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Economics Legislation Committee
Australian Energy Regulator

Australian Energy Regulator


CHAIR: I now welcome the Assistant Minister for Treasury and Finance, Senator the Hon. Zed Seselja, representing the Treasurer, and also officers of the ACCC and the Energy Regulator. Mr Sims, would you like to make an opening statement?

Mr Sims : No, we're conscious that time is short and there are going to be many questions. We're delighted to go straight into questions.

CHAIR: That's terrific. Thank you very much, Mr Sims. I think that we should probably start with the ACCC's report into retail electricity prices, which I know has been occupying a lot of our minds in recent weeks and months. In that inquiry, the government asked the ACCC to identify a number of measures to bring down electricity prices. Mr Sims, what impact would implementing those measures have on household bills?

Mr Sims : We calculated that both households and commercial industrial customers would see their bills come down by about 25 per cent, and we were reasonably confident that that would happen.

CHAIR: Can you describe for the committee the key recommendations that underpin that reduction by 25 per cent.

Mr Sims : Yes, indeed. The first key recommendation was to write down—or introduce measures for similar effect—the regulatory asset base of the network companies in Queensland, New South Wales and Victoria. Of course, network assets are the biggest component of electricity pricing, which sometimes seems to be lost in the public debate.

We recommended ceasing the subsidy for small-scale solar, simply because it was no longer needed. Small-scale solar is now economic, so we weren't forming a view about the pros and cons of small-scale solar; we were simply saying it no longer needed the subsidy. Thirdly, we recommended a default offer—price replace the standing offers of retail electricity companies—both to get those standing offers down, because there are people paying hundreds of dollars more than they need to, and small business the same, and also to use that default offer as the reference point for discounts. At the moment, customers really can't tell whether a 40 per cent discount is a better offer than a zero per cent discount, so we wanted to standardise that. We also wanted to get rid of conditional discounts where you could be on a 40 per cent discount, you miss paying on time by a few days and, all of a sudden, you lose the 40 per cent discount, which could be a penalty of hundreds of dollars and which is completely unrelated to whatever cost the lack of paying on time caused the retailer.

Those were the dominant message ones. I'll mention a couple of others in the interest of giving you the key ones. We recommended an underwriting scheme for new generation, which had strict conditions to make sure it was only supporting generation provided by new or currently small generators. We recommended a cap in terms of the main players not being able to acquire new generation if that would put them over 20 per cent capacity in any market. Finally, the other big one was recommending a market-making rule, particularly in South Australia, so that there was enough liquidity into the market.

That's a fair bit. I know I've missed one or two, but those were the key recommendations that delivered 25 per cent reduction.

CHAIR: You have to forgive me: my eyesight is not what it used to be. I can't decide whether I can't read or I can't see distance. I want to ask questions of the AER. Is there somebody here? I'm sorry, I literally cannot see.

Mr Sims : So you have an AER rep, you have the—

Senator Seselja: Chair, would you like them both at the table for the next little bit?

CHAIR: Yes, just for a little bit, thank you.

Mr Sims : Warwick Anderson is the acting chief executive of the AER. He was at the table. Now he's surrounded by his colleagues. Between them they can answer anything.

CHAIR: Thank you very much, Mr Anderson. I'm very sorry: the writing that is your title there is so small, forgive me.

Senator WILLIAMS: I'm with you, Chair.

CHAIR: Thank you. The AER released a final decision on the new rate-of-return guidelines at the end of last year. I'm wondering whether you can outline for the committee that decision, how you came to it and what impact it should have on household customer bills.

Mr Anderson : We released the rate-of-return decision in December last year. The form of the rate-of-return guideline has changed from previous rate of returns. Previously, our rate-of-return decisions were not binding. Recently, the COAG Energy Council, through the South Australian parliament, has changed the national electricity law so that our rate-of-return guideline is now binding on us and on the companies who submit material to us. We have worked very hard on developing that rate-of-return guideline. We went through an 18-month process. It was the most extensive consultation the AER has ever done on rate of return. We engaged expert sessions to hear from experts in rate of return. We also had an independent panel review our decision. We ended up with a rate of return that was lower than has been set previously. That reflects current market conditions and rates in the market and the risks involved in providing these network services. The rate of return that's allowed has decreased from about 7½ per cent to just under 6½ per cent.

CHAIR: The government, obviously, asked the AER to establish a default market offer for electricity prices. That was recommended by the ACCC.

Mr Anderson : Yes.

CHAIR: Can you give the committee an update on the progress of implementing that default market offer and potentially give us an idea of when it might come into effect and what impact it will have on prices.

Mr Feather : The AER received a letter in October from the Treasurer and the Minister for Energy asking us to commence work on the default market offer, which is a maximum price for standing offers, as well as the implementation of a reference bill. The timetable for that is for us to release a decision by 30 April this year for implementation by 1 July. At this point, we put out a consultation paper in November last year and following that we had a public forum. We've had a range of around 30 submissions to the consultation paper and we're now in the process of preparing a draft determination which is expected to come out shortly. That is where we're at. We're aiming to put out a final determination by 30 April.

CHAIR: What effect will default market offer for electricity prices will have on consumer outcomes?

Mr Feather : In setting the default offer, there are a number of objectives that need to be met in setting that DMO, default market offer, as we call it. We want to address the ACCC recommendations, which is around reducing unjustifiably high standing offers. There are a lot of customers in the market who are very disengaged and, as the ACCC has identified, they are paying unjustifiably high prices. At the same time, we need to set an offer that also allows retailers to recover their efficient costs and maintains a level of competition in the market that drives competition and innovation in the markets and there is a balance to be reached. A draft determination will seek to reach that balance by finding that right point.

CHAIR: If a default market offer is implemented by 1 July, how quickly should we see energy prices for consumers come down post 1 July?

Mr Feather : The implementation of the Default Market Offer will take effect from 1 July.

CHAIR: So it should have an instantaneous effect?

Mr Feather : It will apply immediately to standing offers. Retailers would need to comply with the Default Market Offer, absolutely from the 1st of July.

Mr Sims : Could I comment about two effects. One is that it would immediately, of course, reduce the standing offers, because as Mark says, that's what it would do straightaway. The other benefit, which is what we very much had in mind, by setting a price from which all discounts must occur, improves competition generally in the market. You'll see benefits for those on standing offers immediately and you'll see benefits for the rest of the market take a little more time. It's hard to know how long that flow through would occur but we'd expect there would be reductions reasonably quickly for consumers who aren't on standing offers, who just have more clarity of the market.

CHAIR: Good. I've got two energy retailers battling it out for my business right now. I can't work out the apples and the oranges that they're showing me.

Mr Sims : Indeed.

CHAIR: I also wanted to talk to you specifically about the Energy Made Easy comparison website. Who is responsible for Energy Made Easy comparison website?

CHAIR: Can I ask you about the Energy Made Easy website? I understand you've been making improvements but I'd like to know, specifically, what those improvements are and how the service intends to help customers?

