STATUTES AMENDMENT (NATIONAL ELECTRICITY AND GAS LAWS—LIMITED MERITS REVIEW) BILL

Introduction and First Reading

Received from the House of Assembly and read a first time.

Second Reading

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for the Status of Women, Minister for State/Local Government Relations) (18:19): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

The Government is again delivering on a key energy commitment through new legislation to improve the governance arrangements of the Australian energy sector, for the benefit of South Australians and all Australians.

Under the National Electricity Law and the National Gas Law, parties affected by the decisions of the Australian Energy Regulator, or other relevant decision makers, are provided an opportunity for limited merits review of these decisions. These reviews are performed by the Australian Competition Tribunal.

As part of its Energy Market Reform Implementation Plan, the Council of Australian Governments committed to changes to the limited merits review regime to be introduced prior to the commencement of the next round of revenue determinations for regulated energy network businesses in mid-2014.

The Statutes Amendment (National Electricity and Gas Laws—Limited Merits Review) Bill 2013 will amend the National Electricity Law, set out in the schedule to the National Electricity (South Australia) Act 1996, and the National Gas Law, set out in the schedule to the National Gas (South Australia) Act 2008, for the major reform of the limited merits review regime.

In light of significant energy price rises and concerns that inappropriate use or operation of the review process may have contributed to such rises, Energy Ministers agreed to a review of the limited merits review regime and established an independent expert panel to undertake this review. The review was consistent with a legislated requirement to review the limited merits review regime within seven years of the commencement of the requirement.

The panel delivered two reports, in June and September 2012, and found that the original policy intent of the regime remained relevant, but that the operation of the regime had not delivered on the national electricity objective, the national gas objective, or the original policy intentions agreed by Energy Ministers.

In particular, the panel found that, despite the long term interests of consumers being central to the national electricity objective and national gas objective, the implications of review decisions on the long term interests of consumers had not explicitly featured in the review process.

The panel also found that, contrary to the original policy intent of the merits review framework, reviews have had a narrow focus, with the Australian Competition Tribunal limited to considering parts of the original decision, rather than examining the decision as a whole in light of the national energy objectives.

Consequently, the panel made a number of recommendations to improve the operation of the regime.

Energy Ministers issued a Statement of Policy Intent in December 2012, in which they affirmed the policy intent that in interpreting the national electricity objective and national gas objective, the long-term interests of consumers (with respect to price, safety, reliability and security of supply) are paramount in the regulation of the energy industry.

The Statement of Policy Intent also affirmed that the objective of the review framework is to ensure that relevant decisions promote efficient investment, operation and use of energy infrastructure, and are consistent with the revenue and pricing principles of the National Electricity Law and National Gas Law, in ways that best serve the long-term interests of consumers.

Energy Ministers considered that the long-term interests of consumers should be the sole criterion for determining the preferable decision, both at the initial decision making stage and at merits review.

In June 2013, Energy Ministers released their policy position and the Regulation Impact Statement; Limited Merits Review of Decision-Making in the Electricity and Gas Regulatory Frameworks—Decision Paper.

Energy Ministers agreed to retain the Australian Competition Tribunal as the review body for the regime and to maintain the limited nature of the merits review process subject to a further review in 2016 of the role of the Australian Competition Tribunal under the new regime.

However, Energy Ministers agreed legislative amendments were required to address a number of the issues raised by the panel; in particular to ensure that the limited merits review only results in changes to decisions under review where the Australian Competition Tribunal concludes that there is a materially preferable decision in the long term interests of consumers.

Energy Ministers also identified a need to amend Commonwealth legislation to allow the Australian Competition Tribunal to act in a more informal and investigative manner when undertaking reviews.

A number of amendments to both the National Electricity Law and the National Gas Law were identified to give effect to this important reform, including ensuring that the limited merits review regime delivers materially preferable decisions in the long term interest of consumers, and specifying the matters that are to be taken into account in decision making by both the Australian Energy Regulator and the Australian Competition Tribunal.

The national electricity objective and national gas objective explicitly target economically efficient outcomes that are in the long term interests of consumers, but the nature of decisions in the energy sector are such that there may be several possible economically efficient decisions, with different implications for the long term interests of consumers.

