
Following the Government’s announcement in June 2017 of
its intention to abolish limited merits review,[78]
Labor’s Shadow Minister for Climate Change and Energy, Mark Butler, stated that
Labor would support the abolition.[79]
Similarly, Adam Bandt, the Australian Greens climate and
energy spokesperson, stated that ‘in principle we would back legislation that
curbs limited merits review, which the networks have been using to boost their
regulated expenditure and grow their profits’.[80]
He did, however, note that the Greens would ‘need to see the detail of the Bill
before forming a final view’.[81]
At the time of writing, other non-government parties and
independents do not appear to have commented on the Bill.
Position of
major interest groups
Industry
groups
Energy Networks Australia (ENA), the national body representing
gas distribution and electricity transmission and distribution businesses
throughout Australia, does not support the proposal to abolish limited merits
review. ENA CEO John Bradley stated that for the Federal Government to ‘unilaterally
abolish regulatory appeals rides roughshod over the Federal Court and the
intergovernmental agreement underpinning the National Energy Market’:
The decision sidelines COAG Energy Council decision-making ...
This action would undermine basic foundations of the energy
market - legislating away the powers of State Governments, the role of the
Courts and the right to correct regulatory errors.[82]
He further suggested that energy networks and other
stakeholders were ‘blindsided’ by the Federal Government’s announcement which ‘contradicted
the COAG Energy Council decision in April 2017’ to finalise reforms to the
appeals regime. He further noted that 80 per cent of stakeholders rejected abolition
of the regime during the 2016 COAG Energy Council review.[83]
ENA further stated that limited merits review is ‘there to benefit consumers’,
because the Australian Competition Tribunal cannot overturn decisions unless it
determines that there is a ‘materially preferable’ outcome for customers.[84]
The CEO of Infrastructure Partnerships Australia, Brendan
Lyon, suggested that abolishing appeal processes for energy network price
setting ‘will hurt the national interest, hurt consumers’ and ultimately ‘shows
the absence of a sensible national energy policy’.[85]
He stated that ‘a strong merits review regime is a cornerstone of stable regulation’.
He further argued:
... if bad decisions cannot be appealed, it is consumers that
suffer the price and reliability consequences in the future. For example, a bad
regulatory decision might well suppress the electricity price in the short
term, but if it sees the grid under-maintained, customers will face higher
bills through urgent “catch-up” investments in the future, and absorb the costs
of power outages.[86]
The Australian Pipelines and Gas Association (APGA)
described the abolition of limited merits review as ‘a grave concern’. APGA
Chief Executive, Peter Greenwood, stated:
We are deeply concerned that, after years of significant
efforts at cooperation among the States and Territories on energy matters
through the CoAG Energy Council and its predecessors, we are increasingly
seeing jurisdictions making unilateral decisions ...
The limited merits review exists to provide appropriate
monitoring of regulatory decisions and to correct any errors when it is in the
public interest to do so.
The limited merits review is enshrined in the National Gas
Law and the National Electricity Law and these pieces of legislation have been
carefully developed by Federal, State and Territory ministers working together
through the CoAG system.
The Commonwealth will now overturn that cooperation by
removing the power of the Australian Competition Tribunal to conduct the
limited merits review, and this adds a new element of uncertainty into energy
markets.
We are seeing an increasing number of ad hoc responses to
developments in our energy markets.
These markets are complex, and the consequences – both short
and long term – of these kinds of interventions simply must be thought out more
thoroughly before being introduced.[87]
Other industry groups do not appear to have commented on
the Bill itself, but did make relevant comments in submissions to the COAG
Energy Council review of the limited merits regime. For example, the Business
Council of Australia considered that the regime is ‘an essential element of
Australia’s energy regulatory framework that provides an important safeguard
against error in regulatory decision making’.[88]
The Business Council of Australia was ‘strongly opposed’ to the removal of
access to limited merits review, submitting that ‘access to merits review is
the cornerstone of an accountable, transparent and efficient regulatory regime’
and:
The removal or further restriction of the LMR [limited merits
review] framework in the energy sector, without corresponding limits on the
discretion of the AER, would only serve to undermine investor confidence and
could lead to unaccountable regulatory decisions, which would lead to
inefficient outcomes for investors and consumers.[89]
More recently, in June 2017, the Business Council again
described the limited merits review regime as ‘the cornerstone of an
accountable, transparent and efficient regulatory regime’ and stated that
removing the regime ‘would undermine confidence in Australia’s regulatory
framework, further chilling new investment and jeopardising the future safety
and reliability of the electricity network’. The Council further stated:
The regulator’s decisions aren’t being overturned because the
courts are getting it wrong. They are being overturned because the regulator
isn’t perfect, and it sometimes makes mistakes.[90]
In contrast, the Minerals Council of Australia has
welcomed the decision to pursue the abolition of the limited merits review
process, which it considered ‘should reduce future network costs and assist in
lowering the cost of electricity’.[91]
Similarly, the National Irrigators’ Council welcomed the
Government’s announcement of the abolition of limited merits review, saying
that it was ‘a system that seemed to work only for the big network owners and
their phalanxes of lawyers’.[92]
Previously the Council welcomed proposed reforms to the limited merits review
process, suggesting that it was a ‘system stacked against consumers like those
in the irrigation sectors’.[93]
Consumer
groups
The Consumer Action Law Centre welcomed the removal of
limited merits regime, stated that it ‘has regularly failed to deliver on its
objectives’ and ‘has cost households and businesses hundreds of millions of
dollars each year’.[94]
The Centre described the regime as a ‘cash-grab mechanism for networks that has
diverted decisions away from the long-term interests of consumers and increased
prices’.[95]
The Public Interest Advocacy Centre (PIAC), a non-profit
legal centre with a focus on ‘disadvantaged, marginalised and vulnerable people’,
has welcomed the Governments proposed reforms to reduce electricity bills.[96]
PIAC was a party to the recent limited merits review processes (outlined
earlier in this Digest). PIAC stated:
For too long Network businesses have undermined the Australian
Energy Regulator’s (AER) regulatory process through the limited merits review
system. PIAC has argued for some time that the system was in need of major
reform to prevent cherry picking and windfall gains to Networks.[97]
However, PIAC’s position was that ‘consumers must continue
to have a central role in all electricity pricing decisions, with or without
limited merits review’. PIAC noted that appeals from the AER’s decision could
still be made through judicial review in the Federal Court, and suggested that
‘consumers must be given a right of standing before the Federal Court in these
cases so that the voice of consumers is heard’.[98]
Australian
Energy Regulator
The Chair of the Australian Energy Regulator, Paula
Conboy, has stated that increased funding for the AER and the Commonwealth
Government’s proposed removal of limited merits review will change the AER’s
approach, particularly for network revenue determinations. Ms Conboy indicated
that the limited merits review process has ‘produced a more adversarial
relationship between the regulator and regulated entities in the past’ and
without limited merits review, everyone will need to ‘engage earlier in the
regulatory process so that we can resolve key points of disagreement between
stakeholders’. [99]
The AER is therefore:
... looking at ways to closely engage with the network
businesses and consumers to identify key issues earlier, and work
collaboratively to resolve them—even before a regulatory proposal is lodged.
