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Commentary

Testimony to the Senate Environment and Communications Legislation Committee Inquiry

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Energy Consumers Australia

Energy Consumers Australia’s Director and Associate Director of Advocacy and Communications, Chris Alexander and Oliver Derum, gave evidence to this inquiry the Senate Environment and Communications Legislation Committee Inquiry into the Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017.

The key themes of their evidence were: Energy Consumers Australia support for the proposed abolition, based on our confidence in the evolving process to set network revenues; the associated process to establish a binding Rate of Return methodology for setting network revenues; the importance of properly resourcing consumer advocates to participate in network revenue determinations; and, the ability of consumer groups to participate in Judicial Review of regulatory determinations and the challenges in doing so (i.e., establishing standing in court and the risk of adverse cost orders).

Below is a short excerpt of the comments from Chris Alexander:

Energy prices have roughly doubled in the last 10 years and consumers are now facing a further very significant round of price rises – in many parts of the country, beyond 20 per cent. For many consumers, those prices are going to be unmanageable. We are expecting, unfortunately, to see the incidence of debt and disconnection to rise, and we are also expecting small businesses to come under real financial pressure and, in some cases, close their doors. Network costs have been a major contributor to these price rises over the last 10 years. The chair of the ACCC, Rod Sims, spoke at the National Press Club two weeks ago. His assessment was that these network costs contributed 41 per cent of the price rises we have seen in the last 10 years. That is since 2008.

As the explanatory memorandum to this bill notes, prices are higher than they need to be because of the limited merits review regime. The number in the EM is $7.3 billion over and above what the AER would have otherwise allowed since 2013. So what is it about the LMR regime that is giving rise to these bad outcomes for consumers? The nub of the problem, as far as we see it, is that because LMR appeals have become a frequent, almost routine final step in the regulatory process. I think 12 out of the last 20 processes have been appealed. This is in an areanetwork regulationwhere there aren’t always correct answers. This is an area where the regulator is required to exercise judgement and discretion. Under LMR, networks have been able to cherry-pick errors and extract extra revenue through an adversarial and legalistic process. So this is in many cases means having a discussion and a debate about what might happen in the future. Inherent in that is the need for the regulator to exercise discretion. Having these issues played out through a legal process doesn’t make much sense for consumers. Ultimately, this has really come at the expense of the overall balance and coherence of revenue determination and the long-term interests of consumers, which under the legal framework for NEM and the National Energy Board is the objective of the exercise.

Finally, in support of this bill, Energy Consumers Australia are hoping that the abolition of this framework will signal the end of what we think has been a very costly and counterproductive period in network regulation and contribute to the focus of networks and stakeholders shifting to where it should be – and that is up-front in the process where the objective is for networks and consumers to find a line between their interests through collaboration, deliberation and negotiation rather than a legal process at the back end that tends to promote a more ‘winners and losers’ and zero-sum dynamic which doesn’t serve consumers well.

The full transcript of Energy Consumers Australia’s appearance can be found here.

The homepage for the inquiry can be found here.

 

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