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Economics Legislation Committee
30/05/2018
Estimates
TREASURY PORTFOLIO
Australian Energy Regulator

Australian Energy Regulator

[14:27]

CHAIR: Only running an hour and a quarter behind, I now call upon the Australian Competition and Consumer Commission and the Australian Energy Regulator to join the committee. Welcome, Mr Sims, and welcome to the ACCC and the AER. Mr Sims, do you have an opening statement?

Mr Sims : No, I don't. We're happy to answer any questions you've got. If you want to make up a bit of time, we're happy with that as well!

CHAIR: I'll bet! I think there are probably a few people here who would be happy for us to make up some time. I might kick off the questions. Can I ask first and foremost about the Consumer Data Right in open banking? Can you explain to the committee exactly what the Consumer Data Right is?

Mr Sims : I'll give the opening shot, and I've got an expert on my right. It means that consumers are able to get access to the data that a supplier may have on them—most relevantly, in the first instance, a bank—and send that data to, potentially, a competitor of that bank or an accredited person who could act on their behalf to see whether there's a better deal. What often happens is: you can't get access to your data, so the alternative supplier can't readily formulate an alternative deal. If you have got access to your data, that will facilitate switching quite a lot. It doesn't take the data away from the company that acquired it; it just gives you access to your data so you can use it as you want, and you can seek out other offers. I really think it was a very clever idea by the Productivity Commission to come up with this, and it's terrific that the government's moved quickly to put it into place.

CHAIR: My understanding is that open banking is the first sector to have this Consumer Data Right.

Mr Sims : Yes.

CHAIR: Just for the benefit of the committee, could you talk about open banking.

Mr Sims : The way it's going to work is that it'll be open banking first, and we have a timetable on that, which Mr Gregson's able to explain. Then it does energy. Then it does telecommunications. Those are the first three. Then it will go through the economy. From our point of view, we really think it's got fantastic merit right through the economy. Obviously we've got the AER over there, but we at the ACCC are doing a bit of work on how to improve affordability of energy, so access to data will be important in that. We're also the telco regulator, so we can really see how access to data there will be helpful. So the banking one will break new ground. In a sense, it'll be the first one—mind you, it will learn lessons from Britain, which has got a bit of a head start. Once we get it done with banking and then move on to energy, we'll just be attempting to broaden it out so that this is a right every consumer has. This will take a bit of time but, with virtually all of their transactions, it will really facilitate competition, I think, in this digital world. There are a lot of people out there who are very happy to help consumers switch to get better deals, and really, to fashion those deals, you need access to the data about usage.

CHAIR: Fantastic. Mr Gregson, you were going to go through the time line—did you say the time line for open banking or the process for open banking?

Mr Sims : There is a very clear time line, which Mr Gregson can give you.

CHAIR: That would be terrific.

Mr Gregson : I am the executive general manager of the Enforcement Division. While it is not part of the Enforcement Division, this work will ultimately report through to me. The government has announced a bit of a time line for open banking. That is to have one part of that sector commencing from 1 July 2019. That will be data on credit and debit cards, deposit and transaction accounts. We will then move by February of 2020 to have available data on mortgages and finally, by 1 July 2020, data on the remaining products recommended in the open banking review. That's all the current timetable. There's a lot to achieve between now and then, and we're going to do our very best to keep that timetable under review.

CHAIR: Obviously there's a UK regime that is not that dissimilar. What potentially have been the learnings from the UK regime?

Mr Sims : There were quite a few.

Mr Gregson : We're learning a lot from the UK experience. We've had meetings and engagement with the agency involved there. It's still at quite an early stage, but some of the challenges that we will face are in terms of making the rules, which are the high-level set of rules about how data will be made available and moving to standard setting, which is the next level of technical standards as to how you make that data available. Invariably, I think, the overwhelming feedback from the agency is the importance of having strong communications with the industry sector and being very conscious of the privacy issues that need to underwrite such a policy.

Mr Sims : We're already in close contact with the Privacy Commissioner, so we'll be working hand-in-glove with them.

CHAIR: I was going to ask you about how you will actually go about regulating open banking—how the ACCC intends to go about its regulation responsibilities.

Mr Sims : We're going to be accrediting people. There are certain obligations that are going to be on the banks. There are then accredited entities that can receive the data. Basically, if people don't live up to the obligations under the law, we'll be taking action, and the Privacy Commissioner will be making sure that, if people have concerns about the privacy of their data, they can deal with that. I will say—not really flippantly—that in Sydney my office and the Privacy Commissioner are in the same building, so we will find it easy to communicate and work together. Do you have anything to add there, Scott?

Mr Gregson : It may be repeating, but there are five roles that the ACCC will have under the Consumer Data Right. The first will be designating new industries. As you say, that's taking care of the banking, and we have a bit of a read on the next two that we might do, but designation through government will be our first role. The second will be setting those rules, which is the high-level set of rules, and we'll be working with the office of the information and privacy commissioner to make sure that we take into account the privacy issues. We'll then work with Data61, which, as you know, is an offshoot of CSIRO.

CHAIR: Yes, I was going to ask them about this tomorrow.

Mr Gregson : Yes. They'll be responsible for writing the standards which comply with our rules, but we'll have an approval process to make sure those standards actually meet the rules. As Mr Sims mentioned, we'll then also be dealing with the accreditation of third-party data receivers. That's quite an important role, to make sure that it has real-time information so that, for example, banks know who they can release material to.

CHAIR: Is that the security aspect of that?

Mr Gregson : It's security but also the accreditation of those parties, to make sure that they are proper and fit persons to have access to consumer data. And yes, there'll be a lot of work to be done there with the Information Commissioner as well. Finally, later down the track we'll be enforcing. If businesses aren't releasing material in accordance with the rules we'll have the capacity to enforce. The final thing I'll mention is in relation to working with the OAIC. We'll have to work out to make sure there's no wrong door for consumers to raise issues and the OAIC will have a front door capacity to take reports and work with us in working out what the strategic issues are for us and what the privacy issues are for them.

CHAIR: Finally, one thing you haven't spoken about—I think the benefits to consumers and small businesses are quite obvious, but one of the ACCC's primary responsibilities is competition—do you end up doing a review or some sort of postimplementation assessment of this project?

Mr Sims : Yes, I think we most certainly will. At the moment I think that's the furthest thing from Mr Gregson's mind!

CHAIR: Implementation before postimplementation, yes.

Mr Sims : There is a hill that's extremely steep in front of him. But we have got a financial services unit, and one issue they will work on at the same time as we're—the most immediate step we've got is working with Data61, who'll do the standards while we're putting the rules in place. And they're not going to be sequential; they'll happen together. But also our financial services unit will be looking at how consumers react to data, what's the problem such that they're not switching, what do other players out there want to help consumers to switch? That will feed in, and certainly once the access to data right has been in place—I don't know how long—we'll review to see the benefits. But I'd be stunned if it doesn't promote significant competition. I mean, we've had alternative providers out there for a long time, both the second-tier banks and then the fintec startups, but they're just not making much of an inroad. Hopefully this will unlock that so that they can really provide a lot of competition to the big four banks.

CHAIR: Terrific. Thank you, Mr Sims and Mr Gregson.

Senator KETTER: Firstly on petrol prices—and I note your report that petrol prices are not the same as are released this month—what's your work in 2018 going forward now that this report is out, in this area of petrol prices?

Mr Sims : Sorry—what our work is going to be?

Senator KETTER: What will be your work going forward in 2018?

Mr Sims : We haven't completely settled it, but certainly before the end of the year—and I think our next report will be on price cycles: trying to understand what's happened to them, how regular they are, why they occur, that perennial question, and all under the heading of how we can provide advice to consumers—we've got two tracks with our petrol reports. One is a quarterly report, which comes out quarterly, and the other is special reports that we do alternately, in between the quarterly reports. I suspect that the next one will be the report on the fuel cycles, which I think we talked about last time.

Senator KETTER: I think that's the deep dive exercise you talked about last time.

Mr Sims : That's right. There's the quarterly reports, and then we pick an issue and do the deep dive, and we'll do a deep dive on fuel cycles.

Senator KETTER: Firstly, in relation to this quarterly reporting, will you investigate in more detail what the patterns of pricing are and who's driving prices up, or changes that are driving them down? What sorts of things will you be looking at in the quarterly reports?

Mr Sims : In terms of who's driving them up and who's driving them down, that'll be more a fuel cycle issue rather than a quarterly report issue. We already know a fair bit about that, because we spent a lot of time looking at that when assessing BP's acquisition of Woolworths, so we already know that as a general rule the price is led up by the majors and led down by the independent chains. But we'll be trying to provide a lot more information about that and trying to understand how that's done.

Senator KETTER: Will you be looking at individual service stations, such as those in the western suburbs of Brisbane, which regularly appear to be the first to put prices up, and end up being the highest?