The AER’s revenue determination process under the National Electricity Rules or
National Gas Rules could then be aligned with the degree of agreement reached
between the business and suitably qualified customer representatives. This
could mean some AER decision processes are streamlined or expedited, as long as
the proposal meets the long term interests of consumers.
It is an experimental approach to promote regulatory
innovation. ... The goal is to undertake a trial in the development of one or
more network businesses’ revenue proposals in the near future, and consider
further reform opportunities. This process of exploration will be an important
outcome of the joint initiative in itself.[100]
Others
The Commercial Bar Association, in its submission to the
2016 COAG review, recommended that the merits review regime ‘should not be
removed entirely’.[101]
The Commercial Bar Association considered:
... reverting to judicial review alone would undermine the
quality of regulatory decision-making, and sacrifice the important progress
that has been made since 2013 in improving users’ and consumers’ ability to
participate in reviews of network revenue determinations.
It cannot properly be concluded, at this early stage, that
the 2013 LMR reforms have failed to achieve their intended purpose. To make
fundamental further legislative changes at this time would add to regulatory
uncertainty, in addition to weakening the effectiveness of the review
framework.[102]
Economic consulting firm, Frontier Economics, has
suggested that, although ‘critics argue that these reviews are too complex,
expensive and bad for consumers’, the ‘merits review regime is essential to a
well-functioning regulatory system’. The firm has further argued that
curtailing the regime would be a ‘knee-jerk policy response’.[103]
In contrast, the Grattan Institute’s energy policy director,
Tony Wood, has reportedly said the proposed abolition of limited merits review is
a ‘no‑brainer’ because all limited merits review ‘does is add another
level of bureaucracy to the process’.[104]
Financial
implications
According to the Explanatory Memorandum, the Bill will
have no financial impact on the government.[105]
However, as noted earlier, when the Government announced its proposed abolition
of limited merits review in June 2017, it also announced that it would provide
the Australian Energy Regulator with an additional $67.4 million ‘to stop
energy network companies gaming the system and overturning rulings in the
courts’.[106]
Further, the Government considers that the Bill ‘should
reduce pressure on electricity prices’ and that to date limited merits review
‘has increased consumer bills by $6.5 billion’.[107]
It is not clear how the Government has calculated this figure. This issue is
considered further in the ‘key issues and provisions’ section of this Digest.
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[108]
Parliamentary
Joint Committee on Human Rights
On 15 August 2017, the Parliamentary Joint Committee on
Human Rights deferred its consideration of the Bill.[109]
Key issues
and provisions
Provisions
removing merits review
Division 3A of Part 6 of the Schedule to the National
Electricity (South Australia) Act 1996 (SA) and Part 5 of Chapter 8 of
the Schedule to the National
Gas (South Australia) Act 2008 (SA) set out the provisions for merits
review of certain AER decisions, and the grounds for review.
In short, the National Electricity and Gas Laws allow an
affected party to:
- apply
to the Australian Competition Tribunal for a ‘limited merits review’ of certain
AER determinations
- apply
to the Federal Court for judicial review of an AER decision.[110]
This provision is then supported by the CCA. As
noted earlier, the Australian Energy Regulator is established under Part IIIAA
of the CCA.[111]
Section 44AI of the CCA currently provides the Commonwealth's consent to
the conferral of functions and powers on the AER by state and territory
legislation.[112]
Subsection 44AI(2) provides that there is no consent to such conferral where
this would ‘contravene any constitutional doctrines restricting the duties
imposed on the AER’. In addition, subsection 44AI(3) provides that the AER
cannot exercise a duty, function or power under a state or territory energy law
unless this is in accordance with the Australian Energy Market Agreement.
No review by state or territory bodies
Item 2 of the Bill inserts a new section 44AIA
into the CCA to provide that a decision of the AER under a state or
territory energy law or local energy instrument will not be subject to merits
review by a body established under a law of a state or territory. Item 1
of the Bill makes the existing section 44AI subject to proposed section 44AIA.
In short, these items will mean that decisions of the AER
under the national energy laws cannot be subject to merits review by any state
or territory body.
No review
by the Australian Competition Tribunal
Section 44ZZM of the CCA currently provides the
Commonwealth's consent to the conferral of functions and powers by state and territory
legislation on the ACCC or the Australian Competition Tribunal. Subsection 44ZZM(2)
provides that there is no consent to such conferral where this would contravene
any constitutional doctrines restricting the duties imposed on the ACCC or
Tribunal. In addition, subsection 44ZZM(3) provides that the ACCC or Tribunal
cannot exercise a duty, function or power under state or territory energy law
unless this is in accordance with the Australian Energy Market Agreement.