Ms Bourke : Our first phase of the redevelopment project took effect in August 2018 last year, and we made a range of usability, accessibility and functionality improvements that were informed by some behavioural insights testing that we'd done previously. We are also going through the next phase of our redevelopment project and that is progressing on schedule and is being informed by extensive consultation with all the users of the websites, not only consumers who want to use the website to go on and search what offers might be good for them, but also the retailers who are required to input all their information into the website, so that consumers can find their offers. The key improvements and enhancements will be delivered iteratively from late 2019 through to July 2020. That is really about building a new technology platform to increase the reliability and availability of the website and that will enable it to deal with more traffic. In the past 12 months, we've had up to almost one million visitors to the site, which is improving and growing. We are building it in a way that will make it easier for us to make ongoing improvements to it in the future, to make sure it can keep pace with other commercial price comparison websites. It will have improved reporting capability and it will reduce the administrative burden. Alongside that, we are making a suite of improvements to make it easier for customers to use the website. We will be introducing bill upload and bill scanning functionality so that consumers don't have to put in all their usage details themselves. We're doing language translation so that consumers who are from non-English-speaking backgrounds are able to use the website—so, it is more accessible. We're looking at building in the ability to accommodate smart meter data so that, again, consumers can get a more robust calculation. We are also working with CSIRO and Data61 to improve the algorithm. So, it is a pretty comprehensive program of work and we are looking forward to delivering it on schedule.

CHAIR: Is it applicable in every state—I suppose every state other than WA? Where is it not applicable?

Ms Bourke : It doesn't apply in Victoria. The Victorian government has their own price comparison website, which is Victorian Energy Compare. It applies to those jurisdictions that have opted in under the National Energy Retail Law. Currently, that is South East Queensland, New South Wales, the ACT, and South Australia.

CHAIR: As a Victorian, I need to know this: is your website going to be better than the Victorian state government's website?

Ms Bourke : Absolutely.

Senator KETTER: I would like to focus firstly on the recommendation in respect of the underwriting of new generation. Are you aware that the government is stating that the Underwriting New Generation Investments program, which they have announced, is based on your recommendation 4 of your review?

Mr Sims : Yes—aware of that. Various statements have been made and there was a consultation paper that had a few variations. My understanding is that they are trying to model it very much on our recommendation.

Senator KETTER: Your recommendation states—and I note you talked about the fact there were strict conditions around your recommendation—that it must have:

have at least three customers who have committed to acquire energy from the project for at least the first five years of operation;

not involve any existing retail or wholesale market participant with a significant market share (say a share of 10 per cent or more in any NEM region);

be of sufficient capacity to serve the needs of a number of large customers …

Based on the public statements from the government on their program, does the government program restrict eligible projects to those that have at least three customers who have committed to acquire energy from the project for at least the first five years of operation?

Mr Sims : The consultation paper that went out calling for expressions of interest, as I understand it, was much broader than the criteria we specified. We have had discussions with the department about whether, having got the proposals they have got, the ones that come forward will meet our criteria, but we don't know where that will end up. We are hoping it does, but we will see where it gets to.

Senator KETTER: Based on what is out there publicly at the moment—I'm just going to go through each of your points of your recommendation—on the issue of having at least three customers, is it your understanding that what the government is proposing satisfies that aspect of your recommendation?

Mr Sims : Sorry, I missed the start of that.

Senator KETTER: The aspect of your recommendation that states that the underwritten projects must have at least three customers who have committed to acquire energy from the project for at least the first five years of operation.

Mr Sims : We had three criteria—

Senator KETTER: I am going to go through each one. That is the first one.

Mr Sims : As I understand it, the expressions of interest went broader than that criteria.

Senator KETTER: The second one was to not involve any existing retail or wholesale market participant with a significant market share. Is the government's program sticking strictly to that recommendation?

Mr Sims : As I understand it, the expressions of interest did go broader. As I said, we are hopeful when they come out with people who qualified that they will meet that. But expression of interest was broader.

Senator KETTER: At this stage it appears that incumbent energy companies such as AGL and Energy Australia are going to be able to access the program.

Mr Sims : We very much hope not. We have made representations to the department in relation to that, but we will have to see where it ends up. Let's hope there is a difference between what was called for and what actually gets benefit under the scheme.

Senator KETTER: Why do you say you hope not? Is it because it would have an impact on competition or a reduction in competition in the sector, given the dominant position that these companies already have?

Mr Sims : We had two objectives, or probably three—I will try to be very quick. There is a barrier to new generators and small generators getting into the market, and that is that they don't have their own long-tail, long-term base of customers. We identified a problem in the market, so we said, 'By all means, sign up your customers for five years, but to get bank finance you would probably need longer.' So, we have suggested that the government could come in and help after five years. But the benefit of our scheme is that you therefore get more people trying to serve those commercial/industrial customers—get more competition to meet their needs. You get more generation into the market that wasn't one of the big three players. It was a very important part of our recommendation—so, we are hoping and we will just wait and see where it comes out.

Senator KETTER: Your recommendation sets out a very specific model for underwriting new investment. It says:

The Australian Government should operate a program under which it will enter into low fixed-price (for example, $45-50/MWh) energy offtake agreements for the later years (say 6-15) of appropriate new generation projects which meet certain criteria.

Does this strictly reflect the design of the government program?

Mr Sims : It doesn't reflect the invitation to offer, but again we are hoping that it will be met with the people that get awarded, so we will just see where that goes. The importance of that is that we did not want the government underwriting the equity of a project. We wanted them to help with the debt finance. We felt that if the government set a price of $45 to $50 it was absolutely win-win. It helps the project get bank finance but if the government had to pay out on that the good news was that wholesale electricity prices would be below $45 or $50, which is fantastic. So, we are as keen as you are to see what happens under the scheme.

Senator KETTER: Out of the three eligibility criteria set out by the ACCC, the government's program fails to adopt two of those and it entertains forms of support not recommended by the ACCC? Is it fair to say that the program doesn't implement your recommendation No. 4?

Mr Sims : It is fair to say that the call for expressions of interest did not do it in the way we would have done it. What we are hoping is that, having got expressions of interest, the ones that qualify meet our criteria. We have been making representations to that effect. We will see what happens.

Senator KETTER: It is not a very good way to start the program if they are going broader than what your recommendations are. Doesn't this create confusion if ultimately they adopt a different set of criteria than what they have gone out with to the market?

Mr Sims : I have two comments on that. We understand they were just wanting to make sure they had enough people responding to their requests, because they had no idea whether they would get this much or this much. In our role we make recommendations that reflect the view we have and then it's up to governments to come up with the policy. Every government has a right to do things differently. We have a right to recommend and they have a right to pick it up and run with it the way they want to.

Senator KETTER: Have you provided any further advice or submissions on the policy in response to the discussion paper?

Mr Sims : Just oral. We understand they have quite a number of expressions of interest, so we are saying, 'As you narrow down, keep in mind the three criteria.' But it has just been an oral representation—nothing more than that.

Senator KETTER: Is there any documentation that supports—I take it you had meetings with somebody from the relevant department?

Mr Sims : I've had a meeting with the minister, Minister Taylor, and people who did the work on the inquiry have met with the department, but it has all been oral.

Senator KETTER: Does what you said to the minister reflect what you've said to us today?

Mr Sims : Pretty well word for word, yes, with slight adjustment.

Senator KETTER: Can you tell us anything else? I am just concerned that what transpired between yourself and the minister has not been made publicly available. Was there any commercial-in-confidence or otherwise confidential information? I think there is significant public interest in knowing exactly what you have said.

Mr Sims : No, it was just a discussion around the recommendations in our report. There was no discussion of any proposals that the government has; it was just the concepts in our report and trying to explain what those concepts were meant to achieve. It was really that high-level type of discussion.