Consequently, the Bill requires that the Australian Energy Regulator, in making a reviewable regulatory decision, if there are two or more possible decisions that will or are likely to contribute to the achievement of the national electricity objective or the national gas objective, make the preferable reviewable regulatory decision; that is the decision that it considers will, or is likely to, contribute to the achievement of the national electricity objective or national gas objective to the greatest degree.

The Australian Energy Regulator will also be required to give reasons in its decision as to the basis on which it is satisfied that the decision is the preferable reviewable regulatory decision.

This will provide a greater degree of transparency about the Australian Energy Regulator's decision-making process, with the Australian Energy Regulator's explanation also assisting the Australian Competition Tribunal and other parties if the decision is subject to review.

As noted previously, revenue determinations are complex, requiring the Australian Energy Regulator to make a range of decisions. Some of these decisions directly relate to each other, while others entail balancing between different outcomes, and others are wholly independent of other constituent decisions.

Consequently, this Bill will require the Australian Energy Regulator to specify in its decision the manner in which the constituent components of that decision relate to each other and how it took these interrelationships into account in making the decision.

This is intended to provide the Australian Competition Tribunal, and interested stakeholders, guidance on how the Australian Energy Regulator had regard to a range of elements, and any interrelationships between them, in coming to the final, overall decision.

This Bill will also impose a clear obligation on the Australian Energy Regulator to develop a record of its regulatory process, which will be the key reference point for the Australian Competition Tribunal in conducting a review of a reviewable regulatory decision.

The Bill will extend the scope of parties who can apply for review of a decision to include parties that made a submission or comment to the Australian Energy Regulator during the regulatory process subject to the review. This would extend to users, consumer interest groups or a Minister of a participating jurisdiction, as long as they participated in the regulatory decision-making process.

This Bill will make no change to the four existing grounds for review but imposes an additional requirement on applicants, with the effect of raising the threshold to obtain leave to review. Applicants will be required to establish two matters:

(a) that there is a serious issue to be heard and determined as to whether there was an error of fact, incorrect exercise of discretion or unreasonableness in the original decision, as under the current framework; and

(b) a prima facie case that addressing the matter alleged in the ground for review will or is likely to result in a decision that is materially preferable to the original decision in the long term interests of consumers as set out in the national electricity objective or the national gas objective.

The most significant amendments in this Bill relate to the role of the Australian Competition Tribunal in conducting a review of a reviewable regulatory decision. The Bill will ensure the Australian Competition Tribunal can only set aside, vary or remit a decision if it is satisfied that to do so will, or is likely to, result in a materially preferable decision, otherwise the decision under review will be affirmed.

Importantly, the Bill will clarify that a materially preferable decision is a decision that is materially preferable to the reviewable regulatory decision in making a contribution to the achievement of the national electricity objective or the national gas objective.

The long-term interests of consumers must be the Australian Competition Tribunal's paramount consideration in determining that a materially preferable decision exists.

In considering what constitutes a materially preferable decision, the Bill also requires the Australian Competition Tribunal to consider how the constituent components of the reviewable regulatory decision interrelate with the matters raised as a ground for review and each other, to consider the revenue and pricing principles in the same manner as the Australian Energy Regulator does in its decision, and to consider the decision as a whole in terms of the achievement of the objective.

The Bill will also clarify that neither the establishment of a ground for review, nor the consequence for, or impact on, the average annual regulated revenue of the regulated network service provider, nor that the amount that is specified or derived from the reviewable regulatory decision exceeds the monetary threshold for the grant of leave to review the decision, is in itself determinative of whether a materially preferable decision exists.

Instead, the Bill will require the Australian Competition Tribunal to undertake an holistic assessment of whether the setting aside or varying of the reviewable regulatory decision, or remission of the matter back to the original decision maker, will or is likely to deliver a materially preferable outcome in the long term interests of consumers, as set out in the national electricity objective and the national gas objective.

The Bill will clarify that the Australian Competition Tribunal is required to remit the matter to the Australian Energy Regulator in circumstances where the Tribunal considers there is likely to be a materially preferable decision, but where establishing this would require a complex assessment in which the entire, or a significant proportion of, the original decision-making process needs to be repeated.