Mr Sims : We'll be looking across the country. I honestly don't know how much we'll focus on Western Brisbane. But certainly Brisbane is the city we focused on. We focus on the most of the capitals. Inexplicably—although we do have explanations for it—Brisbane has prices that seem to be regularly three cents a litre more than any other capital city, which is outrageous because there's no cost justification. It does cost Brisbane motorists a lot of money.

Senator KETTER: Going to this price cycle, deep-dive exercise that you were talking about. Are there further updates you can give us in relation to that, which we talked about in February? You might have already touched on all of that.

Mr Sims : I think it will be our next deep-dive study. We're just about to release our latest quarterly report. That will come out early next week. With that out of the way, I imagine that the team is ready to go on the fuel cycle study.

Senator KETTER: Is there any work anticipated to be completed between now and the next round of estimates in October?

Mr Sims : I'll take that on notice about the exact timetable. We should have a timetable of those reports and we'll get that to you. That should be something we can do. We should have our next report out by October. I think it will be the fuel cycle one. It should be out by then, but I'd like to take that on notice so I don't give my fuel team a hurdle they can't jump.

Senator KETTER: Is there anything you can tell us to date about what you've found in this price cycle investigation?

Mr Sims : There are two things with price cycles. Well, a few, really. One is the perennial question of why they occur in petrol and don't seem to occur in other products. We think part of that story is the information service that's been there for some time, which we took legal action against. We took legal action against Informed Sources and Coles, Woolworths, 7Eleven, BP and Caltex, I think—pretty well all of those. We settled it on the basis that that information will be made available to the public. I think we can say, firstly, that it is the majors leading it up and it is the independents leading it down. So they play a really valuable role. The other thing we can say, irritating as they are, you can save yourself a lot of money if you keep an eye on—there are a number of websites, but ours, for example, where we give advice to consumers on when to buy. Just by avoiding the top six days or the top ten days of the peak, you can save yourself three to six cents a litre on petrol, so it really does matter. Obviously if you have to fill up each week you don't have that luxury. But if there is any good news about the peak it's that once it hits the peak it comes down, so if you can avoid that you can save a lot of money. In Perth, given the cycle is regular, you know that you should buy on a Monday. A massively disproportionate number of people in Perth do buy on Monday and save themselves a lot of money.

Senator KETTER: Have you anything further to add about potential policies you might be considering to drive down petrol prices, particularly for Queenslanders, who are particularly affected by this issue?

Mr Sims : I think it comes down to two things. One is making sure consumers are aware that petrol prices do differ. On the screen shot I looked up today in preparation for coming here, there is an eight-cent difference between the lowest and highest in Brisbane. It's not a lot, but it's worth keeping an eye out for—eight cents a litre is quite a lot for many people. So it is letting consumers know that, if they work out where to buy and also when to buy, they can save themselves some money—understanding that different petrol companies do charge different prices. But also there are things governments can do to improve that transparency and things governments—and I mean state and local governments here because this is essentially a planning issue—can do to foster the independent chains getting into those markets. We can deal with acquisitions if they occur—and try to stop them if we can if we think they are anticompetitive—but encouraging new players in is very much a state government-Brisbane City Council issue.

Senator KETTER: Okay. I now want to turn quickly to the taps that were sold in ALDI that allegedly contained dangerous levels of lead.

Mr Sims : My colleague has this one.

Senator KETTER: There is I think some collaboration going on between ALDI and the Queensland Building and Construction Commission. They've agreed to partner on a definitive round of testing, with the ACCC keeping a close watch on that. Apparently, an ACCC spokeswoman said that, should the accredited testing show unacceptable levels of lead, the ACCC would expect ALDI to recall these taps. What can you tell us about this testing?

Mr Grimwade : This issue arose quite a few months ago, so I'm just having to recollect the events. We were advised by the Queensland Building and Construction Commission that they had tested a particular individual tap that was sold by ALDI and they had found high levels of lead. ALDI disputed this, and we got involved. We required the test to be conducted by a NATA-accredited testing laboratory. That test result came back, as I recall, showing the opposite—that it was compliant with the relevant standard. I understand that there was some further testing done, which was ambiguous. That's really the state of affairs at the moment. As a consequence, there have been some discussions. The QBCC, which has the running on this particular product and possible recall of it, is working with ALDI. We'll get involved if we feel we need to, but at the moment it's in the hands of the QBCC.

Senator KETTER: So you're expected to be monitoring this testing arrangement?

Mr Grimwade : Not so much monitoring, but we will assist, as needed, our fellow regulator.

Senator KETTER: So you'll only assist if the QBCC requests?

Mr Grimwade : Yes. If the QBCC request our assistance, we'd be quite happy to assist them to the extent that we feel we can. Essentially, what is needed is a definitive result in relation to the testing of this particular tap. If it is noncompliant with the standard then it will be recalled. We know that ALDI has committed to recall it if, indeed, it is noncompliant. They disagree with the fact that it is noncompliant.

Mr Sims : I should point out that, while we are the national consumer product safety regulator, each state has a safety regulator and also they have specialist regulators for buildings, electrical goods and a whole range of things. So a lot of safety issues get dealt with by specialists who have technical knowledge. We deal with more general issues.

Senator KETTER: Just to finish up on this: are there any milestones that we need to look at? Are there any key dates? Are there any report findings due out to the public?

Mr Grimwade : That's a matter for the QBCC, which has leadership of this particular safety investigation, not us. I'm just not aware of those. We're not planning to do anything at the moment. I don't believe that these taps are being retailed anymore—

Senator KETTER: But it's concerning that we have got two different tests coming up with different results.

Mr Grimwade : Yes, it is. That's right. But the test that was conducted by a NATA accredited laboratory did come back saying that these taps were compliant. We rely very much on the expert testing laboratories.

Senator STEELE-JOHN: Mr Sims, in the last estimates I think I asked you about the government's proposed Regional Broadband Scheme and whether it would prove to have distortionary effects in the telecommunications market. Actually, I believe it was Mr Cosgrave that I asked. Is he with us?

Mr Sims : No, he has a sore back and he was advised he couldn't get on a plane. I will do my best!

Senator STEELE-JOHN: That's a good one. I will remember that!

Mr Sims : I thought it was good too!

Senator STEELE-JOHN: Can you answer on his behalf?

Mr Sims : Yes, I'm across our communications work.

Senator STEELE-JOHN: The response at the time was that there was a current debate around the extent of any subsidy measures. In your recently released Communications sector market study final report in recommendation 8 you proposed direct budget funding as it would prove to be the 'least distortionary'. That's a direct quote from the report. Is it your assessment, then, that the Regional Broadband Scheme would have a distortionary effect on the market?

Mr Sims : When the thing was first proposed, the ACCC felt that it was a bit distortionary but it wasn't such a bad thing that we would publicly advocate against it. When there was talk of extending such a scheme to mobiles—not, I should add, from the government—we said, 'Hang on; you have to be careful about these things,' but we formed the principled view that if you're going to provide subsidies for regional areas they're best done on budget. That argument, I have to say, as someone who has been involved in public policy for over 40 years, has been around forever. There are a lot of subsidies that are provided through a cross-subsidy. The economic purists say do it from the budget, and, often, it's more convenient to do it as a cross-subsidy. So, it is distortionary. How distortionary is it? We're basically talking within fixed broadband. I guess it distorts a bit, but it's not a big issue for us. What we were most strenuously arguing against is anything that would protect the NBN from competition from mobiles. That is really now a dominant issue.

Senator STEELE-JOHN: But from a purely competition perspective, it will have a distortionary effect.

Mr Sims : I think it would have some distortional effect. As I say, we advocate on a lot of issues; this is one we haven't been banging the drum about too much. But there's no question things like that have some distortionary effect.

Senator STEELE-JOHN: We were talking previously with Mr Cosgrave about pricing and the CVC. At that time, Mr Cosgrave noted, 'Longer term initiatives are still under consideration and there is discussion between the NBN and the sector,' and that he was keeping across that closely and expected a further briefing in the near future. Can you provide me an update on these longer term initiatives and his interactions with the NBN since then on that issue?

Mr Sims : Yes, we've had very constant interactions, and I think since we last spoke to you the NBN has brought out its longer term pricing. So the immediate 50 per cent CVC uplift was a temporary measure, and they've brought in a bundled product where, in essence, if you buy it as a bundle you get a certain level of CVC and you have to pay a slightly higher AVC charge, and any incremental CVC you want to use comes at a reduced rate. So, that bundled product they have out there really makes the 50 megabits per second service—frankly, it's very close to being priced at the 25 megabits service, so it still is quite an attractive offer. Just as we have seen the temporary measure they brought in mean that the telecommunications providers now had—because they were basically given a 50 per cent uplift in CVC, so that meant they had enough CVC, and congestion on the NBN has just nosedived. I think the feeling of the industry is that the longer-term measure—the way that is structured—should have the same effect.

Senator STEELE-JOHN: Do you have a general opinion on the kind of lack of transparency around the consultations in relation to NBN's pricing structures? Surely it would be ideal if it were done more openly?

