Welcome address: ACCC & AER Regulatory Conference 2019

Speakers: 
Mr Rod Sims, Chair
Conference: 
ACCC & AER Regulatory Conference 2019
1 August 2019

ACCC Chair Rod Sims delivers a welcome address to the ACCC & AER Regulatory Conference. Mr Sims reflects on the history of the conference as well introducing some of the ACCC’s current views on the state of economic regulation in Australia.

Transcript: 

Check against delivery

It is my great pleasure today to welcome you all here to the 21st birthday of the ACCC/AER Regulatory Conference.

I am proud to be associated with an event which has become a key fixture in the regulatory and regulated business community calendar.

As with any milestone celebration, it’s an opportune time to reflect on how we got here and where we are now.

This conference began its life in 1998 as the ‘electricity transmission network pricing conference’. It was held in Melbourne and attended by the who’s who of the regulatory world from that time, all 73 of them.

Gradually, the conference migrated north, first to Sydney then the Gold Coast, and now to its longer term home in Brisbane. Today the event brings together well over 400 delegates.

A consistent characteristic of this conference is that the expertise of the speakers has been mirrored by an equally expert and engaged audience.

Some familiar names featured in early editions of the Regulatory Conference.

Professor Frank Wolak, one of our keynote speakers today, was here for the first conference and several more since. Stephen King, Henry Ergas and Danny Price all featured on the first agenda.

Think of any prominent name in economic regulation anywhere in the world, and chances are they have been here. The quality of the international and domestic speakers we are able to bring here is a testament to the quality of the event that you have all helped build.

I was recently reminded that I even managed an appearance, some 16 years ago, when I made a presentation on the findings of the Parer review.

Early themes for the regulatory conference covered familiar territory:

  • reasonable commercial interests of facility owners and access seekers;
  • the consequences of competition and market power;
  • asset valuation, cost of capital and depreciation; and
  • the tension between regulatory certainty and sufficient regulatory flexibility.

We are still grappling with these topics today, albeit in the face of different challenges such as disruptive technological changes.

They are also reflected in the theme of this year’s conference: Economic regulation in Australia: still fit for purpose?

As they say, the more things change, the more they stay the same.

Over the next two days we will hear about a full range of familiar regulatory topics.

In telecommunications, it has been a turbulent past few years with the rollout of the NBN nearly complete.

However, advances in network technology always pose new challenges to regulation in this sector.

The deployment of 5G mobile networks is already well underway; and with this comes exciting opportunities for consumers and businesses.

This deployment will, for example, pose a competitive threat to the NBN which, of course, is very welcome.

What will this mean for regulation of the NBN?

There will always be an issue about how best we use the NBN assets over time.

We must ignore those who worry about the value of assets that are sunk, and focus on how the NBN can best contribute to Australia.

A key NBN issue is entry level pricing. If the 12/1 service is priced the same as the old equivalent ADSL service then, we can be assured that those who want a better NBN service are prepared to pay for it, because they otherwise have the backstop of getting pre-NBN speeds and pricing.

In energy, the ACCC is continuing its clear focus on promoting affordability.

In electricity, we have done this through our retail electricity pricing inquiry, making 56 recommendations that are now in the process of consideration and, hopefully, implementation.

It is important to note that our focus on affordability is distinct from other important work on reliability and sustainability associated with producing and supplying electricity.

I have been at pains to point out that each of these objectives requires a clear and separate policy focus. Reliability and sustainability were, of course, the focus of NEG.

There are some linkages between these objectives. Many have said that improving sustainability is important for affordability. I think you can at least argue the reverse.

Of course, the AER also continues its very important work in relation to all these objectives. For example, through implementation of the retailer reliability obligation and the default market offer.

The breakout session today will look at the future for electricity regulatory reform and ask, what still needs to be done?

In gas, we have been closely monitoring the sector for a number of years now.

We have advocated for state governments to provide access to gas resources and encourage development of infrastructure. Some progress has been made but there is much more that can be done.

The threat to Australian manufacturers using gas is still very real.