The Bill will ensure that the Australian Competition Tribunal will primarily be limited to considering the material that was before the Australian Energy Regulator when making the original decision, including its final determination.

However, the Australian Competition Tribunal will be allowed to consider new information or material if it would assist it in making its determination and such information was not unreasonably withheld from the Australian Energy Regulator or was publicly available or known to be available to the Australian Energy Regulator when it was making the reviewable regulatory decision.

In both cases, the information or material must be information or material that the Australian Competition Tribunal considers the Australian Energy Regulator would reasonably have been expected to have considered when it was making the original decision.

The Bill will make it clear this opportunity for new information or material to be introduced is only available if the Australian Competition Tribunal is of the view that a ground for review has been established.

The Bill will also clarify the Australian Competition Tribunal's continuing capacity to seek assistance, information, materials and evidence from experts on its own motion where it considers a ground for review has been established and such information would assist it to determine whether a materially preferable decision exists. Experts assisting the Australian Competition Tribunal will be limited to considering the material that was before the Australian Energy Regulator when making the original decision, including its final determination.

The Bill will clarify what matters the Australian Energy Regulator, the applicant and other parties, may or may not raise in a review and will include a prohibition on network service providers raising an issue that was resolved or not maintained in the regulatory process when establishing a ground of review.

The Bill addresses current barriers to user and consumer participation in the limited merits review process, while maintaining incentives to discourage trivial or vexatious claims.

First, the Bill will introduce a general requirement on the Australian Competition Tribunal to engage with consumers in its review process.

Second, for the purposes of symmetry, the Bill will make it explicit that the Australian Energy Regulator must consult with consumers as part of its decision making process. This is in addition to the existing legislated requirement to consult the relevant regulated network service provider and other relevant parties affected by the decision.

Third, the Bill will reduce the risk to consumer groups of participation in the review process, by removing the provision that small users and consumers may have costs awarded against them on the basis that they conducted their case without due regard to submissions or arguments made to the Australian Competition Tribunal by another party and by limiting the costs orders that can be made against them to administrative costs.

Finally, the Bill precludes a network business from passing costs of a review through to consumers, either prospectively or following a review.

In establishing the national electricity objective and the national gas objective, it was recognised that the long term interests of consumers are not delivered by any one of its factors in isolation, but rather require a balancing of the range of factors.

The Australian Energy Regulator therefore determines what is in the long term interests of consumers by delivering an effective balance between these factors.

The Australian Competition Tribunal likewise will consider the contribution of the regulatory decision to achieving the objective by considering and balancing the combination of factors in the objective, and arriving at the decision that best serves the long-term interests of consumers.

This Bill will make it clear that achieving the preferable decision in the long term interests of consumers as set out in the national electricity objective and the national gas objective is the aim of the Australian Energy Regulator.

Due to its role of assessing the merits of the original decision, the Bill will also make it clear that achieving the materially preferable decision in the long term interests of consumers as set out in the national electricity objective and the national gas objective for the Australian Energy Regulator's decision is the aim of the Australian Competition Tribunal.

The changes to the National Electricity Law and National Gas Law that will be introduced with the passing of this Bill will be key in ensuring consumers do not pay more than necessary for the quality, safety, reliability and security of supply of electricity and natural gas under the national energy laws.

This will be achieved through more closely aligning the reviewable regulatory decision making processes, with particular regard to delivering the national electricity objective and national gas objective. In this way, the amendments affected by this Bill will make the reviewable regulatory decision making processes and any subsequent reviews more robust and transparent and importantly more focussed on the outcomes that are in the long term interests of consumers.

I commend the Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

This clause is formal.

2—Commencement

The measure will be brought into operation by proclamation.

3—Amendment provisions

The provisions in Part 2 will amend the National Electricity Law and the provisions in Part 3 will amend the National Gas Law.

Part 2—Amendment of National Electricity Law

4—Amendment of section 2—Definitions

A new definition, being that of constituent components of a reviewable regulatory decision, is to be included in the National Electricity Law. The constituent components of a reviewable regulatory decision are those matters that constitute the elements or components of the decision and on which the reviewable regulatory decision is based and include the matters that go to the making of the reviewable regulatory decision and decisions made by the AER (being the relevant decision-maker) for the purposes of the reviewable regulatory decision.

