Energy network pricing decisions are primarily made by the Australian Energy Regulator (AER). The AER considers the network provider’s operating and capital expenses and commercial returns, and uses these to forecast the network provider’s revenue requirements. This pricing determination has a significant influence on the network tariff charged through retailers to consumers. Network pricing decisions are reviewable by the Australian Competition Tribunal, under what is termed a Limited Merits Review Regime. In 2012, an independent panel commissioned by the Standing Council on Energy and Resources (SCER) reviewed the regime and found that it was overly legalistic in its approach; that the review framework was not structured to take account of the views of all relevant stakeholders; and incentives were skewed in favour of network tariff increases. In December 2012, SCER’s Senior Committee of Officials (SCO) published a Consultation Regulation Impact Statement (RIS) that explored options to better align the limited merits review regime with the National Energy Objectives. The options considered were:
- Option 1: retaining the status quo;
- Option 2: changing the limited merits review framework; and
- Option 3: changing the limited merits review framework and establishing a new review body.
SCO considers that Option 2 is the most appropriate approach; that is, to reform the limited merits review framework but retain the Tribunal as the review body. The two key changes to the review framework are that:
- an applicant must demonstrate that the original decision-maker made an error of fact, an incorrect exercise of discretion or was unreasonable in its original decision; and
- the Tribunal must assess whether addressing these issues would deliver a materially preferable outcome in the long term interests of consumers.
SCO considers that its recommended policy position has the potential to significantly address the limitations identified by the Panel. SCO recognises that raising the threshold for leave to appeal and to revise the original decision could reduce the number of appeals of decisions covered under the limited merits review regime. This would significantly impact a range of stakeholders to limited merits reviews, specifically:
- changes to network businesses’ revenues will only occur if it is in the long term interests of consumers;
- network tariffs will not be changed in a review unless it can be determined that an increase would better deliver the long term interests of consumers;
- consumer groups will have improved access to review processes;
- primary decision-makers would be likely to face lower costs associated with having to defend their original decisions; and
- the Australian Government would be likely to face lower administrative costs.
Given the impacts of previous decisions made by the Tribunal, these changes are likely to be significant over time. Because different jurisdictions currently face different costs of delivery for network services, the impacts are likely to differ across the jurisdictions, however is not possible to quantify these costs and benefits. At its 31 May 2013 meeting, SCER discussed the limited merits review regime. SCER subsequently announced its agreement to implement reforms of the limited merits review regime, including amendments to the National Electricity Law and National Gas Law. To meet COAG timelines it is intended this legislation will be introduced into the South Australian Parliament no later than September 2013. The Decision RIS was prepared by SCER and assessed as adequate by the Office of Best Practice Regulation.
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