Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017: Second Reading

September 04, 2017

Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017

Second Reading

Consideration resumed of the motion:

That this bill be now read a second time.

Mr BUTLER (Port Adelaide) (17:25): It is a pleasure to speak on the Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017. I indicate that the opposition will support this bill, though I also foreshadow that I will be moving a second reading amendment at the conclusion of my remarks. This is a bill that seeks to abolish a review process that has been in place for some years around regulatory decisions made in relation to the National Electricity Market. For some time, affected parties—generally, network companies—have had the ability to seek a merits review of decisions made by the Australian Energy Regulator, the AER, to the Australian Competition Tribunal. This bill seeks to remove that merits review that has been in place and seeks to ensure that the decisions made by the AER are also not subject to merits review by any other state or territory body. Arguably, it is unusual for there to be a merits review of regulatory decisions that have involved very extensive inquiry processes—public consultations, submissions by stakeholders and such like—and that point is rightly made by the government in the explanatory memorandum to this bill. For that reason, the merits review that has existed in the national electricity law has been limited, but broadly within this parliament has come to the end of its useful life.

The limited merits review was put in place some years ago, but when Labor was still in government was subject to a very substantial review in 2012 by an independent panel led to Professor George Yarrow. That review led to changes that were enacted in the final stages of our time in government with the agreement of state and territory governments covered by the NEM to ensure that there were improvements to timeliness and cost, but particularly to refocus the limited merits review process, the LMR, on the long-term interests of consumers, who arguably were not getting a fair deal through the merits view that had been conducted up to the time of Professor Yarrow's review. Those changes were made and have been in place for the last few years. It is a case made by the government and broadly understood, I think, by stakeholders in the electricity sector that, since those improvements were made to the LMR process, it is still very clear that the electricity networks have had the inside running on the LMR process at the expense of consumers, businesses and households in the electricity system. The government rightly makes the point that 12 of the 20 AER regulatory decisions made in the post-2013 period—so post the Professor Yarrow reforms—have been reviewed. In business terms, the total benefit to network companies of those review decisions by the Australian Competition Tribunal amounts to some $7.3 billion that had been sought by electricity network companies, the vast bulk of which was granted to those companies through the LMR process.

So I think there has broadly been a view taken by stakeholders—perhaps not the network companies but by stakeholders—that the changes to the LMR process in 2013 that followed the Yarrow review did not do the job and have not balanced the interests of consumers with the interests of producers—or, in this case, network companies, in the electricity system. As a result, there was, I'm sure, a heated debate at the COAG Energy Council in 2016 about whether there would be further changes or, indeed, abolition of the LMR process altogether, given the experience that electricity consumers faced in the three years following the Yarrow review.

It's pretty clear that the loudest proponents of the abolition of LMR were Labor state governments in Victoria and South Australia and the New South Wales Labor opposition, led by Luke Foley. The strongest resistance to any abolition of LMR was from the New South Wales government, particularly while Mike Baird was the Premier of that government. But, in spite of that, or perhaps because of the inability of the COAG Energy Council to reach a consensus position on this, the Commonwealth government has decided to bring forward this bill. The opposition supports the bill and supports the abolition of LMR. That doesn't mean that there might not well have been some ability for a consensus to have been reached at the COAG Energy Council but, given the time that this has taken and the very clear evidence post-Yarrow of the degree to which this review process appears to be slanted in the interests of network companies rather than the interests of consumers, we support the abolition that is contained in this bill.

I do indicate, though, that, at the end of my remarks, I will be moving a second reading amendment to this bill, because, as was the case with some other legislation in the energy policy portfolio that the parliament or the House of Reps considered earlier today—although this is legislation that should be supported and will achieve some good things in the operation of the National Electricity Market—it again highlights the lack of a broad, holistic energy policy being able to be delivered by this government.

This bill, very rightly, is directed at relieving price pressure on consumers—households and businesses—in the National Electricity Market and, for that reason, we support it. But we also know that the principal driver of energy prices that have been going up and up and up under this government is the lack of policy certainty, the lack of a national investment framework, to pull through electricity generation investment that replaces the ageing generation infrastructure that inevitably is closing, because it was built in the 1960s and the 1970s and has reached the end of its life.

