BILLS DIGEST NO. 25, 2017–18              4 September 2017

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

Sophie Power
Science, Technology, Environment and Resources Section 

Date introduced:  10 August 2017

House:  House of Representatives

Portfolio:  Environment and Energy

Commencement: The day after Royal Assent

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at September 2017.

The Bills Digest at a glance

Purpose of the Bill

•       The purpose of the Bill is to amend the Competition and Consumer Act 2010 (the CCA) to provide that certain decisions made by the Australian Energy Regulator (AER) are no longer subject to merits review by the Australian Competition Tribunal or any state or territory body. The Government considers that this will reduce pressure on electricity prices.

Background

•       Under the limited merits review regime, affected parties may apply to the Australian Competition Tribunal for review of certain decisions by the AER, including determinations relating to the revenue of electricity networks.

•       The regime was introduced in 2008 and was intended to improve accountability in regulatory decision making and allow regulatory errors to be corrected.

•       The limited merits review regime was amended in 2013, and was reviewed again by the Council of Australian Governments (COAG) Energy Council in 2016.

•       The details of the regime are contained the National Electricity Law and National Gas Law. These laws are part of a cooperative legislative scheme between the Commonwealth, states and territories. South Australia is the lead legislator, so these laws are contained in schedules to South Australian legislation, with legislation in other relevant jurisdictions applying this South Australian legislation.

•       This cooperative scheme to regulate Australia’s energy markets is underpinned by an intergovernmental agreement, the Australian Energy Market Agreement. This political agreement provides that national energy laws may only be amended with the agreement of the COAG Energy Council.

Key issues

•       The COAG Energy Council has not agreed to abolish the limited merits review regime, and was actually in the process of developing reforms to the regime following the 2016 review.

•       Through this Bill, the Commonwealth is taking unilateral action to abolish the regime.

•       Although the details of the limited merits review process are primarily set out in South Australian legislation, the Commonwealth has consented, under the CCA, to the conferral of the limited merit review functions on the Australian Competition Tribunal. This Bill removes that consent and provides that decisions of the AER cannot be subject to merits review by any state or territory body. This means that the relevant provisions relating to limited merits review in state energy legislation will be inoperative.

•       The precise impact of the limited merits review regime, and its proposed abolition, on electricity prices is difficult to quantify. The Bill also seems to be pre-empting the findings of the current inquiry into electricity pricing being conducted by the Australian Competition and Consumer Commission.

•       The Bill does not affect the right to seek judicial review of AER decisions. This is a more limited form of review in that it focusses on the correct legal process being followed, rather than the merits of the decision. A possible consequence of abolishing limited merits review could be an increase in judicial review proceedings.

Stakeholder views

•       Many industry groups, such as Energy Networks Australia, the Australian Pipelines and Gas Association, and the Business Council of Australia, do not support the proposed abolition of the limited merits review regime.

•       Others, such as the Minerals Council of Australia and the Consumer Action Law Centre, have welcomed the removal of the regime.

•       The AER has stated that, without limited merits review, it will change its approach to stakeholder engagement, including by engaging with network business and consumers earlier in its decision-making.

List of abbreviations

Abbreviation

Definition

ACCC

Australian Competition and Consumer Commission

AEMC

Australian Energy Market Commission

AEMO

Australian Energy Market Operator

AER

Australian Energy Regulator

APGA

Australian Pipelines and Gas Association

CCA

Competition and Consumer Act 2010

COAG

Council of Australian Governments

DEE

Department of the Environment and Energy

ENA

Energy Networks Australia

NEL

National Electricity Law

NEM

National Electricity Market

NGL

National Gas Law

PIAC

Public Interest Advocacy Centre

Purpose of the Bill

The purpose of the Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017 (the Bill) is to amend the Competition and Consumer Act 2010 (the CCA) to provide that certain decisions made by the Australian Energy Regulator (AER) are not subject to merits review by the Australian Competition Tribunal (the Tribunal) or any other state or territory body.

Background

Energy regulation in Australia

In 2004, the Commonwealth, states and territories entered into an intergovernmental agreement, the Australian Energy Market Agreement.[1] This Agreement provided the framework for a cooperative, national scheme to regulate Australia’s energy markets. The Agreement provides for national legislation, implemented in each participating state and territory, with South Australia as the lead legislator.

Australia’s energy markets have three key components:

•       the National Electricity Market (NEM) is the wholesale electricity market for the connected states and territories of eastern and southern Australia—Queensland, New South Wales, the Australian Capital Territory, Victoria, South Australia and Tasmania. The NEM is one of the world’s longest interconnected power systems, and generates around 200 terawatt hours of electricity annually, supplying around 80 per cent of Australia’s electricity consumption.[2] Western Australia and the Northern Territory currently operate their own electricity markets, with Western Australia in the process of examining how it might enter the NEM[3]

•       the domestic natural gas market, which has three distinct regions, separated on the basis of the gas basins and pipelines that supply them: the Eastern gas region; Western gas region and the Northern gas region[4]

•       energy retail markets which provide the interface between retailers and their customers, allowing energy retailers to sell electricity, gas and energy services to residential and business customers.[5]

These markets are governed by the following laws, collectively known as the ‘national energy laws’:

•       The National Electricity Law (NEL), which governs the NEM and is set out in the schedule to the National Electricity (South Australia) Act 1996 (SA)

•       the National Gas Law (NGL), which regulates gas pipelines and gas wholesale markets, and is in the schedule to the National Gas (South Australia) Act 2008 (SA) and

•       the National Energy Retail Law, which regulates the supply and sale of energy to retail customers, and is in a schedule to the National Energy Retail Law (South Australia) Act 2011 (SA).[6]

In essence, the national energy laws are a state-based cooperative legislative scheme. As noted above, South Australia is the lead legislator, so these laws are contained in South Australian legislation. Each participating state and territory then has its own legislation applying the relevant South Australian legislation.[7] The relevant Commonwealth application legislation, the Australian Energy Market Act 2004, applies the relevant energy laws to offshore areas as well as certain territories (such as Christmas Island).

Key energy market institutions

The Australian Energy Market Agreement also provided for the creation of Australian energy market institutions, with the aim of separating the major functions of policy, rules and regulation, and compliance and market operations.[8] These energy market institutions are:

•       the Australian Energy Market Commission (AEMC), which makes and amends the rules under the national energy laws: the National Electricity Rules, National Gas Rules and the Energy Retail Rules under authority derived from the national energy laws. The AEMC is established under South Australian law[9]

•       the Australian Energy Regulator (AER) which regulates the energy markets and networks, and ensures market participants’ compliance with the energy market legislation and rules. The AER operates under the Competition and Consumer Act 2010 (Cth), but (as is discussed later in this Digest) has functions conferred on it by the national energy laws.[10] The AER has an independent board, but shares staff, resources and facilities with the Australian Competition and Consumer Commission (ACCC)[11]

•       the Australian Energy Market Operator (AEMO), a company part owned by governments and part owned by industry participants.[12] AEMO’s functions include the operation of the wholesale national electricity and gas markets, coordinating participants’ actions and planning for daily and future energy demand and supply. The AEMO manages these markets according to the energy market laws and rules.[13]

These bodies all report to the COAG Energy Council, which has policy responsibility for monitoring and reforming national energy markets. The role of the Council in energy market reform and the associated governance arrangements is set out in the Australian Energy Market Agreement. Chapter 6 of the Australian Energy Market Agreement sets out the agreement for each jurisdiction to enact co-operative legislation to recognise and confer functions on the AER and AEMC.

