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2016-2017
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
COMPETITION AND CONSUMER AMENDMENT (ABOLITION OF LIMITED
MERITS REVIEW) BILL 2017
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Minister for the Environment and Energy, the Hon Josh Frydenberg MP)
Table of contents
Glossary ................................................................................................. 2
General outline and financial impact....................................................... 3
Chapter 1 Abolition of limited merits review ................................... 4
Chapter 2 Statement of Compatibility with Human Rights ............10
1
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
AEM Act Australian Energy Market Act 2004 (Cth)
AEMO Australian Energy Market Operator
AER Australian Energy Regulator
CCA Competition and Consumer Act 2010 (Cth)
ERA Economic Regulation Authority
LMR Limited merits review
NEL National Electricity Law
NERL National Energy Retail Law
NGL National Gas Law
Tribunal Australian Competition Tribunal
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Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017
General outline and financial impact
Abolition of limited merits review
Schedule 1 to the Competition and Consumer Amendment (Abolition of
Limited Merits Review) Bill 2017 amends the Competition and Consumer
Act 2010 to prevent the Australian Competition Tribunal from reviewing
certain decisions made under the national energy laws and to ensure that
decisions made by the Australian Energy Regulator under those laws are
not subject to merits review by any other State or Territory body.
Date of effect: The amendments will commence on the day after the Bill
receives the Royal Assent.
Proposal announced: 20 June 2017.
Financial impact: Nil.
Human rights implications: This Bill does not raise any human rights
issue. See Statement of Compatibility with Human Rights -- Chapter 2,
paragraphs 2.8 and 2.9.
Compliance cost impact: Nil.
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Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017
Chapter 1
Abolition of limited merits review
Outline of chapter
1.1 Schedule 1 to this Bill amends the Competition and Consumer
Act 2010 (CCA) to prevent the Australian Competition Tribunal (the
Tribunal) from reviewing certain decisions made under the national
energy laws and to ensure that decisions made by the Australian Energy
Regulator (AER) under those laws are not subject to merits review by any
other State or Territory body.
Context of amendments
1.2 The national energy laws (consisting of the National Electricity
Law (NEL), the National Gas Law (NGL) and the National Energy Retail
Law (NERL)) form part of a State-based cooperative legislative scheme.
The laws are schedules to South Australian Acts and apply as
State/Territory law by legislation in force in the States and Territories that
participate in the scheme, and as Commonwealth law in the circumstances
provided for in the Australian Energy Market Act 2004 (AEM Act).
1.3 The NEL and the NGL provide for the economic regulation of
electricity transmission and distribution networks and covered gas
pipelines. They do this by giving the AER (or in the case of Western
Australian pipelines, the Economic Regulation Authority (ERA)) power to
set the prices that businesses may charge for, and the revenue they may
earn from, the provision of electricity network services and access to
covered pipelines. The AER is a Commonwealth body established by
section 44AE of the CCA. Section 44AI of the CCA provides
Commonwealth consent to the conferral of functions on the AER under
the State and Territory versions of the national laws; the AEM Act
provides that the AER has the functions conferred on it under the
Commonwealth version of those laws. The ERA is a State body,
established by Western Australian legislation.
1.4 The regulator must perform economic regulatory functions in a
manner that is likely to contribute to the achievement of the national
electricity and gas objectives. The objective is to promote efficient
investment in, and efficient operation and use of, electricity/gas services
for the long term interests of consumers with respect to price, quality,
safety, reliability and security of supply of electricity/gas and, in the case
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Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017
of electricity, the reliability, safety and security of the national electricity
system.
1.5 The process through which the AER develops its revenue and
access determinations involves extensive inquiry processes, analysis and
consultation. For electricity networks, the regulatory process commences
with preliminary consultation on the framework and approach to
regulation. This occurs around two and a half years before the current
regulatory period expires.
1.6 Network businesses periodically submit regulatory proposals
(electricity networks) or access arrangements (gas pipelines) to the
regulator for consideration. The proposals include forecast expenditure
and revenue requirements (typically covering a five year period); for gas,
they also include a reference tariff (which an access seeker may seek to
have the AER enforce in the event of an access dispute) and associated
terms and conditions.