Mr Sims : From where I sit, I think it's been reasonably transparent in the sense that—yes, it hasn't been public, I accept that, but it's been done with the RSPs, who I think have been following it fairly well. Certainly, NBN has kept us fully informed. My understanding is that they've kept the RSPs fully informed. If I have a bit of an issue with it, it's that it's done by way of a discount that could be removed quickly. So, if we have a continuing question it's not the transparency of the process, which we don't think has been too bad. It's just how permanent the current pricing arrangements are. That's the issue we're giving thought to.

Senator STEELE-JOHN: Would you be able to give me an update on your NBN wholesale services standards inquiry?

Mr Sims : Yes. I can. I've been seeking to get one myself from our people.

Senator STEELE-JOHN: Too many back injuries in the ACCC!

Mr Sims : I don't think it's a back injury that's done it, but just the complicated nature of the issue. I don't think on this one Mr Cosgrave is the bottleneck! We as a commission will be considering that issue, I think in the next month or so. That's a little bit later than I would have told you previously. It has taken a little longer, but they're complex issues when you're dealing with time for repairs, time for callout—and, of course, we have also had the ACMA retail arrangements, and we're trying to think about how we dovetail with those. So, it's taken a little longer but that paper will come to us fairly soon at the commission, and where it goes from there depends on how happy we are with what we're given.

Senator STEELE-JOHN: Finally, regarding peering arrangements, the last time we were here I asked Mr Cosgrave about the anti-competitive effect of peering arrangements between what's commonly referred to as the 'gang of four'. In his response to my question on notice it was noted that you were in the process of, and I quote directly, 'assessing whether access to wholesale internet interconnection services is available on competitive terms'. Can you provide me with an update on the process and the results of this?

Mr Sims : I guess not really. Certainly we're deeply buried in the issue. It is very complex. You are right: there's a gang of four, who have free peering between them, as you obviously well know, and then others outside the gang of four have to pay. There are issues about whether the technology is overtaking those arrangements—so, whether it's significantly anticompetitive to cause a problem under our act. That's what we're assessing. We have information requests out with the relevant companies and we're going through it. If I had been sitting here a while ago, perhaps I wouldn't have been able to say. But, certainly, at the start of this it looked pretty bad, but technology is complicating it. So—

Senator STEELE-JOHN: You don't have a definite time line at the moment?

Mr Sims : It's been around for a while, so I think we're going to have to get to the bottom of it fairly soon, but I don't have a definite time frame, no. But it has been around for a while, so we need to get on with it.

Senator STEELE-JOHN: In terms of the process of assessment, you said you put out requests to—

Mr Sims : Yes, we put out, I'm sure, at least two rounds of requests for information from the gang of four, basically, but also more widely to those who use the service. It's one thing to complain; it's another thing to substantiate the extent of the problem. Sometimes these things are irritating but not actually that important; you can get around them but you would rather not. For us to take court action, it has to jump a hurdle of being sufficiently problematic. That's what we're trying to wrestle with. There's no question that not being part of the gang of four is a nuisance and unfortunate. How bad it is is the question we're wrestling with.

Senator STEELE-JOHN: Thank you.

Senator PATRICK: I just want to ask a couple of quick questions, as a start, about Infinity cables. There's a total of 22,200 kilometres of cable estimated to have been laid. It appears that about 2,473 kilometres has been either remediated or scheduled to be remediated. When do you think you will get to the best you think that you're able to get to? I imagine it tapers off over time.

Mr Sims : That's a good way of putting the question. You have a good understanding of it. I will pass to Mr Grimwade, who is the expert and right on top of it.

Mr Grimwade : The commission is responsible for overseeing the voluntary recalls of 4,700 kilometres of cable. Our recent audit has identified that over 6,500 kilometres of Infinity cable was supplied in Australia. The New South Wales electrical safety regulatory authority, is responsible for a compulsory recall of around 1,400 kilometres of cable as well. In terms of the ACCC's leadership of the voluntary recalls, we have now got to the point of 52 per cent of the Infinity cable being either remediated or scheduled for remediation. We have been working quite closely with our state and territory counterparts. At a recent regulatory task force meeting, we decided that the ACCC is getting to the point and will be at the end of this year where it really can't achieve much more in terms of improving the voluntary recall rate. We are expecting Masters to complete its recalls this calendar year, which will improve the rate of recalls. We're now in the process of transitioning the leadership of the Infinity recall to the New South Wales Office of Fair Trading, because we feel that state based strategies are now required to try and advance the remainder of the recalls.

There are a number of challenges, particularly in getting that last section of recalls. There are a number of smaller suppliers that the New South Wales authority are responsible for under their compulsory recall, and there's quite a bit of work to do there. Their recall rate is much lower than what we have achieved. There are a couple of other very significant challenges. As you know, Infinity itself has gone into liquidation. We have now audited the suppliers. We've identified all the suppliers of cable, but they don't necessarily keep good records, and the cable they supply to electricians is mixed up with other cable, and electricians themselves often do not know whether they have installed Infinity cable or kept records. There's also a bit of wastage. We estimate between five and 10 per cent of cable supplied was wasted, so the recall rate probably is not as low as expected, if you have regard to that as well.

One of the biggest challenges we now face is consumer apathy. We have put out 11 or 12, maybe even more, press releases trying to highlight this. We're now looking at state based strategies that will be more directed to the individual consumer. So all sorts of innovative strategies are now being considered where we're hoping to advance the consumer side of the recall process.

Senator PATRICK: Thank you. So that 14,000 and 6,000, between the ACCC and New South Wales, is there some common set in amongst that?

Mr Grimwade : Sorry, that was 1,400 kilometres.

Senator PATRICK: So that's identified as being separate?

Mr Grimwade : They're separate.

Senator PATRICK: In one of my questions on notice, I quoted a number that Senator Madigan had asked about. He'd asked you about the internal cost to the ACCC involved and he'd got a number back of about $230,000 and then another $81,000. I've asked the question and you've said you're not able to give me an answer to that. Has something changed? Do you no longer track—

Mr Sims : To calculate what the cost has been to us—

Senator PATRICK: To the ACCC.

Mr Sims : The difficulty is we've got 40 to 50 safety people, and they do a range of things. So quite when they're working on this and working on that, I don't know. Whether you want to cost a bit of my time for doing it, it's a tricky issue.

Senator PATRICK: An answer had been supplied to—

Mr Sims : We've done various things. We've not only got the internal staff time; we have spent a bit of external time on these things. So I'm not quite sure—

Senator PATRICK: Okay.

Mr Grimwade : We have had to transfer a number of our recall staff to dedicate themselves particularly to the auditing process. But we've also procured some external testing. There are some costs associated with that. I don't have the costs to hand, but if you wish me to take—

Senator PATRICK: Yes, take that on notice. That would be good.

Mr Grimwade : As Mr Sims said, it's quite hard to account for the time of management, commissions and other—

Senator PATRICK: Sure. More generally, how many recalls have been done over the past financial year?

Mr Sims : Across all products?

Senator PATRICK: Yes.

Mr Sims : Quite a few.

Mr Grimwade : Five hundred in the last 10 months. We have, on average, 600 voluntary recalls notified to us each year. Of those, a very significant number—almost half—would be motor vehicle, therapeutic goods or food recalls. We do not have actual responsibility for leading and managing those recalls but they're notified to us and put on our website. We've also got another 600 to 700 recalls which we're actively managing and assessing.

Senator PATRICK: For those recalls, can you break that down into a percentage of imported products versus local products?

Mr Sims : I'm sure we can. We'll take it on notice.

Senator PATRICK: Perfect.

Mr Grimwade : We would have to do that manually, but we can take on notice to do that.

Senator PATRICK: Do you have any feel for where success lies in recalls—for example, kids' toys versus car recalls? Where do you get the best success rate?

Mr Grimwade : There are a number of factors that go to recall effectiveness. The cheaper the good the less likely you're going to have it returned. People will throw it out or not bother to seek to have it refunded or whatever. There are some goods where it's easy to identify the consumer who has actually purchased a good. The Thermomix recall was one where we could identify the purchaser through records kept by Thermomix. It really depends on the particular circumstances. In terms of consumers returning something and getting a refund or throwing out the good, it does depend a bit on how you frame the risk. So it goes to our social media activities and our other media activities as well.

Senator PATRICK: So the bottom line is that there are so many factors there's no real pattern other than cost.

Mr Grimwade : We are working with our colleagues in the OECD on a recall effectiveness research project. We're doing one under the Takata recall. We see that as a great opportunity, because it's compulsory, to get data to identify the recall effectiveness amongst particular demographic groups as well. So we're going to do an exercise as we undertake that recall to get a bit of a better handle as to what makes for a more effective recall.

Senator PATRICK: How many people are on your mailing list for product recalls? I note you have about 8,000 Twitter followers.

Mr Grimwade : I think I'd have to take that on notice.

Senator PATRICK: Do you ever spend money on promoting tweets and such things to expand your contact in relation to recalls?