Importantly, clause 6 of the Agreement provides that Australian Energy Market Legislation may only be amended with the agreement of the COAG Energy Council and that a party will not take ‘any action that would limit, vary or alter the effect, scope or operation of the Australian Energy Market Legislation’ without the agreement of the COAG Energy Council.[14]

Australian Energy Regulator

As noted above, the AER is established by, and operates under the Competition and Consumer Act 2010 (CCA). Section 44AH of Part IIIAA[15] provides that the functions of the Australian Energy Regulator are any function:

•              conferred under a law of the Commonwealth (for example, the Australian Energy Market Act) or

•              prescribed by Regulations made under the CCA.[16]

Section 44AI also provides that a state or territory energy law may confer functions or powers, or impose duties, on the AER. Both the NEL and NGL confer functions and powers on the AER.[17] In general, these include:

·          monitoring wholesale electricity and gas markets to ensure energy businesses comply with the legislation and rules, and taking enforcement action where necessary

·          setting the amount of revenue that network businesses can recover from customers for using networks (electricity poles and wires and gas pipelines) that transport energy

·          regulating retail energy markets in Queensland, New South Wales, South Australia, Tasmania (electricity only) and the ACT

·          operating the Energy Made Easy website, which provides a retail price comparator and other information for energy consumers

·          publishing information on energy markets, including the annual State of the energy market report …[18]

The AER’s functions must be performed in a manner that is likely to contribute to the achievement of the national electricity and gas objectives.[19] These objectives, set out in the NEL and NGL, are to:

… promote efficient investment in, and efficient operation and use of, electricity/gas services for the long term interests of consumers of electricity with respect to price, quality, safety, reliability and security of supply of electricity/gas; and in the case of electricity the reliability, safety and security of the national electricity system.[20]

For current purposes, the key functions of the AER relate to its network revenue determinations (which generally set prices that business may charge, and the revenue they may earn from customers, for the provision of electricity network services).[21] The AER also makes determinations in relation to access arrangements for regulated gas pipeline providers.[22] The regulation of these networks aims to ‘manage the risk of monopoly pricing, where a business can charge higher prices or provide poorer services compared with the situation in a competitive market’.[23] In terms of the process for making these determinations, electricity network businesses, for example, submit proposals to the AER on their required revenues, generally every five years. The AER then reviews the proposals, undertakes consultation and make decisions with reference to certain criteria, in accordance with legislative timeframes.[24]

Certain AER decisions, including these determinations, are currently subject to ‘limited merits review’ by the Australian Competition Tribunal, as outlined in further detail below and in the ‘key issues and provisions’ section of this Digest.

Limited merits review of AER decisions

Merits review is the process by which a person or body, other than the primary decision-maker, ‘reconsiders the facts, law and policy aspects of the original decision and determines what is the correct and preferable decision’:

The process of review may be described as ‘stepping into the shoes’ of the primary decision-maker. The result of merits review is the affirmation or variation of the original decision.[25]

This can be contrasted with judicial review, where the court is concerned only with the legal process by which the decision was made (rather than the merits of the decision). In this case, if the court finds an error of law in the making of the decision, or a breach of procedural fairness, the court can set the decision aside and it is then up to the original decision-maker to make a new decision.[26]

The limited merits review regime was introduced to both the national electricity law and national gas law in 2008 as a mechanism to review decisions by the AER.[27] The original intention of the regime was to ‘balance outcomes between competing interests’ and to ‘allow parties affected by decisions with appropriate recourse to have decisions reviewed’. In particular, it was considered that the regime would:

… enable correction of a greater range of regulatory errors and improve accountability in regulatory decision making. The reforms also introduced consistency, for the first time, between merits based appeals for electricity revenue determinations and gas access arrangements.[28]

Limited merits review process

The detail of the process and grounds for limited merits review are primarily set out in the South Australian energy legislation.[29] In short, an ‘affected or interested person or body’ may apply to the Australian Competition Tribunal for a ‘limited merits review’ of certain AER decisions (referred to as ‘reviewable regulatory decisions’). The Australian Competition Tribunal is an administrative review body established under Commonwealth legislation (the CCA).[30] The Tribunal hears applications for review of certain decisions and determinations, including by the ACCC and the AER. The Tribunal may perform all the functions and exercise all the powers of the original decision-maker for the purposes of review. It can affirm, set aside or vary the original decision.[31] Key AER decisions that can be appealed to the Tribunal in this way include electricity network revenue or pricing determinations and applicable access arrangements for gas pipeline service providers.[32]

The merits review is ‘limited’ to information that was before the AER and can be made only on the ground(s) that the AER’s decision involved material error(s) of fact, was an incorrect exercise of discretion, or was unreasonable, having regard to all the circumstances.[33] The Tribunal must only grant leave if there is a ‘serious issue to be heard’ and certain financial thresholds must also be satisfied. An applicant must also demonstrate how the Australian Competition Tribunal’s determination would be, or would likely be, ‘materially preferable’ to the AER’s decision.[34] In making its decision, the Tribunal must consider the AER’s determination as a whole, and how the parts of the determination interrelate with each other, and must also consult with relevant users and consumers.[35]

Alternatively, an affected person may apply directly to the Federal Court for judicial review of an AER decision.[36]

However, the operation of the limited merits review in practice has been criticised and the regime has been the subject of several reviews, as outlined below.

COAG reviews of the regime

An independent review of the limited merits review was conducted in 2012, commissioned by the former COAG Standing Council on Energy and Resources ‘in light of increasing concerns relating to the operation of the regime’.[37] For example, the Chair of the ACCC, Rod Sims, stated in 2012:

Merits review has not focused on whether the regulator’s overall decision provides network businesses with sufficient revenues to efficiently supply energy services. Rather, merits review has allowed businesses to ‘cherry pick’ one or two issues from what inevitably is a balanced decision weighing hundreds of complex issues, some of which would have favoured the network businesses. The decisions of the review body, the Australian Competition Tribunal, have increased the money recovered from customers by approximately $3 billion.[38]

The 2012 review found that the regime was ‘not working as policymakers intended’.[39] Indeed, ‘significant flaws’ were identified, including that the ‘merits review arrangements encourage businesses to ‘cherry pick’ elements of regulatory decisions, are overly legalistic, and have not taken the interests of key stakeholders, particularly consumers, into account’.[40]

Nevertheless, the 2012 review recommended that the regime be maintained, but with a number of changes. The regime was subsequently amended,[41] with those reforms intended to:

… ensure that regulatory decisions promote efficient investment, operation and use of energy infrastructure in ways that best serve the long-term interests of consumers. This included avoiding lengthy and excessively legalistic hearings that make it difficult for all stakeholders to participate.[42]

Despite these reforms, concerns about the regime continued and the COAG Energy Council reviewed the regime again in 2016.[43] A consultation paper was released which identified key issues for consideration including:

… the apparent ‘cherry picking’ of issues for review by network businesses and the focus on correcting individual errors without sufficient consideration of whether a different decision would lead to a materially preferable decision that is in the long term interests of consumers … the LMR regime is not delivering timely and predictable revenue determinations and continues to present barriers to the participation of key stakeholders, such as consumer groups.[44]

The review specifically considered a number of reform options including removing access to limited merits review altogether.[45] A number of submissions were made in response to a consultation paper.[46] Notably, many submissions did not support the option of abolishing the regime, as discussed further in the ‘position of major interest groups’ section of this Digest.