Senator KETTER: As part of that meeting did you use any briefing document that could be made available?

Mr Sims : No, I don't think so. I have pretty much memorised the retail electricity pricing report, so I can't remember any briefing document. I would be surprised if there was. I can't rule that out but I don't remember it.

Senator KETTER: I would be interested in a summary of what you said. You say that it reflects word-for-word what you have told us this morning, but I am interested if any further information was provided. Obviously if it is commercial in confidence or otherwise confidential—

Mr Sims : I can say now that there was nothing commercial in confidence. It was a discussion about the logic of the retail electricity price inquiry recommendations. It was that simple. It wasn't about any projects or anything like that; it was simply a discussion around the recommendations we made in the retail electricity price inquiry.

Senator KETTER: Can I infer from what you said this morning that your comments to the minister indicated that you are not supportive of the current design of the UNGI program?

Mr Sims : The way I would put it is that we had concerns with the breadth of criteria calling for submissions. We emphasised the importance, in our view, of the three criteria we had in mind, but, as I said, governments are free to vary from our recommendations.

Senator KETTER: Did you propose that the government should return to the original design or the recommendations that you put forward in your report?

Mr Sims : I just explained the logic of those three points and hoped that, as they were culling the projects, however and whenever it goes forward—we didn't discuss timing or anything—they keep those three criteria in mind, particularly the one that it shouldn't involve assistance to the big three players. We were very strong on that; that would really not be what we are trying to achieve.

Senator KETTER: Finally on this issue: did you point out the potential risks of the government approach?

Mr Sims : I pointed out the benefits of what we were proposing and why we were proposing it, I pointed out the benefits to competition of getting some new players in there, I pointed out the benefits—

Senator KETTER: But if they don't get it right, aren't there risks to Australian consumers of electricity?

Mr Sims : I guess that is right, but, absent the recommendation we made, extra investment would probably have come from the big three, because the others couldn't get into the market, so it is more that we were creating opportunity for more competition; we just hope that is picked up by not helping the big three.

Senator KETTER: If they get it wrong, the opposite effect could happen. The dominant position of some of these large companies could be enhanced or increased.

Mr Sims : The way I would put it is there is opportunity to inject more competition into the market. I hope it is taken. If our recommendation had never existed in the first place then you wouldn't get that benefit, so I don't think that, if our recommendation is ignored, it would make things worse off; it is more an opportunity to make things better by getting generation that is not owned by the big three into the market.

Senator WILLIAMS: Thanks to you and your team for being here. I first take you to what Commissioner Hayne, the royal commissioner, recommended for the finance-brokering industry. I am concerned that if, for example, an upfront fee was put on a customer, you went to a finance broker and said: 'I would like to get a home loan. I want to buy this house for $600,000. I have a $200,000 deposit,' the broker says, 'That's a $2,500 up-front fee,' and I say, 'No, I don't want to talk to you'—considering about 60 per cent of loans, as I said, are through brokers, have you done any studies on the effect if trailing commissions on brokers were to be removed?

Mr Sims : We haven't. Our role so far was to do the residential mortgage price inquiry. That clearly showed that the banks other than the big four are very heavily dependent on mortgage-brokers to get their business, because that gives them a distribution network that they otherwise don't have, so mortgage brokers play a pivotal role in supporting the non-big-four players. It's a very important role. We are not part of the Council of Financial Regulators, who advise the government on these things, but the government and Commissioner Hayne have said that, in any assessment of change that affects mortgage-broking, we would be involved to advise on competition, so we're extremely keen to get involved to make sure that we don't damage competition in any change that's made.

Senator WILLIAMS: If any government decision leads to a reduction in competition in the finance sector, that would be bad. For example, if I were to go to a broker and get a home loan of four per cent—0.2 per cent trailing commission to the broker, 3.8 per cent to the bank—if I went direct to the bank, I wonder whether I would get the loan for 3.8 per cent or four per cent. That might be something to consider in the future. I'm very concerned about those 27,000 people employed in the finance-broking sector and the reduction of competition, so I hope government treads carefully on that. Another point that Commissioner Hayne referred to was point-of-sale finance for motor vehicle companies, machinery companies et cetera. Are you familiar with what he said there?

Mr Sims : My memory is that it was to—and Mr Bezzi can correct me if I don't get this right—

Senator WILLIAMS: I'm sure he will.

Mr Sims : He always does—remove the exemption against the responsible lending laws, which would give the people selling financial products at point of sale the obligation to work in the interests of consumers.

Senator WILLIAMS: Have a credit licence, be credit assured—Mr Bezzi, is that how you would describe it?

Mr Bezzi : That's a reasonable description. The lending obligations that apply to finance companies would apply to those people at point of sale, as I understand it. I'm no expert on the way those laws apply but, as we understand it, it is essentially levelling the playing field.

Senator WILLIAMS: The way I see it is that the actual car retail outlet, the dealer, may have to have staff with finance accreditation, licensing et cetera, which would cost money and time, but if I went to Toyota to buy a car tomorrow and I filled the paperwork in, the dealer doesn't make the decision on whether I get the loan; it goes off to Toyota Finance and they make the decision, looking at the cash flow, security et cetera, so I fail to see why costs and pressure should be on the dealer itself. That something up for debate.

Mr Sims : It's mainly an ASIC issue rather than one for us.

Senator WILLIAMS: Yes, it is. Finally, I've brought you an issue about the petrol prices in Glen Innes compared to Inverell, where I live. I think it was about 20c a litre dearer at one stage when a constituent brought it to my attention. Did you have any luck sussing out on the fuel prices in Glen Innes, northern New South Wales?

Mr Sims : We did a market study of Armidale and looked at the sites around there.

Senator WILLIAMS: You did good work on Armidale a couple of years ago, which had an immediate effect.

Mr Sims : We still have a few concerns about Armidale prices. That work showed that the cost of freight, of getting petrol to these places, was an added cost but wasn't a big cost. The biggest extra cost of small towns was that they didn't have the throughput, so the level of petrol sold that had to cover the fixed costs of operating the service station was less and the unit costs were higher. That was a big driver of extra costs.

The other issue is that we see stunning anomalies in towns, where a smaller town will have lower prices than a bigger town, and it's hard to work out why that's happening. Sometimes it's got to do with the small town being on a road going between two important destinations—so they're competing with people buying fuel along that road. Sometimes it's due to the fact that the service station wants to get people to buy milk and other stuff from them, whereas other service stations are just there to make money out of petrol. There are a whole range of factors that go into describing those different prices. But it's not against the law to sell petrol at prices that greatly exceed cost.

Senator WILLIAMS: In that example I just gave, Armidale, Guyra and Glen Innes are all on the New England Highway. At the time that I brought to your attention, Guyra was 10 cents a litre cheaper on diesel, in a far smaller community, than Glen Innes—on the same major highway. Let's hope the competition does work in Glen Innes so that consumers can benefit.

Mr Sims : What helps is a bit of focus on this from us but also a local focus, so that the people who are charging these prices have to explain to their communities why they're doing that.

Senator WILLIAMS: Thank you.

Senator KENEALLY: Thank you, Mr Sims, and your team, for being here today. The AEMC is currently considering a rule change that would open up the NEM to competition and would allow consumers to sell demand response into the wholesale market. The ACCC's submission to the AEMC stated that it supports this reform, as does the COAG Energy Council, BlueScope Steel and AEMO. I want to try and understand your view about this proposal as a way to increase competition in the NEM compared to the divestment legislation—the so-called 'big stick' proposal—which the government is promoting to increase competition in the NEM. In your view, would the divestment legislation support demand response to be introduced into the NEM?

