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Environment and Communications Legislation Committee

MANSOUR, Ms Julia, Senior Solicitor, Public Interest Advocacy Centre

MEMERY, Mr Craig, Policy Team Leader, Public Interest Advocacy Centre


CHAIR: Welcome. Both of you have been provided with information on parliamentary privilege and the protection of witnesses. Would either or both of you like to make a short opening statement before we go to questions?

Mr Memery : Thank you, Chair. If you don't mind, we do have about 10 minutes of opening commentary, if that's okay?

CHAIR: That's fine.

Mr Memery : Thank you very much to the chair and committee for hearing us today on this important issue. I'll just give you a bit of background about ourselves. We're an independent, not-for-profit legal centre. We tackle systemic issues that have a significant impact upon disadvantaged and marginalised people, and we ensure that basic rights are enjoyed across the whole community. Our Energy and Water Consumers Advocacy Program develops policy and advocates in the interest of low-income and other residential consumers of electricity, gas and water, particularly in the New South Wales energy and water markets. Of the many voices in this particular debate about LMR, we have been at the forefront of consumer involvement with the Limited Merits Review and also with the judicial review of AER's decisions. We have been actively involved in the AER's revenue determinations as well.

We were the first consumer organisation to be a participant in LMR proceedings in the tribunal as an applicant and an intervener in the tribunal's New South Wales proceedings. PIAC acted as a consumer observer and an adviser for other organisations in LMR proceedings in South Australia and Victoria in 2016 and 2017. Our involvement in these proceedings was made possible with the funding and support of Energy Consumers Australia, who I believe you'll be hearing from later today. I also note that three of the organisations that have supported our submission—SACOSS, the South Australian Council of Social Service; CPRC, the consumer policy research centre in Victoria, which is formally the Consumer Utilities Advocacy Centre; and CALC, the Consumer Action Law Centre—are also the only other jurisdictional groups that have participated in LMR beyond the community consultations, which I think shows how difficult and inaccessible LMR is for consumers.

I would like to provide some broader comments on the LMR debate and explain not only why moving on from LMR at this point would be in the interest of consumers but also that there are changes needed to arrangements for judicial review to protect those same interests. LMR is one of a number of debates that's going on at the same time in the energy space. In fact, never have we had energy debates raging as prominently, for as long and with regard to so many aspects of the system as we do at the moment. They're on a number of coincident issues, but they do have three common attributes. The first is growing complexity. The development of our energy market has been guided by a singular objective of promoting the long-term interest of consumers. As elegant as it sounds, it's increasingly clear that what that singular objective means in practice is far from straightforward. That's all the more evident when you overlay what's commonly referred to as the 'trilemma'—the idea of having the sometimes conflicting goals of affordability, reliability and clean energy. No doubt the committee already appreciates the inherent and growing complexity of the energy system, its markets and systems and the myriad of externalities to which it's interrelated, so that's a story for another day. But it's worth noting that, perhaps frighteningly, the energy landscape is already more complicated than it's ever been, and it will never be as simple as this again.

The second issue that's common to all of these debates is growing uncertainty. With this increase in complexity and the accelerating rate of change comes uncertainty about who will use energy, how much they will use, what they will use it for, what energy sources it will come from and how much it will cost. Energy businesses and consumers alike are all investing in assets today, be they large energy infrastructure such as that of TransGrid, who you just heard from, or household appliances. They're doing that without knowing with great confidence what kind of energy market arrangements will be in place in 10, 20 or even 50 years. As Paul Italiano noted, some of the assets that they invest in are of that length. We also don't know whether demand will grow, contract or remain steady or what the energy sources and modes of delivery will be. We know that there will be winners and losers, but we don't know who will actually carry the inevitable costs of some of those losses in the transition—if it's the community or if it's businesses, and, if it's the community, if it's as consumers or as taxpayers. For our policymakers, obviously there is simply uncertainty in knowing when to step into these debates and when to step back.

The third point that's common to these debates is a growing concern about the impacts of our transforming energy market on consumers, particularly with respect to cost and reliability. There is sincere and welcome concern by our leaders and our elected representatives about the impacts of escalating costs for energy on Australian homes and businesses. With that is the recognition that, without leadership, people have nowhere to turn to avoid the onslaught of increasing energy costs. This concern has led to many decisions and interventions, some of which are better than others.

