Nick Xenophon (SA, Nick Xenophon Team) Share this | Hansard source

I have serious concerns about the Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017. I have serious concerns because it may in the short term lead to some outcomes that are desirable but, in the longer term, I believe it will cause more problems. I say that because we do not have a coherent energy policy in this country. We need to ensure that in energy policy there are clear guidelines, clear parameters and clear incentives for there to be investment in our energy sector.

We also need to deal with the mess of gas exports, where LNG is cheaper in Japan than it is here, notwithstanding that it's liquefied, shipped across the ocean and then deliquefied for use in Japan. We have done something seriously wrong with our energy policy over a number of years. There can be a partisan debate on this, but clearly we have failed to take up opportunities to ensure stability in the energy sector, to ensure more reliable energy and to that ensure prices come down.

That is why I make no apology for continuing to support the views, the research and the work that was done by Frontier Economics back in 2009 when the then Leader of the Opposition, the Honourable Malcolm Turnbull, and I jointly commissioned Frontier Economics to come up with an alternative emissions trading scheme: an energy intensity scheme. That scheme was derided by the opposition and others, but it has stood the test of time as a robust mechanism for encouraging investment whilst minimising the impact of prices and still allowing this nation to meet its Paris agreement targets, which I think must be met as a matter of urgency if we are serious about climate change.

But let's go to this particular 'sugar hit' of legislation. I want to refer to the submission Frontier Economics made to the Senate Standing Committee on Environment and Communications in respect of this bill. It's worth reflecting on their concerns in relation to this. They are concerned that:

the Honourable Mr Frydenberg—

That is a pretty serious indictment in terms of the AER's decision-making process and the robustness of their decisions. As Frontier Economics points out:

That must be taken into account. The submission goes on to say that the AER has a 'very poor track record in this regard', and that the 'removal of the accountability provided by limited merits review is likely to encourage the AER to make more erroneous decisions in future that force regulated businesses' down a path where we could end up having emergency investments down the track which will end up costing consumers in the long term because it will have us lurching from crisis to crisis. We could be looking at a situation where, in the future, billions of dollars for catch-up investments has to be funded once the system approaches breaking point.

Having a system that lurches from crisis to crisis is not the way to run energy policy in this country. It's worth noting that the most mature regulatory regimes around the world, including those in New Zealand, the United Kingdom and Germany, have some form of merits review. 'The abolition of limited merits review would be regressive and put Australia out of step with other advanced economies,' says Frontier Economics. I think it is interesting to note that this piece of legislation is out of kilter with COAG. Indeed, some consumer groups submitted to COAG that the abolition of limited merits review would remove an important legal protection that consumers currently benefit from. That is my concern: what impact will there be on consumers in the longer term?

I think it is also worth noting that the decision to unilaterally abolish limited merits review trashes an agreement the Commonwealth and the states entered into when the states and the Commonwealth established a national electricity market many years ago. The states ceded their powers on the basis that there would be this safeguard. We are now trampling on that safeguard. But I acknowledge and note that, through the COAG process, the limited merits review should and could be improved through a whole range of measures.

Those measures have been discussed by COAG, and those measures would include a whole range of steps that, in my view, would improve the robustness of the process: 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 time frames for the conduct of reviews; requiring appellants to demonstrate that overturning the AER's decision wouldn't 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 reviews; limiting the time frames in which material can be submitted to the regulator; and providing that the costs of reviews, including those of the AER, be borne by network businesses. And, of course, it must be all about tightening and clarifying the grounds of review. That is what was proposed in COAG in December 2016. They are sensible reforms that ought to be implemented. But instead the government has thrown out the baby with the bathwater, and I'm concerned that the long-term interests of consumers will be deleteriously impacted by this.

It's worth noting the other concerns of Frontier Economics that the regulatory framework and role of the LMR—limited merits reviews—would remove consumer rights to challenge the merits of AER determinations as much as those of regulated businesses. If the AER has got it wrong on so many changes then removing the limited merits review, removing entirely this safeguard, this check and balance—it should be modified, I acknowledge, along the lines that COAG suggested in December 2016. We are going down a path where my fear is that it will lead to more chaos, more uncertainty and, ultimately, to higher prices in the energy markets.

Merits reviews can help clarify how complex regulatory rules and economic and legal principles should be interpreted and applied. We are going to lose that by abolishing these limited merits review. The AER have a very poor track record of applying the rules correctly, and we have seen that by the fact that they've failed time and again. My concern is that this will deter efficient investment, which is bad for consumers in the longer term and which will only exacerbate our energy prices.

So these are matters that I believe ought to be considered. I do not believe this is good public policy. I understand why the government has done it, but this will not solve the problem in the longer term. What will solve the problem in the longer term is to ensure that we have a clear framework for investment. My preference is the emissions intensity scheme, which—shown through economic modelling that the Prime Minister, as opposition leader, and I commissioned back in 2009—would have a lower impact on prices, give greater certainty to investment and ensure that we meet our greenhouse gas reduction targets. This is very important from an environmental point of view and also ties in with getting the best economic impact to reduce the price of power and to reduce power price increases.

My concern is that this is a sugar hit which might have some short-term consequences that seem on the surface to be good but which mean that in the longer term we will end up paying for it with uncertainty, with a lack of protection for consumers and by getting rid of any degree of accountability on the Australian Energy Regulator in the way that it makes its decisions. Removing this limited merits review process will not be good for consumers in the longer term, and that is why I have very serious concerns about this legislation.