Mr Sims : I'll start on that, because I think it's partly for the ACCC, but my colleague on my left lives and breathes these issues permanently.

Senator KENEALLY: What an exciting life he has!

Mr Sims : Seriously, he does in his market—particularly when things are happening in the generation market. They're not substitute things. We recommended—and, as I say, Peter will be much more up-to-date with more recent developments—that demand be able to be bid into the National Electricity Market so that more than just the main retailers could benefit from it; that other people could aggregate demand and bid it straight into the system. They didn't need to make it available to the retailers, who, after all, depending on their position, might not want lower prices; they might want higher prices. So we favour that but we don't see it as in any way related to a big stick or other issues. It sits as an issue in itself.

Senator KENEALLY: I have a couple more questions. Maybe I'll ask those questions and we'll see where this takes us. I do want to pick up on that point you just made. I note that, in its submission, the ACCC said it was strongly opposed to the Australian Energy Council's rule change request for a wholesale demand response register on the basis that it would risk perpetuating the current barriers and fail to promote competition. Would the flipside hold true? If the AEC's register is implemented by the AEMC, would that hinder competition?

Mr Sims : I'm struggling a bit. I did clear that submission. Is that relevant to the demand response issue?

Senator KENEALLY: It is.

Mr Sims : I'm sure you're right; it's just skipping me at the moment. There were three proposals that the AEMC put forward for demand response. We strongly supported the one where they could just bid it in. I know there was a voluntary scheme which we didn't support. I'm sorry; my memory is failing me on the third one, which is obviously what you're referring to. I apologise; I just don't have it at my fingertips.

Senator KENEALLY: I'm happy if you want to take this on notice.

Mr Adams : Demand response is something that the AER would fully support. It's something we've been working to get introduced into the marketplace for a long time. As the technology changes in our market and we have a more distributed generation mix, the ability for the demand response to play in those arrangements is extremely important. So we would support that. In respect of the specific three issues in the submissions, I'd like to take that on notice.

Senator KENEALLY: Let me ask it this way: in the context of demand response reform, you often get retailers arguing that they are best placed to provide wholesale demand response services to customers. Could you give us a little bit more on the benefits of opening up the provision of wholesale demand response services to independent aggregators, and why retailers might be pushing back on that?

Mr Adams : I would suggest that, by opening those arrangements up, the ability to come up with innovative ways and products for customers to be involved in that process is much wider. I think there may be various incentives for certain incumbent players to do things in a particular way. I think we'd be very keen to see new players come into that space and allow customers to have a greater range of options to participate at various levels.

Mr Sims : If I could add: our concern at the ACCC—and Peter is very close to these things—is the retailers having a big role in demand response. They may want higher prices. It's not always in their interests to have lower prices, particularly when they own the guts of the generation. If you have pure play demand response people, they have only one incentive: to earn money to bid in the demand response. That will always be to the benefit of consumers. Just having the retailers do it may benefit consumers, but it may disadvantage them.

Senator KENEALLY: I have one last question in this area. Snowy Hydro supports the AEC rule that could well limit competition and see the retailers have the wholesale responsibility. Is there anything the government could do to direct Snowy Hydro to support a demand response competition? Are there any powers available to the government? I understand that it's not the sole shareholder in Snowy Hydro, but is there anything the government could do to direct Snowy Hydro to support demand response competition?

Mr Sims : I don't think it's an issue, unless I'm missing something. We have to direct Snowy Hydro. This is really a policy decision by the COAG Energy Council of how it wants the operation of the market to run. We would like to see the COAG Energy Council, when the process runs through, decide as a policy issue that demand management be allowed to be bid into the market. Snowy Hydro can put its view; of course, it's got the same interest as the big three in this. Volatility can be their friend.

Mr Adams : I would just add one point. As we go through this transition, particularly at the wholesale end of the electricity market, the ability to have more flexibility in the way generation and demand side can come in and out of the market will become more critical. There is an enormous amount of work going on around creating a framework about flexible generation. The demand side can play a significant part in that flexibility that will be required in the years to come. Our report into effective competition, in December of last year, identified that that flexible amount of capacity was relatively still concentrated in the market as it stands. So bringing new players into that area of the market will be something that will benefit all.

Senator KENEALLY: Thank you.

CHAIR: I want to ask some questions on a hobbyhorse issue of mine, which is open banking, with specific reference to the consumer data right. Who should I direct those questions to, Mr Sims?

Mr Sims : It depends whether you want a nice, high-level answer or you want to get a real, factual, detailed answer—your choice, Senator.

CHAIR: Why don't I start with high-level answers and then we'll move on a bit. Perhaps, Mr Sims, you can describe for the committee exactly what the consumer data right is and how that fits into an open banking regime?

Mr Sims : I will do that and I might then call on Mr Gregson to answer. At the moment, I really am focused very much more on mortgages. Mr Gregson has a much broader focus, which is what he should have. At the moment it is very hard to switch mortgages from one bank to another, because you've got to go through a long process to test out what the best offers is they're willing to give you. So it's very hard to switch. It's very hard to determine the best offer a bank will give you. There are many benefits of open banking, which Mr Gregson can talk about, but the dominant one I see it is that you can say to your bank, 'I want all my history in relation to my mortgage so that that information is there.' You can either go to another bank that you may be talking or you can go to some intermediary who can help you find the best deal. So you can find the best deal without having to go to all the trouble of going through torturous processes to provide what data is needed. It will help consumers get a cheaper mortgage and it will help competition in the market.

CHAIR: So we are not just talking about the structural side of the mortgage that you have chosen it is more repayment patterns?

Mr Sims : That is right. The bank has various information on you and an alternative bank would want that information to be able to give you an offer. Currently, you have to go and fill out endless forms. This way that information will be readily available and really at the touch of a button it's in a form that is usable. So open banking is not just to provide the data it has to be in a particular usable form that can go to the other bank or the intermediary.

CHAIR: It's not just specific to a particular product; it's specific to all the transactions or all the credit that you have?

Mr Sims : That's right and that's very much the territory Mr Gregson—

CHAIR: I will ask Mr Gregson, but that was a very good high-level overview. Thank you very much for that.

Mr Sims : Thank you.

CHAIR: Mr Gregson, do you have anything to add as to what open banking is and specifically how the consumer data right fits into an open banking regime?

Mr Gregson : I don't think it is so much how the CDR fits into with an open banking but rather how open banking fits into CDR. CDR is currently before the House—the legislation that was set up, that mechanism. It provides for sector by sector, giving consumers access to their data that is currently held by the data holders. In the case of banks that's the banks. The scheme operates on the basis that the ACCC will write the rules. We'll accredit the third-party data receivers—they're the Fintecs or the switchers. The rules will set out the mechanisms by which the banks might release the data. Consumers will provide the consent and the data receivers how they use that material. We are not doing this alone. We are also working with the OAIC—the privacy commissioner—who is advising government on the designation of future sectors and the privacy issues there, and also advising us on the rules to make sure that there are secure and private platforms to use. We are also working closely with Data61 and the data standards board, who are connected, obviously, and they are providing the technical standards by which the data is released. I am happy to give you more detail and answer specific questions that would help.