Item 4 of the Bill proposes to insert a new
section 44ZZMAA into Part IIIA. That section will apply if a state or
territory energy law (or the Commonwealth’s Australian Energy Market Act
2004) purports to confer a function or power, or to impose a duty, in
relation to a decision made under a state or territory energy law; or a uniform
energy law. Proposed subsection 44ZZMAA(2) states that the purported conferral
or imposition will have no effect to the extent that it would require or permit
merits review of the decision by the Australian Competition Tribunal. The only
exception is in relation to decisions relating to the disclosure of
confidential or protected information.
In short, this means that the Australian Competition Tribunal
is effectively divested of its limited merits review function under national
energy laws. According to the Explanatory Memorandum, this includes review of:
- network
revenue and pricing determinations, and determinations relating to approved and
required pass through amounts (under the NEL) and
- coverage
decisions, decisions in relation to the making and revoking of light Regulation
determinations, access arrangement decisions, AER ring fencing determinations
and exemptions, and decisions about the approval of associate contracts (under
the NGL).[113]
Unilateral
Commonwealth action
Proposed subsection 44ZZMAA(3) provides that the
new section 44ZZMAA will apply despite anything in any law of the Commonwealth,
a state or a territory. This is essentially overriding relevant state and
territory legislation, and in particular, the merits review provisions
currently contained in National Electricity (South Australia) Act 1996 (SA)
and the National Gas (South Australia) Act 2008 (SA), which are also
applied by equivalent legislation in other states and territories. The relevant
provisions in this state legislation will effectively be redundant as a result
of the Bill. This is because, under section 109 of the Australian
Constitution, state laws are inoperable to the extent of any inconsistency
with Commonwealth law.
In making these amendments, the Commonwealth is
effectively taking unilateral action to abolish the limited merits review
regime. As the Explanatory Memorandum states, ‘the Commonwealth has decided
that the most effective way to address these failings [in the limited merits
review regime], and reduce pressure on energy prices, is to abolish the regime’.[114]
However, as outlined earlier in this Digest, clause 6 of
the intergovernmental Australian Energy Market Agreement provides that
Australian Energy Market Legislation may only be amended with the agreement of
the COAG Energy Council and, further, that a party will not take ‘any action
that would limit, vary or alter the effect, scope or operation of the Australian
Energy Market Legislation’ without the agreement of the COAG Energy Council. However,
the COAG Energy Council has not agreed to abolish the limited merits review regime,
and was actually in the process of developing reforms to the regime. At its
July meeting the COAG Energy Council merely ‘noted’ that the Commonwealth will
abolish limited merits review.[115]
The Commonwealth Minister for the Environment and Energy, Josh Frydenberg, has indicated
that the abolition was supported by the South Australian and Victorian
government but not the Queensland and New South Wales governments.[116]
As such, it appears that the Bill does not accord with the
Australian Energy Market Agreement and indeed, may undermine the
cooperative regime underpinning energy market regulation. Although this
political agreement is not legally enforceable, the Bill arguably sets a
precedent for the Commonwealth to intervene and override the states in relation
to other aspects of energy markets. Further, should states and territories wish
to take unilateral action in their jurisdiction, the Commonwealth’s approach to
this issue may weaken any Commonwealth objection or argument against such state
or territory action. In addition, in taking this unilateral action, the
Commonwealth is going against the recommendations of several relevant reviews
(as outlined earlier in this Digest).
As also noted earlier in this Digest, stakeholders such as
the APGA have suggested that the Commonwealth’s unilateral action in abolishing
merits review will ‘add a new element of uncertainty into energy markets’.[117]
As the Finkel Review and others have observed, lack of policy certainty in the
energy sector is ‘undermining investor confidence, which in turn undermines the
reliable supply of electricity and increases costs to consumers’.[118]
Impact on
electricity prices
In his second reading speech, the Minister suggested that the
Bill ‘divesting the tribunal of its function of reviewing decisions made under
the national energy laws should reduce pressure on electricity prices’.[119]
He explained that network businesses have used the limited merits review regime
to seek review of decision of the AER on ‘regulated revenues that flow through
to network prices paid by energy consumers for electricity and gas transmission
and distribution’.[120]
In general, there are a number of factors contributing to
retail electricity prices. According to the AEMC, the three major electricity
supply chain cost components that make up the residential price are:
- network
costs (that is, the cost of transmission and distribution of electricity),
which account for around 40 to 55 per cent of the price
- combined
generation and retail costs, which account for around 40 to 50 per cent and
- environmental
and other policy costs (such as the renewable energy target), which account for
around 5 to 15 per cent of the price.[121]
The share of each component varies across jurisdictions.[122]
The AER’s State
of the Energy Market Report states that rising network costs were the key
driver of increasing electricity prices over the period from 2008 to 2013.[123]
More recently, the primary driver of retail prices has been increasing
generation costs partly as a result of the retirement of existing generation
capacity and rising gas prices in Queensland.[124]
The precise impact of the limited merits review regime,
and its proposed abolition, on electricity prices is difficult to quantify. Media
reports around the time of the Federal Court decisions in May this year
(outlined earlier in this Digest) suggested, for example, that the result would
be an extra ‘$100 per year in electricity costs to the average household’ in
New South Wales.[125]
As outlined earlier in this Digest, the Minister has suggested that to date the
regime has ‘increased consumer bills by $6.5 billion’.[126]
However, it is unclear how this figure has been calculated and no further
information is provided on this in the Explanatory Memorandum.
