7th International Energy Transmission and Distribution Conference and Exhibition 19th November 2003 IS THERE A FUTURE FOR ENERGY NETWORKS?
On behalf of Warren Entsch, MP Introduction Ladies and Gentleman, It is my pleasure to talk to you today about the reform agenda for the energy industry. This is a hot topic. And not just in Australia. The recent blackouts experienced in North America, Italy, Scandinavia and the UK have raised concerns. They have led to a number of questions being raised.
But we need to keep it that way. There are a number of things we need to do to keep improving on current market arrangements. Reform of our energy markets must continue, so that we can capture the benefits and guarantee the sustainability of Australia's energy needs well into the future.
Energy is a vital input to virtually every sector within today's advanced industrialised economies. And it is no less vital for Australian industry. Indeed, we have established ourselves as one of the world's leading growth economies. This is due in part at least to our competitive and reliable energy sector. To maintain our growth and economic prosperity, we must continually find new ways to enhance our competitive edge. Many countries around the world are vigorously pursuing energy sector reforms. As a nation we cannot afford to stand still. If we do, the risk is that we lose those industries which are dependent on reliable and competitively priced energy. This is not simply a matter of finding cheaper sources of energy. It means reforming energy markets so that they are both efficient and responsive to consumer demand. It means developing new technologies, improving energy efficiency and promoting demand side participation in this market. It means recognising the impact that reform is having at the distribution and retail level. Considerable ownership changes are taking place. Many distributors and retailers are owners of both gas and electricity assets. Convergence in the sector is firming up the concept of an energy services industry which is a positive development. Collectively we owe it to ourselves and the future prosperity of all Australians to pursue an efficient and competitive national energy market.
I am aware that most attention in energy market reform is focussed on issues which may not be uppermost in the minds of the distribution sector. The Howard Government welcomes the decision to establish an Energy Networks Association from early next year and the recent formation of the Energy Retailers Association of Australia. These bodies can play an important role as strong, relevant voices for the sector in energy market reform debates to come. Intrusive regulation and the information requirements placed on the sector can have a big impact on the bottom line. Additional costs must inevitably be passed directly on to consumers. Reducing the regulatory burden is one of those areas where efficiencies can be achieved. Governments would also expect to see efficiency savings passed through to customers. At the same time, all governments have concerns related to the impact of greater vertical integration within the energy sector. Having relatively few large owners raises issues about the level and effectiveness of competition. A lack of transparency of vertically integrated businesses and the opportunity for cross subsidisation are issues. The presumption is that industry with monopoly characteristics requires regulation. If the burden of regulation is to be reduced the onus should be on the industry to demonstrate it is acting in a competitive manner. The Howard Government would welcome alternative approaches should the industry be able to develop objective measures to demonstrate its competitive behaviour as a potential alternative to regulation. Market reform is not static. It must continue to evolve to meet ever changing needs and circumstances. Deficiencies must be addressed in a coherent and constructive manner. It is incumbent on all of us to be innovative in our solutions.
I want to assure you the Howard Government is fully committed to the pursuit of the energy market reform agenda established by the Council of Australian Governments (CoAG) at its meeting in June 2001. The issues to be considered have been highlighted. This was the purpose of the CoAG Review of Energy Market Directions, also known as the Parer Report. This was placed before governments for consideration a little under twelve months ago. It is apparent from the work done by the Parer Review that substantial economic benefits remain to be captured, estimated at above $2 billion to GDP per annum by 2010. The Ministerial Council on Energy has the task of providing the strategic policy leadership and guidance required to further develop energy market reform and to oversee policy development. At its meeting on 1 August this year, the Ministerial Council on Energy agreed on some important initiatives. These initiatives cover governance, regulation, transmission, user participation, greater use of natural gas and greenhouse emissions. I want to comment on an issue of concern, which is the extent of progress made by governments since the 1 August meeting of the Ministerial Council on Energy. Much has been made of the fact that the CoAG meeting on 29 August 2003 did not consider energy issues (in fact, not much was done that day except, of course, a stunt pulled by the State Leaders that backfired on them). In light of that development, doubts have been raised as to whether there is a mandate to proceed with energy reform. Let me allay fears on that front. I am assured by my colleague, Hon Ian Macfarlane that the Federal Government recognises the importance of maintaining this momentum. Indeed, the Prime Minister has asked the Minister to continue to work with his State and Territory colleagues to advance the framework for further reform - and to make it his number one priority. I understand the Minister has written to all State and Territory Energy Ministers underlining the importance of the next meeting of the Ministerial Council on Energy, to be held in Perth in mid December. That meeting is expected to take further important decisions, building on the outcomes already agreed. It is also envisaged it will put finishing touches to a detailed future work program. Senior officials of all governments have been engaged actively in scoping the elements of the work program and detailed implementation work has been commenced, including on gas and end-user participation. We should not lose sight of the fact that the task which has been set is challenging. It consists of a program of reform that covers at least three years of work. I am pleased to say that there is indeed a strong shared commitment on the part of all jurisdictions to develop a whole-of-market framework for this national energy sector.