Mr Sims : I don't think we do on tweets, subject to somebody—but we have occasionally with Facebook, where we've had a recall, I do remember our having funded a bit. It doesn't cost that much, but we have, to get a recall out there, done something that promotes it. I don't actually understand what we did, but I know we spent some money. We're happy to take it on notice.

Senator PATRICK: Airservices under FOI disclosed that they had to reduce the scope of a Defence project to fit within a fixed budget. In the letter Airservices wrote to Defence they said:

… I would like to reassure you that Airservices will provide at no cost to Defence, the facility and equipment necessary in Brisbane and Melbourne Centres to accommodate the consolidation of Darwin, Townsville and Nowra approach services. We would intend to recover these costs by extending our existing charging regime at Darwin and Townsville for civilian aircraft.

In effect they were saying that, to manage a Defence related contract—they're in a monopoly supply situation—they were going to pass on the cost to a particular bunch of users. They have since retracted that. How do you manage Airservices in respect of that monopoly arrangement? Do you audit them from time to time?

Mr Sims : I may have to take that on notice, unless someone—we do have some regulatory responsibility for what they do with their charges, but I'd have to get back to you to give a better answer, sorry.

Senator PATRICK: I would be very interested in anything you can provide us. We have an inquiry into the cost of regional airfares, for example, and Airservices are part of that. It is a monopoly service. I wonder what powers you may have to examine that and look at the fairness of the charges, particularly in regional areas.

Mr Sims : We'll get back to you. I'll take it on notice. We have some broad powers, but they're fairly broad. It doesn't come across our desk too much, but we do have some sort of role. We'll take that on notice and get back to you. I'm sorry: Mr Cosgrave deals with that, and he's the one with a sore back.

Senator PATRICK: I have been racing around all the estimates committees talking about the disparity between Qantas and Virgin across government and each individual organisation. The ACCC comes out okay—

Mr Sims : I'm pleased to hear it.

Senator PATRICK: It's not exact, but recognising route capacities and so forth, your numbers are something like $500,000 and $400,000. What are you doing right? Do you have some sort of airfare policy enforcer?

Mr Sims : I will pass to my chief operating officer for this one. All I can tell you is my assistant puts me on the cheapest flight available, and as I head to the airport, I need to check whether I'm flying Virgin or Qantas depending on the fare she has found on the day.

Senator PATRICK: That's how I work too.

Mr Sims : I fly both, but with very little foreknowledge.

Ms de Gruchy : We have a policy: best fare of the day, subject to operational adjustments depending on whether people have to be in a particular place at a particular time. All of our executive assistants are trained to always look for the best fare of the day and offer those to our executives and others travelling. As the competition regulator we like to ensure there is competition between the airlines, so we encourage our staff to do that. There are natural preferences from time to time, but we keep a handle on ensuring everyone uses both airlines.

Senator PATRICK: It's $802,000 to $527,000—probably about right, because of differences in the airlines. Are you suggesting that you have a good culture inside your organisation, mindful of the need—that policy is not yours, by the way; it's a government policy. I'm trying to distinguish what you're doing right that others are not.

Mr Sims : I think we have a very good culture, but in addition, if we have a policy and Rayne finds that people are not following it, it gets pretty ugly.

Senator PATRICK: Well done.

CHAIR: The committee will now have a break.

Proceedings suspended from 15:15 to 15 : 30

CHAIR: The committee shall now resume. Senator Ketter.

Senator KETTER: Mr Sims, if I could start off in relation to your market study into the new-car retailing industry and your recommendation that there be a mandatory scheme for car manufacturers to share automotive data and repair information with the independent sector. That report was completed about six months ago. Do you have any information on the expected time line for Treasury consideration of this recommendation?

Mr Sims : No, that would be a question for Treasury. We're certainly in fairly constant touch with them to help them think through the issue. Obviously it's a complicated one with a fair number of technical issues to go through. Do you have any timeline on that?

Mr Grimwade : No. I'm not aware of the time line that Treasury are working to.

Senator KETTER: Has Treasury engaged with the ACCC on the recommendation and the models to implement it?

Mr Sims : We've certainly engaged.

Mr Grimwade : There have been some staff-level discussions. I think the Treasury officers have been talking to the staff who were responsible for drafting the study and working on the study to understand better the issues behind it and understand the different views held and those sorts of things, given the complexity.

Senator KETTER: Has the ACCC advised the government on your recommendation and, if so, when?

Mr Sims : Well, we put out the market study.

Senator KETTER: As a result of this engagement Mr Grimwade's talking about?

Mr Grimwade : The commission didn't have a particular regulatory model in mind when it recommended some regulation that provided access to data and information. So I think we identified three different options in the market study, including that it be captured by the Motor Vehicle Standards Act; another mandatory code and the third escapes me—

Mr Sims : The third was particular legislation.

Senator KETTER: But my question relates to consultation or engagement since the handing down of your report over the last six months. Have you briefed the governments about this? Have you briefed the minister about your recommendation?

Mr Sims : We've sent the report to the minister and we have discussed it with the minister on a couple of occasions. So we catch up with Minister Sukkar, who's responsible for consumer and product safety issues, on a regular basis. This issue has come up a couple of times. Obviously most of the time when we do speak to him in the recent almost six-month period, it starts with Takata airbags, because he's had to make that big decision. And we deal with a range of other product safety issues. But we've certainly talked to him about this.

Senator KETTER: Can you provide the dates on which you met with the minister?

Mr Sims : We can provide you those, sure.

Senator KETTER: Thank you. If the government accepts your recommendation for a mandatory scheme for sharing technical information, are you ready, willing and able to draft a mandatory code and to enforce that code?

Mr Sims : We are always ready, willing and able to do whatever the legislation under which we act requires us to do—so, absolutely, Senator. I should add, though, that we did point out in our report a number of steps that have to be taken to draft that code, because there's complexity in a number of areas, but one area of complexity is how you deal with the certain information which is necessary for safety to stop that being so widely available the car can easily be stolen. That's been done overseas, so it's not a hurdle you can't jump, but it does require consultation. And also you've got to understand the information systems of the manufactures. The manufacturers are in varying ways making data available, so we need to understand that and work in with that. So there's just a bit of complexity there. We've recommended that this information be made available to the independent repairers, so we'd be extremely keen to implement it.

Senator KETTER: Do you have the capacity to administer a mandatory industry code for sharing automotive service and repair technical information?

Mr Sims : To be honest—and I will defer to Mr Grimwade—I'm not sure we've thought about what staffing it would take. We already do supervise the franchising code and the horticulture code. I'm not sure we've turned our minds to it yet, because we don't know which way the government's going to go—whether it's going to be a code or legislation or done in motor vehicle standards or, indeed, whether the government will pick it up at all. We don't know yet. We haven't given any thought to that.

Mr Grimwade : It's not apparent that the ACCC would necessarily have the role. It may be that some other agency or authority would have to deal with it, because it may not be a mandatory code.

Senator KETTER: The government hasn't engaged with you about who would administer such a code?

Mr Sims : There's a question for Treasury, but my understanding is that they're working through whether to mandate that that information must be made available, and then which of the three proposals we put forward is the way to go. I understand that they're consulting with the various players on this. We've done a fair bit of consultation, but Treasury, as the policy advising entity, will need to do their own consultation. That does take a little bit of time. I think that's the process they're in. Treasury are the people best placed to know. We've engaged with them, but they're the best people to answer that one.

Senator KETTER: I'd like to turn to the Takata airbag recall. There are an additional one million cars requiring action under the emergency powers of section 132J of the Competition and Consumer Act. Are you familiar with what I'm talking about?

Mr Sims : Yes. I will get Mr Grimwade to answer.

Mr Grimwade : I don't have the legislation in front of me. Perhaps I should clarify the announcement on the weekend relating to the 1.1 million vehicles—if that would assist?

Senator KETTER: Yes, thank you.

Mr Grimwade : Under the compulsory recall, we had required manufacturers who had not recalled vehicles with affected Takata airbags already to identify a schedule by which they would recall them and replace them by the end of December 2020. That was part of the recall notice announced, and that took effect on 1 March. The manufacturers were required to provide to us what are called recall initiation schedules at the beginning of April. We assessed each of those, whereby they would essentially plot out which vehicle model would be recalled at which time according to the priority factors that are set out in the recall notice. Those that are higher priority would be brought forward; the recall on those of lesser priority would be later. We had to, essentially, quiz the suppliers on why particular vehicles were being recalled earlier than others. After a month or so of assessment, we approved the recall initiation schedules of those suppliers for the 1.1 million that had not yet been subject to active recall but were captured by the recall notice, and they are now being listed on our website. I should note that the VIN lists of some of them aren't available yet—they won't be available until 1 July—but others are available. The recall for these vehicles won't commence until 1 July and later.

Senator KETTER: Did that announcement for the additional million cars require ministerial notification?