As noted earlier, the impact of the limited merits review
regime on electricity prices was an issue that may have been considered by the
ACCC during its current inquiry into electricity pricing. However, by abolishing
the regime, the Commonwealth seems to be pre-empting the findings of that ACCC
inquiry.
Merits review and accountability
As noted earlier in this Digest, the limited merits regime
was introduced with the intention that it would ‘enable correction of a greater
range of regulatory errors and improve accountability in regulatory decision
making’.[127]
The recent COAG consultation paper considered that one of the downsides of
removing access to limited merits review, was that it ‘could create a risk that
decisions containing administrative error (that is, a decision which is not the
correct or preferable decision on the facts) may not be corrected’.[128]
As noted earlier (in the ‘position of major interest
groups’), many stakeholders consider that the review process should be retained
because it is an important accountability mechanism. For example, the APGA
argued that the process ‘exists to provide appropriate monitoring of regulatory
decisions’ and to ‘correct any errors when it is in the public interest’.[129]
Similarly, Frontier Economics has suggested that the Tribunal has overturned
some ‘large regulatory errors’ and considers that the ‘merits review regime is
essential to a well-functioning regulatory system’.[130]
In contrast, the Explanatory Memorandum states that the
2016 COAG review of the limited merits review regime identified ‘significant
regulatory failures’, including ‘significant costs to all participants’,
barriers to meaningful consumer participation, regulatory and price
uncertainty, and failure to ‘demonstrate outcomes that serve the long term
interests of consumers’.[131]
The Commonwealth considers that the best way to address these failures is to
abolish the regime.[132]
Mr Frydenberg has also reportedly pointed out that no comparable merits review
regime is available in relation to other industry sectors, such as the
telecommunications or water sectors.[133]
The Explanatory Memorandum further suggests:
Divesting the Tribunal of its function of reviewing decisions
made under the national energy laws (other than decisions relating to the
disclosure of confidential or protected information) is consistent with the
principles developed by the Administrative Review Council in its publication What
decisions should be subject to merits review? The AER’s decisions involve
extensive public inquiry processes and consultations, which cannot adequately
be replicated in the Tribunal, particularly having regard to its three month
target for completing reviews.[134]
The purpose of this publication by the Administrative
Review Council (ARC) is to set out guidance as to the classes of administrative
decisions that should be subject to merits review and notes that merits review:
... has a broader, long-term objective of improving the quality
and consistency of the decisions of primary decision-makers. Further, merits
review ensures that the openness and accountability of decisions made by
government are enhanced.[135]
Although the ARC publication was published in 1999, well
before the limited merits review regime was introduced, it does identify
‘decisions involving extensive public inquiry processes that would be
time-consuming and costly to repeat’, and particular consultations that
‘require the participation of many people’ as a type of decision where merits
review may be excluded.[136]
The National Electricity and Gas rules do prescribe an extensive consultation
process in relation to AER network revenue determinations, including, in the
case of electricity, publishing and inviting submissions in relation to an
issues paper, holding public forums, publishing the draft decisions and
inviting submissions on the draft decision.[137]
Judicial
review still available
Although the Bill would abolish the limited merits review
process, the Bill does not affect the right to seek judicial review of an AER
decision.[138]
It seems possible, therefore, that if the Bill is passed, network businesses
may instead turn to judicial review actions to appeal AER decisions, instead of
using the limited merits review regime. This could still result in lengthy and
costly legal processes. As the 2016 COAG consultation paper noted, if the
limited merits regime were to be removed, the consequence could be ‘increased
judicial review hearings’, leading to ‘new cost challenges’.[139]
However, as explained earlier this Digest, judicial review
is a more limited option, where the court is concerned only with the legal
process by which the decision was made (rather than the merits of the
decision). In addition, rather than substituting its own decision, if the court
finds an error in the making of the decision, the court sends it back to the
original decision-maker to make a new decision. As such, judicial review proceedings
may not be as prevalent as limited merits review appeals.
Nevertheless, when the Government announced its proposed
abolition of limited merits review in June 2017, it also announced at the same additional
funding of $67.4 million for the AER ‘to stop energy network companies gaming
the system and overturning rulings in the courts’.[140]
Perhaps this was in anticipation of an increase in judicial review proceedings.
Number of
reviews
In his second reading speech, the Minister stated that
despite the 2013 reforms, ‘energy networks were still routinely seeking reviews
of the regulators’ decisions, essentially using the Australian Competition
Tribunal as a second regulator’.[141]
He further suggested that energy networks are ‘using the LMR to extract
monopoly rents from consumers’.[142]
When the reforms were announced, the Government also
observed that since the introduction of limited merits review ‘companies have
made 52 appeals and the courts have ruled against consumers 31 times’.[143]
These figures relate to appeals since the introduction of the regime. Since the
reforms to limited merits review in 2013, twelve of the AER’s twenty decisions
on electricity network revenue and gas access arrangements have been subject to
applications by network businesses for review by the Tribunal.[144]
As the 2016 COAG review found, the intention of the 2013 reforms was to:
... ensure that leave to review would only be granted on
matters of substance and that those matters of substance were to be determined
by reference to the statutory objectives of the national energy laws.
In spite of these policy objectives, over 50 per cent of
regulatory decisions on electricity network revenue and gas access arrangements
since the 2013 reforms were implemented have been subject to applications for
review. While the long term interests of consumers have clearly been considered
in these processes, there remains an open policy question as to whether this is
being achieved.[145]
However, others argue that the ‘occurrence of appeals is
not necessarily a sign of an unhealthy regulatory system’:
It indicates a regulator that is willing to take risks and
challenge the businesses it regulates. That can be good for consumers. What to
do, then, when a regulator’s decisions are reviewed and found repeatedly to be
in error? In such circumstances, the policy response should not be to
reflexively scale back or remove the merits review regime. That would be akin
to banning traffic cameras because too many drivers were caught speeding.[146]
Other provisions
Transitional
arrangements
Items 5 and 6 of the Bill clarify the timing
of the application of the amendments proposed by the Bill.
