Failed energy regulation means we will pay more

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Energy regulation is broken, and consumers will be paying more for electricity and gas in years to come.

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calcEnergy regulation is broken, and consumers will be paying more for electricity and gas in years to come.

In the 1990s, Victoria’s energy market was broken up into monopoly businesses, networks that own the poles and wires, and businesses that operated competitively, the generators and retailers. Other states followed suit. Price regulation was adopted in an effort to limit how much monopoly network businesses could charge, but recent legal maneouvres by those businesses mean that we will end up paying more than is fair.

 
In late May this year, the Australian Energy Regulator made its final determination on how much the five Victorian networks could charge Victorians between 2016 and 2020. After a detailed 13 month review process, the AER decided to reduce the amounts networks could charge, with the AER chair Paula Conboy saying that consumers could be expected to save between $50 and $120. That might not sound much per household, but the regulator reduced the amounts sought by the businesses by over $2.3 billion. By anyone’s standards, that is a lot.
 
On 16 June, each of the five Victorian network businesses quietly lodged appeals of the AER’s decision with the Australian Competition Tribunal. If the experience of NSW is anything to go by, Victorians will inevitably end up paying more as a result.
 
In February this year, the NSW network businesses succeeded in appeals of the independent regulator’s determination. The powerful networks’ success meant that savings promised to consumers through the regulatory regime disappeared.
 
From a consumer perspective, there are major weakness with the appeals processes in the energy sector. The ability of energy networks to engage in arduous and strenuously contested legal reviews has regularly provided them with millions of dollars of additional revenue. Questions need to be asked whether the appeals system preferences industry over the public interest.
 
The networks are expert at making legal challenges to energy regulatory decisions. There have been over 50 challenges since the appeals regime, known as ‘merits review’, was implemented in 2008. A 2012 report found that these challenges largely went in the networks’ favour, with consumers paying around $3.6 billion more than they would have had the initial decision stood.
 

Recognising that the system preferences big business, the authors of that 2012 report—an Expert Panel led by Oxford University Professor George Yarrow—recommended significant reform to the framework. In particular, the report recommended doing away with the legalistic processes of the Competition Tribunal, which operates as a division of the Federal Court. Disappointingly, the Panel’s recommendations were watered down during the legislative process.

The result, as demonstrated by the most recent Tribunal decisions, is that the energy networks continue to exert significant power by accessing appeals processes. It was reported that over 1 million pages of material were provided to the Tribunal in NSW, and the networks were represented by over 40 barristers. Consumers, on the other hand, were represented by the Public Interest Advocacy Centre, a small non-profit law and policy organisation. Despite their skills and expertise, they were significantly outgunned on resources. It will be a David and Goliath fight in Victoria as well.
 
There are four key reasons why we would be better off if network businesses’ ability to appeal price determinations were abolished.
 
First, there would be greater certainty for consumers about their energy bills. In NSW, appeals processes may mean that final prices will not be known for years. This is because the appeal itself took around 9 months, and a successful appeal means the regulator has to re-decide some aspects of the price determination, taking months more. The NSW businesses and the regulator have also initiated further appeals to the Federal Court, delaying things further.
 
Second, the regulator would be better empowered to promote the long-term interests of consumers. There have been suggestions that the AER is to blame for skyrocketing energy network prices over the last 10 years. This ignores, however, the fact that the AER has been limited by the rules it is empowered to implement, which are set by the Australian Energy Market Commission. The ability of networks to withhold information until late in the AER process and subsequently seek an appeal also means that the AER is easily rendered impotent.
 
Third, it has been recognised that merits review is not suitable for complex regulatory decisions like energy network price determinations. The Administrative Review Council, an expert body that provides advice about administrative law, has said that merits review is less appropriate for decisions “that are the product of processes that would be time-consuming and costly on review”. A review that takes almost a year, and cost millions of dollars to conduct, would seem to be the type of process the council was concerned about.
 
