Solving an energy market Rubik's cube

I don't suppose journalists can be blamed for feeling overwhelmed by the torrent of papers being thrown at them in the energy market reform debate – there have been more than 2000 pages of reviews and statements this year. But it is still a bit startling that the media en masse has missed an important decision about the power regulator.

Federal, state and territory energy ministers spent last Friday meeting in Hobart and then issued a 13-page communique, which has been ignored by every media outlet in the nation.

Buried in the middle of the document is an announcement that the Council of Australian Governments has agreed to a review being held of the Australian Energy Regulator in 18 months' time, including its structural arrangements – in other words its present sibling set-up with the Australian Competition and Consumer Commission.

When this caught my eye, I returned to the COAG communique of December 7 to discover that the news is there, too, if you look carefully.

The COAG statement says rather blandly that first ministers "welcomed the additional Commonwealth funding for the AER (an extra $23 million over four years) and the review to be undertaken of its resources, independence and operational arrangements”.

It is the Standing Council of Energy and Resources ministers that now reveals more.

Noting that the AER approved $48 billion in electricity networks capital expenditure for five years – "all of which had an impact on consumers' bills” – as well as losing 13 challenges before the Australian Competition Tribunal that added around $2.9 billion to network revenue, SCER says some (Coalition-run state) governments "continue to hold concerns that the structure of the AER within the ACCC could be limiting its ability to perform its operations effectively”.

The independent review, apparently to take place from mid-2014 after the current AER determinations of network capex and opex to 2019 are completed, will aim to "ensure that the regulator's resourcing is adequate and its operational arrangements are effective to meet the demands of the new regulatory regime” (which is currently being sorted out).

It is not quite two months since the ACCC chairman, Rod Sims, launched a fierce defence of the present structure, acknowledging as he did so that he was walking the edge of a political line.

"Keeping the energy regulator within the national competition and consumer protection agency is the best way of promoting the long run interests of consumers in the energy market,” he argued in a speech to major energy users.

"The AER cannot be more independent than it is now,” he asserted.

Sims added: "The main complaint I hear from some in industry is that the AER is part of an entity that is too focused on the interests of consumers. The AER should be so focused. Its mandate, as it is for the ACCC, is to work in the long run interests of consumers.”

Some of the key features of the AER/ACCC link which must drive these benefits are co-location of staff, a single staff pool to promote close working and flexibility, and an ACCC commissioner sitting on the AER board, he said – and he issued a warning: "The AER has spent seven years developing its operational capability. It would be high risk to alter institutional arrangements at this point in time, and so compromising the knowledge and experience gained.”

The "blue” states, it seems, are undeterred.

Maybe by coincidence, the AER itself has chosen this week to announce that it is launching a "better regulation” consultation process "to deliver improved regulation focused on the long-term interests of consumers".

This, says the regulator's chairman, Andrew Reeves, is a way of "moving Australia towards an improved regulatory regime that will ensure that electricity customers pay no more than is necessary for a safe and reliable supply”.

There's that phrase again: pays no more than is necessary – which, as I have pointed out before, rattles against the prime minister's assertion that the reform process will "make a difference for the long term of $250 for Australian families”.

Reeves says that the AER will be "consulting extensively” over the next 12 months "to deliver an improved approach to regulating Australia's electricity and gas networks”.

(Actually he regulates the east coast systems, not those in Western Australia and the Northern Territory – the prime minister's promise is based on east coast reform, too, which presumably leaves a million households in the west and the NT whistling Dixie.)

"In the coming weeks,” says Reeves, "we will begin publishing issues papers and establishing working groups” to consult on the swag of regulatory guideline changes proposed by the Australian Energy Market Commission, the rule maker, and requiring eventual SCER approval.

The AER process includes setting up a "reference panel” for customer organisations.

Am I being a cynic in thinking that the words "rearguard” and "action” spring to mind on hearing all this?

Meanwhile, the SCER communique reveals something else: the Newman government in Queensland is taking its own stand on all the proposed reforms, supposedly ticked off by first ministers at COAG.

The communique reports that: "The Queensland government is in the middle over its own electricity sector review. Accordingly, it has has reserved its position on matters that the subject of (current energy market reform). All other jurisdictions have agreed to progress the reforms” put forward by the AEMC.

Perhaps the biggest roadblock that Queensland represents in pursuit of a new power regime is its unwillingness to embrace electricity retail price deregulation on the grounds that doing so will upset the subsidy applecart that benefits consumers outside the state's heavily populated south-east corner.

Electricity suppliers have been thrilled this week by a decision by South Australian Premier Jay Weatherill to deregulate energy markets in 2013 – but that leaves the major markets (involving some 4.5 million households and half the national residential power demand) in Queensland and NSW still not accepting the change.

Tighten your seatbelts – 2013 will be as bumpy a ride in electricity supply as 2012, I reckon.