Item 5 provides that proposed section 44AIA
applies to all AER decisions, whether made before, on or after the commencement
of the amendments. This means that no AER decision, whenever made, may be
reviewed by a state or territory merits review body.
Item 6 provides that proposed section 44ZZMAA
applies to all decisions, whether made before or after the commencement of the
amendments. However, under sub-item 6(2), the existing limited merits
review regime will continue to apply to a decision where an application to
review the decision was made before 21 June 2017 (the day after the proposed
amendments were announced).
In other words:
- any
reviewable regulatory decision made after the commencement of the amendments
cannot be reviewed by the Tribunal
- decisions
made before the commencement of the amendments can only be reviewed if the
application for review was made before 21 June 2017
- any
review proceedings that are on foot at the commencement time can continue, but
if the Tribunal remits the matter back to the original decision maker, any
remade decision cannot be reviewed by the Tribunal and
- any
court order made as the result of any judicial review of a Tribunal
determination (whether the order or the determination is made before or after
the commencement time) requiring the Tribunal to reconsider its determination
can be implemented, but if the Tribunal remits the matter back to the original
decision maker, any remade decision cannot be reviewed by the Tribunal.[147]
Concluding comments
The Bill proposes to abolish the ability to seek limited
merits review of certain decisions made by the Australian Energy Regulator
(AER). While the Bill appears to be supported by major political parties and
some consumer groups, the abolition of limited merits review does not seem to
have wide support among industry stakeholders, nor is it consistent with the
recommendations of relevant recent reviews.
Moreover, the national energy market is governed by a
cooperative legislative scheme. By taking unilateral action to abolish limited
merits review, the Commonwealth appears to be undermining this cooperative
approach and may be in breach of the Australian Energy Market Agreement.
The Bill also appears to pre-empt the current ACCC inquiry into electricity
pricing.
It is not clear whether the Bill will achieve its intended
aim of taking pressure off energy prices and reducing reviews of AER decisions.
In particular, the Bill does not affect the right to seek judicial review, and
network businesses may turn to judicial review actions to appeal AER decisions.
[1]. The
Agreement is available at: Council of Australian Governments (COAG) Energy
Council, ‘Australian
Energy Market Agreement (as amended December 2013)’, COAG Energy Council
website, 9 December 2013. The Agreement followed a COAG-initiated review of the
energy market in 2002: see further R Parer, Towards
a truly national and efficient energy market, (Parer Review), COAG,
Canberra, 2002. For a more detailed history of the development of Australia’s
energy markets, see, for example, the Department of the Environment and Energy
(DEE), ‘Electricity market
development’, DEE website; and Australian Energy Market Commission (AEMC),
‘History
of energy market reform in Australia’, AEMC website.
[2]. AEMC,
‘National
Electricity Market’, AEMC website.
[3]. DEE,
‘Electricity
market development’, DEE website.
[4]. See
further AEMC, ‘Natural
gas markets’, AEMC website; or Australian Energy Regulator (AER), State
of the energy market, AER, Melbourne, May 2017, pp. 64–66.
[5]. See
further AEMC, ‘Energy
retail markets’, AEMC website.
[6]. The
national energy laws are supported by rules made under each of these laws. So,
for example, the National
Electricity Rules are made under the NEL: see, for example, AEMC, ‘Market
legislation’, ‘Energy rules’
and ‘National
electricity rules’, AEMC website.
[7]. So,
for example, the NGL in the National Gas (South Australia) Act 2008 (SA)
is applied in Queensland by the National
Gas (Queensland) Act 2008 (Qld) and in New South Wales by the National Gas
(New South Wales) Act 2008 (NSW).
[8]. P
Prince and M Roarty, Australian
Energy Market Bill 2004, Bills digest, 171, 2003–04, Parliamentary
Library, Canberra, 2004, p. 2; see also COAG Energy Council, ‘Market
structure’, COAG Energy Council website.
[9]. Australian
Energy Market Commission Establishment Act 2004 (SA). See also AEMC, ‘Market
legislation’, op. cit.
[10]. See
especially the CCA, Part IIIAA.
[11]. See
further Australian Competition and Consumer Commission (ACCC), ‘About
the ACCC’, ACCC website; and AER, ‘About
us’, AER website.
[12]. AEMO,
‘About AEMO’, AEMO website.
[13]. DEE,
‘Energy
market institutions’, DEE website; AEMO, ‘About AEMO’, AEMO website.
[14]. Australian
Energy Market Agreement, clauses 6.6 and 6.7. Although note that ‘limited
minor variations may be made where they are consistent with the national objectives’:
see, for example, A Finkel, Independent
review into the future security of the National Electricity Market: preliminary
report, DEE, Canberra, December 2016, p. 49.
[15]. As
inserted by the Trade
Practices Amendment (Australian Energy Regulator) Act 2004 (Cth).
[16]. The
only AER function currently prescribed appears to be under Regulation 7AA of
the Competition and
Consumer Regulations 2010, which relates to making an application to the
Federal Court for an order that a person is in breach of a national energy law
under section 44AAG of the CCA.
[17]. NEL,
section 15; NGL, section 27.
[18]. AER,
‘About us’, AER website, op. cit.
[19]. NEL,
paragraph 16(1)(a); NGL, paragraph 28(1)(a).
[20]. NEL,
section 7. NGL, section 23. See also Explanatory
Memorandum, Competition and Consumer Amendment (Abolition of Limited Merits
Review) Bill 2017, p. 4.
[21]. AER,
State
of the energy market, op. cit., pp. 94, 101–102; AER, ‘Our role
in networks’, AER website. The framework that the AER must apply in
undertaking this role is set out in Chapters 6 and 6A of the National
Electricity Rules (made under the NEL), while the National Gas Law and
Rules set out the regulatory framework for gas pipelines (in jurisdictions
other than Western Australia and Tasmania).