1.7 The regulator has 15 months to review an electricity network's
regulatory proposal before releasing a final decision, and six months to
decide whether to approve a gas access arrangement, with provision for
extension to a maximum of 13 months. Proposals and arrangements are
assessed against legislative criteria, accounting for issues raised in
consultation. Forecast revenue requirements are assessed using a building
block model that accounts for operating and maintenance expenditure,
capital expenditure, asset depreciation costs and taxation liabilities, and an
appropriate return on capital. The return on capital is determined by the
size of the network business' asset base (and projected investment) and
the weighted average cost of capital (the rate of return necessary to cover
a commercial return on equity and efficient debt costs). The return on
capital may account for up to two thirds of revenue.
1.8 Consumer engagement is a central part of the process. When the
regulator assesses a proposal, it considers how effectively the network
business has consulted with the community. It also seeks stakeholder
input through public forums and by consulting with network businesses,
consumer representatives, governments and investment groups. To inform
such stakeholders and encourage their participation, the regulator
publishes a framework and approach paper (electricity only), the
regulatory proposal and an issues paper; invites submissions; holds public
forums; publishes a draft decision and its reasoning; invites submissions
on the draft decision; holds pre-determination conferences (required for
electricity only); publishes any revised proposals; and holds a further
round of submissions and consultations. It also seeks input from the
Consumer Challenge Panel, which provides an independent consumer
perspective to challenge the regulator and network businesses during the
process.
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Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017
1.9 Economic regulatory decisions are currently subject to limited
merits review (LMR) by the Tribunal. The Tribunal is a Commonwealth
body established by section 9 of the Trade Practices Act 1965 and
continued in existence by section 30 of the CCA. Section 44ZZM of the
CCA provides Commonwealth consent to the conferral of functions on the
Tribunal under the State and Territory versions of the national laws; the
AEM Act provides that the Tribunal has the functions conferred on it
under the Commonwealth version of those laws.
1.10 Decisions may (with leave) be reviewed on the ground(s) that
the regulator made an error(s) of fact in its findings of fact, and that
error(s) was material to the making of the decision; the exercise of the
regulator's discretion was incorrect, having regard to all the
circumstances; and/or the decision was unreasonable, having regard to all
the circumstances. Certain financial thresholds and other criteria must also
be satisfied. The Tribunal must make a determination which either affirms
or varies the original decision, or sets the decision aside and remits the
matter back to the original decision maker to be remade in accordance
with any direction or recommendation of the Tribunal. The Tribunal must
use its best endeavours to make a determination within three months of
granting leave.
1.11 Certain other decisions made under the national laws may also
be reviewed by the Tribunal. These include decisions made by a Minister
as to whether a pipeline should be covered by the NGL (and therefore
subject to economic regulation), decisions made by the National
Competition Council about whether a pipeline should be subject to light
regulation (rather than full economic regulation), and certain decisions
made by the AER, ERA and the Australian Energy Market Operator
(AEMO) about the disclosure of confidential or protected information
collected under the national laws (information disclosure decisions).
1.12 The LMR regime was established in 2008 and reviewed in 2012
by an independent panel led by Professor George Yarrow. The review
identified serious shortcomings with the regime. Consequently, in 2013
reforms were introduced to improve timeliness, reduce costs, increase
consumer participation and refocus the process on the long term interests
of consumers.
1.13 The regime was reviewed again in 2016 by the COAG Energy
Council's Senior Committee of Officials, following applications for
review of 12 of 20 of the AER's post-2013 electricity and gas decisions
(in which affected businesses sought a total of around $7.3 billion in
additional revenue) and two of the ERA's gas decisions. The review again
identified a number of significant regulatory failures, including that LMR
reviews of economic regulatory decisions remain a routine part of the
regulatory process, involve significant costs to all participants, continue to
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Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017
present barriers to meaningful consumer participation, lead to significant
regulatory and price uncertainty, and are failing to demonstrate outcomes
that serve the long term interests of consumers.