Proposed COAG reforms to limited merits review

At its December 2016 meeting, the COAG Energy Council noted that the regime ‘is failing to meet its policy intent and is leading to higher prices for consumers’.[47] There was ‘no consensus around the need for the LMR regime to be abolished’, but Ministers did agree in-principle to ‘significant and immediate’ reform of the limited merits review regime, including:

•       tightening and clarifying the grounds for review

•       higher financial thresholds for leave which apply to individual grounds for review

•       reviews to be conducted on the papers, rather than through expensive and adversarial oral hearings

•       introducing strict timeframes for the conduct of reviews

•       requiring appellants to demonstrate that overturning the AER’s decision would not be of serious detriment to the long term interests of consumers

•       providing more flexible arrangements for consumers to participate in reviews

•       introducing a binding rate-of-return guideline, with certain elements of the AER’s decision not subject to merits review

•       limiting the timeframes in which material can be submitted to the regulator and

•       providing that costs of reviews, including those of the AER, would be borne by network businesses.[48]

The COAG Council tasked a working group with developing amendments to implement these changes in 2017, with a further review of the regime to be undertaken two years after the implementation of those amendments.[49] However, the Commonwealth Minister for the Environment and Energy, Josh Frydenberg indicated following the meeting that the Commonwealth had been pushing for abolition of the regime:

… consensus was not reached on the Commonwealth’s position to save consumers money by abolishing the Limited Merits Review (LMR) process, ministers did agree that the existing LMR arrangements were failing and that immediate reform was required.[50]

In April 2017, the COAG Energy Council indicated that work was continuing on the reforms, with the aim of finalising the changes at the COAG Energy Council meeting in July this year.[51]

Federal Court decisions

In May 2017, two Federal Court decisions[52] were handed down which reignited debate over the limited merits review system.[53] In short, the cases involved decisions made by the AER in 2015 of the maximum revenue that certain network businesses (Ausgrid, Endeavour Energy, Essential Energy, ActewAGL and Jemena Gas Networks (NSW)) could collect from customers to operate networks. According to the AER:

The AER’s determinations for the 2014–19 period allowed less revenue than proposed by the network businesses. These lower revenues were driven by AER findings that the NSW and ACT electricity networks were not operating as efficiently as other comparable networks. The AER also determined a lower rate of return and corporate tax allowance, consistent with market trends.

The network businesses sought a limited merits review of the AER’s decisions in the Australian Competition Tribunal, seeking to recover greater revenue from customers.[54]

In February 2016, the Tribunal found in favour of the AER in some matters and in favour of the businesses in other areas. In short, the Tribunal directed the AER to remake its decisions in relation to the networks’ operating expenses, cost of corporate income tax and cost of debt.[55]

The AER then applied to the Federal Court for judicial review of the Tribunal’s decisions. However, the Federal Court dismissed most of the AER’s applications:

The Federal Court has upheld the AER’s appeal in relation to the Tribunal’s decision on the cost of corporate income tax but upheld the Australian Competition Tribunal’s findings in relation to the networks’ operating expenses and the cost of debt.[56]

The AER described the decisions as ‘disappointing for NSW and ACT electricity and gas consumers’.[57]

The NSW Public Interest Advocacy Centre (PIAC) was also involved in this litigation, as part of its ‘Energy + Water Consumers’ Advocacy Program’.[58] Unlike the network business, which argued that they should be able to collect greater revenue, PIAC challenged the decisions calling for greater price reductions.[59] PIAC suggested that ‘while the exact price implications of today’s decision are unclear, these bill increases will come as higher wholesale electricity and gas prices add hundreds of dollars per year to household energy bills’.[60]

Commonwealth decision

The Minister for the Environment and Energy, Josh Frydenberg, responded to these decisions by reaffirming the ‘Turnbull Government's position of wanting to abolish the Limited Merits Review (LMR) process to stop network businesses gaming the system’.[61] He further stated that the decisions ‘will increase electricity prices for New South Wales customers by around $3 billion’ and indicated:

The Federal Government has had a clear policy to reform the LMR process but states who own network assets like Queensland and New South Wales have stood in the way [of] those reforms.

By blocking attempts to stop network businesses gaming the system the Queensland and New South Wales governments have given a green light to higher electricity prices.

For some time the Turnbull Government together with the strong support of Victoria and South Australia has been trying to get the states to agree through the COAG Energy Council to stop this rort but self-interest by those looking to increase the value of their assets has hung consumers out to dry …[62]

On 20 June 2017, the Government announced that it was ‘taking immediate action to put downward pressure on power prices and ensure reliable energy for all Australians’. The measures announced included strengthening the Australian Energy Regulator by providing it with an additional $67.4 million ‘to stop energy network companies gaming the system and overturning rulings in the courts’. The abolition of limited merits review was also foreshadowed:

We will stop big electricity companies from running to the courts to try to overturn the Australian Energy Regulator’s decisions. Companies have made 52 appeals and the courts have ruled against consumers 31 times. This will end.[63]

In announcing the Bill, the Minister stated that ‘review decisions have only ever resulted in increased revenues for energy businesses and higher bills for consumers’:

Since it was introduced in 2008, the regime has seen consumers pay $6.5 billion more in energy bills than would have been the case if the Australian Energy Regulator’s decisions had been upheld.[64]

At its meeting in July 2017, the COAG Energy Council ‘noted’ that the Commonwealth will abolish limited merits review.[65]

Other relevant and related reviews

Other recent reviews, as outlined briefly below, have also considered, or were considering, the limited merits review regime. However, none of these reviews have recommended the abolition of the regime.

Review of Governance Arrangements

In October 2015, the Review of Governance Arrangements for Australian Energy Markets,[66] prepared for the COAG Energy Council, found that the availability of a merits review appeal regime was one of the ‘key elements of the governance of the energy market which help establish credibility with investors and provide them with the confidence to invest in the sector’.[67] The review also suggested that limited merits review appeals ‘have become fewer over time’.[68]

Finkel Review of Australia’s electricity market

The recent review of Australia’s electricity market by Chief Scientist Alan Finkel (Finkel Review) also considered the limited merits review regime.[69] The review stated that a detailed analysis of the regime and ‘the case for its reform or abolition’ was beyond the scope of the review, but noted the COAG Energy Council had agreed to further reforms of the regime. The Finkel Review therefore recommended that ‘by end-2017, the COAG Energy Council should finalise and implement the proposed reforms to the Limited Merits Review regime’.[70] The COAG Energy Council (and the Commonwealth government) accepted this recommendation (along with 49 of the 50 recommendations of the Finkel Review).[71]

ACCC electricity supply and prices inquiry

On 27 March 2017, the Treasurer, Scott Morrison, directed the ACCC to hold an inquiry into the supply of retail electricity and the competitiveness of retail electricity prices. This inquiry will look at ‘factors influencing the price paid by Australians for electricity’.[72] An issues paper released by the ACCC in May 2017 noted:

Other factors may also have contributed to higher retail electricity prices. The COAG Energy Council has recently noted that the limited merits review process that applies to certain AER determinations is leading to higher prices.[73]

The issues paper also referred to the reforms to the process being developed by COAG.[74] The ACCC must deliver a preliminary report to the Federal Treasurer by 27 September 2017, with a final report due by 30 June 2018.[75]

Committee consideration

Selection of Bills Committee

On 17 August 2017, the Selection of Bills Committee deferred consideration of the Bill to its next meeting.[76]

Senate Standing Committee for the Scrutiny of Bills

The Senate Scrutiny of Bills Committee had no comment on the Bill.[77]

Policy position of non-government parties/independents

Following the Government’s announcement in June 2017 of its intention to abolish limited merits review,[78] Labor’s Shadow Minister for Climate Change and Energy, Mark Butler, stated that Labor would support the abolition.[79]

Similarly, Adam Bandt, the Australian Greens climate and energy spokesperson, stated that ‘in principle we would back legislation that curbs limited merits review, which the networks have been using to boost their regulated expenditure and grow their profits’.[80] He did, however, note that the Greens would ‘need to see the detail of the Bill before forming a final view’.[81]

At the time of writing, other non-government parties and independents do not appear to have commented on the Bill.