The need for change is clear. Competitive markets for energy services are a relatively new concept. Policy makers around the world are grappling with design settings that best suit their particular national circumstance. There is no universal 'one size fits all' solution. The character of the Australian energy sector is increasingly national. The markets for gas and electricity are already highly interconnected and interdependent. This will only become more so in future. For electricity, Basslink will connect Tasmania to the mainland by early 2005. And for gas, there are prospects of pipelines linking Queensland to the South Eastern pipeline system in the same timeframe. In the longer term there are prospects of gas pipelines criss-crossing the continent from the Northern Territory and Western Australia. The Australian energy market is therefore evolving and will continue to do so. The policy, governance, regulatory and institutional frameworks must change to accommodate that evolution. Yet, at present, this inter-woven and developing national marketplace still subjects industry to a variety of jurisdictional-specific arrangements. What investors seek is a uniform governance and regulatory framework for energy. Various projections suggest that something between $40 billion and $50 billion in investment is required to meet Australia's energy infrastructure needs to 2020. Efficient and effective governance, regulatory and institutional arrangements are required to underpin this investment. Industry should welcome the decision taken by the Ministerial Council on Energy to subsume the National Electricity Market Ministers Forum by mid next year. This will ensure there is a single Ministerial Forum for all energy policy decisions and that Ministers can provide the necessary level of strategic leadership and guidance required for a national energy market. A clear and consistent policy voice will reduce the risks facing both public and private investors in energy markets without favouring one technology over another. Only under such a framework can we ensure an appropriate balance of investment to deliver timely, reliable and competitive energy services to consumers.
From a regulatory perspective, the key development has been the agreement to establish a national regulator for the energy industry, to be known as the Australian Energy Regulator. Progressively, this body is to assume responsibility for regulation of both electricity and gas wholesale markets and transmission activities as outlined in the Communiqué of the Ministerial Council on Energy on 1 August. There is agreement also to the objective of a national framework for distribution and retail regulation. As work proceeds on a national approach, it will be possible to consider the extent to which full regulatory responsibility for all elements of the energy supply chain will be passed to the Australian Energy Regulator. A single regulatory authority for all energy sector regulation should be the goal. The benefits of such an arrangement for industry are national consistency, lower operating and compliance costs, greater certainty and reduced risk. It is recognised the work required to develop a national framework for distribution and retail will be extensive. The Howard Government will look to the active involvement of sectoral representatives, including the Energy Networks Association and the Energy Retailers Association of Australia in this task. The regulator will be accountable to the Ministerial Council on Energy. The Howard Government will be working actively to reduce over-regulation, simplify requirements, get regulatory best practice and put nationally consistent frameworks in place.
A key part of the new institutional arrangements will be the establishment of the Australian Energy Market Commission. This body will be a new statutory commission responsible for the future development of this national energy market. It is intended to assume the functions of the National Electricity Code Administrator and the National Gas Pipelines Advisory Committee once it is established next year. It will oversee rule making and code change processes and undertake market reviews and analysis and other market development functions. We see this body as the engine room because it is the key initiative for taking the national energy market forward under the policy guidance of the Ministerial Council. I want to emphasise that these new institutional arrangements will continue to provide effective consultative and appeals mechanisms for decisions that they make. Part of these revised arrangements will include streamlined processes for code changes to minimise the potential for overlap and delay and permit greater industry and end user involvement in these decision-making processes.
The benefits of an integrated and competitive energy market have already been seen within the electricity and gas sectors. Networks play an essential role in this marketplace. This is a country with 850,000 circuit kilometres of electricity networks and 92,000 kilometres of gas networks. Network issues have been recognised by industry and government as critical to the establishment of a national energy market. The Parer Review signalled that the resolution of network issues was a priority. Although current arrangements are effective, there are aspects that have been the subject of criticism by industry and government alike. There are important threshold questions that need to be answered. These include:
Various initiatives are underway to resolve them. On the 13th of June of this year, the Howard Government announced a review by the Productivity Commission of the Gas Access Regime. The Commission is expected to make a draft report available next month, with a final report due in mid 2004. The Ministerial Council on Energy will have the responsibility for developing the government response. I am confident that this process will lead to a gas access regime that is less intrusive in a regulatory sense, less litigious and more conducive to investment, without impeding the interests of gas consumers. You would also be aware that Electricity Ministers are looking at institutional and regulatory aspects of transmission. The Howard Government is collaborating in that task. Current deliberations will inform Ministers' decisions in 2004 on:
The issues will require further and more detailed work before specific reform proposals are developed. Given the nature and extent of these proposals, the Howard Government strongly supports the involvement of industry representatives in any working groups established to take these issues forward.
This is why a national energy market is so important. The marketplace must operate under a single umbrella, with clear regulatory guidelines under which the wider industry can seek out new forms of wealth creation. All Australian governments are working together to ensure that this agenda continues to move forward. I am confident that key reforms will be delivered in the immediate future that will draw investment to energy service industries, to the benefit of all energy users. |