1.14 In response to the 2016 review, the COAG Energy Council
acknowledged (at its 14 December 2016 meeting) that the LMR regime is
failing to meet its policy intent and is leading to higher prices for
consumers. The Commonwealth has decided that the most effective way
to address these failings, and reduce pressure on energy prices, is to
abolish the regime.
1.15 Divesting the Tribunal of its function of reviewing decisions
made under the national energy laws (other than decisions relating to the
disclosure of confidential or protected information) is consistent with the
principles developed by the Administrative Review Council in its
publication What decisions should be subject to merits review? The
AER's decisions involve extensive public inquiry processes and
consultations, which cannot adequately be replicated in the Tribunal,
particularly having regard to its three month target for completing
reviews.
Summary of new law
1.16 The Tribunal can no longer review decisions made under the
national energy laws (other than decisions relating to the disclosure of
confidential or protected information), and the merits of an AER decision
cannot by reviewed by any other State or Territory body.
Comparison of key features of new law and current law
New law Current law
Tribunal cannot review decisions Affected or interested persons may,
made under the national energy laws, with the leave of the Tribunal, apply
other than decisions relating to the to the Tribunal for a review of a
disclosure of confidential or protected reviewable regulatory decision on the
information. ground(s) that the regulator made an
error(s) of fact in its findings of fact,
and that error(s) was material to the
making of the decision; the exercise
of the regulator's discretion was
incorrect, having regard to all the
circumstances; and/or the decision
was unreasonable, having regard to
all the circumstances.
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Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017
New law Current law
A person whose interests are
adversely affected by an information
disclosure decision may apply to the
Tribunal for review of the decision on
the ground that the decision was not
made in accordance with law or is
unreasonable having regard to all
relevant circumstances.
The merits of an AER decision made No equivalent.
under the national energy laws cannot
be reviewed by any other State or
Territory body.
Detailed explanation of new law
1.17 Schedule 1 amends subsection 44AI(1) of the CCA to make the
Commonwealth's consent to the conferral of national energy law
functions on the AER subject to the operation of new section 44AIA.
[Schedule 1, item 1, subsection 44AI(1) of the CCA]
1.18 New section 44AIA ensures that AER decisions made under the
national energy laws are not subject to merits review by any State or
Territory body. A person's right to seek judicial review of an AER
decision is unaffected. [Schedule 1, item 2, section 44AIA of the CCA]
1.19 Schedule 1 also amends subsection 44ZZM(1) of the CCA to
make the Commonwealth's consent to the conferral of national energy law
functions on the Tribunal subject to the operation of new section
44ZZMAA. [Schedule 1, item 3, subsection 44ZZM(1) of the CCA]
1.20 New section 44ZZMAA prevents the Tribunal from reviewing
decisions made under the national energy laws, other than decisions
relating to the disclosure of confidential or protected information collected
under those laws. In particular, any provision in a State/Territory energy
law or the AEM Act which purports to require or permit the Tribunal to
review decisions made under the national laws (other than decisions
relating to the disclosure of confidential or protected information) is
rendered ineffective by the amendment. [Schedule 1, item 4, section 44ZZMAA
of the CCA]
1.21 In effect, the Tribunal is divested of its LMR function in respect
of all 'reviewable regulatory decisions' made under the national laws,
including:
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Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017
Under the current version of the NEL: network revenue and
pricing determinations, and determinations relating to
approved and required pass through amounts;
Under the current version of the NGL: coverage decisions,
decisions in relation to the making and revoking of light
regulation determinations, access arrangement decisions, AER
ring fencing determinations and exemptions, and decisions
about the approval of associate contracts.
1.22 The Tribunal retains its LMR function in respect of 'information
disclosure decisions', which (under the current versions of the laws) are
decisions of the AER, ERA or AEMO to disclose confidential or protected
information under sections 28ZB or 54H of the NEL, sections 329 or
91GH of the NGL or section 214 of the NERL.
Application and transitional provisions
1.23 Section 44AIA applies to all AER decisions, whenever made.
Effectively, no AER decision, whether made before or after the
commencement of the amendments, may be reviewed by a State or
Territory merits review body.