Position of major interest groups

Industry groups

Energy Networks Australia (ENA), the national body representing gas distribution and electricity transmission and distribution businesses throughout Australia, does not support the proposal to abolish limited merits review. ENA CEO John Bradley stated that for the Federal Government to ‘unilaterally abolish regulatory appeals rides roughshod over the Federal Court and the intergovernmental agreement underpinning the National Energy Market’:

The decision sidelines COAG Energy Council decision-making …

This action would undermine basic foundations of the energy market - legislating away the powers of State Governments, the role of the Courts and the right to correct regulatory errors.[82]

He further suggested that energy networks and other stakeholders were ‘blindsided’ by the Federal Government’s announcement which ‘contradicted the COAG Energy Council decision in April 2017’ to finalise reforms to the appeals regime. He further noted that 80 per cent of stakeholders rejected abolition of the regime during the 2016 COAG Energy Council review.[83] ENA further stated that limited merits review is ‘there to benefit consumers’, because the Australian Competition Tribunal cannot overturn decisions unless it determines that there is a ‘materially preferable’ outcome for customers.[84]

The CEO of Infrastructure Partnerships Australia, Brendan Lyon, suggested that abolishing appeal processes for energy network price setting ‘will hurt the national interest, hurt consumers’ and ultimately ‘shows the absence of a sensible national energy policy’.[85] He stated that ‘a strong merits review regime is a cornerstone of stable regulation’. He further argued:

… if bad decisions cannot be appealed, it is consumers that suffer the price and reliability consequences in the future. For example, a bad regulatory decision might well suppress the electricity price in the short term, but if it sees the grid under-maintained, customers will face higher bills through urgent “catch-up” investments in the future, and absorb the costs of power outages.[86]

The Australian Pipelines and Gas Association (APGA) described the abolition of limited merits review as ‘a grave concern’. APGA Chief Executive, Peter Greenwood, stated:

We are deeply concerned that, after years of significant efforts at cooperation among the States and Territories on energy matters through the CoAG Energy Council and its predecessors, we are increasingly seeing jurisdictions making unilateral decisions …

The limited merits review exists to provide appropriate monitoring of regulatory decisions and to correct any errors when it is in the public interest to do so.

The limited merits review is enshrined in the National Gas Law and the National Electricity Law and these pieces of legislation have been carefully developed by Federal, State and Territory ministers working together through the CoAG system.

The Commonwealth will now overturn that cooperation by removing the power of the Australian Competition Tribunal to conduct the limited merits review, and this adds a new element of uncertainty into energy markets.

We are seeing an increasing number of ad hoc responses to developments in our energy markets.

These markets are complex, and the consequences – both short and long term – of these kinds of interventions simply must be thought out more thoroughly before being introduced.[87]

Other industry groups do not appear to have commented on the Bill itself, but did make relevant comments in submissions to the COAG Energy Council review of the limited merits regime. For example, the Business Council of Australia considered that the regime is ‘an essential element of Australia’s energy regulatory framework that provides an important safeguard against error in regulatory decision making’.[88] The Business Council of Australia was ‘strongly opposed’ to the removal of access to limited merits review, submitting that ‘access to merits review is the cornerstone of an accountable, transparent and efficient regulatory regime’ and:

The removal or further restriction of the LMR [limited merits review] framework in the energy sector, without corresponding limits on the discretion of the AER, would only serve to undermine investor confidence and could lead to unaccountable regulatory decisions, which would lead to inefficient outcomes for investors and consumers.[89]

More recently, in June 2017, the Business Council again described the limited merits review regime as ‘the cornerstone of an accountable, transparent and efficient regulatory regime’ and stated that removing the regime ‘would undermine confidence in Australia’s regulatory framework, further chilling new investment and jeopardising the future safety and reliability of the electricity network’. The Council further stated:

The regulator’s decisions aren’t being overturned because the courts are getting it wrong. They are being overturned because the regulator isn’t perfect, and it sometimes makes mistakes.[90]

In contrast, the Minerals Council of Australia has welcomed the decision to pursue the abolition of the limited merits review process, which it considered ‘should reduce future network costs and assist in lowering the cost of electricity’.[91]

Similarly, the National Irrigators’ Council welcomed the Government’s announcement of the abolition of limited merits review, saying that it was ‘a system that seemed to work only for the big network owners and their phalanxes of lawyers’.[92] Previously the Council welcomed proposed reforms to the limited merits review process, suggesting that it was a ‘system stacked against consumers like those in the irrigation sectors’.[93]

Consumer groups

The Consumer Action Law Centre welcomed the removal of limited merits regime, stated that it ‘has regularly failed to deliver on its objectives’ and ‘has cost households and businesses hundreds of millions of dollars each year’.[94] The Centre described the regime as a ‘cash-grab mechanism for networks that has diverted decisions away from the long-term interests of consumers and increased prices’.[95]

The Public Interest Advocacy Centre (PIAC), a non-profit legal centre with a focus on ‘disadvantaged, marginalised and vulnerable people’, has welcomed the Governments proposed reforms to reduce electricity bills.[96] PIAC was a party to the recent limited merits review processes (outlined earlier in this Digest). PIAC stated:

For too long Network businesses have undermined the Australian Energy Regulator’s (AER) regulatory process through the limited merits review system. PIAC has argued for some time that the system was in need of major reform to prevent cherry picking and windfall gains to Networks.[97]

However, PIAC’s position was that ‘consumers must continue to have a central role in all electricity pricing decisions, with or without limited merits review’. PIAC noted that appeals from the AER’s decision could still be made through judicial review in the Federal Court, and suggested that ‘consumers must be given a right of standing before the Federal Court in these cases so that the voice of consumers is heard’.[98]

Australian Energy Regulator

The Chair of the Australian Energy Regulator, Paula Conboy, has stated that increased funding for the AER and the Commonwealth Government’s proposed removal of limited merits review will change the AER’s approach, particularly for network revenue determinations. Ms Conboy indicated that the limited merits review process has ‘produced a more adversarial relationship between the regulator and regulated entities in the past’ and without limited merits review, everyone will need to ‘engage earlier in the regulatory process so that we can resolve key points of disagreement between stakeholders’. [99] The AER is therefore:

… looking at ways to closely engage with the network businesses and consumers to identify key issues earlier, and work collaboratively to resolve them—even before a regulatory proposal is lodged. The AER’s revenue determination process under the National Electricity Rules or National Gas Rules could then be aligned with the degree of agreement reached between the business and suitably qualified customer representatives. This could mean some AER decision processes are streamlined or expedited, as long as the proposal meets the long term interests of consumers.

It is an experimental approach to promote regulatory innovation. … The goal is to undertake a trial in the development of one or more network businesses’ revenue proposals in the near future, and consider further reform opportunities. This process of exploration will be an important outcome of the joint initiative in itself.[100]

Others

The Commercial Bar Association, in its submission to the 2016 COAG review, recommended that the merits review regime ‘should not be removed entirely’.[101] The Commercial Bar Association considered:

… reverting to judicial review alone would undermine the quality of regulatory decision-making, and sacrifice the important progress that has been made since 2013 in improving users’ and consumers’ ability to participate in reviews of network revenue determinations.

It cannot properly be concluded, at this early stage, that the 2013 LMR reforms have failed to achieve their intended purpose. To make fundamental further legislative changes at this time would add to regulatory uncertainty, in addition to weakening the effectiveness of the review framework.[102]

Economic consulting firm, Frontier Economics, has suggested that, although ‘critics argue that these reviews are too complex, expensive and bad for consumers’, the ‘merits review regime is essential to a well-functioning regulatory system’. The firm has further argued that curtailing the regime would be a ‘knee-jerk policy response’.[103]

In contrast, the Grattan Institute’s energy policy director, Tony Wood, has reportedly said the proposed abolition of limited merits review is a ‘no-brainer’ because all limited merits review ‘does is add another level of bureaucracy to the process’.[104]

Financial implications

According to the Explanatory Memorandum, the Bill will have no financial impact on the government.[105] However, as noted earlier, when the Government announced its proposed abolition of limited merits review in June 2017, it also announced that it would provide the Australian Energy Regulator with an additional $67.4 million ‘to stop energy network companies gaming the system and overturning rulings in the courts’.[106]

Further, the Government considers that the Bill ‘should reduce pressure on electricity prices’ and that to date limited merits review ‘has increased consumer bills by $6.5 billion’.[107] It is not clear how the Government has calculated this figure. This issue is considered further in the ‘key issues and provisions’ section of this Digest.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[108]

Parliamentary Joint Committee on Human Rights

On 15 August 2017, the Parliamentary Joint Committee on Human Rights deferred its consideration of the Bill.[109]

Key issues and provisions

Provisions removing merits review

Division 3A of Part 6 of the Schedule to the National Electricity (South Australia) Act 1996 (SA) and Part 5 of Chapter 8 of the Schedule to the National Gas (South Australia) Act 2008 (SA) set out the provisions for merits review of certain AER decisions, and the grounds for review.