The session this afternoon will focus on gas pipelines and will consider how international challenges and regulatory approaches compare with Australia’s.

Through our monitoring in electricity and gas we will continue to push for reforms and progress as these are key industries to drive economic efficiency and prosperity.

Road pricing reform, a favourite hobby horse of mine, will be discussed in one of this afternoon’s breakout sessions. With electric vehicles apparently coming, this issue has even greater urgency.

You may have heard me speak about this before as something I believe is a long overdue for reform. My position has consistently been that we need to find a way to introduce hypothecation; that is, road-related revenues such as fuel excise should be dedicated for use on roads.

Only then can we think of different ways to improve road pricing; it is a key starting point that is still being completely missed in this crucial debate. People must see that what they pay for road use is spent on roads. This is a fundamental point of political economy.

I’m looking forward to hearing about the latest thinking on this today. The session will consider whether roads could be treated just like any other utility having a building block model applied to their pricing.

This year we are tackling the subject of market studies and inquiries since many regulated sectors have been subject to these recently.

Gas, twice, electricity, twice and communications have all been forensically examined.

Government has directed the ACCC under Part VIIA, the old prices surveillance powers, to look at everything from whether prices and profits are too high, to whether regulatory settings remain fit for purpose.

The session this morning will look at whether the current toolkit for market studies and inquiries is the best legal framework for these purposes.

OECD expert Antonio Capobianco will be joined by New Zealand’s Antonia Horrocks, and we will also gain insight into the industry perspective from AGL’s Beth Griggs.

Continuing with the theme of examining how we approach regulation, tomorrow we will have a session looking at how regulated sectors can learn from the Royal Commission into Financial Services.

The biggest lesson I see for all businesses is about standards of conduct. The Hayne inquiry aired some deplorable conduct and should be a wake-up call for all businesses. Governments and the greater public simply won’t tolerate it.

Finally, turning to a couple of sectors not covered on our agenda in 2019.

The debate around airport regulation has been revisited recently through the Productivity Commission’s inquiry. The ACCC’s views are well known on these issues.

I will make the point, however, that our general view, across the board, is that access regimes are a policy tool to deal with vertically integrated monopolies.

When faced with vertically separate monopolies, including gas pipelines that will be discussed today, Part IIIA is not and never has been the right policy tool.

Those who have been around as long as I have know that Part IIIA was designed to ensure owners who were vertically integrated provided access on just terms to their competitions who relied on their bottleneck infrastructure. It was inspired by the situation we faced with Telstra owning the copper wire when we wanted to introduce retail competition.

With vertically separated owners of infrastructure the issue is not access; it is one of market power, and avoiding inefficient monopoly pricing.

In the specific case of airports, as we now have with gas pipelines, to our mind, that means a negotiate-arbitrate framework.

And finally in the case of water, the re-elected Government had an election commitment to an inquiry into water trading markets.

While at this stage, the government hasn’t directed us to begin the enquiry, we expect this will occur shortly. When it does we will once again be applying our market studies and inquiries toolkit to this very important sector.

Before I hand over to our first plenary session I want to make a special welcome as well as a thank you and farewell.

Last month we welcomed Stephen Ridgeway to the ACCC as a Commissioner. Stephen has taken the place of Roger Featherston who recently finished his term. Stephen brings a wealth of competition, consumer and regulatory experience and will be a great asset to the organisation. I’m sure you’ll be seeing more of him through his involvement particularly in communications, gas and mergers.

Paula Conboy, Chair of the AER, finishes her term next month. Paula has been a fantastic asset to the AER in her time here and we in the ACCC/AER family will greatly miss her warmth and intellect. We wish you all the best, Paula, and hope to see you back at the Reg Conference in the years to come.

Like any good birthday party, this conference is a great opportunity to mix with and meet old and new colleagues.

It is also a chance for all attending, including us at the ACCC, to listen, learn and be challenged by those presenting.

Finally, remember the birthday celebrations will continue at the dinner this evening. We are fortunate to have one of the early champions of the conference, Joe Dimasi, as the dinner speaker, providing his reflections.

I look forward to seeing you there, if not before, over the next two days.