As I said earlier today in this chamber in relation to another bill, this government, when led by the member for Warringah, had a very clear plan about dismantling and destroying the previous Labor government's climate and energy policies. Unfortunately, though, it devoted so much time to its ambition of dismantling and destruction, that it didn't put in place the intellectual work to ensure that there was a replacement investment framework that would guide investment decisions—very long-term investment decisions—being able to be made by electricity companies, whether they were some of the traditional large, thermal generator companies that are familiar to Australian households and businesses or some of the new clean energy companies that are also taking hold here in Australia.

It has been made clear time and time again—and most recently and most notably perhaps, in the report by the Chief Scientist, Alan Finkel—that, more than anything, this country needs clear energy policy investment frameworks to guide these long-term investment decisions over the coming years to set Australia's electricity infrastructure up for the coming decades. Because of that lack of policy certainty, being the principal driver of power prices going up, we have seen wholesale power prices double since this government was elected four years ago. They have doubled. Those wholesale power price increases are now starting to feed through into electricity bills for households. We saw, for example, in New South Wales household power bills go up by 20 per cent, on average, on 1 July this year. They are also feeding into business contracts, which might be multi-year contracts, that are now up for renegotiation. Business after business are reporting increases of 70, 80, 90 or even 100 per cent on their previous contract prices because of the concertinaed effect of the wholesale power price increases that have happened under this government. As I said, the overwhelming solution to this, according to all expert advice that the government and the opposition and others have received, is to deliver some policy certainty for Australian business and households into the future.

Perhaps the key reason for this government not being able to deliver that policy certainty is the deep philosophical divisions that exist within the coalition party room. This is a party room utterly divided, in a deep philosophical way, about how Australia's future energy system should be constructed. It is a party room obsessed about coal and its place in the future to a point that is quite irrational. It seems to ignore all expert advice, including from some of the biggest coal generators that operate here in Australia, that this is a legacy technology. It doesn't mean that there is not going to be coal-fired power in Australia for a very long time. Still, about 76 per cent, on the latest figures, of electricity in the National Electricity Market is generated from coal. That is not going to disappear any time soon. It is a level of penetration in the NEM that has to come down if we are going to have any chance of securing and discharging the commitments that this government made at the Paris climate conference in 2015. We have to get that figure down from 76 per cent.

Leaving aside those climate imperatives, even the Treasurer, who brought a lump of coal into parliament—in a pretty fatuous gesture that I suspect he now regrets deeply—said recently that anyone who thinks that new coal-fired power stations are either cheap or quick is deluded. New coal is not cheap. New coal will not attract investment dollars, because investors understand that there is a very serious carbon price risk and a regulatory risk to any new coal-fired asset that will probably emerge in the first quarter or certainly the first half of the life of that asset. Yet still within the coalition party room they are unable to deliver, or unable to begin to deliver, on the most central of Alan Finkel's recommendations, and that is to deliver a clean energy target. The minister said, 'Oh, there's no rush. This will only start operating in 2020 anyway,' but we know that the Finkel panel said there was, in their words, an 'urgent need for a clear and early decision about a clean energy target'. That is for the reason that these investment decisions take time.

We know that AGL has decided to close the Liddell Power Station in 2022. That is only five years away, which is the blink of an eye in terms of investment and construction decisions in the electricity sector. We know that the Renewable Energy Target, which is a bipartisan piece of legislation in this parliament, is underpinning substantial investment in renewable energy right now, but that investment will drop off very quickly if there is no legislation that charts a path forward beyond the end of the Renewable Energy Target. Although the Renewable Energy Target finishes in 2020, in order to get through the door before the door closes, investment decisions need to be made by next year. If there isn't something in place beyond that date, we will experience the 'valley of death' that was talked about in one of the newspapers this morning. The coalition party room needs to have it out on this question. We on this side understand that there is a deep philosophical division. We are trying to give the coalition room to work through those processes so that there is the maximum chance of bipartisan agreement on a clean energy target that will give investors the confidence to start building the next generation of electricity infrastructure to start putting downward pressure on wholesale power prices for businesses and households.