Against the backdrop of this complexity, uncertainty and concern, and the sometimes questionable interventions to which it has given rise, it is entirely understandable that the committee would seek reassurance that the bill which is before it, which is to abolish limited merits review, is in the public interest. The Public Interest Advocacy Centre, along with the other pre-eminent consumer groups that supported our submission to the committee, would provide the committee with that reassurance.

Regarding, again, those characteristics of the energy debate, removing LMR in its current form would be an improvement on all three counts. It would reduce complexity for the regulator as well as consumers and other stakeholders by taking an unnecessary layer from the regulatory process. It may also make the remaining layers with stakeholders somewhat easier to navigate, considering that the LMR requirement that appellants in the case of networks raise and maintain any grounds for review with the regulator during the determination process might have contributed to what has really become a battle fought over hundreds of thousands of pages of paper through the regulatory process.

Removing LMR will also reduce some of that uncertainty. Looking to New South Wales, due to the protracted review process that has stemmed from the last round of LMR reviews there and also in the ACT and South Australia, New South Wales distributors still don't know what their allowed revenue will be or has been for the last two or three years. This uncertainty is not just problematic for network businesses, obviously. It also has flow-on effects for energy retailers and, most importantly, the New South Wales homes and businesses who will ultimately foot the costs.

Finally, I note that almost every single limited merits review determination has resulted in higher costs for consumers and not one has actually resulted in the reduction of costs. Removing LMR will clearly make it harder for businesses to cherry-pick those aspects of the regulator's decision in a manner that results in those mounting costs for consumers. Removing LMR will also ease the concern that we and others have that the primary focus of the whole review process is as an endgame in the regulatory process, rather than a last resort to hold the regulator to account when, and only when, they actually make a material error.

So, in PIAC's view, the bill should be passed without hesitation. But, while passing the bill is very important, we stress that more needs to be done to preserve and enhance the consumer voice in the appeals process, and we urge the committee to consider these points, which are further elaborated on in our submission, obviously. Consumers need to have the ability to meaningfully participate in processes that affect their interests. This includes the regulation of electricity and gas network businesses, as this directly impacts the price paid by consumers for these essential services—and I think it's always important to emphasise that these are essential services that we're talking about.

The regulatory system must provide for consumer involvement in all stages of that process, including the administrative review process, in order to ensure a focus on consumer outcomes and in keeping with those objectives. I will just clarify that, when we talk about those processes, we're talking about not just the actual process of the regulator in making their determination and the review but also the determination that leads up to the networks making their submissions to the regulator. It's important that consumers actively participate in that process so that the submissions made to the regulator in the first place actually reflect, as best they can, consumer preferences and consumer views. It's been acknowledged by the COAG Energy Council in its recent review of arrangements for LMR, and reiterated by the AER and others, that a substantial increase in funding for consumer participation is necessary to ensure that consumers can meaningfully contribute to all of those stages of the process, including any arrangements for appeal.

Just by way of example, the asymmetry of those resources between networks and consumer groups is demonstrated in the New South Wales LMR proceedings, where Networks NSW alone paid legal costs in the vicinity of $90 million, we understand, which is about eight per cent of their net profit in 2014-15, compared with about $500,000 that was spent by PIAC and Energy Consumers Australia to fund their involvement. That $500,000 was across the whole process of both limited merits review and judicial review, whereas I understand the Networks NSW component was just to do with LMR proceedings.

Further changes are required so that the abolition of LMR does not have the unintended consequence of limiting opportunities for consumer participation in the administrative reviews of the AER's decision. Once LMR is abolished, the avenue for administrative appeal, of course, becomes judicial review. However, issues of both standing and cost pose impediments to the participation of consumer advocacy groups in those reviews. In PIAC's view, it's actually unlikely that the current legislated framework would allow consumer groups to be able to successfully apply for a judicial review of the AER's determinations. So, alongside the passage of this bill, we believe the committee should recommend further legislative reforms to give consumer organisations a statutory right of standing in judicial review proceedings and protections from adverse cost orders in these proceedings as well. We recommend that the committee, in its report, agrees that such legislative protections are necessary for consumers after LMR is abolished. Before thanking the chair and the committee for the opportunity to hear from us, I'd just like to pass to my colleague, Ms Mansour, who has some comments to respond to some earlier points that have been raised today.