Fourth, consumers would save money. Lots of money. Any examination of the history of networks seeking merits review demonstrates that consumers do not do well out of the system. Billions of extra dollars have been paid for by consumers following networks’ successful appeals.
 
At its core, ‘merits review’ of government or regulator decisions is supposed to allow for the reconsideration of those decisions as they affect individuals. This is a key tenet to our democracy—that we should be protected from harsh or unreasonable decisions of government. However, we should question whether the large multi-national corporations that own our energy networks should be similarly protected from the state.

National energy markets and regulators are governed by an objective that promotes the long-term interests of consumers. If energy ministers nationally wanted to promote the consumer interest, a simple step would be to abolish the ability of networks to appeal price determinations.

Gerard Brody is the Chief Executive Officer of Consumer Action Law Centre.

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16 Comments
  1. Farmer Dave 3 years ago

    This regulatory system is clearly broken. The return on investment for those appealing the decisions is clearly so great that the companies can afford whole battalions of lawyers. Perhaps the rules should provide for the companies to fund the consumer advocates in equal amounts to what they spend on their side. It might be easier to get that kind of change up – on the basis of fixing a clear power imbalance – than to remove the appeal process altogether.

    Is the Competition Tribunal a federal agency? If it is equivalent to the Federal Court, then I guess it is. It’s rules probably fall within the responsibility of the Commonwealth Attorney General, so we just have to lobby George Brandis to change the Tribunal’s rules to level the playing field. Oh wait…..

  2. MaxG 3 years ago

    Forget the regulation! You cannot sell a public asset (in most cases monopolies) to the highest bitter and then cry foul when they charge through the nose. Typical Australian band-aiding! The public should have opposed the sales to begin with… did we learn something? NO. We keep voting for the neoliberal mob (as demonstrated in this election), which includes the ALP (just to make this clear, it was Keating who started it all with the Hilmer Report), and at the same time complain about all the privatisation — who stupid is that?!

    • david H 3 years ago

      Agreed! Privatisation is supposed to create competition but typically results in money grabbing monopolies run by a Boards of Directors that continue to excessively reward themselves.
      Clearly private enterprise has a place but for entities of national importance including our transmission/grid system and its future development in the effective deployment of renewable energy, is there not a case for this being a national asset?

      • Barri Mundee 3 years ago

        It was all about trying to fool us that privatisation would bring lower energy rates when the real plan was to get private hands on to assets that serve public purpose. And exchanging a public monopoly with a private one is no change at all.

        • MaxG 3 years ago

          In fact it it a huge change; as you can see in the case of electricity…

          • Barri Mundee 3 years ago

            I agree it IS a huge change and I should have been more clear.

          • MaxG 3 years ago

            “more clear” is what people don’t care about, or make an effort to understand; rather rely on being spoon-fed the “truth”, which as we can clearly see, is not the case with modern propaganda, as it is visible in from of advertising and public relations… which is per definition “the professional maintenance of a favourable public image”, thus leaving out what is negative, disadvantageous, potentially dangerous, harmful, etc.E.g. “clean coal” or “coal is good”, without stating the cost to the public for clean-up, pollutions and deaths.
            Engaging the brain, and participating in — what should be a honourable and privileged task — democracy… shaping it, determining its destination… and not letting corporations corrupt the representatives of the people or the people themselves, thus demolishing democracy in principle. E.g. I build a school, if we can dig up dirt.

    • solarguy 3 years ago

      The public didn’t realize the gravity of public asset sell offs and are now wiser to that cold hard fact. There was wasn’t anything in the Hilmer report, that said sell off the peoples infrastructure.
      The greedy energy companies that have bought, it are in for a fight as we the consumer are now competitors, to their business model, as well as new business concerns with fresh thinking, who realize there is money to be made working with us.
      There is going to be a huge shit fight before it’s settled. The next 15yrs will be interesting and painful for those not willing to change. The rules need to change, otherwise there will be a lot of damage.