Mr Grimwade : No. These vehicles were captured in the original notice. These are not another million vehicles that we've discovered that had not been captured by the notice; they were always captured by the recall notice that was announce by the minister on 28 February. What we're announcing now are the dates at which these vehicles are being recalled to provide some transparency and certainty for consumers so that they can identify when their cars are going to be recalled. Up until now they didn't have that clarity. The other important issue is that we are requiring the suppliers to notify consumers when their vehicle is being recalled. This was an opportunity for us to remind the community to make contact with your supplier and give them your contact details. So, if your car has been recalled, say, in December 2018, they have your correct contact details to get in touch with you and advise you that your car is now ready to have its airbag replaced.

Senator KETTER: Did you brief the minister on the work you were doing to develop the additional list of affected cars?

Mr Grimwade : Yes, we did.

Senator KETTER: Can you provide a list of the briefings, correspondence and representations to the minister on the matter?

Mr Sims : I think this goes back to the conversation we had last time. When this issue first came up, we had to do a lot of work to work out which airbags in which vehicles needed to be recalled, because there were airbags that were badly designed and badly made through to other airbags that were badly designed and extremely well made, but they were still badly designed. That's why the recall occurred earlier this year. In that recall, all the cars that had to be recalled, or were part of the mandatory recall, were recalled. So, in a sense, we did all of that work and then put that recommendation to the minister. We did the liaising with the industry and all the technical work and then advised the minister, who then took the decision.

Mr Grimwade : This was a decision by the ACCC to assess and approve the recall initiation schedules and also a decision by the ACCC to publish them on our website.

Mr Sims : The minister's decision was to agree to the mandatory recall once we'd done, frankly, a massive amount of work to work out which types of airbags needed to be recalled. The minister approved the recall we recommended. It's now us who approve things under that recall.

Mr Grimwade : That's correct.

Senator KETTER: It has now been three months since the compulsory recall began in late February, and the additional one million cars make up about 20-25 per cent of the total of affected cars in Australia. What options are available to let consumers know about the issue, without creating a sudden panic?

Mr Sims : What we've been at pains to do is to point out to consumers that you can go on productsafety.gov.au. We've done a lot of media on this to get the message out, and I think that has been very successful. It has been one of our biggest media campaigns to say to people: 'Check the website now. Either your car is recalled now, in which case you should get in touch with your dealer and book it in, or you're due for a subsequent recall. You're not recalled now, but you will be between now and the end of 2020.' To those people we're saying, 'Let the dealer know your details.' The community now has full visibility of which vehicles are recalled and when that recall will kick in. Are they being recalled now? There are another 900,000 being recalled now—there are 900,000 still to be done on the recall list now—and another 1.1 million that will be done over the next period to 2020.

Mr Grimwade : To make things clear in answer to your question: this isn't another 1.1 million. These were captured by the original recall. I think you had a question about 'How do you avoid the consumer panic over this?' The recall notice made it very clear what the priority factors were that need to be taken into account. These inflators don't present a safety risk in all circumstances. Indeed, in many, many cases, the safety risk won't be presented for up to 25 years. It's only the worst of the worst—that is, in the worst climatic conditions—that you will have a safety risk present between six and nine years. We've asked for the OEMs to prioritise first the replacement of inflators that are older and in hot and humid environments. They've identified some which have been replaced in, say, the Northern Territory or Queensland first, before they go to Tasmania or Victoria in some cases. Generally, we will prioritise those which are older before the younger ones, as well. The reason—as I think I mentioned the last time—why we've got a three-year period for replacement is that there's just such a vast number of airbags to be replaced, and there is insufficient global supply of replacement parts, workshop constraints and other factors.

Senator KETTER: Can I ask the ACCC to take on notice a request to provide the list of queries received from consumers about whether their cars were affected in the past three months that have ended up on their compulsory recall list update?

Mr Grimwade : I could give you some numbers in relation to contacts through our Infocentre in relation to Takata. I know that in the last two days we've had about 100 or so from the weekend and 60 of those related to the question, 'Is my car affected?' The majority of inquiries we get in relation to Takata ask, 'Is my car affected?' What we've now endeavoured to do with publishing this information is to give the information to consumers. They can now go onto our website and find out if their car is affected.

Senator KETTER: But can you provide with us a list of those queries?

Mr Grimwade : I can give you the number of contacts made to our Infocentre about Takata, but I don't think I can give you much more detail—

Mr Sims : We'll give you what we can. We'll answer the question to the best of our ability.

Senator KETTER: Thank you very much.

Senator WHISH-WILSON: Mr Sims, I was wondering if you could update us on how the effects test is going. Has the sky fallen in at all? Has it been used?

Mr Sims : No, I think the sky is still there! The predictions have all proven wrong in that regard. It is a very effective piece of legislation. I think various views about what would happen, what it would stop and the confusion it would cause have all proved wrong. Really, if I could be frank, every time we—or any government, over many years—have sought to improve the Competition and Consumer Act, the business view is that the sky is going to fall in. I always like telling the story that 44 years ago, when the act was going to bring in misleading and deceptive conduct, that was seen as just terrible. How could you have a law that prevented you from lying to consumers—just appalling! But the sky didn't fall—well, it probably fell in on a few people. Sorry; I'm taking too long to answer the question.

Senator WHISH-WILSON: I understand where you're going. Have there been any uses of it in terms of the misuse of the market power at this stage?

Mr Sims : Mr Bezzi is the expert here We have opened some investigations. So far we haven't taken any court action. What I often say is the fact that we look at things does change behaviour pretty quickly.

Senator WHISH-WILSON: Sure; it's an incentive.

Mr Sims : Some of our biggest successes nobody ever hears about. I think it has had a bit of influence. It certainly allows us to look at things that we couldn't look at before, and there's a whole lot of talk about things in relation to digital platforms and a whole range of other things. Having our laws very similar to overseas laws allows us to look at things we just couldn't look at before.

Mr Bezzi : I don't have anything further to add except that we've got a team that's been established that is focusing particularly on section 46 and concerted practices, which was the other significant reform that commenced in November last year.

Senator WHISH-WILSON: Great, thank you. I just have a couple of quick questions on the recycling industry in Australia at the moment. It's something I've been paying a lot of attention to. Then I have a couple of quick questions around the mortgage price inquiry. My understanding is that 'force majeure' means unforeseen circumstances that prevent someone from fulfilling a contract. Are you investigating the terms of any recycling contracts in light of recent disruption in the market? You may be aware there's been a bit of a recycling crisis after China changed their policy.

Mr Sims : Yes, we're very aware of that—only because I read the papers ferociously.

Senator WHISH-WILSON: You've been hearing the Greens bang the drum on this, too, of course.

Mr Sims : I have, certainly. I don't think we've got any investigations in relation to that; have we, Scott?

Mr Gregson : I'm not aware of those matters being raised with us. If there were, we'd consider where there was misleading conduct, and, as you quite rightly point out, you take representations that were made in good faith at the time into account under the law.

Senator WHISH-WILSON: But if a company invokes force majeure, it's not automatically looked at by you guys. There has to be an extra layer of process.

Mr Sims : That's a contractual issue. Our powers would essentially get enlivened if someone was misled.

Senator WHISH-WILSON: Yes, but they don't have to make an application to you, for example, if they're going to invoke force majeure.

Mr Sims : No.

Senator WHISH-WILSON: That's all I wanted to check, because I understand the contracts are between local governments and collection companies and sorting facilities, and they do vary around the country.

Mr Sims : No, that's a matter very much for them. If there are issues there, that's a contractual dispute, and either party there can take action, and it doesn't involve us.

Senator WHISH-WILSON: Just in relation to two questions on your Residential mortgage price inquiry: interim report, there were two preliminary findings I wanted to ask you about. This is the one released 15 March 2018. One of your preliminary findings says that new residential mortgage borrowers often pay a lower interest mortgage rate—32 basis points on average—than existing borrowers. Are you aware of any other markets like this where, in essence, the more loyal a customer you are the more you pay for your service?

Mr Sims : Unfortunately, yes. We're finding this. It's certainly the case with electricity, where I suspect the gap between those who are loyal and those who are active is larger than in banking. I don't have those numbers to hand, but the savings to be made in electricity could be potentially 10 or 20 per cent of your bill.

Senator WHISH-WILSON: Which is good for new customers, as it is in the banking sector. But how do you go about getting that balance with offering discounts?

Mr Sims : There are two issues from our point of view, and I'll let Marcus add to this. First of all, we do a bit of advocacy to consumers to say, 'Look, you might just want to shop around.' I personally had a lot of people say to me, both in banking and in electricity, that they've heard that message, they've done so and they've saved money, so we're trying to get that message out. But, also, we're trying to make sure there's more transparency in the market so that the way the market presents itself to consumers is more transparent and they've got clearer choices. Marcus, do you want to add anything?

Mr Bezzi : Often consumers are concerned about the costs of switching and the hassle involved in switching, and really that's why the open banking initiative is such an important one. It will reduce the complications involved in switching from one service provider to another, if the policy is successful.

