Simon Birmingham (SA, Liberal Party, Minister for Education and Training) Share this | Hansard source

I thank senators for their various contributions to this debate. The Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017, as has been noted by many, will abolish the limited merits review regime for reviewable regulatory decisions under the national energy laws. What does this mean in plain English? Essentially it means that monopoly network businesses, primarily those running poles and wires systems for our electricity assets around the country, will no longer be able to seek review from the Australian Competition Tribunal of decisions made by the Australian Energy Regulator or the Economic Regulation Authority of Western Australia.

Why is this important?

It's important because those network businesses, those running the poles and wires distribution around the country, have been gaming the system and have used the appeals process in a manner that to date has increased consumer bills by an estimated $6.5 billion. That's the core number that every senator should keep in their mind through this debate. An extra $6.5 billion has flowed through to households, to businesses, to the Australian economy in extra energy costs as a result of the gaming of this limited merits review regime.

Senator Urquhart was just questioning the urgency of this measure. Why has the government criticised the delay that ensued? Because the Labor Party, despite saying they supported it—and I note in this chamber again today that they have acknowledged their support and I thank them for that—referred the bill off to Senate inquiry and delayed its passage through this place. It is important because further decisions in relation to energy distribution around the country are pending. The types of decisions around gas distribution in Victoria for Australian gas networks—around Albury, across Victoria, AusNet Services, Multinet Gas, gas transmission arrangements in both Victoria and Queensland—without this legislation passing, would all potentially be subject to the same type of gaming regime in the future, and that is precisely what the Turnbull government seeks to stop. We want to stop the Australian Competition Tribunal being used, in effect, as a second regulator, because that's the type of behaviour and pattern that we've seen. The default regime has been for network operators to refer decisions off to the tribunal and, indeed, to make that the place where they contest and seek to maximise their incomes and, therefore, their profits.

This regime, as has been acknowledged in this debate, has been reviewed previously. There was a review in 2013 from which certain changes were applied. Then there was a subsequent review, in 2016, and that review found significant regulatory failure, particularly in regard to the fact that reviews or appeals remain routine—that is, as I said, the network operators figure they don't need to worry too much about the first process through the Australian Energy Regulator because they will contest whatever they can at the Australian Competition Tribunal to squeeze extra income and extra dollars through that process. It also found there was a failure to deliver regulatory certainty and stability, obviously related to the aforementioned tactics and gaming of those operators. There were continuing barriers to effective consumer representation and participation, which, I note, Senator Urquhart reflected on and the Senate inquiry reflected on. I can assure the Senate that the government is cognisant of the recommendation from the Senate inquiry and that the Minister for the Environment and Energy will write to the Australian Energy Regulator to direct it to examine opportunities to enhance its engagement to ensure a wide range of stakeholders are able to participate in the regulatory decision-making process. It also found that there was an absence of meaningful guidance to ensure the delivery of materially preferable national electricity objective or national gas objective decisions and that, in essence, significant change was required and the focus needed to rightly sit with the proper regulator, the Australian Energy Regulator, in whom there is proper capacity and capability to be able to actually undertake the regulation of this sector.

I note, and Senator Urquhart half alluded to this in her comments, that the COAG Energy Council did agree in December 2016 that the limited merits review regime was failing the national interest and was failing electricity consumers around the country. The Turnbull government, given attempts at change and improvement had been made before, took the action to say that we ought to abolish the limited merits review regime and that that was the most simplest, most straightforward way to resolve this issue. This was a position supported, yes, by the Labor governments in South Australia and in Victoria, demonstrating that there is certainly nothing partisan about this. It was opposed, as Senator Urquhart said, by the New South Wales government. She did omit to acknowledge it was also opposed by the Queensland government. Both governments, yes, at that time had a vested financial interest in keeping network revenues high, because at the time New South Wales was selling its networks and Queensland, of course, continues to own those networks.

The Queensland government, the Palaszczuk Labor government, has clearly been exposed, basically ripping off consumers around that state at every possible opportunity by seeking to yield and leverage additional dollars through these systems. It's a demonstration that what matters is not the ownership but having effective regulatory regimes in place. That's why we have this legislation before the chamber, to put those effective regulatory regimes in place and to ensure that the system cannot be gamed as effectively in future.

Some—I note Senator Leyonhjelm and Senator Bernardi—have mused about whether in fact too much power is left in the hands of the Australian Energy Regulator and whether in fact as a result of that there are insufficient safeguards put into the system. I would note in response to them that judicial review remains an option to the parties through this process. This does not remove all oversight in the processes; it simply ensures that a default referral to a competition tribunal will not be in the hands of every network operator in the future. Instead, they will have to undertake the more rigorous process of justifying a judicial review process if they believe the AER has erred in its decision-making. I note also that the Turnbull government are taking steps to strengthen the AER in terms of its undertakings, that we'll inject a further $67.4 million to help it ensure that it reins in poor monopoly energy business network practices, that it is as effective as possible in the decisions that it hands down and that it ensures that we get the best possible deal for consumers, for households, for businesses, in terms of their energy regimes.

Why is it that this area of policy, in relation to network businesses, is so important to energy costs? Senators and members of the public need only refer themselves to the Australian Competition and Consumer Commission's report Retail electricity pricing inquiry preliminary report, which was released publicly today. This report makes very clear why it is that tackling the network issue is perhaps the most important initial step that governments can take to rein in electricity prices. The report says:

Network costs were the largest component of retailers' costs in 2015–16, making up around 48 per cent of an average bill charged to a residential customer.