In short, the National Electricity and Gas Laws allow an affected party to:

•       apply to the Australian Competition Tribunal for a ‘limited merits review’ of certain AER determinations

•       apply to the Federal Court for judicial review of an AER decision.[110]

This provision is then supported by the CCA. As noted earlier, the Australian Energy Regulator is established under Part IIIAA of the CCA.[111] Section 44AI of the CCA currently provides the Commonwealth's consent to the conferral of functions and powers on the AER by state and territory legislation.[112] Subsection 44AI(2) provides that there is no consent to such conferral where this would ‘contravene any constitutional doctrines restricting the duties imposed on the AER’. In addition, subsection 44AI(3) provides that the AER cannot exercise a duty, function or power under a state or territory energy law unless this is in accordance with the Australian Energy Market Agreement.

No review by state or territory bodies

Item 2 of the Bill inserts a new section 44AIA into the CCA to provide that a decision of the AER under a state or territory energy law or local energy instrument will not be subject to merits review by a body established under a law of a state or territory. Item 1 of the Bill makes the existing section 44AI subject to proposed section 44AIA.

In short, these items will mean that decisions of the AER under the national energy laws cannot be subject to merits review by any state or territory body.

No review by the Australian Competition Tribunal

Section 44ZZM of the CCA currently provides the Commonwealth's consent to the conferral of functions and powers by state and territory legislation on the ACCC or the Australian Competition Tribunal. Subsection 44ZZM(2) provides that there is no consent to such conferral where this would contravene any constitutional doctrines restricting the duties imposed on the ACCC or Tribunal. In addition, subsection 44ZZM(3) provides that the ACCC or Tribunal cannot exercise a duty, function or power under state or territory energy law unless this is in accordance with the Australian Energy Market Agreement.

Item 4 of the Bill proposes to insert a new section 44ZZMAA into Part IIIA. That section will apply if a state or territory energy law (or the Commonwealth’s Australian Energy Market Act 2004) purports to confer a function or power, or to impose a duty, in relation to a decision made under a state or territory energy law; or a uniform energy law. Proposed subsection 44ZZMAA(2) states that the purported conferral or imposition will have no effect to the extent that it would require or permit merits review of the decision by the Australian Competition Tribunal. The only exception is in relation to decisions relating to the disclosure of confidential or protected information.

In short, this means that the Australian Competition Tribunal is effectively divested of its limited merits review function under national energy laws. According to the Explanatory Memorandum, this includes review of:

•       network revenue and pricing determinations, and determinations relating to approved and required pass through amounts (under the NEL) and

•       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 (under the NGL).[113]

Unilateral Commonwealth action

Proposed subsection 44ZZMAA(3) provides that the new section 44ZZMAA will apply despite anything in any law of the Commonwealth, a state or a territory. This is essentially overriding relevant state and territory legislation, and in particular, the merits review provisions currently contained in National Electricity (South Australia) Act 1996 (SA) and the National Gas (South Australia) Act 2008 (SA), which are also applied by equivalent legislation in other states and territories. The relevant provisions in this state legislation will effectively be redundant as a result of the Bill. This is because, under section 109 of the Australian Constitution, state laws are inoperable to the extent of any inconsistency with Commonwealth law.

In making these amendments, the Commonwealth is effectively taking unilateral action to abolish the limited merits review regime. As the Explanatory Memorandum states, ‘the Commonwealth has decided that the most effective way to address these failings [in the limited merits review regime], and reduce pressure on energy prices, is to abolish the regime’.[114]

However, as outlined earlier in this Digest, clause 6 of the intergovernmental Australian Energy Market Agreement provides that Australian Energy Market Legislation may only be amended with the agreement of the COAG Energy Council and, further, that a party will not take ‘any action that would limit, vary or alter the effect, scope or operation of the Australian Energy Market Legislation’ without the agreement of the COAG Energy Council. However, the COAG Energy Council has not agreed to abolish the limited merits review regime, and was actually in the process of developing reforms to the regime. At its July meeting the COAG Energy Council merely ‘noted’ that the Commonwealth will abolish limited merits review.[115] The Commonwealth Minister for the Environment and Energy, Josh Frydenberg, has indicated that the abolition was supported by the South Australian and Victorian government but not the Queensland and New South Wales governments.[116]

As such, it appears that the Bill does not accord with the Australian Energy Market Agreement and indeed, may undermine the cooperative regime underpinning energy market regulation. Although this political agreement is not legally enforceable, the Bill arguably sets a precedent for the Commonwealth to intervene and override the states in relation to other aspects of energy markets. Further, should states and territories wish to take unilateral action in their jurisdiction, the Commonwealth’s approach to this issue may weaken any Commonwealth objection or argument against such state or territory action. In addition, in taking this unilateral action, the Commonwealth is going against the recommendations of several relevant reviews (as outlined earlier in this Digest).

As also noted earlier in this Digest, stakeholders such as the APGA have suggested that the Commonwealth’s unilateral action in abolishing merits review will ‘add a new element of uncertainty into energy markets’.[117] As the Finkel Review and others have observed, lack of policy certainty in the energy sector is ‘undermining investor confidence, which in turn undermines the reliable supply of electricity and increases costs to consumers’.[118]

Impact on electricity prices

In his second reading speech, the Minister suggested that the Bill ‘divesting the tribunal of its function of reviewing decisions made under the national energy laws should reduce pressure on electricity prices’.[119] He explained that network businesses have used the limited merits review regime to seek review of decision of the AER on ‘regulated revenues that flow through to network prices paid by energy consumers for electricity and gas transmission and distribution’.[120]

In general, there are a number of factors contributing to retail electricity prices. According to the AEMC, the three major electricity supply chain cost components that make up the residential price are:

•       network costs (that is, the cost of transmission and distribution of electricity), which account for around 40 to 55 per cent of the price

•       combined generation and retail costs, which account for around 40 to 50 per cent and

•       environmental and other policy costs (such as the renewable energy target), which account for around 5 to 15 per cent of the price.[121]

The share of each component varies across jurisdictions.[122] The AER’s State of the Energy Market Report states that rising network costs were the key driver of increasing electricity prices over the period from 2008 to 2013.[123] More recently, the primary driver of retail prices has been increasing generation costs partly as a result of the retirement of existing generation capacity and rising gas prices in Queensland.[124]

The precise impact of the limited merits review regime, and its proposed abolition, on electricity prices is difficult to quantify. Media reports around the time of the Federal Court decisions in May this year (outlined earlier in this Digest) suggested, for example, that the result would be an extra ‘$100 per year in electricity costs to the average household’ in New South Wales.[125] As outlined earlier in this Digest, the Minister has suggested that to date the regime has ‘increased consumer bills by $6.5 billion’.[126] However, it is unclear how this figure has been calculated and no further information is provided on this in the Explanatory Memorandum.

As noted earlier, the impact of the limited merits review regime on electricity prices was an issue that may have been considered by the ACCC during its current inquiry into electricity pricing. However, by abolishing the regime, the Commonwealth seems to be pre-empting the findings of that ACCC inquiry.