[22]. AER,
State
of the energy market, op. cit., p. 102.
[23]. AER,
‘Our
role in networks’, AER website.
[24]. Explanatory
Memorandum, op. cit., p. 5; see further, for example, AER, State
of the energy market, op. cit., pp. 94, 101–102; AER, ‘Our role
in networks’, AER website.
[25]. Administrative
Review Council (ARC), What
decisions should be subject to merits review?, Attorney-General’s
Department (AGD), Canberra, 1999.
[26]. See,
for example, COAG Limited Merits Review Project Team, Review
of the limited merits review regime: consultation paper, COAG Energy
Council, Canberra, 6 September 2016, p. 6.
[27]. Ibid.,
p. 7.
[28]. Ibid.
[29]. Part
6 of the NEL (that is Part 6 of the Schedule to the National Electricity
(South Australia) Act 1996 (SA)) and Part 5 of the NGL (that is, Part 5 of
Chapter 8 of the Schedule to the National Gas (South Australia) Act 2008
(SA)). Although note, for example, that the Competition and
Consumer Regulations 2010 also contains some relevant provisions (see, for
example, Regulations 7B and 7C).
[30]. The
Tribunal was originally established under the Trade Practices Act 1965 (Cth)
and now continues under the CCA, see especially Part III.
[31]. See
further, for example, Australian Competition Tribunal, ‘About the Tribunal’,
Australian Competition Tribunal website.
[32]. See
further, for example, AER, Submission
to the COAG Energy Council, Review of the limited merits review regime:
consultation paper, 4 October 2016, pp. 7–8; Explanatory
Memorandum, op. cit., p. 6.
[33]. See
NGL, section 246; NEL, section 71C; Explanatory Memorandum, op. cit., p. 6.
[34]. AER,
Submission,
op. cit., p. 8.
[35]. NEL,
sections 71R and 71P; NGL, sections 259 and 261; see also AER, State of the energy
market, op. cit., pp. 104, 106.
[36]. See
also Schedule 3 of the Administrative
Decisions (Judicial Review) Act 1977, which lists state and territory legislation
that is an ‘enactment’ for that Act’s purposes. Listed legislation includes,
for example, the NGL, NEL and the National Energy Retail Law.
[37]. COAG
Energy Council, ‘Review
of the limited merits review regime: stage two report (September 2012)’,
COAG Energy Council website, 30 September 2012.
[38]. R
Sims (ACCC Chair), ‘Addressing
the key drivers of electricity price increases’, Energy Users
Association of Australia: annual conference, Sydney, speech,
24 October 2012, p. 3.
[39]. G
Yarrow, M Egan and J Tamblyn, Review
of the limited merits review regime: stage two report, COAG Energy
Council, Canberra, 30 September 2012, p. 2.
[40]. Sims,
op. cit., p. 4.
[41]. Statutes
Amendment (National Electricity and Gas Laws—Limited Merits Review) Act 2013
(SA); see also COAG, Standing Council on Energy and Resources, Proclamation
of amendments to the limited merits review regime, Energy Market Reform
Bulletin, 21, December 2013.
[42]. COAG,
Review
of the limited merits review regime: consultation paper, op. cit., p.
4.
[43]. J
Frydenberg (Minister for the Environment and Energy), COAG
releases consultation paper into electricity and gas revenue appeals, media release,
8 September 2016; see also, for example, L D’Ambrosio (Minister for Energy,
Environment and Climate Change, Victoria), Statement
on COAG Energy Council, media release, 19 August 2016.
[44]. COAG,
Review of the limited merits review regime: consultation paper, op. cit.,
p. 4.
[45]. Ibid.,
pp. 12, 17–19.
[46]. COAG
Energy Council, ‘Review
of limited merits review regime: consultation paper’, COAG Energy Council
website, 6 September 2016.
[47]. COAG
Energy Council, Communique,
8th COAG Energy Council Meeting, Canberra, 14 December 2016, p. 2.
[48]. Ibid.,
p. 2.
[49]. Ibid.
[50]. J
Frydenberg (Minister for the Environment and Energy), Significant
reforms agreed by COAG Energy Council, media release, 14 December 2016.
[51]. COAG
Energy Council, Communique,
10th COAG Energy Council Meeting, 10 April 2017, p. 1.
[52]. Australian
Energy Regulator v Australian Competition Tribunal (No 2) [2017]
FCAFC 79; Australian Energy Regulator v Australian Competition Tribunal
(No 3) [2017]
FCAFC 80. For a summary of these cases, see Federal Court of Australia
(FCA), ‘Summary’,
FCA website, 24 May 2017.
[53]. See,
for example, A White, ‘Power
bills to rise as AER loses case’, The Australian, 25 May 2017, p. 1;
G Winestock and A Macdonald-Smith, ‘NSW power
bills to rise $100 a year’, Australian Financial Review, 25 May
2017, p. 3; G Winestock and A Macdonald-Smith, ‘Labor
tells super funds to cut power prices’, Australian Financial Review,
26 May 2017, p. 8.
[54]. AER,
‘Federal
Court judgement on AER electricity and gas price decisions disappointing
outcome for NSW and ACT consumers’, AER website, 24 May 2017.
[55]. Ibid.
See also Applications by Public Interest Advocacy Centre Ltd
and Ausgrid [2016] ACompT 1;
Applications by Public Interest Advocacy Centre Ltd and Endeavour Energy
[2016] ACompT 2;
Applications by Public Interest Advocacy Service Ltd and Essential
Energy [2016] ACompT 3;
Application by ActewAGL Distribution [2016] ACompT 4;
and Application by Jemena Gas Networks (NSW) Ltd [2016] ACompT 5.
