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

Second Reading

Adjourned debate on second reading.

(Continued from 31 October 2013.)

The Hon. R.I. LUCAS (11:30): I rise on behalf of Liberal members to support the second reading of the Statutes Amendment (National Electricity and Gas Laws—Limited Merits Review) Bill. The member for Waite who has had carriage of this bill for the Liberal Party has indicated publicly and also during debate in another place broadly the reasons for the Liberal Party's supporting the legislation. This bill proposes to make amendments to the National Electricity Law and National Gas Law by reforming the regulatory powers of the Australian Energy Regulator (AER) and the functions of the Australian Competition Tribunal (ACT) for determining energy network costs.

Specifically the bill seeks to remedy perceived weaknesses in the Limited Merits Review process that many have argued have led to extraneous costs being attributed to network service providers by the Australian Competition Tribunal. South Australia, as members would be aware, is the lead legislator for national electricity and gas laws, and this bill has therefore been brought forward to remedy what many people believe are regulatory weaknesses at a national level.

In summary, the Limited Merits Review process involves a cost determination process by the Australian Energy Regulator. After that process, the network service providers can seek a Limited Merits Review at the Australian Competition Tribunal to dispute the regulator's determination. In considering that review, the tribunal can resolve the determination was incorrect. It has been the view of the Standing Council on Energy and Resources of COAG that this process has not been working as intended and has been subject to gaming by the network service providers.

Since the Limited Merits Review process was introduced in January 2008, there have been 22 determinations which have been reviewed under the process which in the end have attributed an additional $3.3 billion to network service providers for reasons that were, in the view of many, legalistic technicalities rather than genuine errors.

The COAG body, the Standing Council on Energy and Resources, resolved to investigate the market mechanisms and regulatory framework of the Limited Merits Review regime in 2012. They established a review which was led by Professor George Yarrow, the Hon. Michael Egan (former treasurer in the New South Wales Labor government) and Dr John Tamblyn, who has had considerable experience with the New South Wales regulatory and the national regulatory authorities.

This review, called 'Review of the Limited Merits Review Regime', found that the act was not being enforced as intended by the AER and the ACT due to flaws in the legislation. The authors resolved to maintain the existence of the Australian Energy Regulator and the Australian Competition Tribunal but to broaden their focus and to strengthen their regulatory powers and functional capacity. They found that the merits review process was seen to be unduly narrow which created no-go areas for reviewers. They found that the legal process unfairly advantaged the network service providers due to excessive appeals activity with a focus on legal processes rather than the long-term interests of consumers. As a result of that, the bill proposes a series of technical changes to fix the Limited Merits Review process.

As I said, the member for Waite, who has had carriage of the bill for the Liberal Party, has indicated that the Liberal Party has considered the government's arguments for the legislation and has indicated that we are prepared to support the regulatory reform.

The only comment of a general nature I would add in relation to this whole debate about the network service providers is, I guess, a cautionary note that I have seen in some of the political comment, some of the advisory comment and in particular some of the media commentary on this whole regulatory regime. I think many have been dismissive, with some justification, about what they refer to as the phenomenon of gold plating. That is, there is this argument that the network service providers have an interest in providing a Rolls Royce or gold-plated service with the inevitable increased costs to consumers. I think there is certainly an element of truth in that criticism.

Can I just issue a cautionary note. I think that many who comment on what they refer to as the phenomenon of gold plating, if and when at some stage in the future the system in South Australia and nationally at peak periods suffers either brownouts or blackouts, as a result of the system not being able to cope with the peaks, I suspect that at some stage, whoever happens to be in government, will have the accusatory finger pointed at them that they have not provided sufficient protections in terms of the network to ensure that at critical periods power continues to be provided to consumers in South Australia and nationally.

I think it is too easy to be dismissive that all the arguments in relation to what is claimed to be gold plating are dismissed as gold plating. I suspect in some cases there are good arguments for providing the additional security to the system that consumers will claim. Having lived through the experience of being the minister responsible for the electricity system in the late 1990s and early 2000s, I know that when the system breaks down, in terms of the distribution system or the network system, and power is unable to be provided and consumers suffer brownouts and blackouts, the attention of the media, in particular, and the politicians automatically turns to point an accusatory finger at whoever was in charge of the system, saying that there is not sufficient security and protection in the system to ensure that we do not suffer brownouts and blackouts at critical or peak periods.

I guess that is my cautionary note: I remind those who dismiss all the network upgrades as being gold plating—and there have been debates about replicating parts of the network to provide backup in the event that one connection breaks down and whether or not there is an alternative connection. There have been debates in the CBD in Adelaide over the years about the level of security in terms of the distribution system into the CBD being too reliant on just one particular, in essence, pipe or connection and what happens if that goes down. There have been various debates and arguments about whether or not in the CBD and areas like that that there ought to be backup. There have been debates with about those sorts of things forever.

Many will dismiss that as an argument for the network service providers to gold plate the system to provide an unnecessary level of security, and they will be the people who ask, when and if the system breakdown at some stage in the future, why did governments, regulators, policy advisers, etc., not canvass the issue of sufficient security in the system. I guess that is always the advantage of being either an observer from the sidelines, or in opposition, if you are in politics of the day, or you are in the media, where you have that capacity to second-guess everything from whichever particular perspective you want.

So, that is my only cautionary note, within the context of saying that the member for Waite has indicated that the Liberal Party has and will support the regulatory changes. In doing so, I think people need to reflect that sometimes network upgrades and security upgrades are not just about gold-plating the system to rip off consumers; they are about trying to provide a level of security that protects against brownouts and blackouts for consumers and industry at critical periods. I suspect that, at some stage in the future, we will have a debate from a different perspective, as I said, if we are confronted with those circumstances.

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) (11:40): I do not believe there are any further second reading contributions. I thank the Liberal opposition for their indicated support for this piece of legislation. This legislation is about improving governance arrangements of the Australian energy sector, not just for the benefit of South Australians but for all of Australia, and I look forward to this being dealt with through the committee stage.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. R.I. LUCAS: Mr Chairman, I am wondering whether the minister's advisers are in a position to know whether or not there are any Australian Energy Regulator determinations currently on foot that are the subject of any challenge or process as we speak?

The Hon. G.E. GAGO: I have been advised: none that we are aware of.

Clause passed.

Remaining clauses (2 to 35) and title passed.

Bill reported without amendment.

Third 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) (11:43): I move:

That this bill be now read a third time.

Bill read a third time and passed.