Merits review and accountability

As noted earlier in this Digest, the limited merits regime was introduced with the intention that it would ‘enable correction of a greater range of regulatory errors and improve accountability in regulatory decision making’.[127] The recent COAG consultation paper considered that one of the downsides of removing access to limited merits review, was that it ‘could create a risk that decisions containing administrative error (that is, a decision which is not the correct or preferable decision on the facts) may not be corrected’.[128]

As noted earlier (in the ‘position of major interest groups’), many stakeholders consider that the review process should be retained because it is an important accountability mechanism. For example, the APGA argued that the process ‘exists to provide appropriate monitoring of regulatory decisions’ and to ‘correct any errors when it is in the public interest’.[129] Similarly, Frontier Economics has suggested that the Tribunal has overturned some ‘large regulatory errors’ and considers that the ‘merits review regime is essential to a well-functioning regulatory system’.[130]

In contrast, the Explanatory Memorandum states that the 2016 COAG review of the limited merits review regime identified ‘significant regulatory failures’, including ‘significant costs to all participants’, barriers to meaningful consumer participation, regulatory and price uncertainty, and failure to ‘demonstrate outcomes that serve the long term interests of consumers’.[131] The Commonwealth considers that the best way to address these failures is to abolish the regime.[132] Mr Frydenberg has also reportedly pointed out that no comparable merits review regime is available in relation to other industry sectors, such as the telecommunications or water sectors.[133]

The Explanatory Memorandum further suggests:

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.[134]

The purpose of this publication by the Administrative Review Council (ARC) is to set out guidance as to the classes of administrative decisions that should be subject to merits review and notes that merits review:

… has a broader, long-term objective of improving the quality and consistency of the decisions of primary decision-makers. Further, merits review ensures that the openness and accountability of decisions made by government are enhanced.[135]

Although the ARC publication was published in 1999, well before the limited merits review regime was introduced, it does identify ‘decisions involving extensive public inquiry processes that would be time-consuming and costly to repeat’, and particular consultations that ‘require the participation of many people’ as a type of decision where merits review may be excluded.[136] The National Electricity and Gas rules do prescribe an extensive consultation process in relation to AER network revenue determinations, including, in the case of electricity, publishing and inviting submissions in relation to an issues paper, holding public forums, publishing the draft decisions and inviting submissions on the draft decision.[137]

Judicial review still available

Although the Bill would abolish the limited merits review process, the Bill does not affect the right to seek judicial review of an AER decision.[138] It seems possible, therefore, that if the Bill is passed, network businesses may instead turn to judicial review actions to appeal AER decisions, instead of using the limited merits review regime. This could still result in lengthy and costly legal processes. As the 2016 COAG consultation paper noted, if the limited merits regime were to be removed, the consequence could be ‘increased judicial review hearings’, leading to ‘new cost challenges’.[139]

However, as explained earlier this Digest, judicial review is a more limited option, where the court is concerned only with the legal process by which the decision was made (rather than the merits of the decision). In addition, rather than substituting its own decision, if the court finds an error in the making of the decision, the court sends it back to the original decision-maker to make a new decision. As such, judicial review proceedings may not be as prevalent as limited merits review appeals.

Nevertheless, when the Government announced its proposed abolition of limited merits review in June 2017, it also announced at the same additional funding of $67.4 million for the AER ‘to stop energy network companies gaming the system and overturning rulings in the courts’.[140] Perhaps this was in anticipation of an increase in judicial review proceedings.

Number of reviews

In his second reading speech, the Minister stated that despite the 2013 reforms, ‘energy networks were still routinely seeking reviews of the regulators’ decisions, essentially using the Australian Competition Tribunal as a second regulator’.[141] He further suggested that energy networks are ‘using the LMR to extract monopoly rents from consumers’.[142]

When the reforms were announced, the Government also observed that since the introduction of limited merits review ‘companies have made 52 appeals and the courts have ruled against consumers 31 times’.[143] These figures relate to appeals since the introduction of the regime. Since the reforms to limited merits review in 2013, twelve of the AER’s twenty decisions on electricity network revenue and gas access arrangements have been subject to applications by network businesses for review by the Tribunal.[144] As the 2016 COAG review found, the intention of the 2013 reforms was to:

… ensure that leave to review would only be granted on matters of substance and that those matters of substance were to be determined by reference to the statutory objectives of the national energy laws.

In spite of these policy objectives, over 50 per cent of regulatory decisions on electricity network revenue and gas access arrangements since the 2013 reforms were implemented have been subject to applications for review. While the long term interests of consumers have clearly been considered in these processes, there remains an open policy question as to whether this is being achieved.[145]

However, others argue that the ‘occurrence of appeals is not necessarily a sign of an unhealthy regulatory system’:

It indicates a regulator that is willing to take risks and challenge the businesses it regulates. That can be good for consumers. What to do, then, when a regulator’s decisions are reviewed and found repeatedly to be in error? In such circumstances, the policy response should not be to reflexively scale back or remove the merits review regime. That would be akin to banning traffic cameras because too many drivers were caught speeding.[146]

Other provisions

Transitional arrangements

Items 5 and 6 of the Bill clarify the timing of the application of the amendments proposed by the Bill.

Item 5 provides that proposed section 44AIA applies to all AER decisions, whether made before, on or after the commencement of the amendments. This means that no AER decision, whenever made, may be reviewed by a state or territory merits review body.

Item 6 provides that proposed section 44ZZMAA applies to all decisions, whether made before or after the commencement of the amendments. However, under sub-item 6(2), the existing limited merits review regime will continue to apply to a decision where an application to review the decision was made before 21 June 2017 (the day after the proposed amendments were announced).

In other words:

•       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.[147]

Concluding comments

The Bill proposes to abolish the ability to seek limited merits review of certain decisions made by the Australian Energy Regulator (AER). While the Bill appears to be supported by major political parties and some consumer groups, the abolition of limited merits review does not seem to have wide support among industry stakeholders, nor is it consistent with the recommendations of relevant recent reviews.

Moreover, the national energy market is governed by a cooperative legislative scheme. By taking unilateral action to abolish limited merits review, the Commonwealth appears to be undermining this cooperative approach and may be in breach of the Australian Energy Market Agreement. The Bill also appears to pre-empt the current ACCC inquiry into electricity pricing.

It is not clear whether the Bill will achieve its intended aim of taking pressure off energy prices and reducing reviews of AER decisions. In particular, the Bill does not affect the right to seek judicial review, and network businesses may turn to judicial review actions to appeal AER decisions.

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[1].              The Agreement is available at: Council of Australian Governments (COAG) Energy Council, ‘Australian Energy Market Agreement (as amended December 2013)’, COAG Energy Council website, 9 December 2013. The Agreement followed a COAG-initiated review of the energy market in 2002: see further R Parer, Towards a truly national and efficient energy market, (Parer Review), COAG, Canberra, 2002. For a more detailed history of the development of Australia’s energy markets, see, for example, the Department of the Environment and Energy (DEE), ‘Electricity market development’, DEE website; and Australian Energy Market Commission (AEMC), ‘History of energy market reform in Australia’, AEMC website.

[2].              AEMC, ‘National Electricity Market’, AEMC website.

[3].              DEE, ‘Electricity market development’, DEE website.

[4].              See further AEMC, ‘Natural gas markets’, AEMC website; or Australian Energy Regulator (AER), State of the energy market, AER, Melbourne, May 2017, pp. 64–66.

[5].              See further AEMC, ‘Energy retail markets’, AEMC website.

[6].              The national energy laws are supported by rules made under each of these laws. So, for example, the National Electricity Rules are made under the NEL: see, for example, AEMC, ‘Market legislation’, ‘Energy rules’ and ‘National electricity rules’, AEMC website.

[7].              So, for example, the NGL in the National Gas (South Australia) Act 2008 (SA) is applied in Queensland by the National Gas (Queensland) Act 2008 (Qld) and in New South Wales by the National Gas (New South Wales) Act 2008 (NSW).

[8].              P Prince and M Roarty, Australian Energy Market Bill 2004, Bills digest, 171, 2003–04, Parliamentary Library, Canberra, 2004, p. 2; see also COAG Energy Council, ‘Market structure’, COAG Energy Council website.

[9].              Australian Energy Market Commission Establishment Act 2004 (SA). See also AEMC, ‘Market legislation’, op. cit.

[10].              See especially the CCA, Part IIIAA.

[11].              See further Australian Competition and Consumer Commission (ACCC), ‘About the ACCC’, ACCC website; and AER, ‘About us’, AER website.

[12].              AEMO, ‘About AEMO’, AEMO website.

[13].              DEE, ‘Energy market institutions’, DEE website; AEMO, ‘About AEMO’, AEMO website.

