Energy Review Regime Effectively Ignores Consumers

An expert panel commissioned by the Standing Council on Energy and Resources (SCER) has found that the Limited Merits Review (LMR) regime, which is currently used as the review mechanism under the National Electricity Law (NEL) and National Gas Law (NGL), does not meet its founding goals and fails to consider the interests of consumers.

The LMR was chosen in 2005 as the recommended option of the Ministerial Council on Energy’s (MCE) Standing Committee of Officials to be the mechanism through which disputes with regards to the NEL and NGL were resolved.

A core element of this recommendation was centered on a ‘balanced outcome between competing interests’. The MCE stated that the benefits of the LMR included the potential to correct a range of issues, providing a higher level of accountability for policy makers, allowing for competing interests to be balanced, and minimising risk of parties gaming the system.

The MCE, however, did recognise that the LMR had the potential to become biased towards regulated entities.

In their final Stage One report the SCER panel found that the LMR had, as the MCE feared, become biased in that way.

The expert panel found that the LMR has not allowed all stakeholders to be heard, and that specifically ‘the long term interests of consumers have typically not been explicitly considered when review decisions have been made’.

As a corollary to this, many consumer organisations have, justifiably according to the SCER, felt left out and forgotten by the LMR. Barriers to participation include the high cost of obtaining legal representation.

The SCER panel also raised doubts about the effectiveness of the LMR given that some of its decisions have had significant impacts on price outcomes whilst ‘an informed consumer would find it very difficult to discover a credible account, from any authoritative source, of why energy prices are changing as they are’.

The SCER panel found that the LMR now lacks credibility and legitimacy with important stakeholders, and that the Australian Energy Regulator ‘itself does not appear to have any great confidence in the regime as currently constituted’.

The panel concluded that the LMR had developed into a regime that has become detached from its original goals, is formalistic and formulaic, and has failed to implement the requirement ‘that regulatory decisions be directed toward encouraging outcomes that are in the long term interests of consumers’.

This report comes after a long period of advocacy for change to the LMR by many consumer groups.

CFA member the Consumers Utility Advocacy Centre (CUAC) for example has long promoted the replacement of the LMR with a fairer judicial review process.

In their submission to the SCER review, CUAC stated that they believe ‘the current limited merits review regime has not achieved the objectives set out in the original decision paper’ and that ‘that a well designed judicial review model should replace the limited merits review’.

CUAC advocated for this change on the basis that ‘there are some very significant barriers to consumer participation in the appeals process’ and that consumers were not able to achieve fair results due to significant barriers including cost, trust, delays, and gaming of the process by regulated entities.

In a statement to the Australian Financial Review,  the Energy Networks Association principal advisor, economic regulation, Garth Crawford said that ‘he believed consumers need to have a greater voice at the Australian Competition Tribunal, which hears appeals’ and that ‘that role could potentially be undertaken by a government funded advocate’.

The SCER panel is currently working on the second part of its report which will provide recommendations about the adjustments that can and should be made to the current regime. The final Stage Two report is due on September 30, 2012.