5—Amendment of section 16—Manner in which AER performs AER economic regulatory functions or powers

New paragraph (b) of section 16(1) requires that network service users, or prospective network service users, and user or consumer associations or user or consumer interest groups, that the AER considers have an interest in the determination, will be consulted in relation to the making of a distribution determination or a transmission determination.

New paragraph (c) of section 16(1) requires that the AER, in relation to making a reviewable regulatory decision, must specify the manner in which the constituent components of the decision relate to each other and the manner in which that interrelationship has been taken into account in the making of the reviewable regulatory decision.

New paragraph (d) requires the AER, in a case where 2 or more possible reviewable regulatory decisions may contribute to the national electricity objective, to make the decision most likely to contribute to that objective to the greatest degree, and to specify the basis on which the AER makes the relevant decision.

6—Insertion of section 28ZJ

The AER is to be required, in relation to a reviewable regulatory decision, to keep a written record of certain matters and documents.

7—Amendment of section 71A—Definitions

This clause relates to definitions that are used for the purposes of Division 3A of Part 6 of the National Electricity Law. The definition of affected or interested person or body (which is especially relevant to the operation of section 71B of the Law) is to be amended to include a reviewable regulatory decision process participant, and a reviewable regulatory decision process participant is to be defined as a person or body who made a submission or comment in relation to the making of a reviewable regulatory decision and so as to include also a Minister of a participating jurisdiction.

8—Amendment of section 71C—Grounds for review

This amendment will require an applicant to the Tribunal for a review of a reviewable regulatory decision to specify the manner in which a determination of the Tribunal to vary the reviewable regulatory decision, or to set aside the decision and to remit the matter back to the AER for a fresh decision, on the basis of 1 or more grounds raised in the application, either separately or collectively, would, or would be likely to, result in a materially preferable NEO decision (as specified in new section 71P(2a)(c)).

9—Amendment of section 71E—Tribunal must not grant leave unless serious issue to be heard and determined etc

Section 71E of the Law relates to what must be established by an applicant before the Tribunal may grant leave to apply for a review of a reviewable regulatory decision. This amendment will require an applicant to establish a prima facie case as to a matter required to be specified under the amendment made to section 71C of the Law (in addition to the existing requirement that there is a serious issue to be heard and determined as to whether a ground for review set out in section 71C(1) exists).

10—Amendment of section 71K—Leave for reviewable regulatory decision process participants

These are consequential amendments.

11—Amendment of section 71M—Interveners may raise new grounds for review

These amendments relate to any new ground that an intervener may wish to raise with respect to a reviewable regulatory decision. If an intervener wishes to raise a new ground, the intervener will also be required to specify the manner in which a determination of the Tribunal to vary the reviewable regulatory decision, or to set aside the decision and to remit the matter back to the AER for a fresh decision, on the basis of 1 or more grounds raised in the notice of intervention or in the application for review, would, or would be likely to, result in a materially preferable NEO decision.

12—Substitution of section 71O

The new section to be enacted under this clause sets out the matters that the AER, and any other person or body participating in the proceedings before the Tribunal (including as to whether a ground for review exists), may raise at the various stages of the proceedings.

13—Amendment of section 71P—Tribunal must make determination

Section 71P of the Law sets out the Tribunal's options if the Tribunal grants leave for a review to proceed under this Subdivision. Under new subsection (2a) of section 71P, the Tribunal will only be able to vary the reviewable regulatory decision, or set aside the reviewable regulatory decision and remit the matter back to the AER to make the decision again, if the Tribunal is satisfied that to do so will, or is likely to, result in a decision that is materially preferable to the original decision in making a contribution to the achievement of the national electricity objective and, in the case of a determination to vary the decision, the Tribunal is satisfied that to do so will not require the Tribunal to undertake an assessment of such complexity that the preferable course of action would be to set aside the decision and remit the matter to the AER to make the decision again.

