National competition policy and related reforms have directly contributed to Australia's consistent and sustained economic growth but it was now time to reinvigorate and refine the current competition framework, Australian Competition and Consumer Commission Commissioner, Mr Ed Willett, said today.
Addressing the Australian Energy and Utility Summit, Mr Willett said the reforms had exposed most sectors of the economy to the rigours of competition but such competition in some industries was held back by legislation or the industry's structure.
"Reforms to the electricity and gas industries have introduced competition into the parts of those industries that can be opened to competition and regulation to the natural monopoly parts.
"However, the ACCC is concerned by recent merger activity within the electricity industry, the plethora of regulatory approaches to distribution and retail regulation which imposes substantial costs on the energy sector and the fact we are still a long way from achieving a truly national market for energy".
Electricity
Mr Willett said that the ACCC had recently received several applications for informal clearance for proposed electricity acquisitions that would bring many of the elements of the electricity supply chain back together and would re-aggregate the contestable generation and retail sectors.
"Such substantial re-aggregation in the NEM would be a reversal of the pro-competition structural reforms that have been achieved over the past decade", he said.
There are three types of mergers that raise competition concerns in the National Energy Market, in particular:
- horizontal mergers between generators
- vertical mergers between transmission, distribution, generation and retail entities
- vertical mergers between generation and retail sectors
"The Commission is also concerned that the section 50 test used by the Commission to assess merger proposals may not be an adequate instrument for detecting market power in the NEM. It is becoming apparent that the traditional competition measures do not capture the unique characteristics of the National Energy Market and how these can lead to a substantial lessening of competition.
"This is a significant challenge that the Commission faces in addressing the issues raised by electricity mergers and is eager to develop solutions to prevent inappropriate concentration and re-aggregation in the electricity industry".
Mr Willet also provided an overview of its current reviews of almost every aspect of the ACCC’s approach to regulating electricity transmission businesses, including proposed new regulatory principles, a revised regulatory test and new service standard proposals. The ACCC’s proposals in these areas represent significant changes in regulatory practice to improve incentives for services providers, increase certainty and reduce the costs and intrusiveness of regulation.
Gas
Mr Willett said the record of development in the gas industry has been "impressive". Gas consumption was accelerating and the development of an effective access regime meant that niche players could invest in gas exploration and development, confident they can access transmission and distribution systems on reasonable terms.
As a result there was increasing investment, diversity in ownership and reducing concentration of ownership in upstream gas production markets.
"The flow on effects of constraining the exercise of market power in the gas industry benefits all Australians", he said.
Gas users also benefited as the price of delivered gas would have been higher without regulation.
"ACIL Tasman estimates that without gas regulation the price for transmission and distribution services could have been 25 per cent higher.
"Even with this price restraint, there has been considerable pipeline investment", Mr Willett said. "Gas transmission companies are still very successful businesses.
Mr Willett was critical of comments made after the recent Australian Competition Tribunal ruling on the Moomba-Sydney pipeline access arrangement.
"There’s been a lot written about the importance of that decision in recent days – much of it overblown or just plain wrong".
I won’t deny we were disappointed by the ruling, but it’s worth putting a couple of things in perspective.
Put simply, the Tribunal did not directly review the proposed tariff. It also needs to be remembered the access arrangement only applies to 40 per cent of the pipeline so owners APT can already set their own charges on the majority of the pipeline where the tariff is unregulated. This is a consequence of an earlier and separate decision by the Minister to revoke coverage of most of the pipeline.
"While applications for review of this coverage decision were made to the Tribunal by Orica, Endeavour Coal, AMCOR, the Energy Users Association of Australia and the Energy Action Group, all of these applications did not proceed for various reasons.
"Crucially, though, the Tribunal rejected arguments that the Moomba pipeline competes with the Eastern Gas Pipeline.
Mr Willett said that nearly a decade on, the evidence shows National Competition Policy has been good for industry, good for consumers and good for the nation.
"But we can’t rest on our laurels, and the task now is to tackle the barriers that continue to inhibit competition, and stand in the way of further reforms which will continue to keep the Australian economy competitive, for the benefit of all Australians".
A full copy of the speech is available at the ACCC website (see below).