ACCC inquiry must cut through the contradiction

Keith Orchison, Principal, Coolibah Consulting

Keith Orchison, Principal, Coolibah Consulting

Few reports in the next 12 months will be read with more interest (and in some quarters, concern) than the commentary on east coast gas markets from the Australian Competition & Consumer Commission.

The window for submissions to the ACCC review, initiated by the Abbott government, closed in July and its report is expected next April – in a federal election year where energy policy will be a significant focus of political argument.

In a speech on the inquiry in mid-2015 (which received little media attention but will have been closely read by gas supply and use stakeholders) ACCC chairman, Rod Sims observed wryly that this is a “fascinating time” for the gas industry - one that has become enmeshed in “contradictory views as to its future.”

Sims acknowledged that there is “inquiry fatigue” in the sector and he set his organisation’s own challenge by commenting that the many preceding reviews “have not been able to assess meaningfully the conflicting claims about prevailing conditions or the extent and practice of supply negotiations or even actual prices available in the market.”

The commission’s task, he admitted, is “huge.” The east coast market is “opaque, complicated and difficult to understand.” Sims promised the ACCC will use its compulsory information-gathering powers to cut through the opacity and the “cloak of confidentiality” that has affected previous inquiries.

He said the commission will test the veracity of claims and counter-claims about the market “and seek hard evidence that proves or disproves them,” including whether governments are making it harder for producers to develop new supplies through their regulatory regimes.

The latter point is a potential time bomb for several state governments in a year (2016) where the winter could bring some shortfalls in the largest regional economy (New South Wales) and nasty price surprises for many Victorian households in a political environment that is likely to be even more volatile than in 2013.

Underlying the ACCC exercise and much of the rest of the energy debate is a fundamental question: What is the purpose of energy policy?

This is not as esoteric as it may sound.It is a point that has been taken up by the Business Council. The BCA argues that the objective should be to “achieve
a balance between promoting economic growth, energy security and environmental sustainability.”

In reality, the BCA adds, policy development over a number of years has been affected by “missteps at all levels of government”, including intervention in markets, a lack of evidenced-based policy rationale, fragmented change and a lack of focus on reducing greenhouse gas emissions at least cost.

The Business Council has told the ACCC in its submission to the inquiry that Australia, “faces serious challenges getting gas out of the ground and to market.”

The BCA wants the CoAG Energy Council to take responsibility for “public milestone reports” assessing state government progress in implementing regulation to support gas supply.

The tenor of gas supplier submissions to the commission is that the east coast market is not “broken”, but in transition to a new equilibrium. Any changes proposed by the ACCC, the argument goes, need to be framed in this context.

However, the issue goes beyond the market.

As one submission notes, each time a new government is elected, there is a high risk previous environmental and tenure regulations will change.

Even a casual reading of the thrusts and counter-thrusts of the argument in the submissions to the inquiry published on the ACCC website – including a claim by the Australian Workers Union that 235,000 manufacturing-related jobs could be lost across the economy unless the issue is resolved – makes it clear that the commission has a major task in delivering a cut-through report to the federal government.

In his speech Sims described the commission as having the opportunity via the inquiry to be “a powerful contributor” to informing the debate and shaping energy market reform.

There will be little argument on this score among stakeholders.

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