14—Amendment of section 71R—Matters to be considered by Tribunal in making determination

These provisions are relevant to the matters that the Tribunal may consider in reviewing a reviewable regulatory decision, and any additional consultation that the Tribunal may undertake. If the Tribunal is satisfied that a ground for review has been made out and that it would assist to obtain additional information or material in order to determine whether a materially preferable NEO decision exists, the Tribunal may, on its own initiative, take steps to obtain that information or material subject to the qualification that the action taken by a person acting in response to such steps must be limited to considering decision related matter under section 28ZJ.

15—Amendment of section 71X—Costs in a review

16—Amendment of section 71Y—Amount of costs

17—Insertion of section 71YA

These amendments relate to the costs associated with a review under this Division of the Law. A new provision will limit the costs awarded against a small/medium user or consumer intervener in favour of another party to the payment of reasonable administrative costs (as determined by the Tribunal) of that other party. Another provision will prevent the passing on of costs that a network service provider may incur under this Division through certain mechanisms.

18—Amendment of section 71Z—Review of Division

The MCE will be required to review the Tribunal's role under this Division of the Law by 1 December 2016.

Part 3—Amendment of National Gas Law

19—Amendment of section 2—Definitions

These amendments relate to the definitions that apply for the purposes of the National Gas Law. The amendments are consistent with the amendments to be made to the National Electricity Law, except that the scheme to which this Part of the Bill applies is essentially to relate to any designated reviewable regulatory decision, being an applicable access arrangement decision (other than a full access arrangement decision that does not approve a full access arrangement).

20—Amendment of section 28—Manner in which AER must perform or exercise AER economic regulatory functions or powers

Subsection (1) of section 28 is to be revised. Currently, subsection (1) requires that the AER must, in performing or exercising an AER economic regulatory function or power, act in a manner that will or is likely to contribute to the achievement of the national gas objective. The revised subsection (1) will also require the AER, in making a designated reviewable regulatory decision, to consult with the relevant covered pipeline service provider, users or prospective users of the pipeline services that the AER considers have an interest in the matter, and user or consumer associations or users or consumer groups that the AER considers have an interest in the matter. Other amendments are consistent with section 16(1)(c) and (d), to be inserted into the National Electricity Law (see clause 5).

21—Insertion of section 68C

The AER is to be required, in relation to a designated reviewable regulatory decision, to keep a written record of certain matters and documents (and see clause 6).

22—Amendment of section 244—Definitions

These amendments correspond to amendments to be made to the National Electricity Law (see clause 7).

23—Amendment of section 246—Grounds for review

These amendments correspond to amendments to be made to the National Electricity Law (see clause 8).

24—Amendment of section 248—Tribunal must not grant leave unless serious issue to be heard and determined etc

This amendment corresponds to an amendment to be made to the National Electricity Law (see clause 9).

25—Amendment of section 249—Leave must be refused if application is about an error relating to revenue amounts below specified threshold

26—Amendment of section 254—Leave for reviewable regulatory decision process participants

These are consequential amendments.

27—Amendment of section 256—Interveners may raise new grounds for review

These amendments correspond to amendments to be made to the National Electricity Law (see clause 11).

28—Amendment of section 258—Matters that parties to a review may and may not raise in a review

This amendment will disapply section 258 of the National Gas Law with respect to a designated reviewable regulatory decision, as new section 258A is to apply instead.

29—Insertion of section 258A

The new section corresponds to a section to be inserted into the National Electricity Law (see clause 12).

30—Amendment of section 259—Tribunal must make determination

These amendments correspond to amendments to be made to the National Electricity Law (see clause 13).

31—Amendment of section 261—Matters to be considered by Tribunal in making determination

These amendments correspond to amendments to be made to the National Electricity Law (see clause 14).

32—Amendment of section 268—Costs in a review

33—Amendment of section 269—Amount of costs

34—Insertion of section 269A

These amendments relate to the costs associated with a review of a designated reviewable regulatory decision and correspond to amendments to be made to the National Electricity Law (see clauses 15, 16 and 17).

35—Amendment of section 270—Review of Part

The MCE will be required to review the Tribunal's role under this Part of the National Gas Law by 1 December 2016.

Debate adjourned on motion of Hon. D.W. Ridgway.