[14].              Australian Energy Market Agreement, clauses 6.6 and 6.7. Although note that ‘limited minor variations may be made where they are consistent with the national objectives’: see, for example, A Finkel, Independent review into the future security of the National Electricity Market: preliminary report, DEE, Canberra, December 2016, p. 49.

[15].              As inserted by the Trade Practices Amendment (Australian Energy Regulator) Act 2004 (Cth).

[16].              The only AER function currently prescribed appears to be under Regulation 7AA of the Competition and Consumer Regulations 2010, which relates to making an application to the Federal Court for an order that a person is in breach of a national energy law under section 44AAG of the CCA.

[17].              NEL, section 15; NGL, section 27.

[18].              AER, ‘About us’, AER website, op. cit.

[19].              NEL, paragraph 16(1)(a); NGL, paragraph 28(1)(a).

[20].              NEL, section 7. NGL, section 23. See also Explanatory Memorandum, Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017, p. 4.

[21].              AER, State of the energy market, op. cit., pp. 94, 101–102; AER, ‘Our role in networks’, AER website. The framework that the AER must apply in undertaking this role is set out in Chapters 6 and 6A of the National Electricity Rules (made under the NEL), while the National Gas Law and Rules set out the regulatory framework for gas pipelines (in jurisdictions other than Western Australia and Tasmania).

[22].              AER, State of the energy market, op. cit., p. 102.

[23].              AER, ‘Our role in networks’, AER website.

[24].              Explanatory Memorandum, op. cit., p. 5; see further, for example, AER, State of the energy market, op. cit., pp. 94, 101–102; AER, ‘Our role in networks’, AER website.

[25].              Administrative Review Council (ARC), What decisions should be subject to merits review?, Attorney-General’s Department (AGD), Canberra, 1999.

[26].              See, for example, COAG Limited Merits Review Project Team, Review of the limited merits review regime: consultation paper, COAG Energy Council, Canberra, 6 September 2016, p. 6.

[27].              Ibid., p. 7.

[28].              Ibid.

[29].              Part 6 of the NEL (that is Part 6 of the Schedule to the National Electricity (South Australia) Act 1996 (SA)) and Part 5 of the NGL (that is, Part 5 of Chapter 8 of the Schedule to the National Gas (South Australia) Act 2008 (SA)). Although note, for example, that the Competition and Consumer Regulations 2010 also contains some relevant provisions (see, for example, Regulations 7B and 7C).

[30].              The Tribunal was originally established under the Trade Practices Act 1965 (Cth) and now continues under the CCA, see especially Part III.

[31].              See further, for example, Australian Competition Tribunal, ‘About the Tribunal’, Australian Competition Tribunal website.

[32].              See further, for example, AER, Submission to the COAG Energy Council, Review of the limited merits review regime: consultation paper, 4 October 2016, pp. 7–8; Explanatory Memorandum, op. cit., p. 6.

[33].              See NGL, section 246; NEL, section 71C; Explanatory Memorandum, op. cit., p. 6.

[34].              AER, Submission, op. cit., p. 8.

[35].              NEL, sections 71R and 71P; NGL, sections 259 and 261; see also AER, State of the energy market, op. cit., pp. 104, 106.

[36].              See also Schedule 3 of the Administrative Decisions (Judicial Review) Act 1977, which lists state and territory legislation that is an ‘enactment’ for that Act’s purposes. Listed legislation includes, for example, the NGL, NEL and the National Energy Retail Law.

[37].              COAG Energy Council, ‘Review of the limited merits review regime: stage two report (September 2012)’, COAG Energy Council website, 30 September 2012.

[38].              R Sims (ACCC Chair), ‘Addressing the key drivers of electricity price increases’, Energy Users Association of Australia: annual conference, Sydney, speech, 24 October 2012, p. 3.

[39].              G Yarrow, M Egan and J Tamblyn, Review of the limited merits review regime: stage two report, COAG Energy Council, Canberra, 30 September 2012, p. 2.

[40].              Sims, op. cit., p. 4.

[41].              Statutes Amendment (National Electricity and Gas Laws—Limited Merits Review) Act 2013 (SA); see also COAG, Standing Council on Energy and Resources, Proclamation of amendments to the limited merits review regime, Energy Market Reform Bulletin, 21, December 2013.

[42].              COAG, Review of the limited merits review regime: consultation paper, op. cit., p. 4.

[43].              J Frydenberg (Minister for the Environment and Energy), COAG releases consultation paper into electricity and gas revenue appeals, media release, 8 September 2016; see also, for example, L D’Ambrosio (Minister for Energy, Environment and Climate Change, Victoria), Statement on COAG Energy Council, media release, 19 August 2016.

[44].              COAG, Review of the limited merits review regime: consultation paper, op. cit., p. 4.

[45].              Ibid., pp. 12, 17–19.

[46].              COAG Energy Council, ‘Review of limited merits review regime: consultation paper’, COAG Energy Council website, 6 September 2016.

[47].              COAG Energy Council, Communique, 8th COAG Energy Council Meeting, Canberra, 14 December 2016, p. 2.

[48].              Ibid., p. 2.

[49].              Ibid.

[50].              J Frydenberg (Minister for the Environment and Energy), Significant reforms agreed by COAG Energy Council, media release, 14 December 2016.

[51].              COAG Energy Council, Communique, 10th COAG Energy Council Meeting, 10 April 2017, p. 1.

[52].              Australian Energy Regulator v Australian Competition Tribunal (No 2) [2017] FCAFC 79; Australian Energy Regulator v Australian Competition Tribunal (No 3) [2017] FCAFC 80. For a summary of these cases, see Federal Court of Australia (FCA), ‘Summary’, FCA website, 24 May 2017.

[53].              See, for example, A White, ‘Power bills to rise as AER loses case’, The Australian, 25 May 2017, p. 1; G Winestock and A Macdonald-Smith, ‘NSW power bills to rise $100 a year’, Australian Financial Review, 25 May 2017, p. 3; G Winestock and A Macdonald-Smith, ‘Labor tells super funds to cut power prices’, Australian Financial Review, 26 May 2017, p. 8.

[54].              AER, ‘Federal Court judgement on AER electricity and gas price decisions disappointing outcome for NSW and ACT consumers’, AER website, 24 May 2017.

[55].              Ibid. See also Applications by Public Interest Advocacy Centre Ltd and Ausgrid [2016] ACompT 1; Applications by Public Interest Advocacy Centre Ltd and Endeavour Energy [2016] ACompT 2; Applications by Public Interest Advocacy Service Ltd and Essential Energy [2016] ACompT 3; Application by ActewAGL Distribution [2016] ACompT 4; and Application by Jemena Gas Networks (NSW) Ltd [2016] ACompT 5.

[56].              AER, ‘Federal Court judgement’, op. cit.

[57].              Ibid.

[58].              PIAC, ‘Energy + Water’, PIAC website.

[59].              PIAC, Electricity prices to rise following disappointing court decision, media release, 24 May 2017.

[60].              Ibid.

[61].              J Frydenberg (Minister for the Environment and Energy), States need to put energy consumers first, media release, 24 May 2017; see also J Frydenberg, ‘Power to the people who need a fairer deal’, Daily Telegraph, 1 June 2017, p. 24.

[62].              Frydenberg, States need to put energy consumers first, op. cit.

[63].              M Turnbull (Prime Minister), J Frydenberg (Minister for the Environment and Energy) and M Canavan (Minister for Resources and Northern Australia), Securing our energy future, joint media release, 20 June 2017.

[64].              J Frydenberg (Minister for the Environment and Energy), Abolition of LMR to reduce pressure on energy prices, media release, 10 August 2017.

[65].              COAG Energy Council, Communique, 12th COAG Energy Council Meeting, 14 July 2017, p. 2.

[66].              M Vertigan, G Yarrow, E Morton, Review of governance arrangements for Australian energy markets: final report, COAG Energy Council, Canberra, October 2015.

[67].              Ibid., p. 42.

[68].              Ibid., p. 74.