1.24 Section 44ZZMAA applies to all decisions made under the
national energy laws, whether made before or after the commencement of
the amendments, but the existing LMR regime will continue to apply to a
decision that, at the commencement time, was being reviewed by the
Tribunal, provided the application to review the decision was made on or
before 20 June 2017 (when the proposed amendments were announced).
1.25 In effect, any reviewable regulatory decision made after the
commencement of the amendments cannot be reviewed by the Tribunal;
decisions made before the commencement of the amendments can only be
reviewed if the application for review was made before 21 June 2017; any
review proceedings that are on foot at the commencement time can
continue, but if the Tribunal remits the matter back to the original decision
maker, any remade decision cannot be reviewed by the Tribunal; and any
court order made as the result of any judicial review of a Tribunal
determination (whether the order or the determination is made before or
after the commencement time) requiring the Tribunal to reconsider its
determination can be implemented, but if the Tribunal remits the matter
back to the original decision maker, any remade decision cannot be
reviewed by the Tribunal.
9
Chapter 2 Statement of Compatibility
with Human Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Competition and Consumer Amendment (Abolition of Limited Merits
Review) Bill 2017
2.1 This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
2.2 The Bill amends the Competition and Consumer Act 2010 to
prevent the Australian Competition Tribunal from reviewing decisions
made under the national energy laws (other than decisions relating to the
disclosure of confidential or protected information) and to ensure that
decisions of the Australian Energy Regulator (AER) are not subject to
merits review by any other State or Territory body.
2.3 The national energy laws (consisting of the National Electricity
Law (NEL), the National Gas Law (NGL) and the National Energy Retail
Law) form part of a State-based cooperative legislative scheme. The laws
are schedules to South Australian Acts and apply as State/Territory law by
legislation in force in the States and Territories that participate in the
scheme, and as Commonwealth law in the circumstances provided for in
the Australian Energy Market Act 2004.
2.4 The NEL and the NGL provide for the economic regulation of
electricity transmission and distribution networks and covered gas
pipelines. They do this by giving the AER (or in the case of Western
Australian gas pipelines, the Economic Regulation Authority (ERA))
power to set the prices that businesses may charge for, and the revenue
they may earn from, the provision of electricity network services and
access to covered pipelines. These decisions are subject to merits review
by the Tribunal, which may either affirm or vary the decision under
review, or remit it back to the original decision maker to be remade in
accordance with any direction or recommendation of the Tribunal.
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Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017
2.5 Certain other decisions made under the national laws may also
be reviewed by the Tribunal. These include decisions made by a Minister
as to whether a pipeline should be covered by the NGL (and therefore
subject to economic regulation), decisions made by the National
Competition Council about whether a pipeline should be subject to light
regulation (rather than full economic regulation), and certain decisions
made by the AER, ERA and the Australian Energy Market Operator in
relation to the disclosure of confidential or protected information collected
under the national laws.
2.6 The merits review regime was reviewed in 2016 and found to be
failing, including because reviews remain a routine part of the regulatory
process, involve significant costs to all participants, present barriers to
meaningful consumer participation, lead to significant regulatory and
price uncertainty, and are failing to demonstrate outcomes that serve the
long term interests of consumers. In response to the review, COAG
Energy Council Ministers agreed that the regime has failed to meet its
policy intent and is leading to increased energy prices for consumers.
2.7 Preventing the Tribunal from reviewing decisions made under
the national energy laws (other than decisions relating to the disclosure of
confidential or protected information), and ensuring that the AER is not
subject to merits review by any other State or Territory body, should
reduce pressure on energy prices. It is also consistent with the principles
developed by the Administrative Review Council in its publication What
decisions should be subject to merits review? In particular, the AER's
decisions involve extensive public inquiry processes and consultations,
which cannot adequately be replicated in the Tribunal.
Human rights implications
2.8 This Bill does not engage any of the applicable rights or
freedoms.
Conclusion
2.9 This Bill is compatible with human rights as it does not raise any
human rights issues.
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