Ms Mansour : Just one short comment for the committee, and that is, it picks up on what my colleague Craig has just said about the fact that LMR has always resulted in higher costs for consumers and higher returns to networks. I've noted that a number of participants, both in written submissions and today before the committee, have said effectively that that really proves that the LMR system is working and that the AER needs a check on it because its decisions are reviewed and overturned by the tribunal so often. I think it's important to make the point that on matters of economic regulatory judgement and in a merits review context, often in terms of the decisions that are made by the AER, there are often many alternative decisions that could be made within different economic parameters, many of which would be correct. I think that it's a mischaracterisation to say that the tribunal overturning or reviewing the decisions of the AER proves that the AER is getting it wrong legally or otherwise. I think that the Public Interest Advocacy Centre and consumers more broadly would very strongly embrace what's said at 1.15 of the explanatory memorandum to this bill, which is that the AER's decisions involve extensive public inquiry processes taking place over around a two-year period, and those consultations and the work that's done by the AER simply can't be adequately replicated in the tribunal when it's doing its merits review processes, particularly with regard to the very short time frame that the tribunal has to do that. I say that with no disrespect at all to the tribunal and the important work that it has done in that sphere.

CHAIR: Thank you both for those comprehensive opening statements.

Senator URQUHART: I think a number of questions you've outlined already in your statement, but I wanted to take you to the response that PIAC put to the COAG Energy Council's consultation paper that outlines whether there should be consideration of significant amendments to other parts of the regulatory regime should the limited merits review be removed. You talked about some of those, but could you outline what you think are the most important amendments that you consider are required to ensure that the protections are there?

Mr Memery : I think there are three main ones. The first, as mentioned, is having standing to actually appeal, and our understanding is that, under the current arrangements for judicial review, consumers would not be able to have that standing, as they are not deemed to be directly affected. Is that the term?

Ms Mansour : Yes. Their interests aren't directly affected in the same way that those of the networks are, for example.

Senator URQUHART: I think we had a similar comment when I asked one of the networks questions about the role of unions representing workers in the electricity industry and their right to be able to go through an appeals process as well.

Mr Memery : The second is the just the sheer cost of participation. I really can't emphasise enough what the imbalance and the hurdles that consumers face are. It's not like it's a lottery where we can only afford one lottery ticket and the networks can afford 100; therefore, we win one time in 100. It's more like a seesaw with an elephant on one side and a mouse on the other. We're the mouse. No matter how many times we jump up and down, we can't budge the elephant. Without those resources being improved to the point where consumers can materially influence the outcome, we are always going to have the same problem.

Finally, it's a very risky activity. There is the risk of adverse cost orders where, if we are unsuccessful, there might be costs awarded against consumer groups who are participating. Obviously, we don't have the backing that a large energy network business does, or the board's appetite for risk that would be required to do that. I think that's true of most consumer groups, if not all. Are there any other points on that, Julia?

Ms Mansour : I would just add that, as has been said by other witnesses before the committee today, a lot of work was done in 2012 and 2013 by the Yarrow review and others involved in those processes to make sure that consumers could fully participate in administrative review processes in the tribunal. I think we believe that it would be an unfortunate side effect if all of that work were to come to naught because, with the necessary passage of this bill, consumers were locked out of the one review process that remains. It's a review process which, as outlined in our submission, we expect network businesses to continue availing themselves of.

Senator URQUHART: That's all I have, thanks, Chair.

Senator RICE: You spoke of how the LMR processes and reviews have always resulted in increased costs for consumers. Do you think that's a reflection of the increased lobbying power, effectively, of the corporations compared with consumer advocates in the LMR process?

Mr Memery : Doubtlessly. It is a process that is designed to reward whoever can throw the most money at consultants. I'm not suggesting that's the purpose of it, but that's basically the effect that it has. And the networks have shown that it's been a very effective strategy for them to invest in a mountain of paperwork with which to do battle. That's been a very effective lobbying strategy for them. Certainly the resources that are associated with that and the cherrypicking, if you like, which requires a very strong focus on getting into the detailed minutiae of the aspects that are being appealed, reflect that.

Senator RICE: Do you understand that, without the LMR, for some people there's a fear about what will happen if the AER actually does get it wrong? I absolutely take your point that 'getting it wrong' is a matter for judgement as to whether or not it is wrong. The unions, for example, are arguing that we need to have LMR; that it's not working well at the moment but we need to have some form of it because it is too risky not to have it there if the AER gets it wrong. Can you respond to those concerns.