      • MaxG 3 years ago

        The public is none the wiser today, otherwise they wouldn’t vote for anyone wanting to privatise Medicare, hospitals, etc.
        The Hilmer Report did not use the words you do, but talks about ‘access’ to those ‘natural monopolies’; access which can only be granted practically, as it was done, by selling off the state-owned (public) assets to the private market. He also clearly outlined the dangers in doing so in Chapter 11.
        Like I mentioned many times before; the uptake of neoliberalism, pushed heavily by Thatcher and Reagan, led to a disenfranchised public, the destruction of unions, and socialism in general under the umbrella of the free market.

        • solarguy 3 years ago

          And that’s the problem isn’t it, to get the people to engage in issues. Clearly there a few problems here. Some who work 50+ hrs a week are too busy with family matters, those who disbelieve what their being told (like climate change or the opposite is true) hell the list goes on and on.
          Being a Labor member, it would love to know how many people voted on climate and RE, how many on Medicare etc. I note the Greens didn’t do as good as even I expected i.e. 90% RE and Labor’s 50%
          I think both our parties should hammer that issue home.
          Your serve going forward.

  3. Reality Bites 3 years ago

    What a ridiculous statement that appeals should just be abolished! Do we live in a socialist dictatorship? What if Woolies and Coles were made subject to a Federal body that dictated how much revenue they could make!? The reason the AER exists was to protect the industry from states using it as a cash cow. Now the pendulum has swung and it is being used to try and reduce prices to consumers, whether they are sensible or not. Just goes to show what happens when the government tries to intervene in the market. Just maybe the AER should be abolished, all States divest the assets to private ownership and the free market operate. If consumers don’t like the prices or services, they now have other options.

    • MaxG 3 years ago

      Spoken like a true neo-liberal 🙂

      It demonstrates no understanding of what democracy mean, the failure of mainstream economics, the role of the state (the government), etc.
      No force other than the government should exist, which can swing ‘power’ to its own advantage; The big supermarket chains are an example of a failed market, where a duopoly reigns the supply and demand. E.g. try to buy and pay for fair-priced (more expensive) milk. They do not stock it, keep suppressing farmer income and deprive you of the option to buy it in the first place. tons of other examples come to mind.

      BTW: I am not saying that appeals should be abolished, and understand you did not point to me either; however, anything else you said matches my first line in this post 🙂 Be happy you are not alone, 80% of Australians think this way — they must be right! Right?

    • Barri Mundee 3 years ago

      “Do we live in a socialist dictatorship?”

      No we live in a neo-liberal “the market is the be all and end all” dictatorship.

  4. Phil 3 years ago

    I think a larger question that needs to be asked is …Why do we still have 3 layers of Government ?

    Pretty much everything except the 3 of health , education and the legal system has been privatised. Including essential services.So what do governments ACTUALLY do today when even those 3 are being “outsourced” more and more every day

    If there were only 2 levels of government , say Federal ( which would also manage the countries global interests ) , and States , then the cost savings would be huge.

    Everything seems to be focussed “about the deal today ” instead of short , medium and long term objectives. If we had less layers of government it should be a lot easier to lobby against the excessive charges we see today.

    One thing for certain i have observed as a consumer is that policies , promises and legislation are increasingly consistently inconsistent

    • MaxG 3 years ago

      You are onto something 🙂
      Which is what the intent of free markets has been all along; diminish government power, eventually questioning the legitimacy of governments in principle, thus achieving the ultimate goal of corporations ruling the country -> the world.
      I probably cark it in some 10-15 years and am glad I do not have to live through the times to come.

      • Phil 3 years ago

        I agree Max .

        Once assets are sold off and privatised the costs start to rise way beyond CPI. This is the classical predatory behaviour of modern corporate management.

        But i have faith that technology can allow a “darknet” style of economy and social networking where people gradually regain control of the essential services they need in the form of a grassroots D.I.Y movement.

        Costs rising way beyond CPI for services that were once affordable , and the public owned outright , is simply not sustainable for all.

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