ACCC rebuts criticism of infrastructure role

A campaign by certain gas and electricity sector vested interests claiming Australia was on the verge of an infrastructure collapse because of the Australian Competition and Consumer Commission was rebutted by an ACCC Commissioner, Mr Ed Willett, at the 2005 Energy Summit in Sydney today.

"The reality of course is very different", Mr Willett said. "First, there has been no shortfall in investment in infrastructure regulated by the ACCC, or where regulation by the ACCC is in prospect. In fact, the reverse is true.

"Second, and just as important but often ignored, ACCC regulation has facilitated very high levels of investment by regulated infrastructure users.

"Third, many investment problems have been caused not by regulation, but by a lack of regulation in some areas of monopoly infrastructure.

"And fourth, regulation has limited price rises for regulated infrastructure and promoted competition in dependent markets to the benefit of consumers".

Mr Willett said there was no 'drought' in either gas or electricity transmission infrastructure investment.

"In electricity transmission around $4.2 billion has been invested in just the first five years of the ACCC regulatory regime", he said. "This investment adds around 30 per cent to the replacement costs of transmission assets. This is very high considering the long life of these assets. Investment of nearly $3 billion has been accommodated in ACCC decisions to date. Actual investment outcomes are likely to be even higher".

This investment was not an aberration, he said.

"… the record of investment in gas transmission under ACCC regulation has been even more impressive than it has been for electricity. According to the pipeline industry association's own figures, 14,000 km of new transmission pipelines have been laid in Australia since 1997. This amounts to a doubling in the length of transmission pipelines in Australia to 28,000 km in just seven years".

This success story was not limited to the energy industries, with substantial investment under way or flagged, for example, in the aviation industry, through the AirServices Australia's $542 million program for 2004/05 to 2008/09, and in the
telecommunications industry.

Mr Willett said both gas and electricity transmission are recording unprecedented levels of capital expenditure under the regulatory regime and those who do make these investments are out-performing other sectors of the economy.

Mr Willett said there were clear examples where access regulation was promoting further investment.

He highlighted the ACCC's role in the Hunter Valley coal industry, as compared with the problems facing the Dalrymple Bay Coal Terminal.

"… the ACCC is working with coal miners, rail service providers and the operators of Port Waratah to, initially, limit the costs of existing capacity constraints and, over time, expand capacity by joint investment by coal miners in alleviating capacity constraints. Shared funding and use of such infrastructure reflects the raison d'être of Part IIIA [of the Trade Practices Act 1974] and will bring about higher levels of infrastructure funding and capacity expansion than any pandering to monopoly interests could ever achieve. The great irony of this experience is that the infrastructure owners in the Pilbara are among the keenest advocates of share use of infrastructure in the Hunter Valley.

"There have been similar experiences in the shared development of 3G mobile phone infrastructure, improving both investment and competition outcomes. On the other hand, monopoly control of the copper wire network continues to require heavy regulation to promote investment in dependent infrastructure.

"There are two very simple lessons from these examples:

• First, that shared use of infrastructure – the raison d'être of Part IIIA – is likely to facilitate greater investment in monopoly infrastructure and lead to better market outcomes than monopoly control; and
• Second, regulation under Part IIIA may be necessary in these circumstances to facilitate access to the infrastructure, including funding capacity expansions, and address monopoly problems".

A copy of the speech will be available on the ACCC website.