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ECONOMIC REGULATION AUTHORITY BILL 2002
Introduction and First Reading


Bill introduced, on motion by Mr E.S. Ripper (Treasurer), and read a first time.

Second Reading

MR E.S. RIPPER (Belmont - Treasurer) [12.20 pm]: I move -

That the Bill be now read a second time.

Competition and technological change are transforming utility industries that deliver essential services to businesses and households in this State. Consumers are benefiting through lower prices and improvements in the quality and reliability of goods and services. Multi-utilities are now emerging to provide even greater choice to consumers by supplying services across more than one market. However, the current regulatory framework overseeing utility industries is fragmented and administered by a disparate range of sector-specific regulators, ministers, and public sector officials.
This Bill is about achieving a more cohesive and efficient regulatory framework. It is about providing an institutional environment that promotes consistent regulatory outcomes across key utility industries, which can respond to changing regulatory needs, such as regulatory needs for multi-utilities. In accordance with the Government's pre-election electricity policy statement and the recommendations of the Machinery of Government Taskforce report, this Bill establishes an Economic Regulation Authority as an independent regulator with responsibility for functions across the electricity, gas, rail and water industries. The Bill establishes the authority, allows for up to three members to be appointed to the governing body, and provides generic functions and powers. Existing industry-specific legislation defines the regulatory roles of the authority for each industry. As several bodies currently perform these functions, the Bill provides the necessary consequential amendments to enable these functions to be allocated to the authority. The consequential amendments are primarily aimed at institutional change and achieving a more appropriate separation of regulation from policy-making. There are no significant changes to current regulatory policy settings.

The transfer of several existing bodies into a single multi-utility regulator can be expected to deliver savings through consolidation of administrative duties and reduced duplication. More importantly, it will deliver benefits to the broader economy in terms of a more effective and efficient regulatory structure to oversee the operation of utility industries that provide essential services to businesses and households.

As the authority will be independent of both government and the industries it regulates, it will serve to underpin the Government's policy for competitive utility markets and regulation that involves transparent and accountable decision-making. This is an essential feature of strong governance, particularly in cases in which the State has an operating interest in the industry.

In relation to specific functions, the Bill provides for the authority to subsume the regulatory functions currently performed independently by the Gas Pipelines Access Regulator and the Rail Access Regulator. There is no change to the existing access regimes as a result of the transfer. The authority will also be provided with the capacity to independently administer existing industry licensing frameworks. This will initially involve the water industry licensing regime, which is currently overseen by the Coordinator of Water Services. The gas industry licensing regime, which is overseen by the Coordinator of Energy, will be transferred to the authority at a date to be proclaimed. This is proposed to coincide with the commencement of full retail contestability in the gas industry, which is expected to occur in the second half of 2003.

The consequential amendments to the water and gas licensing regimes provide the authority with enforcement functions currently allocated to ministers. This seeks to achieve a more appropriate separation of regulation from policy-making, and avoids the situation in which the authority grants licences and the minister or policy body enforces licence terms and conditions. Enforcement action will generally be effected by the authority applying to the relevant court. The Governor will retain the responsibility for licence revocation. The consequential amendments also provide a regulation-making power to prescribe public consultation processes that must be undertaken by the authority before making a decision to grant, renew or transfer a licence. This is an important accompaniment to the independence of the authority.

Another amendment to strengthen the water industry licensing regime is the inclusion of public interest as part of the authority's decision-making process. The matters that may be taken into account as part of the public interest include environmental considerations, social welfare and equity considerations, economic and regional development, and the policy objectives of government in relation to water services.

The Electricity Reform Task Force has also recently reported on and recommended a number of electricity functions for the authority. Initially this involves assuming responsibility for the Coordinator of Energy's current electricity access functions which are contained in the Electricity Transmission Regulations 1996 and the Electricity Distribution Regulations 1997. Other recommended functions are subject to further implementation work and include independent administration of a new electricity access code and a new electricity industry licensing regime. The Bill provides for the authority to conduct inquiries on matters related to the regulated industries and to report to the Government on these matters. The Government will initiate these inquiries through issuing terms of reference. As part of the inquiry function it is envisaged that the authority will report on retail tariffs to apply in the regulated industries. However, the current practice of the Government setting the actual retail tariffs through industry specific regulations and by-laws will remain.

The authority will also be provided with the capacity to conduct inquiries or report on matters related to non-regulated industries. The issues of whether to invoke the special inquiry powers or to publicly release such reports will be at the Government's discretion. The ability to issue these references will enable the Government to tap into the knowledge and expertise of an independent body when there are important economic decisions to be made. Possible examples of a reference on a non-regulated industry could be public transport fares, the deregulation of a service industry, or the implementation of competitive neutrality on a government business. This inquiry and reporting function of the authority can be viewed as similar to that of the Commonwealth's Productivity Commission.

The Bill enables regulations to be made for the recovery of costs associated with the authority's provision of regulatory services to industry. Cost-recovery arrangements currently apply only for gas access regulation and these are to be continued. Any future extension of cost-recovery arrangements will be implemented through relevant policy agencies agreeing to appropriate frameworks and drafting regulations for parliamentary approval. To ensure accountability and efficiency, the Treasurer will set an annual expenditure limit for the authority for each of its regulatory and inquiry or reporting functions. The appeal and arbitration processes currently applying across the regulated industries will remain unchanged at this stage. Over the medium term, it is anticipated that some appeal functions could be transferred to the proposed State Administrative Tribunal.

The Bill has been subject to wide public consultation, and has received broad support from industry and consumer groups. I commend the Bill to the House.

Debate adjourned, on motion by Mr W.J. McNee.