CHAIR: One of the most exciting things about this consumer data right is—and, as you said—while open banking fits into the regime it has the potential to be rolled out across telecommunications and energy as well. Obviously, that's a little bit further down the track. The banking certainly comes first. My understanding is that last week a decision was made to delay the implementation of an open banking regime, or to delay the implementation of consumer data right legislation, but there is the imperative to pass that legislation in order to allow banks to make the changes that are required, so that we can introduce this quite transformative measure that will benefit consumers and small businesses. Can you expand on that?

Mr Gregson : I think the timetable issue is one that is particularly useful for senators to understand. That was adjusted in late December last year, in part to reflect some of the complexity we're coming across, to make sure we've ticked off on what we need to from the privacy and security perspectives. And then we've had full engagement with banks and institutions to make sure that we implement this properly.

Importantly, though, the Treasurer, when giving that new timetable, made sure things were still moving along. So from 1 July, which was the initial implementation date, banks will still be required to provide product information data—that is, information about the product, not the consumer data—and we'll be commencing pilots from July, going through till October and November. That's really important to see that the system is working. Banks can develop their systems; they can test and road-test our IT systems, which they need to interact with. That takes us to February 2020 for when consumer data will start to be available on consumer request. That may sound like a bit of a deferment, but so much will be happening in the meantime, and I think it will be very difficult to progress that unless we keep seeing the progress in the legislation and in the work that we're doing.

CHAIR: So what you're saying, in a very polite and roundabout way, is that the legislation is currently held up in the House of Representatives and it needs to be passed if we're going to meet that 1 July deadline.

Mr Gregson : I certainly wouldn't describe it as being held up. I think it's only just recently been introduced. Let's see how members treat that bill.

CHAIR: I know there are an awful lot of people on the government side of the chamber who are very enthusiastic to pass that legislation. Can I ask you then: has the ACCC met with the opposition, in particular the shadow Treasurer, to discuss open banking with them?

Mr Gregson : Not to my knowledge at this stage.

CHAIR: Do you know whether the government has made the offer to speak to the shadow Treasurer and the opposition, in conjunction with the ACCC, about the importance of this legislation?

Mr Gregson : I believe there have been discussions, and we've made ourselves available, giving opportunity for that to happen.

CHAIR: And the opposition are yet to take up that offer?

Mr Gregson : I'm not familiar with that offer having been taken up as yet. But I should emphasise that it has been a recent engagement.

CHAIR: Are you getting a sense from this recent engagement that the opposition is supportive of the initiative of the consumer data right legislation and, in particular, open banking?

Mr Gregson : We couldn't draw that insight from that level of engagement, but we've seen positive references publicly to the consumer data right from both sides of the House.

CHAIR: So you think that there is a general level of understanding of the urgency of passing this legislation?

Mr Gregson : I'm probably not close enough to give you that answer. The Treasury might be able to help you with that.

Senator KETTER: Mr Gregson, you've just indicated that there were privacy and security systems that warranted the start date for the CDR legislation being delayed. Would you accept that the government was taking a risk by planning to introduce the legislation in late December?

Mr Gregson : No, Senator. Progressing things in a timely and ambitious way is often an appropriate path to take to achieve good for the economy. The examples of security and privacy were just two of a number of complexities that I mentioned. As we get our teeth into this and understand the issues, we find there's a lot of complexity. A lot of that came through the consultation that we've had, both publicly and with others. I think this is just par for the course when you're dealing with complex issues.

Senator KETTER: Okay.

Mr Sims : If I could intervene: going back to my high-level view to Senator Hume, the key change—I think I've got this right—in terms of making mortgage data available was always due for February 2020, and that hasn't changed. So, as far as I'm concerned, the key date for consumer benefit is there, and what we've now got is a better chance to do some testing and make sure the computer systems are as they should be.

Senator KETTER: I'd like to move on to the Food and Grocery Code of Conduct and the review that was conducted. Can you tell me: were the problems that the review found with suppliers ongoing or had things improved?

Mr Sims : I might pass that to Mr Grimwade, who's closer to that.

Mr Grimwade : I'm sorry, Senator. I just missed the end of your question. I wonder if you could repeat it, please.

Senator KETTER: I'm interested in whether the review of the code of conduct found that the problems for suppliers were improving or whether they are still the same?

Mr Grimwade : The review made some recommendations. So, on that basis, I think one can assume that there is a problem that needs to be remedied. We have some particular views on the review itself, and we think that perhaps more can be done to improve the food and grocery code.

Senator KETTER: Was the review concerned with the practice of supermarkets not accepting suppliers' requirement for price increase or proposing to pay them in-kind, like promotional offers, rather than in cash?

Mr Grimwade : That was one of the issues raised in the review, and there was a recommendation by Professor Samuel in regard to the problems in seeking price increases. But there were a whole host of other issues that were canvassed in the review as well.

Senator KETTER: What about the concerns about the delisting processes by supermarkets with short or little notice?

Mr Grimwade : Indeed, the ACCC has conducted two series of audits under the food and grocery code. On those occasions, we found that there were particular concerns arising from delisting practices, including the failure to provide detailed reasons or acknowledge there was a right of review to delisting practices.

Senator KETTER: I understand that the outcome of the review is the proposition that the major supermarkets appoint their own arbiter to deal with disputes with suppliers. Do you have concerns with that proposal?

Mr Grimwade : Yes, we do have concerns with that proposal. We accept that the intention of the review's recommendations in this regard is to have an independent code arbiter appointed for each of the participants in the code. However, there are concerns that, given that these code arbiters are employees of those firms, suppliers will be reluctant to seek to have their disputes resolved through those code arbiters. There is also a concern that if you have a number of different code arbiters sitting across a number of different companies you may end up with inconsistent approaches to similar disputes.

Senator KETTER: I understand that it is proposed that if a supplier is unhappy with an arbiter's decision, then they can appeal to a reviewer. Can you confirm that in such an instance the reviewer would only review the process and not the actual outcome?

Mr Grimwade : That's the recommendation of the review.

Senator KETTER: Are you comfortable with that approach?

Mr Grimwade : Our view is that it would be preferable to have an independent code arbiter who would be capable of resolving disputes across the industry rather than having separate—

Mr Sims : Obviously, it is a Treasury review; we have submitted extensively on it, but ultimately it will be a Treasury set of decisions.

Senator KETTER: So even if there are problems found with the process, what obligation is then on the arbiter to change their determination?

Mr Grimwade : Are you talking about the code arbiter or the reviewer that sits above?

Senator KETTER: If the reviewer finds that there's an issue with the process, which is the only thing that they are entitled to review, what compulsion is there on the arbiter to then go back and change their decision, if there is found to be a problem with the process?

Mr Grimwade : Look, I'd have to go back to the review's recommendations in that regard. I'm not precisely sure what the obligations on those independent code arbiters are if there is an issue with the process; it might be that they have to make the decision again. I'm not quite sure.

Senator KETTER: I understand that the previous experience of the ACCC when there was an investigation involving Coles, I think, was that not a single supplier was prepared to come forward to give evidence because of fear of retribution. Has anything changed that would remove a supplier's fear of retribution if they made a complaint against a supermarket?

Mr Grimwade : We have a surprisingly small number of complaints from suppliers to us in relation to supermarkets generally, not just under the food and grocery code. Our experience and our discussions with the Food and Grocery Council lead us to believe that there remains some reluctance for suppliers to raise their disputes with supermarkets, because of the fear of retaliation.