Senator WHISH-WILSON: That's a big if at the moment, I understand. There hasn't been much work done on that yet; has there?

Mr Sims : It'll take a while, but we're pretty confident it's going to make a difference. But, yes, it's going to take a while to put into place. The gun has just fired on the start of the race.

Senator WHISH-WILSON: Okay; it's good that it has been fired.

Mr Bezzi : Switching's the key.

Senator WHISH-WILSON: Presumably, competition's another aspect of that, which I will ask you about in a second. There's one difference between mortgages and electricity, in the sense that mortgages have macroprudential implications, given the ability to repay and financial stability. Is this something you've had discussions with APRA about at all, in terms of the difference in spreads within the mortgage market?

Mr Sims : We were given this role in financial services in the 2017 budget. So that started in May. Our first role was to assess what's happening to the bank levy and whether or not it's being passed on. So, in that context, we've been looking at mortgage pricing. We have had conversations with APRA—and ACMA, but they're not relevant to banking—to begin a relationship, because that's obviously not a sector we were much involved in before, at least in this sort of way. Marcus, do you—I don't remember anything specific.

Mr Bezzi : I think we've had discussions in general terms—certainly at a staff level and I think once at a chair-to-chair meeting—with APRA. We know that they've read our report. I should say we also have heard a lot from smaller banks that have talked to us about the impact of the various macroprudential measures on their business.

Senator WHISH-WILSON: That's right. I'll certainly be asking, a little bit later, about risk weightings to APRA on exactly that issue. I might put this to them as well. In terms of competition, you also had another preliminary finding about signs of a lack of vigorous price competition. Internal documents to the inquiry on banks reviewed by the ACCC to date revealed 'a lack of vigorous price competition between the' inquiry banks and the big four banks, as you were referring to Mr Bezzi. Then you said:

… the pricing behaviour of the Inquiry Banks appears more consistent with 'accommodating' a shared interest in avoiding the disruption of mutually beneficial pricing outcomes …

Is that just a snazzy way of saying 'collusion' between banks?

Mr Sims : No. In our world, no. 'Collusion', in our world, involves some ability to make contact or send really clear signals. This is more a strategy that we could see within each of the banks where they wanted the market to be orderly, they wanted their rates to be mid-ranking and they were very conscious that, if they priced in an aggressive way to win share, that might disrupt that market with unforeseen consequences and they wanted to avoid that. We didn't see evidence in any way of them doing anything at all illegal—it was more the mindset of four players not wanting to rock the boat.

Senator WHISH-WILSON: When they mean 'disrupt the market', aren't they talking about disrupting their own profits essentially?

Mr Sims : Yes, that's right.

Senator WHISH-WILSON: Would it then be anticompetitive behaviour in any way, shape or form? Forget collusion—

Mr Sims : No.

Senator WHISH-WILSON: It wouldn't?

Mr Sims : To be collusion you've got to, as I say, either enter into some sort of pact about what you're going to do or send very strong signals between each other in ways that promote that coordinated behaviour. This is more each of them understanding that they'll probably make more money if they don't use price to chase share. Is that fair, Marcus?

Mr Bezzi : It's not unusual to see that in markets with a small number of very large powerful businesses that dominate the market.

Senator WHISH-WILSON: And you see that as rational behaviour?

Mr Bezzi : Yes. That's right.

Senator WHISH-WILSON: For example, the home loan pricing strategy paper of one of the big four banks from March 2009 notes:

We will not compete nationally above the line with the headline pricing of the second tier lenders as this would generate a main bank response and lead the market down.

If it's not anticompetitive, it's rational behaviour. Is it still something that could be tested, for example, with the new section 46 powers in relation to the effect of—

Mr Sims : No. Section 46 is going to be about, as I said, doing things that in someway prevent competition. It wouldn't cause a breach of 46 and I don't think it would cause a breach of concerted practices, having somebody decide that, if they behaved in a certain way, they'd have an expectation that others would. If others are behaving in that way, that's profit maximising for them and probably for the four of them. It's behaviour that benefits them and disadvantages consumers, but it's not the beginning of a breach of the act.

Senator WHISH-WILSON: I'll put the other questions on notice.

CHAIR: I have a couple of questions specifically for you, Mr Sims. Last year you released your draft report into retail electricity pricing. I'm just wondering what your progress is on that final report.

Mr Sims : Fairly rapid at the moment, since the report's due out at the end of June. So we are shaping our recommendations at this moment, and it's going to be—as inevitably it is with any report of this nature—a fairly intensive period between now and the end of June to complete the report, but we'll certainly complete it on time. So we're busy just shaping our recommendations and seeing what makes sense. We've got the data we need. We've got the information we need. We're just debating what's the best way forward.

CHAIR: Without pre-empting what's in there—obviously the government's worked with the major energy retailers, secured domestic gas supplies and abolished limited merits review—how would you assess the government's efforts so far to deal with the affordability issue in our electricity system?

Mr Sims : We've been highlighting that there are issues right across the value chain—there are issues in the network sector, there are issues in retail and there are issues in generation—and you've got to look at them all to address affordability, and that's what the government's asked us to do. Certainly we and the AER supported the removal of limited merits review. In our gas report, separate from our electricity report, we identified that the major LNG players were, at a time of an excessively tight—indeed, almost short—gas market, going to be exporting LNG overseas on the spot market, not to meet a contractual commitment but just on spot. So we identified that, and the government acted very quickly to, frankly, put pressure on them to avoid doing that so that that gas came onto the domestic market. That was obviously something we were keen to see, because we did think it was outrageous that, at a time when the domestic market is short, the LNG players would be selling onto the international spot market.

CHAIR: Last year you were quite specific: you said that the Renewable Energy Target was not an affordability mechanism. The opposition has promised a 50 per cent renewable energy target by 2030. Is there some concern from the ACCC that this will exacerbate affordability issues in the Australian retail electricity market.

Mr Sims : What I think I was referring to then was the National Energy Guarantee, the NEG. I'm pretty sure I remember saying that was very much a mechanism—and there are experts on my left here—to improve both reliability and sustainability and that it wasn't primarily an affordability mechanism. Obviously it has some effect on prices. When the NEG came out, we did express a few concerns with it, because it looked as if the way it was structured could have favoured the big three players. With further refinements of the NEG from the Energy Security Board, it now looks like they're addressing those issues. I think a mechanism that makes sure that all energy that comes into the market does so in a way that suits the market will be beneficial and is a mechanism that's probably better suited to improving affordability than was the Renewable Energy Target, which I think it's not quite but more or less taking over from.

CHAIR: Finally, the ACCC is monitoring the implementation of commitments made by the energy retailers to develop much simpler fact sheets for consumers with comparison rates on the retail energy offers. Could you give the committee, potentially, an update on how that's going.

Mr Sims : That is completely an AER issue, and the world expert is sitting at the end of the table there.

CHAIR: I'll ask the world expert, then, Ms Proudfoot.

Ms Proudfoot : Thank you, Senator. Following on from the discussion we had at the last meeting, as you're aware, there were a range of commitments that the retailers made to the Prime Minister. One of the most significant of those was the simplification of the energy price fact sheets. That work has been finalised now. We've released our final retail pricing information guide, under which retailers will now be required to produce a basic plan information document. On the basic plan information document, there'll be a table that provides an indicative annual cost for three households—basic benchmarks for a one-person household, a two- to three-person household and a four- to five-person household—so that customers can more easily look across. It is only an indicative price, but that's made clear. The BPID also includes things like the key fees and charges, any eligibility criteria and the details of discounts and what needs to be done to receive those.

CHAIR: Those fact sheets are available to consumers now?

Ms Proudfoot : No. The fact sheets will be available from early August. One of the other factors that we took into account was that we wanted them to be comparable across retailers, so all retailers need to produce those now through our Energy Made Easy website, and we're just completing the work on that at the moment. That is accompanying a redevelopment piece we're doing on the look and feel of the website so that that's easier for customers as well as when they come to the site.

CHAIR: Terrific. So, by the time we come back to the next round of estimates, you'll be able to give us a sense of how those fact sheets have been going?

Ms Proudfoot : Very happy to, yes.

CHAIR: Terrific, thank you.

Senator McALLISTER: My question is also for the AER. I just want to talk about the review of the regulatory tax approach 2018. Can you just talk me through, from a process perspective, the origins of that review?

Mr Anderson : Yes, certainly. In terms of the tax review, within the AER we are continually reviewing and adjusting our approach to regulation. At times, that's by way of a major program; at other times, it's a more incremental approach. The tax review falls within that context.

There is a long history of dispute and litigation around the tax allowance we provide in our regulatory determinations. Since 2009, 21 network companies have appealed our allowance on tax to the Competition Tribunal. There was a major step in settling those disputes in May 2017, when there was a decision by the full Federal Court of Australia which essentially upheld our approach to tax with respect to imputation credits. With that decision, we have now been able to turn our attention to broader aspects of the tax review.

