New move in power price war

A Senate committee has backed abolition of an energy review process blamed for contributing to higher power prices.

The ACCC found that network costs were the biggest single contributor to soaring household electricity bills.

Efforts to curb the appeal rights of network operators who have been labelled the biggest single cause of electricity price rises for the past year have taken another step forward, with a Senate committee endorsing the government’s planned abolition of the limited merits review.

In a report released this afternoon the Senate standing committees on environment and communications said the LMR had not fulfilled its brief and was contributing to the increase in energy prices for consumers.

“The committee supports the abolition of limited merits review (LMR). It considers that the abolition of limited merits review will ensure that regulatory regimen is focused on the long-term interests of consumers and businesses and ensure an efficient and sustainable national energy market.”

Instead of providing a mechanism for network companies to address regulatory errors and improve accountability the LMR had become a routine part of the regulatory process, with appeals to the Australian Competition Tribunal contributing to outcomes that were not in consumers’ interests.

“In effect, the tribunal is being used as a second regulator,” the committee found.

“This has resulted in a highly legalistic, complex and costly review process which acts as a barrier to the engagement of other stakeholders, such as consumer groups.”

The report follows the release of Australian Competition and Consumer Commission findings that network costs were the biggest single contributor to soaring household electricity bills, accounting for 41 per cent of the increases in household electricity bills over the past decade.

The federal government moved to abolish the review at the request of the Australian Energy Regulator (AER) after a series of defeats that Energy Minister Josh Frydenberg said had added $7.2 billion to electricity bills over five years in New South Wales.

It is the latest in a series of moves by the federal government to reign in soaring energy bills, including threatened restrictions on exports of gas, a $2bn upgrade of the Snowy Mountains Hydro scheme, the Finkel review on the future reliability, affordability and environmental impact of the energy market and inquiries into retail pricing by the ACCC and the Productivity Commission.

Federal cabinet is this week expected to sign off on its response to the final recommendation in chief scientist Alan Finkel’s review, for a clean energy target that would guide future investment in electricity generation. There is widespread expectation that the response will focus more on reliability and affordability than over carbon emissions.

Mr Frydenberg told an energy summit in Sydney last week that there had been over-investment in networks to increase the amount of revenue raised and to meet reliability standards that were unnecessary. Up to $11bn of network infrastructure was used just four or five times a day.

The Coalition-dominated committee found the LMR had compromised regulatory process and hurt the AER’s decision-making process. It had made the tribunal a second regulator, but without the resources “to undertake the complex task of proper network recommendation”.

“The committee considers that with the abolition of limited merits review, the focus will shift back to the AER as the primary decision maker, with judicial review of AER decisions remaining available,” the committee said in its final report.

“The committee believes the current AER’s extensive inquiry, analysis and consultation undertaken in the regulator’s primary decision-making process provides appropriate opportunities for all stakeholders, including consumer groups, unions and businesses, to express their views and to effectively engage in the process.”

It recommended that the government consider amending the statements of expectations for the AER to highlight more effective engagement of consumers, relevant unions and stakeholders.

It also supported mechanisms to ensure standing in judicial review for stakeholders such as consumer groups and unions and to protect them against adverse cost orders.