[56]. AER,
‘Federal
Court judgement’, op. cit.
[57]. Ibid.
[58]. PIAC,
‘Energy + Water’,
PIAC website.
[59]. PIAC,
Electricity
prices to rise following disappointing court decision, media release,
24 May 2017.
[60]. Ibid.
[61]. J
Frydenberg (Minister for the Environment and Energy), States
need to put energy consumers first, media release, 24 May 2017; see
also J Frydenberg, ‘Power
to the people who need a fairer deal’, Daily Telegraph, 1 June 2017,
p. 24.
[62]. Frydenberg,
States need to put energy consumers first, op. cit.
[63]. M
Turnbull (Prime Minister), J Frydenberg (Minister for the Environment and
Energy) and M Canavan (Minister for Resources and Northern Australia), Securing
our energy future, joint media release, 20 June 2017.
[64]. J
Frydenberg (Minister for the Environment and Energy), Abolition
of LMR to reduce pressure on energy prices, media release,
10 August 2017.
[65]. COAG
Energy Council, Communique,
12th COAG Energy Council Meeting, 14 July 2017, p. 2.
[66]. M
Vertigan, G Yarrow, E Morton, Review
of governance arrangements for Australian energy markets: final report,
COAG Energy Council, Canberra, October 2015.
[67]. Ibid.,
p. 42.
[68]. Ibid.,
p. 74.
[69]. A
Finkel (Chair), Blueprint
for the future: independent review into the future security of the National
Electricity Market, (Finkel Review), DEE, Canberra, 2017, pp. 130–131.
[70]. Ibid.,
p. 131 (recommendation 5.4).
[71]. The
only recommendation to be resolved relates to a Clean Energy Target
(recommendation 3.2): see further, for example, J Frydenberg, ‘COAG
is turning the Australian energy ship around’, Australian Financial
Review, 17 July 2017, p. 39.
[72]. M
Turnbull (Prime Minister) and S Morrison (Treasurer), ACCC
to review electricity prices, media release, 27 March 2017; see also
ACCC, ACCC given
powers to investigate and report on retail electricity prices, media
release, 27 March 2017.
[73]. ACCC,
ACCC
inquiry into retail electricity supply and pricing: issues paper, 31
May 2017, p. 10.
[74]. Ibid.
[75]. Ibid.,
p. 2.
[76]. Senate
Selection of Bills Committee, Report,
9, 2017, The Senate, Canberra, 17 August 2017.
[77]. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 9, 2017, The Senate,
Canberra, 16 August 2017, p. 6.
[78]. M
Turnbull (Prime Minister) and J Frydenberg (Minister for the Environment and
Energy), Press
conference: 20 June 2017: energy security; citizenship legislation; school
funding: Parliament House, Canberra, transcript, 20 June 2017.
[79]. M
Butler (Shadow Minister for Climate Change and Energy), Turnbull
a fraud on gas, media release, 20 June 2017.
[80]. A
Bandt (Australian Greens), Greens
ready to back government reining in electricity networks, media
release, 20 June 2017.
[81]. Ibid.
[82]. Energy
Networks Australia (ENA), Risks
to consumers as Federal Government overrides courts and states, media
release, 20 June 2017.
[83]. Ibid.;
see also ENA, Stakeholders
reject abolition of merits review of regulatory decisions, media
release, 21 October 2016.
[84]. ENA,
Risks to consumers as Federal Government overrides courts and states,
op. cit.
[85]. B
Lyon, ‘Meet
your infallible energy regulator, now immune from appeal’, Australian
Financial Review, 30 June 2017, p. 1.
[86]. Ibid.
[87]. APGA,
Unilateral
action increases uncertainty in energy markets, media release, 21 June
2017.
[88]. Business
Council of Australia, Submission
to the COAG Energy Council, Review of the limited merits review regime:
consultation paper, October 2016, p. 2.
[89]. Ibid.,
p. 6.
[90]. Business
Council of Australia, Energy
policies must support new investment, media release, 20 June 2017.
[91]. Minerals
Council of Australia, Positive
steps to reduce energy costs and boost reliability, media release, 20
June 2017.
[92]. National
Irrigators’ Council, Irrigators’
welcome action on electricity, media release, 20 June 2017.
[93]. National
Irrigators’ Council, Changing
‘limited merits review’ good first step to electricity reform, media
release, 1 March 2017.
[94]. Consumer
Action Law Centre, Consumer
action supports removal of limited merits review, media release, 22
June 2017.
[95]. Ibid.
[96]. PIAC,
Electricity
reform welcome: consumers need to retain a strong voice in electricity
price-setting, media release, 20 June 2017.
[97]. Ibid.
[98]. Ibid.
[99]. AER,
Working
together to restore confidence in energy regulation, media release, 26
July 2017.
[100]. AER,
Working
together to improve engagement on network revenue proposals, media
release, 11 August 2017.
[101]. Commercial
Bar Association, Submission
to the COAG Energy Council, Review of the limited merits review regime:
consultation paper, 3 October 2016, p. 2.
[102]. Ibid.,
p. 22.
[103]. D
Kumareswaran and D Price, Unappealing
prospects, Bulletin, Frontier Economics, March 2016; see also
Frontier Economics and Herbert Smith Freehills, Options
for enhancing the Australian limited merits review regime: a report prepared
for the Energy Networks Association, October 2016.
[104]. A
White, ‘Energy
majors’ appeals shut off’, The Australian, 21 June 2017, p. 19.
[105]. Explanatory
Memorandum, op. cit., p. 3.
[106]. Turnbull,
Frydenberg and Canavan, Securing our energy future, op. cit.
[107]. J
Frydenberg, ‘Second
reading speech: Competition and Consumer Amendment (Abolition of Limited Merits
Review) Bill 2017’, House of Representatives, Debates, (proof), 10
August 2017, p. 1.