So, commencing in July last year, we had discussions with officials from the Department of the Treasury, the Australian Taxation Office, and the Department of the Environment and Energy. As a result of those discussions, there was a working group set up. That working group first met in August last year. Our role in that working group was to provide information to the tax office on the amount of allowance we provide in our regulatory determinations for tax. The ATO then went away and compared that allowance to their records.

The ATO's records are private, and they haven't been able to give us information that's available to them. But what they were able to do in April this year is provide us with a note setting out their high-level conclusions. Based on the note that was provided to us from the ATO, we then came to the view that we should undertake a further review of our tax allowance, looking at some of broader aspects that had been raised in the note from the tax office, and we published an issues paper to commence that process in May this year.

Senator McALLISTER: Some of the issues go to a disparity between the amount of tax estimated as part of the price-setting process and the amount of tax ultimately reported as paid? That's one of the issues that you're interested in?

Mr Anderson : Yes. The tax office haven't been able to quantify for us the discrepancy between the tax that they see in their records and the tax that we provide in our allowance, so the first step in our process will be to understand the magnitude of that discrepancy and the reasons driving that discrepancy, and the ATO in their note identify a number of possible options there. Having worked through that, we will then form a view on whether adjustments are needed in our approach in order to ensure that customers receive the lowest possible costs for their energy, and, if so, how those changes might be taken forward.

Senator McALLISTER: Understood. Just from a process perspective, did you, the AER, initiate the working group that was established in July last year?

Mr Anderson : It was a discussion that arose amongst the agencies relatively simultaneously. There were discussions between Treasury, us, the ATO and the department of energy, and we all had similar issues at the same time.

Senator McALLISTER: Okay. And did the minister provide any direction about the establishment of the working group, or was this something that was happening at officials level?

Mr Anderson : It was happening at the officials level.

Senator McALLISTER: Then, as you described it, the ATO did some work as a contribution to that working group. There was then a decision to initiate a more formal review. Who is the decision-maker in that case?

Mr Anderson : The AER decided that, as the tax allowance forms part of our regulatory determinations, we should undertake that review, given the advice from the ATO.

Senator McALLISTER: So you then briefed the minister?

Mr Anderson : We briefed the department, yes.

Senator McALLISTER: My apologies. You briefed the department of energy.

Mr Anderson : Correct.

Senator McALLISTER: Did you speak to the minister or his staff directly about it?

Mr Anderson : I did not, no.

Senator McALLISTER: Did the AER—there being a distinction, I suppose, between you and the institution?

Ms Groves : It's possible that they may have, but we wouldn't know. We'll need to take that one on notice.

Senator McALLISTER: Okay. But, for the most part, this is an interaction between you and the department of energy.

Mr Anderson : Correct.

Senator McALLISTER: That makes sense. You've opened up the review and you expect to conclude it by—

Mr Anderson : December this year.

Senator McALLISTER: December this year—terrific. I know that this very specific issue about the discrepancy between tax actually paid and tax anticipated as part of the building-block process was raised previously with government, and Mr Koutsantonis, the then South Australian energy minister, wrote in 2015 to the federal minister and drew this bundle of issues to his attention. Was there a request to the AER at that time to explore the issue?

Mr Anderson : Earlier last week, there was a discussion at one of the other Senate committee inquiries, and, following that discussion, I asked the department of energy to provide me with a copy of the letter from Minister Koutsantonis and the reply from Minister Macfarlane. We have reviewed our records, and, as far as we can tell, the original letters were not provided to us. But, in the letter from Minister Koutsantonis, he refers to a submission from the AER's consumer challenge panel, and we do have a copy of that submission that was provided to us.

What happened there is that one of our consumer challenge panels looking at the upcoming determinations for the New South Wales electricity distribution businesses provided us with a submission that raised a list of questions around how our regulatory determinations should be established for those businesses. There was a long list of issues that they raised. We've been reviewing each of those issues and focusing on those issues which are of greatest value to consumers. For example, in those New South Wales determinations, we set a total revenue of $21 billion. The network businesses in question were seeking additional revenues of $6½ billion. The make-up of that additional revenue was about $2½ billion relating to return on equity and $1.8 billion on operating expenditure.

Senator McALLISTER: Okay; so it had been part of the bundle of issues before you in the past?

Mr Anderson : Correct.

Senator McALLISTER: That's all I need to know. But the specific issue as raised by Mr Koutsantonis hadn't been directly referred to you, either by the minister or by the department, in 2015?

Mr Anderson : Not to our knowledge.

Senator McALLISTER: Then, similarly, in April this year, Ms D'Ambrosio from the Victorian government also wrote on the same matter. Did the department or the government ask you to explore this issue at that time?

Mr Anderson : I'm not sure.

Ms Groves : We were already exploring the issue at that time. By that stage, we had received the advice from the tax department and we were in the process of considering that. So the issue was well and truly on our radar.

Senator McALLISTER: Did the letter get forwarded to you, Ms Groves?

Ms Groves : Not that I'm aware of.

Senator McALLISTER: And there was no specific request for advice about that piece of correspondence from the department?

Ms Groves : Not in respect of that particular piece of correspondence. The minister has subsequently written to the AER requesting us to look at this issue in a timely way.

Senator McALLISTER: When did that correspondence come through?

Mr Anderson : Sorry—which minister?

Senator McALLISTER: Minister Frydenberg has written to you, according to Ms Groves, to ask you to examine this particular bundle of issues. I'm just looking for the date of that correspondence and perhaps whether the correspondence could be tabled.

Mr Anderson : Certainly. It's on our website.

Senator McALLISTER: Great.

Mr Anderson : I have it here. He wrote to us on 3 May, and we published our issues paper on 15 May.

Senator McALLISTER: So you were well and truly underway, because in fact you'd been working since the previous July in this working group to start tackling these issues. Is it possible to have the ATO advice that was provided to the working group—the note that you referred to earlier—tabled for the committee?

Mr Anderson : Yes. I have a copy of that as well, and it is also on our website.

Senator McALLISTER: Finally, when your review is finished, do you anticipate providing a publicly available report?

Mr Anderson : Yes. Minister Frydenberg has asked us to provide an interim report in June this year, and then a final in December.

Senator McALLISTER: Okay. Terrific.

Senator RICE: Mr Sims, I'm interested in some questions about toll road concessions and competition issues. I note your press release from a few weeks ago where you raised preliminary competition concerns about Sydney Transport Partners' proposed acquisition of a majority interest in the WestConnex project, with Sydney Transport Partners being majority owned by Transurban. Could you summarise your concerns about Sydney Transport Partners' proposed acquisition of WestConnex?

Mr Sims : We have two broad concerns—or three, probably. WestConnex is quite a big road. If an alternative road provider owned WestConnex, they would be better placed to bid for new roads. That issue took on extra significance because we've seen that, recently, Transurban, over the last 30 years, has been successful with self-initiated road programs, where it has gone to a road authority in a number of cities, and said, 'What about we build this road?' and there's perhaps some trade-off with other roads they've got. Owning roads gives you a stronger position to self-initiate bids. If WestConnex was owned by somebody else, there'd be someone other than Transurban able to go to the New South Wales government with self-initiated bids. That's one issue.

The second issue is that, in the particular case of WestConnex, it can compete with other roads in the Sydney network that are also tolled. So, with an alternative owner of WestConnex, you could find different owners of toll roads that in fact can both get you to the same destination. Those were our preliminary concerns. The statement of issues is a statement of preliminary concerns, and we're now seeking to take those forward, get market feedback, and do a bit of our own modelling to work out how substantial those concerns are, before we make our final decision in July 2019.

Senator RICE: Okay. So that's quite a way off. Have you got a position as yet in general, going particularly to the point about unsolicited proposals and the strength that gives Transurban in particular, in exchange for toll extensions on existing tollways?

Mr Sims : It's something that's happening more recently. When we've looked at toll road bids before, that wasn't an issue uppermost in our minds. But, now that it is happening a lot more, it certainly says to us that road users and taxpayers perhaps would be better off—particularly road users—if there was more than one entity able to make those bids and put those proposals forward to government. Exactly how big an issue that is is what we'll be working on between now and mid-July. So it's certainly uppermost in our mind. We're now trying to work out how important it is.

Senator RICE: Are you only going to be looking at the WestConnex issue with your statement of issue, or are you going to be looking more broadly? I'm particularly interested in Transurban and the unsolicited proposal of the West Gate Tunnel in Melbourne, where they're seeking—or they're getting—a 12-year concession extension from 2035 to 2047. It's going to generate $20 billion to $30 billion nominal extra revenue. Compare that to the cost of the West Gate Tunnel, which according to most estimates is going to cost $6.7 billion to build, with the Transurban contribution expected to be approximately $4 billion. So they're getting a pretty good deal for it and they're in a position where they're able to offer something very substantial to the Victorian government.

