Australia: Government Implements Major Regulatory Reforms in the Energy Sector

On July 1 2005 the structure of policymaking and regulation in the Australian energy sector changed significantly. The purpose of the reform was to move towards a single national policy-making and regulatory structure across the power and gas sectors throughout the country, removing overlaps with state-based regulatory systems and recognizing the increased convergence of the power and gas industries.

The National Electricity Law and National Electricity Regulations have been significantly amended to reflect the roles of the new bodies created in the reform. In addition, the National Electricity Code has been replaced by the National Electricity Rules, which are now statutory rules made under the National Electricity Law.

The National Electricity Code Administrator and the National Electricity Tribunal have been dissolved. To replace them, three new bodies have been created as follows:

• the Ministerial Council on Energy;
• the Australian Energy Markets Commission; and
• the Australian Energy Regulator.

Ministerial Council on Energy
The Ministerial Council on Energy is comprised of the federal energy ministers and the energy ministers of each state or territory. The council will appoint the members of the Australian Energy Markets Commission and the Australian Energy Regulator.

Australian Energy Markets Commission
The Australian Energy Markets Commission will have rulemaking and policy powers in relation to both power and gas, and will report to and be appointed by the council. The commission is intended to be the single body responsible for policy and rule-making throughout the power and gas markets in Australia, extending across the jurisdictional boundaries of separate state and territories.

Australian Energy Regulator
The Australian Energy Regulator has the following powers and functions:

• monitoring compliance with, and prosecuting breaches of, the National Electricity Law, Regulations and Rules by power sector participants;
• economic regulatory functions, such as determining the maximum revenue allowable to transmission network operators in relation to their regulated network assets and approving access arrangements and pricing for natural gas pipelines; and
• granting exemptions from compliance in respect of minor and incidental matters.

The National Electricity Market Management Company and gas market operators continue with their roles as managers of the various wholesale spot markets. In the short term, price regulation of power distribution networks will remain with state-based regulators, but these functions will be transferred to the Australian Energy Regulator by December 31 2006. The Australian Competition and Consumer Commission will no longer play a role in approving power market rule changes or economic pricing of networks and pipelines. However, it will continue to administer general competition functions in relation to M&A rules, monopolies regulation and fair trading provisions.

The Australian states and territories have committed to handing over distribution network pricing control to the Australian Energy Regulator by December 31 2006. As yet there is no timetable for the handover of retail pricing controls in energy or for the complete handover of energy retail licensing controls, although these issues are presently under consideration.

The recent changes arose from the recognition of various factors, including:

• the growing convergence of power and gas industries into a single energy sector;
• that, notwithstanding the separate constitutional powers held by states in relation to the energy sector, policymaking and regulation in the Australian energy market is best done on a national basis; and
• that the prior governance arrangements were flawed by not having a single body responsible for policy and rulemaking, independent from the regulation and enforcement of those rules.

The Australian Energy Markets Commission continues to consult broadly with the energy sector on the future developments in energy sector regulation in Australia.

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