Australian Energy Market Amendment (National Energy Retail Law) Bill 2011

I am pleased to rise to speak on the Australian Energy Market Amendment (National Energy Retail Law) Bill 2011, and I am pleased to follow the member for Chifley, who has significant experience working in both the energy sector and the communications sector, both networked industries. I note that there are a growing number of members of parliament with experience working in the networked industries. I do not think that is a coincidence, because across the broad sector of networked industries there has been a program of deregulation, competition and liberalisation for some 20 years, and that has led to growth, to opportunities and, I would argue, to the increasing importance of those sectors within the national economy. That is a good thing, and I argue that it is also a good thing that people with experience working in those sectors are now serving in the national parliament.

The bill that is before us is part of the long-term program to reform the national energy market. Its effect is to amend the Australian Energy Market Act 2004 so that that amended act will apply the National Energy Retail Law, the law which is set out in the South Australian act of 2011, which itemises the specific provisions of that law. It forms part of the cooperative Commonwealth, state and territory regime to regulate the non-economic distribution and retail regulation of gas and energy.

The National Energy Retail Law has this to say as a statement of its objectives:

The objective of this law is to promote efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply.

In its operations, this bill confers key powers on the Australian Energy Market Commission and the Australian Energy Regulator. The Australian Energy Market Commission is the national rule-making and development body in electricity and gas. The Australian Energy Regulator regulates electricity and gas transmission and distribution and, included within that, pricing.

The provisions of this bill are in one sense procedural, but they are important nevertheless in facilitating the nationally consistent application of the National Energy Retail Law and National Energy Retail Rules. They represent yet a further stage in the implementation of a set of measures that goes back to a process initiated by the Council of Australian Governments' 2002 energy market review entitled Towards a truly national and efficient energy market.

In the brief time available to me I want to make three key points. Firstly, as I have already indicated, these reforms are part of the broader competition reform process in Australia, which began some 20 years ago and has played out over that period. Energy is clearly one of the most important sectors where reform has occurred. I secondly want to highlight the tensions between that reform process and the Gillard government's stated policy in relation to the carbon tax. And also I want to highlight some inconsistencies with developments in another parallel market, which is telecommunications.

Let me start by talking about the broad competition reform process, which in many ways goes back to the Hilmer review reporting in 1993. That report noted that at that time:

Government businesses account for 10% of Australia's GDP, with rail, electricity, gas and water utilities alone accounting for nearly 5% of GDP. Improving the efficiency of these sectors remains a national priority.

The report went on to say:

While there have been some encouraging improvements … progress is being made from a low base, and Australian public enterprise productivity levels remain well below international best practice. For important industries such as rail, electricity and telecommunications, most Australian enterprises are achieving only 75% or less of the productivity levels achieved elsewhere.

That therefore was the starting point in the early 1990s, when the Hilmer review reported. Triggered by that review and some other processes, we saw the carrying out of a reform process over a number of years in the gas and electricity sectors, as well as a whole range of other sectors. But in the gas and electricity sectors we saw the separation of a previously vertically integrated supply chain; the introduction of competition between generators and retailers; network elements become subject to access and price regulation; the creation of the national electricity market; and gas pipelines become subject to third-party access.

Progress on this reform agenda was reviewed in 2002. If you go back and look at the 2002 review it does make some interesting reading, some nine years later. It opens with the observation that:

Australia is endowed with significant, diverse and high quality energy resources. Australia has approximately 800 years supply of easily accessible brown coal and 290 years supply of black coal. It has large natural gas resources in the North West, in Bass Strait and in the Cooper-Eromanga Basin …

It also referred to good wind, hydro and solar resources. The report went on to note that:

… Australia‘s electricity and gas prices—

this is speaking in 2002—

are close to the lowest in the developed world … for both major industrial and residential users.

And it made this observation, which I would suggest remains as timely today as it was in 2002:

Energy is, therefore, a very significant strategic policy matter for the Australian economy. It underpins the competitiveness of our exported goods sector, is a vital ingredient for domestic industry, and it is a very important item in the monthly household expenditure budget.

A key objective of the program of the national competition reforms was to improve productivity. As Gary Banks, the Chairman of the Productivity Commission, observed in a speech in 2000, talking about progress which had been achieved to that point, a key benefit of the reform agenda was to reduce prices. He had this to say:

The increased competition that has come with these reforms has also helped to ensure that the productivity improvements have benefited consumers, through consequent reductions in prices (and improvements in quality). For example: households and industrial users have benefited from declines in real electricity prices in the 1990s averaging around 16 per cent …

Declines in the 1990s averaging around 16 per cent—how things have changed.