Mr Sims : I think that's an illustration of the concern we've got. But the context of our decision-making is that this is a merger decision, or an acquisition decision, because Transurban is seeking to acquire WestConnex. Our law says it's against the law to have a merger or acquisition which has the effect or likely effect of substantially lessening competition. The tradition has been that companies come to us before completing a project or acquisition to see whether we think it could have the effect or likely effect of substantially lessening competition. We say either, 'No, it's not a problem', or 'Yes, it's a problem'. Ultimately, they're looking for us to form a view about whether we would seek to oppose them in court if they were to proceed. That's the question we're wrestling with and it's purely in relation to Transurban's acquisition of WestConnex, or the Transurban consortium's acquisition of WestConnex. So, no, we're not looking at that proposal as an issue in itself. But we are taking account of that sort of thing in forming our view about how large our competition concerns are in relation to the Transurban consortium's acquisition of WestConnex. The decision-making is all about that.

Senator RICE: More broadly, do you see there may be a need for you to look at the issue of unsolicited proposals, in a market like the Melbourne toll road market, where you only have essentially one major operator, Transurban, and those unsolicited proposals end up increasing their power and lessening competition.

Mr Sims : I'll see whether my colleagues have a view. I think it's hard that it would fit under our act. And, of course, keep in mind the state government is really the decision-maker here. You would think that it's their job to assess whether any bid is in the interests of the drivers in their state and, of course, their own revenue and road planning. I think, really, the decision-maker is them. I'm not sure how it would breach the act.

Mr Bezzi : It's hard to speculate on the basis of a hypothetical. These things are usually regarded as planning decisions and brought within the scope of a state government planning or infrastructure development power. I don't really want to comment particularly on the West Gate proposal or any specific proposal. Our experience is that, if a very large amount of money is being spent, they will arrange for the necessary approvals and exemptions from our act, which they're often, usually almost always, in a position to give.

Mr Sims : The state government, that is.

Mr Bezzi : The state government.

Senator RICE: So they are able to—

Mr Bezzi : bring a proposal. Exactly.

Senator RICE: have exemptions from your act?

Mr Sims : There's a section in the act that says they can take actions that are excluded from our act.

Mr Bezzi : Frankly, bankers and other financiers are very unlikely to invest in a project where there's not absolute certainty about these sorts of issues.

Mr Sims : I should just add—and correct me if I'm wrong, Marcus—that in many ways the situation you're describing is unlikely to be a breach. I think the dominant view is it's unlikely to be. If the circumstances presented themselves where it could be, they can remove that risk through an exemption under our act.

Mr Bezzi : I didn't want to imply there was a—

Mr Sims : On the face of what you're describing, I'm not sure it would breach our act. Our act is basically all about, 'Is someone getting misled?' on the consumer side; and, 'Has something happened that substantially lessens competition?' on the competition side. That's always a tricky estimate. Going back to WestConnex: making sure there are a couple of players that could provide those bids is a competition question. Once somebody's in that position and taking advantage of that position, I doubt whether that would be a breach of the act.

Senator RICE: You note in your statement of interest with regards to WestConnex that the ACCC is considering whether the New South Wales government is sufficiently likely to constrain Transurban, to exercise such ability, such that competition concerns are not likely to arise.

Mr Sims : Yes.

Senator RICE: But because you're not looking at the unsolicited bid into the West Gate Tunnel, do you have any ability to have concerns with regard to whether the Victorian government, in fact, is going to take competition concerns seriously or into account?

Mr Sims : I doubt we've got any power to do that. The WestConnex issue is one where some would argue—and, possibly, the lawyers representing Transurban might argue—that because the state government controls what unsolicited bids they accept, that's enough of a safeguard to make sure that nothing that could be an unfortunate outcome will occur. I guess we were really saying in that statement that we're not sure you can rely on that, because it could well be that the state government might feel it gets more money in or spends less money to achieve an outcome that may not be in the interests of consumers. We're not sure, in our competition assessment, that we can rely on the state government to completely look after the competition concerns we've got. That's what we were saying there. That's why, therefore, we're not going to put undue weight on that issue in this assessment for WestConnex. I don't really think we have a legitimate way into assessing the West Gate matter.

Senator RICE: What I see in West Gate is that you've got perverse incentives for the government to use that model. It's got a budget-neutral investment and it passes on the cost to customers. You've essentially got a monopoly toll road provider. In fact, the cost of that new investment is passed on to road users who are using a completely different asset. Despite that, you don't think there's any way into that for you?

Mr Sims : No. Often people see our act and say, 'If there's any chance someone might do something that might harm consumers, in this case drivers, it must fit under the act.' That's actually not the way it works. The way it works is: you have to show that there's been someone being misled, you have to show there's a cartel and you have to show there's something that excludes competition. It is quite precise. It has to be a particular action rather than us being on the corner, waiting for something that could lead to higher price for consumers. That's an outcome, but there's got to be an anticompetitive step along the way.

Mr Bezzi : I would add that, if the exclusion of competition is a deliberate result of government policy, it's very difficult for us to take action because of the various exemptions in our law. A good example of that is the arrangement that has been put in place in Melbourne for transport between the city and the airport. That's a monopoly that's been given in return for an agreement not to put competing public transport services in. It was a public-policy decision made by the government that excludes competition from public transport. There's no room for us to get involved in that. We can complain about it. We say it's anti-competitive. But from a legislative point of view there's no room for us to get involved.

Senator RICE: How do state governments apply for exemptions? What's the process by which that occurs?

Mr Sims : It doesn't apply; they're judge and jury. They just do it.

Senator RICE: They just say, 'We are exempted'? It's part of the legislation that they make?

Mr Sims : They've got to pass a law that then slots them into our act. It's something they can do, and they're in complete control of their ability to do that.

Mr Bezzi : They've got to be transparent and up-front about it.

Mr Sims : That's right, but it doesn't require any approval from us or from the Commonwealth.

Senator RICE: They just legislate to say that they've got exemptions full stop.

Mr Bezzi : Yes.

Mr Sims : That's right.

Senator RICE: In addition to the work that you're currently doing on WestConnex, is this area of looking at toll monopolies and toll roads more generally an area that you think you will end up doing more work in?

Mr Sims : In the immediate term, I doubt it because we've got so many other things that we've got to look at. I do keep saying: we're quite a modest-size organisation and we have a lot to do. I'd be reluctant to add to that list. We're really flat out with all the enforcement cases we've got on, and freeing up people to do that at the cost of other things—I don't think we will in the short term. I understand the problem. It would be nice to be able to look at such things.

Senator RICE: People are concerned about it, for sure.

Mr Sims : Yes. There are a range of things we could look at and start advocating on, but I'm afraid the list is pretty full at the moment. I'm sorry.

CHAIR: Can I ask a follow-on question to that. If there were a change in government in Victoria, could that original agreement to not have the ACCC investigate the negotiation of that deal with the West Gate Tunnel be overturned? Could the new government coming in request the ACCC's investigation of that?

Mr Sims : Two points, if I could—the main point we made before was: it's unlikely that what was being described by the senator would be a breach. But what we then said was—

CHAIR: If one set of road users was paying for the building of a different road—

Mr Sims : Yes. Again, I'll defer to Mr Bezzi, who's got more expertise in this than me. To me, it's highly unlikely that this would breach the act. But what Mr Bezzi was saying was: if there was any chance that it would, they could legislate to remove themselves under the act. And to answer your question—a subsequent government could undo that. So, that's the direct answer, but I wouldn't want to play that up. I'm not aware of them legislating to get out of this. I don't think there's anything that would likely breach our act, in what the senator was describing, that would require that legislation. I don't think it would shape up as a breach of the act.

Senator RICE: It's concentrating power. It is reducing competition because of the value of incumbency in these unsolicited bids.

Mr Sims : But if you're the only player in a market and you keep building extra things in that market, you're consolidating your power but you're not breaching any part of the act. If you keep building new things, you're just adding to your own position. That's not illegal. If you acquire somebody else, that could be illegal. If you stop somebody else doing it, that's potentially illegal. But just being in a strong position and growing your monopoly positions through bids you get a government to accept, personally I don't think that is going to breach our act. You can question whether the government is looking in the best interests of the taxpayers. I don't know whether it is or isn't, because I haven't looked at the issue. That would be more the question, I think.

CHAIR: Without eyes in on that contract, without any transparency in the negotiation of that particular contract, we won't know?

Mr Sims : It's not something we've looked at. Our focus has been on WestConnex. I think the question grew out of WestConnex and the fact that one of our important theories of harm is that if somebody else that we are investigating bought WestConnex, you could have two players, another player besides Transurban, actively able to put unsolicited bids to the New South Wales government. I understand what the Senator is saying about Melbourne but we as an organisation don't have any knowledge about that. We're not in a position to pass a view. I hear the issue, I understand the issue, but we don't have any facts, apart from what I might read in the newspaper occasionally. So, it is not something we've looked at.

CHAIR: It sounds like the best option to get the ACCC involved in that particular contract is to have a change of government in Victoria. Thank you Mr Sims. Thank you to the ACCC. Thank you very much to the AER for appearing this afternoon.