Mr Sims : If I could just add, I think the relations between supermarkets and suppliers have improved since the action we took, but there's no doubt that suppliers are still very concerned about complaints or about otherwise upsetting the supermarkets, because it is their livelihood. That's just an inevitable tension that just won't go away. It has improved but that fear is definitely there.

Senator KETTER: Finally on that particular subject, are there any other concerns or points you'd like to make about the review of the code?

Mr Sims : The dominant one I'll mention as Mr Grimwade is thinking is that we always think these codes should have penalties. If it isn't complied with, have a penalty. Having a law, which effectively this is, without a penalty isn't much use.

Senator KETTER: Let's move to complementary medicine and the task force that has been instigated there. We had a discussion at last estimates about this particular issue, Mr Sims, and issues that have arisen as a result of the guidelines that the ACCC has issued. When you were writing those guidelines, to what extent did you attempt to distinguish between issues of concern relating to foodstuffs as opposed to other types of products?

Mr Sims : I'm going to get Mr Grimwade to answer that. But could I say two things on complementary medicines, by way of introduction. The law changed for a reason and that reason was tremendous complaints where people were saying, 'This can't be made in Australia,' where it's basically just an imported ingredient with a bit of a twist. The government changed the law for a reason. Our guidelines did their best to interpret the law change. We interpreted the change of law, and that is our role.

Senator KETTER: I think you've made that point very clearly, Mr Sims, on previous occasions.

Mr Sims : Sorry to be repetitious; I'll pass to Mr Grimwade to more directly answer your question.

Mr Grimwade : To be clear, we've issued numbers of different series of guidelines relating to the country-of-origin food labelling standard and related issues. We have issued general guidance and short FAQs, but we've also issued guidance directed to particular sectors—in the food sector, for instance, in the dairy sector—but also in the non-food sector relating to complementary medicines. There is no obligation on the non-food sector to comply with the country-of-origin food labelling standard. However, the complementary medicines sector—or many in it—have chosen to take advantage of the safe harbours, which were changed in February 2017. So the guidance we directed to complementary medicines in March 2018 was directed to the commission's interpretation of the new safe harbours.

Senator KETTER: When you were considering the guidelines that you issued, did you give consideration to the situation of a manufacturer that may have no Australian producer of the products that they needed? Nature's Own case comes to mind here, where there are no other suppliers in Australia of the fish oil material.

Mr Grimwade : I think that is a dynamic issue as to the extent to which there might be entry or exit in any particular sector. At the time we were consulting on the complementary medicines guidelines, there was actually an Australian manufacturer who used Australian fish oil. The guidance we have issued is very much focused on the different types of manufacture or encapsulation. Just to make it clear so there is no uncertainty here: we did not say that all complementary medicines in Australia using completely imported goods are not made in Australia. We looked at the different types of manufacturing, and we determined that encapsulation—putting foreign fish oil into little capsules—did not meet the new definition of substantial transformation, whereas tabletization, the manufacturer of creams and ointments, and those sorts of things—

Senator KETTER: So you did not give consideration to whether or not there was any particular Australian producer of one of the inputs in the encapsulation process?

Mr Grimwade : That wasn't the intent of the guidelines; it was to give clarity over our interpretation of the new substantial transformation test—

Senator KETTER: We'll come back to that.

Mr Sims : The issue is: is it made in Australia?

Senator STORER: In referencing recommendation 4 of the report, I was interested in whether the ACCC considered recommending to the government to use a reverse auction to procure new energy generation. Did the ACCC review a reverse auction model?

Mr Sims : We didn't want to do that, Senator, because we had three criteria we wanted met. We didn't want the government underwriting equity. We didn't want the government bringing in new generation unless there was demand for it. The problem with a reverse auction is that it's the government deciding we need energy. We wanted the companies themselves to take the equity risk. We were only interested in helping out with debt finance to deal with the market failure that we saw in terms of new players getting debt financed because they couldn't provide the long-term offtake agreements to back the investment. Reverse auctions were counter to what we were trying to achieve. That was just the focus we had.

Senator STORER: There would be no way to structure the reverse auction to provide that ability for private enterprises to—

Mr Sims : I don't know. Off the top of my head, I can't see how you do a reverse auction to do that. A reverse auction would say: 'We want the power. Give us the best bid and tell us what we need to do to get the power into the market.' We wanted it to be more driven by the market.

Senator PATRICK: Mr Sims, I want to get an update on section 46, the changes to the law and how that has been affecting your operation, and whether or not you're pursuing anything in relation to market power abuse.

Mr Sims : Look, it has transformed us in that area, Senator. The previous law was only workable in very narrow circumstances. The new law came into effect in November 2017.

Mr Bezzi : 6 November 2017.

Mr Sims : We have a number of active investigations in relation to section 46, but the only way we can use the new provision is when the behaviour is all post November 2017. There was no way we would have had cases in court in 2018, but I keep putting pressure on Mr Bezzi by saying I'm very confident we'll have cases in relation to section 46 in court this year.

Senator PATRICK: I won't reveal company names, but have you had two big, large supermarket chains, for example, selling milk for $1—that's okay because that particular operation or market power abuse started well before royal assent?

Mr Sims : The misuse of market power provision is named in a very confusing way that causes a lot of problems. It says 'misuse of market power', which people logically presume to mean you've got market power and you're somehow taking advantage of it to the detriment of consumers. That's not what the law has ever been meant to do. It's actually a competition provision. It says, don't use your market power to substantially lessen competition—in the new wording 'damage competitors'. The old wording had other problems with it. It's basically a competition provision. It's not aimed at companies with substantial market power. Abstracting from milk: if someone said, 'Here's a company with substantial market power and they're ripping off consumers,' section 46 does not deal with that. That could get caught under various consumer law matters, but this is a competition provision. This is about making sure competitors can compete on their merits. That's what section 46 is about. It has opened up new areas that we can look at that we just couldn't look at before.

Senator PATRICK: So in circumstances where you have a monopoly receiver of goods, as might occur with the supermarkets, and they are basically setting their own price to the detriment of the subsuppliers—typically farmers—this law doesn't help?

Mr Sims : To the detriment of farmers—Mr Bezzi is the expert on this. It has to substantially lessen competition in a market. If the supermarkets were artificially doing something to the pricing of a branded good when they sell a good themselves, and they were damaging that competitor from competing against them, there might be problems, but I'm not sure that arises in milk.

Mr Bezzi : Specifically, we conducted a dairy inquiry, which showed, to our satisfaction at least, that there was no connection between the retail price sought by supermarkets for branded milk and the farm gate price. I can see that Mr Sims wants to add something.

Mr Sims : I just want to add that I think the recent behaviour of Woolworths has illustrated our point completely. They've put up the price of milk by 10 cents per litre and paid it to the farmers. Had they put up the price by 10 cents per litre and just flowed that through the value chain so that it went to the processors, we doubt it would have gone to the farmers. The point is: it's the bargaining power of the farmers relative to the processors that's the problem we're trying to deal with—

Senator PATRICK: But do you say that's not a section 46—

Mr Sims : No, we can't see how that's a section 46 issue, sorry.

Senator PATRICK: You're talking about Woolworths and a change of attitude, and saying that you're looking down that value chain. What provisions are you using in the law to deal with that, and do they need to be strengthened?