If we turn to the second point that I want to highlight, there is a real tension between this policy agenda—the bill before us today, which implements one of the components of that policy agenda—on the one hand, and, on the other hand, the direction that the Gillard government has been pursuing when it comes to carbon tax. We now have a government going deliberately and directly in the opposite direction from the one which was cited so approvingly by Gary Banks in 2000 and from the direction which underpins the competition reforms going back to the start of the 1990s. We saw, as I do not need to remind anybody in this House, a promise by the Prime Minister in 2010 that there would be no carbon tax under a government she led, and of course we subsequently saw in February 2011 a complete reversal of direction.

What is significant about that, apart from the issues of integrity and trust, is that we have the Gillard government, in substance, reversing the policy direction which has been pursued in energy markets for many years. Since December 2007, electricity prices across Australia have risen by an average of 50 per cent and gas by an average of 30 per cent. What a stark contrast that is to the track record of improvements in competition and efficiency and reduction in prices in the 1990s which I cited earlier. Of course, what we can now expect is further sharp increases in electricity prices, stimulated in part by the carbon tax.

Mr Martin Ferguson: Madam Deputy Speaker, in accordance with the standing orders for the Main Committee, will the honourable member take a question with respect to the cause of the current increases in electricity prices?

The DEPUTY SPEAKER (Mrs D'Ath): Member for Bradfield, will you allow a question?

Mr FLETCHER: I am more than happy to take a question from the minister.

Mr Martin Ferguson: Madam Deputy Speaker, I ask the honourable member: does he accept the statements by the member for Groom reported in the Australian on 20 and 21 August last year, when he stated that power prices in Australia are likely to double in the next five to seven years regardless of who is in government? Does he also accept that in making those statements the member for Groom indicated that he recognised that, irrespective of who is in government, those electricity prices would occur because they are a result of requirements for investment across Australia to ensure that electricity supply reliability and security continue to meet community reliability standards—that is, relating to maintaining the existing distribution network?

Mr FLETCHER: I thank the minister for the question and the opportunity to answer it. The point that I would make in answering the question is that, in an environment where prices are expected to rise, it is extraordinary that you would then stick on a discretionary tax which is likely to increase prices by a further 20 per cent, and that is the consequence of this government's policy. That is why I say and we say on this side of the House that there has been a complete reversal in policy direction by this government.

The 2002 review which I cited earlier noted correctly that our low energy prices are a huge competitive advantage, and it is clearly therefore a matter of considerable concern that we have such a sharp and direct reversal in policy direction by this government. It is further concerning that a consequence of the carbon tax policies being pursued by this government is that there is a key negative effect on major sectors of energy generation. The New South Wales government, for example, estimates a $5 billion loss in the values of its black coal based generation assets. to So it is very hard to understand why it makes sense on the one hand to be pursuing a continuation of the energy market reform process while on the other hand introducing a completely separate policy which goes in the opposite direction.

The other thing that is very interesting in the 2002 review is that it highlights the importance of certainty in the regulatory regime applying to the energy sector for the purpose of encouraging investment. I cannot imagine that the authors of that review would have predicted a scenario in which a government would be elected in 2007 promising an emissions trading scheme, would in 2010 abandon that policy, would later in 2010 make a solemn promise to the Australian people that there would be no carbon tax and then in February 2011 announce, capriciously and with no notice, that there would now be a carbon tax. The degree of uncertainty facing the industry has been ramped up beyond what might reasonably have been expected or predicted when this review was written in 2002.

The third point I want to make in the very brief time that remains to me is to highlight the difference, the contrast, between the reform agenda in energy and the way in which the reform agenda has gone wildly off track in the telecommunications sector. These are two networked industries with very considerable similarities. The regulatory frameworks are in many ways quite similar. Both were the subject of competition policy reforms throughout the 1990s. In the energy sector, the Gillard government is at least nominally continuing to implement the Howard government's reform agenda, albeit undermined, as I have noted, by its contrasting policy direction to do with the carbon tax. But it is very noteworthy that when it comes to telecommunications there has been a complete reversal of a reliance on competition. This government has effectively abandoned competition. Compare it to the electricity sector, where there has been a continued reliance on the existing assets in the sector rather than the government building new assets, where companies have been permitted to continue to operate based upon their current ownership structure rather than an effective policy of nationalisation, where existing players have been structurally separated through breaking up vertically integrated companies into generation, transmission and distribution as opposed to the spurious argument we hear in the telecommunications sector that the only way to achieve structural separation is to build a brand-new company at vast government expense. And where in the energy sector there has continued to be a commendable reliance on competition, the comparison is not a favourable one. I