Mr Memery : I guess I would make two points on that—and, Julia, of course feel free to jump in. Firstly, yes, absolutely we do need an appeals mechanism for the AER so that where they do make a material error there is an opportunity to correct it. We think the AER generally does a very good job of what they do. With continuous improvement it will only get better. But of course there does need to be that balance in there. We think the judicial review certain adequately provides that where it's required.

I guess I would also ask those who are concerned about what the outcomes would be of removing LMR—and we often hear about things like the lights going out as a result, and we often hear that no-one will actually invest in networks—what that means for how they've done it in the rest of the world, where they've managed to get by just fine without an LMR of the type that we have. Their lights aren't going out, and they have investors in the networks as well. And it would appear that there has been no shortage of interest in investing in Australia's energy networks also. On that specific point, it is concerning to us when we hear those threats from network businesses and others that the lights will go out. It's an extremely emotive threat. It's scaremongering, and I would argue that it borders on completely specious, especially given what has come to light in today's article in the Australian Financial Review as evidence.

Senator RICE: Getting back to the ability of judicial review to deal with where the AER gets it wrong, are you confident when you say: if they make a material error? My understanding of judicial review is just a review as to whether they've stepped through the process correctly, not in terms of their findings.

Ms Mansour : I will make one point which goes to your first question and perhaps the second, which is we think that the proper point for the debate, the discussion and the coming to the merits of the decision is the regulatory process itself. We think that judicial review is an adequate safeguard for, I suppose, the AER making its decisions within the boundaries of the law. Coming back to what I said earlier, it's always going to be very difficult for the AER to come to a decision that keeps all of the different stakeholders happy, and that's not what it's supposed to do under its mandate. No doubt, there will be decisions that consumers and unions don't agree with. We all have an extensive opportunity throughout the regulatory process to put those views to the regulator and to make those points. If it's our belief that the regulator, for example, has gone outside the boundaries of the law, including by relying on considerations that are irrelevant to its task, then judicial review will be an adequate safeguard there.

Senator RICE: What you do think of the proposal that Dr Bruce Mountain was putting this morning of the British model of having the regulator make a draft finding that is then open to appeal and then having a panel of experts who would then consider that appeal? Have you considered that model?

Ms Mansour : I was happy to be here to listen to Dr Mountain, and I think much of what he said in his statement we would embrace. I think it would not be PIAC's position at this stage to embrace that alternative model, as far as I understand it, to scrap a legal merits review and to replace it with an economic merits review. At this stage, I suppose it is a hypothetical alternative body. I don't think that we believe that adding an extra layer to replace the tribunal would lessen the kind of unnecessary time length and complexity that you see in the current review system.

Senator RICE: You basically want to make sure that the AER process itself is as robust and consultative as possible?

Ms Mansour : Absolutely.

Senator RICE: You would like to see various changes to that process to ensure that that's the case to make sure that that process is where things are focused.

Ms Mansour : I think it was ENA that said many of those processes to strengthen the AER's regulatory process are already ongoing, that the networks continue to make greater attempts to consult earlier and more often with consumers and to come to collaborative decisions with the AER on how to develop their regulatory proposals. Did you want to add to that, Craig?

Mr Memery : I would just add that it's important to remember what is already built into the AER's regulatory structure. The networks don't just get one shot with the AER. The AER engages with them throughout the process of making a determination. The AER releases an issues paper for discussion after the networks make their initial submissions to them, and that's not even the first opportunity that they have to engage. Prior to that, the AER actually already has a frameworks and approach process with engagement. Then there is a further stage of a draft determination before they go to the final.

Senator RICE: They basically already have that draft determination that the networks then come back and say, 'Oh, we don't agree with this—A, B and C.'

Mr Memery : Exactly.

Senator RICE: Thank you.

CHAIR: Thanks, Senator Rice. You've just answered the question I was going to ask in relation to collaboration and engagement, so thank you very much for that. I don't think there are any further questions here. Thank you for your time today. For those listening at home, the program after lunch has changed and we'll recommence at 12.45 pm with the Department of the Environment and Energy. The committee will suspend until then.

Proceedings suspended from 11:59 to 12:50