[108]. The
Statement of Compatibility with Human Rights can be found at pages 10–11 of the
Explanatory Memorandum to the Bill.
[109]. Parliamentary
Joint Committee on Human Rights, Scrutiny
report, 8, 2017, Canberra, 15 August 2017, p. 127.
[110]. See
also Schedule 3 of the Administrative
Decisions (Judicial Review) Act 1977, which lists state and territory legislation
that is an ‘enactment’ for that Act’s purposes. Listed legislation includes the
National Gas Law and National Electricity and the National Energy Retail Law.
[111]. As
inserted by the Trade
Practices Amendment (Australian Energy Regulator) Act 2004 (Cth).
[112]. This
appears to be in reference to the High Court decision in R v Hughes, which
held that ‘a State by its laws cannot unilaterally invest functions under that
law in officers of the Commonwealth’: R v Hughes (2000) 202 CLR 535, [2000]
HCA 22 at 553. For further discussion, see P Prince, Trade Practices
Amendment (Australian Energy Market) Bill 2004, Bills digest, 172,
2003–04, Parliamentary Library, Canberra, 2004, pp. 2–3.
[113]. Explanatory
Memorandum, op. cit., p. 9.
[114]. Explanatory
Memorandum, op. cit., p. 7.
[115]. COAG
Energy Council, Communique,
12th COAG Energy Council Meeting, 14 July 2017, p. 2.
[116]. Frydenberg,
States
need to put energy consumers first, op. cit.; see also, for example, K
Murphy, ‘Josh
Frydenberg predicts “big battles” within Coalition after Finkel Review’, The
Guardian, (online edition), 31 May 2017.
[117]. APGA,
op. cit.
[118]. Finkel
Review, p. 5, and see also pp. 29, 31 and 86; and, for example, Business
Council of Australia, op. cit.; AGPA, op. cit.
[119]. Frydenberg,
‘Second
reading speech: Competition and Consumer Amendment (Abolition of Limited Merits
Review) Bill 2017’, op. cit.
[120]. Ibid.
[121]. AEMC,
2016
residential electricity price trends: final report, AEMC, Sydney, 14
December 2016, p. ii; see also ACCC, Issues paper, op. cit., pp. 7–8.
[122]. Ibid.,
pp. xiv–xxvi.
[123]. AER,
State of the energy market, pp. 130.
[124]. Ibid.,
p. 133.
[125]. G
Winestock and A Macdonald-Smith, ‘NSW
power bills to rise $100 a year’, Australian Financial Review, 25
May 2017, p. 3; see also B Robins, ‘Bill
“spike” looms after court ruling’, Sydney Morning Herald, 25 May
2017, p. 3.
[126]. Frydenberg,
‘Second
reading speech: Competition and Consumer Amendment (Abolition of Limited Merits
Review) Bill 2017’, op. cit.
[127]. COAG,
Review of the limited merits review regime: consultation paper, op.
cit., p. 7.
[128]. Ibid.,
p. 18.
[129]. APGA,
op. cit.
[130]. Kumareswaran
and Price, Unappealing
prospects, op. cit., 29 March 2016.
[131]. Explanatory
Memorandum, op. cit., pp. 6–7.
[132]. Ibid.,
p. 7.
[133]. Murphy,
op. cit.
[134]. Explanatory
Memorandum, op. cit., p. 7.
[135]. ARC,
op. cit.
[136]. Ibid.
[137]. AER,
AER
network revenue determination engagement protocol: version 1.0, AER,
Melbourne, September 2015, p. 7.
[138]. Explanatory
Memorandum, op. cit., p. 8.
[139]. COAG,
Review of the limited merits review regime: consultation paper, op.
cit., p. 18.
[140]. Turnbull,
Frydenberg and Canavan, Securing our energy future, op. cit.
[141]. Frydenberg,
‘Second
reading speech: Competition and Consumer Amendment (Abolition of Limited Merits
Review) Bill 2017’, op. cit.
[142]. Ibid.
[143]. Turnbull,
Frydenberg and Canavan, Securing our energy future, op. cit.
[144]. COAG,
Review of the limited merits review regime: consultation paper, op.
cit., p. 4.
[145]. Ibid.,
p. 10.
[146]. Frontier
Economics, Unappealing prospects, op. cit.
[147]. Explanatory
Memorandum, op. cit., p. 9.
For copyright reasons some linked items are only available to members of Parliament.
© Commonwealth of Australia
Creative Commons
With the exception of the Commonwealth
Coat of Arms, and to the extent that copyright subsists in a third party,
this publication, its logo and front page design are licensed under a Creative Commons
Attribution-NonCommercial-NoDerivs 3.0 Australia licence.
In essence, you are free to copy and
communicate this work in its current form for all non-commercial purposes, as
long as you attribute the work to the author and abide by the other licence
terms. The work cannot be adapted or modified in any way. Content from this
publication should be attributed in the following way: Author(s), Title of
publication, Series Name and No, Publisher, Date.
To the extent that copyright subsists
in third party quotes it remains with the original owner and permission may
be required to reuse the material.
Inquiries regarding the licence and
any use of the publication are welcome to webmanager@aph.gov.au.
Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament.
They are produced under time and resource constraints and aim to be available
in time for debate in the Chambers. The views expressed in Bills Digests do
not reflect an official position of the Australian Parliamentary Library, nor
do they constitute professional legal opinion. Bills Digests reflect the
relevant legislation as introduced and do not canvass subsequent amendments
or developments. Other sources should be consulted to determine the official
status of the Bill.
Any concerns or complaints should be
directed to the Parliamentary Librarian. Parliamentary Library staff are
available to discuss the contents of publications with Senators and Members
and their staff. To access this service, clients may contact the author or
the Library’s Central Enquiry Point for referral.