Mr Sims : When we did our market study into the dairy industry, we didn't see, subject to any correction, breaches of the law. We felt this needed changes in the way that—the bargaining position of farmers. We felt the key change was a mandatory code which would require processors to deal with farmers in a particular way—give them information about the price they're going to offer before the farmer has to decide who they give their milk to. A whole range of provisions that make it very difficult for farmers.

Senator PATRICK: I accept you can't act outside power. You have the laws that you have and you work within those laws. Another question—a legitimate question—are there missing laws that could be protecting these farmers? I have a similar situation in Whyalla, South Australia. We have GFG, who I want to succeed, but they're the only game in town for a lot of the engineering companies. I'm not in any way suggesting they don't behave properly, but there's no question those companies are, in some sense, captured and have little choice.

Mr Sims : The way the law works, Senator, is that if somebody is in a dominant position and they charge more, the presumption is that others will come in and force prices down. What the law protects is: is there anything that the incumbent is doing to stop other competitors from coming in? That's where section 46 comes in. Are you stopping other competitors from entering into your market and competing down the very high prices you're offering? Where it comes to the position of farmers, which in many markets are in a dreadful position, we think it has a lot to do with bargaining power and transparency of pricing. We have recommendations in beef and recommendations in dairy, which we're going to keep advocating for, which we think will definitely benefit farmers, but it's a law change specific to those industries rather than an across-the-board thing. We really need to understand those industries and change laws in relation to them. In the case of dairy, that mandatory code is a key part of that.

Mr Bezzi : Perhaps I could add: one of the issues we have focused on is the relationship between processors and dairy farmers. In fact, we've taken some litigation against Murray Goulburn using the law relating to unconscionability. We've also made very strong recommendations in our dairy inquiry report about how you even up that bargaining power through a mandatory code. That would outlaw some of the particularly heinous practices, including the retrospective price sit-downs, which really are an exemplification of the poor bargaining power that farmers have in relation to processors, particularly when there are only one or two processors that they can supply their milk to in a particular area.

Mr Sims : Again, I emphasise the Woolworths decision—

Senator PATRICK: I'm mindful I've got 50 seconds left. In terms of those recommendations—for example, the mandatory code of conduct—are you saying mandatory because it ought to be in law?

Mr Sims : Yes. Mandatory code under our act, which the government, as I understand, is pursuing.

Senator PATRICK: Okay. Fantastic. I might take that offline and maybe contact your office.

Mr Sims : We'd be happy to chat, Senator.

Senator PATRICK: Thank you very much.

CHAIR: We are going to take a break now, because the committee has a private meeting. Senator Ketter, do you have further questions for the ACCC?

Senator KETTER: Yes.

CHAIR: We will ask you to stick around, if you wouldn't mind, after the break.

Mr Sims : Always delighted, Senator.

Proceedings suspended from 10 : 15 to 10 : 30

CHAIR: The committee will now resume with consideration of the ACCC. Senator Ketter.

Senator KETTER: Thank you. I'll return to the complementary medicines issue, Mr Sims. Mr Grimwade—I'm just refreshing on where we were up to—do you consider that there may be any relevant differences between foodstuffs and complementary medicines, in writing the guidelines?

Mr Grimwade : Certainly, because the guidelines we gave the complementary medicines sector were related to the safe harbours, and particularly what constituted substantial transformation. The change in the test, we knew, would have implications for them, and we had consulted them as we drafted those guidelines. I should note, indeed, that Complementary Medicines Australia, the industry association, had told us in that consultation process that it did not consider encapsulation constituted substantial transformation or should be 'made in Australia'. So the change in view was somewhat surprising for us.

Senator KETTER: Okay. Let's turn to the task force that's been initiated. The ACCC is a member of that task force?

Mr Sims : Yes.

Senator KETTER: You would be aware that the scope of the task force includes examining how your guidelines interact with the complementary healthcare sector. Is this an indication that the minister believes the ACCC may have overegged the guidelines in this instance?

Mr Sims : I haven't heard any suggestion that anybody thinks we overegged the guidelines. I think they just reflect the change in law. But Mr Grimwade may have another view.

Senator KETTER: Perhaps it's that they need some revision.

Mr Grimwade : The guidelines were essentially endorsed by, or at least consistent with, the findings of the Federal Court in the Nature's Care case, so we have confidence that the guidelines reflect a correct interpretation of the law as it stands. If anything, if parliament were to decide to change the law then we would change the guidelines.

Senator KETTER: Do you have a process for reviewing guidelines, and, if so, what is it?

Mr Sims : We keep things under review all the time. Tim?

Mr Grimwade : Those guidelines were issued less than a year ago. Indeed, the country of origin labelling framework is coming up for review at the end of this year—no, 2020—so we wouldn't think there would be any need to review those guidelines unless the law were to change before then.

Senator KETTER: Does that indicate that when you're looking at these guidelines it's a black-letter law process, rather than looking at policy objectives?

Mr Sims : It's trying to translate the purpose of the legislation. We were trying, with our guidelines, to be as helpful as we could to the community to point out what the legislation was trying to do. The black letter is in the law, the guidelines were doing their best to interpret that, and the court has suggested our guidelines probably got it about right. If people are unhappy with the process then I think it's a matter of looking at the law. But, as I said at the start, if you change the law back again you'll have another segment of the community worried about whether things that are made in Australia genuinely are.

Mr Grimwade : Could I just make a couple of other observations. The guidelines emanated from a request by the industry for us to give them guidance on the change in the substantial transformation test. We make clear in all our guidelines that they are not legal advice—they're not legally binding. They give an indication of our interpretation. The third issue is: they only go to the safe harbours. If you fail to meet a safe harbour, it doesn't mean you've contravened the law; a safe harbour just deems that you haven't contravened the law. So there's still another hurdle to overcome for the commission or a third party to demonstrate that some labelling is misleading or deceptive.

Senator KETTER: I will come back to that. In terms of the ACCC's involvement in the task force, do you think that you have a positive role in the task force or is it simply to enforce your guidelines?

Mr Grimwade : It's not to enforce the guidelines. We were invited on the task force, along with all other Commonwealth agencies or departments who have an interest and can contribute to a review of the application of the safe harbour framework to complementary medicines.

Senator KETTER: The task force—I think it might be in the terms of reference document—talks about the fact that they're looking for appropriate next steps to be taken to address some of the issues that gave rise to the task force. There's obviously potential there for legislative change to be one of the appropriate next steps, depending on the findings of the task force. Do you have any scope to allow a transition period before taking compliance action on breach of the guidelines, given that we have this task force ongoing at the moment? Is there potential for further legislative change down the track?

Mr Sims : Well, we can't anticipate legislative change.

Mr Grimwade : No. First of all, you can't breach guidelines as such—it's either a contravention of the law or it isn't. The fact is: there was a two-year transitional period for industry to comply with the country of origin food labelling standard. There's been a period of transition for complementary medicines to adjust to the change in safe harbours. The fact that there is a task force reviewing—we can't pre-empt the outcome of that and make a decision as an enforcement agency not to enforce the law, because there is a task force.

Mr Sims : The other point is: we don't know where the task force could come out. I know I'm repeating myself, but the push that led to the change of the law is still there. If people want to change the law, they've got to just run the risk that Australians will lose faith in what 'Made in Australia' means. There are big issues at stake here.