While that hard work within the coalition party room is underway, the Prime Minister and the relevant minister have been trying to put forward pieces of legislation like this, have summits with big retailers and certainly give the semblance of frenetic activity to try to get down power prices for households and businesses. Well done to them for that. Good luck to them for that. If some behavioural change comes from the summits that the Prime Minister and the minister have had with retailers, we'll welcome that. But something deeper is needed around the retail market. There is something more structurally wrong with the retail market than simply getting the retailers in and asking them to write a letter to a few million customers, thinking that that will suddenly make it easier for those customers to navigate their way through an incredibly complex retail market in electricity.

Really—as far as I can find, at least—the only serious intellectual work that has been done on our retail market is the Thwaites inquiry that was commissioned by the Victorian state government. Unusually—jaw-droppingly so for this building—this was a bipartisan inquiry. You can't imagine this government commissioning an inquiry that would have Labor representation as well as Liberal or National Party representation. But the Victorian state government commissioned John Thwaites, a very highly respected former Labor minister, and Terry Mulder, a very highly respected Liberal minister in Victoria, who was once touted as a possible leader for the Liberal Party in Victoria, along with Patricia Faulkner, one of the leading public servants in Victoria, to conduct a very deep inquiry into what had happened since privatisation and deregulation to the Victorian retail market.

I think it was surprising reading for many, because what it demonstrated is that all of the promises out of deregulation, corporatisation and, ultimately, particularly in Victoria, privatisation—all of the promises about relief and benefits for consumers—have all come to nought. There are obviously costs involved in competition, in the sense that all of those new companies, whether in superannuation or in electricity, need to advertise and need to boost their own case in a competitive market, but the case was made at the time that the swings and roundabouts would be that there were lower costs for consumers that more than compensated for the costs that retailers were incurring through advertising their wares in a competitive market, and that just hasn't happened.

There has been lots of innovation, it would appear, in competitive, privatised retail markets like Victoria and South Australia, which were really the vanguard of the privatisation push by the Liberal Party in the 1990s, but those innovations tend to be aimed at keeping customers for power companies—gentailers or retailers—and maximising the profit to retailers rather than delivering benefits to consumers. It is now a retail market that is incredibly difficult to navigate for most households, and for many businesses as well. I hope that the letter from the retailers that has been jimmied out of the hands of those retailers by the Prime Minister provides some help to customers. But this government needs to start to come to grips with the ideas from the hard intellectual work that Thwaites, Mulder and Faulkner were commissioned by the Victorian state government to do, and I don't see that on the horizon. For all that this bill and the letters might provide some relief to consumers, we need deep structural change in our retail market, as we do in all of the other areas of the National Electricity Market that, frankly, with increasing clarity, have let down too many consumers in Australia since the NEM was introduced in the 1990s.

In conclusion, although we support this legislation and we think that merits review has been given a chance to work in the interests of consumers—and, frankly, it hasn't—its time now is up and it should be abolished. That will not be supported by some in the electricity industry, but I think they have had a chance to make this thing work in the long-term interests of consumers. It hasn't, so its time is up and it should be abolished. We support any change that the government is able to make themselves or to engender through the behaviour of retailers that will provide some relief to consumers. But I make this point again: it is difficult for people to take seriously the Prime Minister's protestations of concern for consumers in the electricity market when at the same time he is pushing ahead with his plans to abolish the energy supplement for 400,000 aged pensioners, for 105,000 carers, for 109,000 disability support pensioners, for 138,000 single parents and many other income support recipients besides. This is a supplement whose sole purpose is to relieve the pressure from electricity bills on some of our most vulnerable members of the Australian community. It is very difficult for people to take this Prime Minister and this minister seriously when they talk about the impact of power prices, while on the other hand literally hundreds of thousands of the lowest-income, most vulnerable Australians in the community are going to take a hit worth several hundred dollars every year for the future. We cannot support that decision.

So, with those remarks, I now seek to move a second reading amendment in the following terms:

That all the words after 'That' be omitted with a view to substituting the following words:

'whilst not declining to give the bill a second reading, the House notes:

(1) the Government's lack of national energy policy, which is causing an investment strike in new electricity generation; and

(2) the Government’s failure to ensure a national energy policy to support the creation of new electricity generation and deliver affordable, reliable and clean energy for Australian households and businesses.'