So, for all the talk about who generates the power or who sells the power, the middleman, the network costs—those poles, wires, pipes, distribution networks—are the largest component of the costs that consumers, households and businesses are paying, 'around 48 per cent of an average bill'. Further, the report says:

… increases in electricity prices over the period from 2007–08 to 2015–16 were primarily driven by higher network costs …

So network costs are the largest component of people's bills and are the biggest contributor to the price rises that people are facing around the country. The problem is very clear: network costs have made a substantial impact—the biggest impact—on price rises, and they comprise the largest component of bills that people face.

How has the operation of limited merits review, which we're seeking to abolish today, impacted on those costs? The ACCC report further states, on page 113:

Compared to the initial determinations made by the AER, the limited merits review process has led to a material increase in network revenues passed through to consumers since it was introduced in 2008.

It goes on:

For AER decisions up to 2014, Tribunal appeals added around $3.2 billion to network revenues.

The government estimates the total addition to network revenues to be closer to $6½ billion. Frankly, it doesn't really matter. Whether it's $6½ billion or $3.2 billion, these are significant additional costs flowing through to households and consumers, and this is because, as a result of the limited merits review regime, the regulators have been given the right to charge higher prices, to pass higher prices through the system, and ultimately households and businesses around the country end up paying.

The ACCC goes on to say:

The limited merits review framework appears to have undermined the initial decision making process of the AER, and has led to significant price uncertainty for electricity customers.

It says there is significant price uncertainty and an undermining of that initial price decision-making process of the regulator. So what of the Turnbull government's steps to abolish this process to ensure that we clean up the system? The ACCC notes:

The Australian Government is currently taking steps to remove limited merits review. The ACCC welcomes this move. Reviews sought by network operators have added billions of dollars to the cost borne by electricity users. The ACCC considers that the removal of this avenue of appeal of the AER's decisions will help ensure network pricing is moderated in future.

It is a strong endorsement from the ACCC and the most recent analysis around electricity prices—it was released publicly just today. It clearly demonstrates the Turnbull government is taking the most important step it can in relation to addressing this section of electricity pricing, which is the highest growth factor and the highest contribution to household electricity bills.

It's with that in mind that I am surprised that some in this chamber—not the Labor Party, not the Greens, not the government parties and not One Nation but some in this chamber—have particularly questioned this. In fact some, in particular Senator Nick Xenophon and the Nick Xenophon Team, seem to have argued against the step that the government is taking. We hear plenty from Senator Xenophon and his compatriots arguing about electricity prices and calling for something to be done, yet when this government brings action to this parliament to address network costs, which we sought to do some months ago, Senator Nick Xenophon decides to take the side of the energy networks instead. Today, Senator Nick Xenophon has gone in to bat for price-gouging energy network operators, rather than struggling Australian households and businesses. He has come into this chamber and, in effect, defended the extra $6½ billion that households and businesses across the states and territories are paying, rather than supporting the government in taking action to rein in the operation of price-gouging energy networks. It is quite a remarkable argument that was waged. If you listen to the totality of those remarks from Senator Xenophon, as I did, you hear that they're not a particularly coherent set of remarks. In fact, there was no solution in particular offered as to how to address energy network costs. There was no solution offered as to how to address what are the largest contributors to household electricity bills and what is the largest contributor to the increase in household electricity bills.

Instead, Senator Xenophon argued that the solution to energy prices lies in an emissions intensity scheme, a concept that, I acknowledge, he has long prosecuted, but, in arguing that, he's ignoring the reality that that has nothing to do with energy networks. That is about generation activities and the two are fundamentally different. Of course, energy networks are about those poles, wires and assets that distribute the power. They're not about how it is that the power is generated in the first place. Essentially, the argument he put is technically illiterate, as it ignores the very obvious difference between the generator producing power and the poles and wires delivering it to homes and businesses.

The Turnbull government has proudly taken an approach of trying to address issues around prices at every step of the energy supply business. We recognise that there are price pressures that have flowed through to households from generation, from environmental schemes, from network distribution, and from retailers. The way to get the best solution for households and businesses is to tackle each and every one of those different components, so that's what we've been seeking to do. Energy markets and energy businesses used to be overwhelmingly the domain of state and territory governments, but we have taken action because of their failure to address each of those sections. In relation to environmental schemes, the coalition government took action that delivered a real reduction in electricity bills through the abolition of the carbon tax and ensured that, for the renewable energy target, we had a more realistic and achievable target than had previously been legislated. We took action and are taking action in relation to energy generation by supporting dispatchable energy sources in the future, such as pumped hydro schemes, that can come into the market and bring prices down when it is necessary to do so. We're supporting action in terms of network distribution through the legislation before the chamber as present and, of course, we supported action in the retail marketplace to ensure that retailers are giving the best deal to consumers and making it as easy as possible for consumers to opt into the best deal.

Surely Senator Nick Xenophon doesn't really want to leave those network operators price gouging across Australia untouched and let them continue to get away with ripping billions of extra dollars out of Australian households and consumers. Certainly, the Turnbull government will not let that occur. That's why we have brought this legislation to the parliament and that's why we are pleased to acknowledge the support of various state governments and of various opposition parties. We commend the legislation to the chamber.

Question agreed to.

Bill read a second time.