Senator KETTER: I understand that, but the scope of the minister for industry's task force includes, 'identify appropriate next steps for responding to the sector's concerns'. That indicates that the minister clearly wishes to find a way through this issue that will enable the sector to continue using the logo, because it obviously has great advantages to them.

Mr Grimwade : I don't have the terms of reference before me but I don't think there is any kind of steering of that task force to come up with a particular outcome. I am certain that those terms of reference also required the task force to consider consumers as well and their rights to have clear, transparent and meaningful labelling.

Senator KETTER: What about the aftermath of the recent Federal Court decision, which means that fish oil encapsulation no longer qualifies as 'Australian Made'? Will there be the potential for—I call it a transition period? Will you allow some sort of grace period for the manufacturers to comply with these new circumstances?

Mr Grimwade : We have on our website, and in indications to different sectors, a compliance and enforcement policy as it applies to those who are adjusting to changes in the country of origin labelling standard and safe harbours. In essence, we've indicated that, if there's inadvertent noncompliance and challenges in adjusting to the changes in the law, we will accommodate that and we will look to assist the industry in transitioning. We've also indicated, however, that if there is blatant noncompliance or an intention to disregard the law or to mislead and deceive consumers in their labelling, then, in those circumstances, we will escalate. At a meeting late last year we invited the industry to indicate to us what steps they are taking to transition. For instance, if there is misleading labelling, are they taking steps to sticker over those labels when they're selling to Australian consumers? We're not concerned about what they might be indicating to other countries, but we're very concerned about truthful labelling to Australian consumers.

Senator KETTER: Are there any precedents for the ACCC to allow a period of transition following a new change or a new determination?

Mr Grimwade : As I said, there has been a transition in this very case. Not only has the law enabled the transition for two years—the country of origin—but we've enabled the transition from the implementation of the safe harbour change, which occurred immediately in February 2017. So there has been a transition period of over two years for the complementary medicines sector or others who choose to use Made in Australia, Grown in Australia or Produced in Australia representations on their packaging.

Senator KETTER: Has the ACCC notified the other members of the task force that it has decided to require the removal of the logo before the task force completes its activities?

Mr Grimwade : I'll say two things. It's not for us to require. We have indicated to the sector that they should have regard to the findings of the Federal Court in their labelling and that we are concerned that continuation of that labelling may be misleading and deceptive conduct in relation to the encapsulation of fish oils, particularly by Nature's Care, given the findings of the Federal Court. Sorry, I have forgotten the question. I was going to make another point.

Mr Sims : The point is it is not our logo to suggest that they take it down or not take it down.

Senator KETTER: But you've provided advice to them I presume.

Mr Grimwade : Yes. We've given an indication to the representatives of the industry of our expectations in relation to labelling of fish oil following the Nature's Care case. We've invited a response from them as to the next steps they're going to take in relation to that meeting.

Senator KETTER: How was that communicated to the industry?

Mr Grimwade : We had a meeting with AMCL, which owns the AMAG logo; CMA; and another party—I can't remember who. It was followed up by a letter in mid-January I think making the same points we made at the meeting and inviting a response. I don't believe that we've had any response but a request for us to exercise our discretion not to enforce our law—or the parliament's law—in relation to the complementary medicines sector. That request was also made at the meeting.

Senator KETTER: Have you notified the Prime Minister's office that you've taken this course of action?

Mr Grimwade : I'm aware that there have been some discussions with the Prime Minister's office from our own executive office, but I personally have not been involved in those discussions.

Senator KETTER: How many fish oil producers are there now in Australia?

Mr Grimwade : I don't know. I was aware that there was an encapsulater of fish oil that was 100 per cent Australian ingredients. I believe that particular manufacturer was involved in the review of the country-of-origin labelling and safe harbour process the parliament conducted prior to the institution of the new law. I'm not aware whether that manufacturer continues to supply Australian made—

Mr Sims : Senator, Made in Australia is not seen to be an industry protection scheme. It's about letting consumers know whether something has been made in Australia or not. Whether there are Australian suppliers we have certain knowledge, but it's really about: is there faith in the logo? Do people have faith that the logo is doing what it should be doing?

Senator KETTER: Sure.

Mr Grimwade : And of course there's no obligation to use the Australian Made logo.

Senator KETTER: Yes, but it has—

Mr Grimwade : It has a premium attached in export markets, but we're not approving the use of that logo in export markets.

Senator KETTER: Let's turn to the issue of independent mechanics, and my time's getting tight.

Mr Sims : We'll give you short answers.

Senator KETTER: Thank you very much. Treasury has released a paper on the sharing of technical information with independent car mechanics. Can you confirm that it's a discussion paper—it doesn't represent the government's commitment for a mandatory code.

Mr Sims : I thought the government had committed to it and the plan was for how to do it.

Mr Grimwade : My understanding is that the Department of Treasury has issued a discussion paper with a proposal for a mandatory code.

Senator KETTER: With a proposal—okay. So, what role did the ACCC have in developing this discussion paper?

Mr Grimwade : As you will be aware, we spent 18 months developing a new car retail market study, and one of the key recommendations was that there be a mandatory scheme to improve competition between independent repairers and those authorised by manufacturers, given the lack of access independent repairers had to servicing repair information. That—

Senator KETTER: But I'm referring to the discussion paper.

Mr Grimwade : Sorry, I'm just getting to that point. We've been liaising with Treasury about potential implementation options in relation to that recommendation. Yes, there has been some input. We have had an opportunity to review the draft discussion paper, but we are also going to be making a submission which is due on 11 March.

Senator KETTER: Has Treasury asked the ACCC to assist in drafting a mandatory code?

Mr Grimwade : Not that I'm aware of. We will respond to the invitation to make a submission on the discussion paper, and we'll have some strong points to make in relation to how a mandatory code should be developed.

Senator KETTER: The discussion paper suggests that this mandatory code should not include sanctions or penalties for noncompliance. Do you believe that a mandatory code should have penalties attached for noncompliance?

Mr Sims : We always believe mandatory codes should have penalties. As I said before, there's no point having a law if there's no sanction for breaking it.

Senator KETTER: Would there be no incentives to comply if there were no sanctions?

Mr Sims : That's always our view. I know we sound like a cracked record at times, but that's our view.

Senator KETTER: The ACCC recommendation regarding access to sensitive security or environmental data uses the word 'safeguards'. The paper used language about restrictions—that is, the car companies can restrict data based on their broad definition of safety, security and emissions. Is the ACCC concerned that we're looking at the possibility of a weak industry code that can be breached with no consequences?

Mr Grimwade : The real complexity here is how you deal with those safety issues, and that's why there does need to be consultation. We always recognise that, in recommending the code, there had to be a detailed process of working through these issues. It is not a one-zero type issue; there is complexity. We will certainly be talking to Treasury about how that's worded. That'll be the essence of our submission. So, we are thinking through that at the moment, but certainly we'll keep raising the point about penalties.

Senator KETTER: Thank you, Chair.

CHAIR: Excellent. Thank you, Senator Ketter. Unless there are further questions for the ACCC, I think we'll let you go. Thank you very much. Thank you Mr Sims and officers of the ACCC.

Senator WHISH-WILSON: I have a couple of questions.

CHAIR: I'm so sorry. Senator Whish-Wilson; I thought you had questions for APRA. Can I keep—

Senator WHISH-WILSON: I'll put them on notice, if you're in a hurry.

CHAIR: Thank you very much.