[69].              A Finkel (Chair), Blueprint for the future: independent review into the future security of the National Electricity Market, (Finkel Review), DEE, Canberra, 2017, pp. 130–131.

[70].              Ibid., p. 131 (recommendation 5.4).

[71].              The only recommendation to be resolved relates to a Clean Energy Target (recommendation 3.2): see further, for example, J Frydenberg, ‘COAG is turning the Australian energy ship around’, Australian Financial Review, 17 July 2017, p. 39.

[72].              M Turnbull (Prime Minister) and S Morrison (Treasurer), ACCC to review electricity prices, media release, 27 March 2017; see also ACCC, ACCC given powers to investigate and report on retail electricity prices, media release, 27 March 2017.

[73].              ACCC, ACCC inquiry into retail electricity supply and pricing: issues paper, 31 May 2017, p. 10.

[74].              Ibid.

[75].              Ibid., p. 2.

[76].              Senate Selection of Bills Committee, Report, 9, 2017, The Senate, Canberra, 17 August 2017.

[77].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 9, 2017, The Senate, Canberra, 16 August 2017, p. 6.

[78].              M Turnbull (Prime Minister) and J Frydenberg (Minister for the Environment and Energy), Press conference: 20 June 2017: energy security; citizenship legislation; school funding: Parliament House, Canberra, transcript, 20 June 2017.

[79].              M Butler (Shadow Minister for Climate Change and Energy), Turnbull a fraud on gas, media release, 20 June 2017.

[80].              A Bandt (Australian Greens), Greens ready to back government reining in electricity networks, media release, 20 June 2017.

[81].              Ibid.

[82].              Energy Networks Australia (ENA), Risks to consumers as Federal Government overrides courts and states, media release, 20 June 2017.

[83].              Ibid.; see also ENA, Stakeholders reject abolition of merits review of regulatory decisions, media release, 21 October 2016.

[84].              ENA, Risks to consumers as Federal Government overrides courts and states, op. cit.

[85].              B Lyon, ‘Meet your infallible energy regulator, now immune from appeal’, Australian Financial Review, 30 June 2017, p. 1.

[86].              Ibid.

[87].              APGA, Unilateral action increases uncertainty in energy markets, media release, 21 June 2017.

[88].              Business Council of Australia, Submission to the COAG Energy Council, Review of the limited merits review regime: consultation paper, October 2016, p. 2.

[89].              Ibid., p. 6.

[90].              Business Council of Australia, Energy policies must support new investment, media release, 20 June 2017.

[91].              Minerals Council of Australia, Positive steps to reduce energy costs and boost reliability, media release, 20 June 2017.

[92].              National Irrigators’ Council, Irrigators’ welcome action on electricity, media release, 20 June 2017.

[93].              National Irrigators’ Council, Changing ‘limited merits review’ good first step to electricity reform, media release, 1 March 2017.

[94].              Consumer Action Law Centre, Consumer action supports removal of limited merits review, media release, 22 June 2017.

[95].              Ibid.

[96].              PIAC, Electricity reform welcome: consumers need to retain a strong voice in electricity price-setting, media release, 20 June 2017.

[97].              Ibid.

[98].              Ibid.

[99].              AER, Working together to restore confidence in energy regulation, media release, 26 July 2017.

[100].              AER, Working together to improve engagement on network revenue proposals, media release, 11 August 2017.

[101].              Commercial Bar Association, Submission to the COAG Energy Council, Review of the limited merits review regime: consultation paper, 3 October 2016, p. 2.

[102].              Ibid., p. 22.

[103].              D Kumareswaran and D Price, Unappealing prospects, Bulletin, Frontier Economics, March 2016; see also Frontier Economics and Herbert Smith Freehills, Options for enhancing the Australian limited merits review regime: a report prepared for the Energy Networks Association, October 2016.

[104].              A White, ‘Energy majors’ appeals shut off’, The Australian, 21 June 2017, p. 19.

[105].              Explanatory Memorandum, op. cit., p. 3.

[106].              Turnbull, Frydenberg and Canavan, Securing our energy future, op. cit.

[107].              J Frydenberg, ‘Second reading speech: Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017’, House of Representatives, Debates, (proof), 10 August 2017, p. 1.

[108].              The Statement of Compatibility with Human Rights can be found at pages 10–11 of the Explanatory Memorandum to the Bill.

[109].              Parliamentary Joint Committee on Human Rights, Scrutiny report, 8, 2017, Canberra, 15 August 2017, p. 127.

[110].              See also Schedule 3 of the Administrative Decisions (Judicial Review) Act 1977, which lists state and territory legislation that is an ‘enactment’ for that Act’s purposes. Listed legislation includes the National Gas Law and National Electricity and the National Energy Retail Law.

[111].              As inserted by the Trade Practices Amendment (Australian Energy Regulator) Act 2004 (Cth).

[112].              This appears to be in reference to the High Court decision in R v Hughes, which held that ‘a State by its laws cannot unilaterally invest functions under that law in officers of the Commonwealth’: R v Hughes (2000) 202 CLR 535, [2000] HCA 22 at 553. For further discussion, see P Prince, Trade Practices Amendment (Australian Energy Market) Bill 2004, Bills digest, 172, 2003–04, Parliamentary Library, Canberra, 2004, pp. 2–3.

[113].              Explanatory Memorandum, op. cit., p. 9.

[114].              Explanatory Memorandum, op. cit., p. 7.

[115].              COAG Energy Council, Communique, 12th COAG Energy Council Meeting, 14 July 2017, p. 2.

[116].              Frydenberg, States need to put energy consumers first, op. cit.; see also, for example, K Murphy, ‘Josh Frydenberg predicts “big battles” within Coalition after Finkel Review’, The Guardian, (online edition), 31 May 2017.

[117].              APGA, op. cit.

[118].              Finkel Review, p. 5, and see also pp. 29, 31 and 86; and, for example, Business Council of Australia, op. cit.; AGPA, op. cit.

[119].              Frydenberg, ‘Second reading speech: Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017’, op. cit.

[120].              Ibid.

[121].              AEMC, 2016 residential electricity price trends: final report, AEMC, Sydney, 14 December 2016, p. ii; see also ACCC, Issues paper, op. cit., pp. 7–8.

[122].              Ibid., pp. xiv–xxvi.

[123].              AER, State of the energy market, pp. 130.

[124].              Ibid., p. 133.

[125].              G Winestock and A Macdonald-Smith, ‘NSW power bills to rise $100 a year’, Australian Financial Review, 25 May 2017, p. 3; see also B Robins, ‘Bill “spike” looms after court ruling’, Sydney Morning Herald, 25 May 2017, p. 3.

[126].              Frydenberg, ‘Second reading speech: Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017’, op. cit.

[127].              COAG, Review of the limited merits review regime: consultation paper, op. cit., p. 7.

[128].              Ibid., p. 18.

[129].              APGA, op. cit.

[130].              Kumareswaran and Price, Unappealing prospects, op. cit., 29 March 2016.

[131].              Explanatory Memorandum, op. cit., pp. 6–7.

[132].              Ibid., p. 7.

[133].              Murphy, op. cit.

[134].              Explanatory Memorandum, op. cit., p. 7.

[135].              ARC, op. cit.

[136].              Ibid.

[137].              AER, AER network revenue determination engagement protocol: version 1.0, AER, Melbourne, September 2015, p. 7.

[138].              Explanatory Memorandum, op. cit., p. 8.

[139].              COAG, Review of the limited merits review regime: consultation paper, op. cit., p. 18.

[140].              Turnbull, Frydenberg and Canavan, Securing our energy future, op. cit.

[141].              Frydenberg, ‘Second reading speech: Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017’, op. cit.

[142].              Ibid.

[143].              Turnbull, Frydenberg and Canavan, Securing our energy future, op. cit.

[144].              COAG, Review of the limited merits review regime: consultation paper, op. cit., p. 4.

[145].              Ibid., p. 10.

[146].              Frontier Economics, Unappealing prospects, op. cit.

[147].              Explanatory Memorandum, op. cit., p. 9.