House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar)

Chapter 3 - Australian Energy Regulator

Outline of chapter

3.1 Schedule 3 to the Bill expands the board of the Australian Energy Regulator from three members to five members and makes other changes to ensure that the expanded board can operate efficiently.

Context of amendments

3.2 The intergovernmental Australian Energy Market Agreement provides for the establishment of several Australian energy market institutions, including the Australian Energy Regulator, which is the independent regulator and enforcement body for the National Electricity Market. The Australian Energy Market Agreement sets out the composition of the board of the Australian Energy Regulator, and the process for appointments to the board (clauses 7.3-7.6).

3.3 Part IIIAA of the Competition and Consumer Act 2010 establishes the Australian Energy Regulator. It contains, among other things, provisions for the Australian Energy Regulator's membership, appointments to its board and the board's decision-making processes.

3.4 Under the current law, the board is composed of:

•

one 'Commonwealth member', who is recommended for appointment by the Chair of the ACCC; and

•

two 'State and Territory members', who are recommended for appointment by the agreement of at least five State and Territory ministers on the COAG Energy Council.

3.5 The Australian Energy Regulator's workload has been constantly increasing over recent years due to market changes and additional rules to administer. Multiple reviews, such as the 2015 Vertigan Review, found that the because of the increasing volume and complexity of the Australian Energy Regulator's work, the size of the board is unsustainable. Those reviews recommended increasing the board from three to five members (see, for example, recommendation 6.5 of the Vertigan Review). The Government has agreed to expand the board, with the proposed board model being approved by the COAG Energy Council on 26 October 2018. Treasury has undertaken targeted consultations with the Australian Energy Regulator and the Department of the Environment and Energy, as well as with the States and Territories via the COAG Energy Council. A public consultation process was not considered necessary, as these amendments are minor and machinery in nature, and the relevant agencies and the States and Territories have been consulted.

Summary of new law

3.6 This Schedule makes a number of amendments to the size and operation of the board of the Australian Energy Regulator. Specifically, it

•

increases the size of the Australian Energy Regulator board to five members (two Commonwealth members and three State/Territory members);

•

allows for the appointment of a Deputy Chair to exercise the powers of the Chair of the board in the Chair's absence;

•

enables the Chair to establish Divisions of the board, which may exercise functions and powers of the Australian Energy Regulator board in relation to a matter;

•

provides that all board members will be associate ACCC members, in place of the current requirement that the Commonwealth board member is also a full member of the ACCC; and

•

removes the requirement that that board members be nominated in accordance with the Australian Energy Market Agreement. This is necessary to allow for the board to have five members, and allow for Commonwealth members to be appointed without being nominated by the Chair of the ACCC.

Comparison of key features of new law and current law

Detailed explanation of new law

Changes in the number of board members

3.7 Under the new law, the board of the Australian Energy Regulator will consist of five members. Of the five members, two are appointed as Commonwealth members and three are appointed as State/Territory members. The current law provides that the Australian Energy Regulator consists of one Commonwealth member and two State/Territory members. [Schedule 1, items 10, 11, 12, 15, 26, and 31, paragraphs 44AG(a) and 44AG(b), heading to section 44AM, subsections 44AM(2), 44AU(1) and (2), subsection 44AAE(1), Competition and Consumer Act 2010]

3.8 A quorum consists of three members (which must include the Chair). Currently, a quorum consists of two members. [Schedule 1, item 28, subsection 44AAD(3), Competition and Consumer Act 2010]

3.9 Under the new law, decisions may be made by a simple majority of members present and voting. The Chair has a deliberative vote. In the event of a tie, the Chair also has a casting vote. Currently, questions must be determined by a unanimous vote of the members present and voting. [Schedule 1, items 29 and 30, subsections 44AAD(4) and (4A)), Competition and Consumer Act 2010]

New Deputy Chair position

3.10 The new law requires the appointment by the Governor-General of a full time member of the Australian Energy Regulator as the Deputy Chair of the board. The Deputy Chair holds office as Deputy Chair for the period specified in the instrument of appointment, which cannot exceed 5 years.

3.11 Providing for a Deputy Chair to automatically fill the Chair's role during absences will simplify the board's operations. The Deputy Chair will automatically fill the role of the Chair during a vacancy in the office of the Chair and during all periods when the Chair is absent from duty or from Australia or is for any reason unable to perform the duties of the office. At all other times, the Deputy Chair will have the same status as other members. [Schedule 1, item 22, sections 44ARA and 44ARB, Competition and Consumer Act 2010]

3.12 The Deputy Chair may resign as Deputy Chair by resigning in writing to the Governor-General. A person's resignation as Deputy Chair does not affect the person's appointment as a member of the Australian Energy Regulator board. [Schedule 1, item 27, subsection 44AZ(3), Competition and Consumer Act 2010]

3.13 Given that the new law provides for a new Deputy Chair, the new law removes the Minister's power to appoint an Acting Chair of the Australian Energy Regulator board. However, the Minister may, by written instrument, appoint an Australian Energy Regulator member to act as the Deputy Chair. [Schedule 1, item 23, section 44AS, Competition and Consumer Act 2010]

Divisions of the board

3.14 Under the new law, the Chair is empowered to establish one or more Divisions of the board. The Chair may do this by means of a direction, empowering the Division to exercise all or any of the Australian Energy Regulator's functions and powers in relation to a matter. The Chair may also revoke or amend the Direction, including with regard to membership of the Division. [Schedule 1, item 32, subsections 44AAEB(1) and (3) and 44AAEC(1) and (3) , Competition and Consumer Act 2010]

3.15 Within the limitations of the direction, the Division may exercise the powers and carry out the functions and powers of the full board by making decisions. The Division may also make recommendations to the full board. More than one Division may perform the same functions and powers of the Australian Energy Regulator at the same time. [Schedule 1, item 32, subsections 44AAEB(1), (2), (4) and (9) and 44AAEC(1), (2), (4) and (9) , Competition and Consumer Act 2010]

3.16 The new power for the Australian Energy Regulator Chair is equivalent to the existing power of the ACCC chair to establish Divisions (see section 19 of the Competition and Consumer Act 2010).

3.17 A Division must consist of the Chair and at least two other members of the Australian Energy Regulator board specified in the direction establishing the Division. Two members form a quorum. The quorum need not include the Australian Energy Regulator Chair or Deputy Chair, neither of whom are required to attend a meeting of a Division if they do not think fit to do so. At a meeting at which neither the Chair or Deputy Chair are presiding, a member nominated to preside by the Chair is to preside. [Schedule 1, item 32, subsections 44AAEB(1) and (5)-(8) and 44AAEC(1) and (5)-(8) , Competition and Consumer Act 2010]

3.18 This new power to establish Divisions applies for the purpose of any functions and powers of the Australian Energy Regulator under a law of the Commonwealth. [Schedule 1, item 32, section 44AAEB, Competition and Consumer Act 2010]

3.19 The power to establish Divisions also applies for functions and powers under a State/Territory energy law or a local energy instrument. However, this is subject to the State/Territory energy law providing that this section extends to and has effect for the purposes of the State/Territory energy law or local energy instrument. With respect to functions and powers under a local energy instrument, the local energy instrument may also provide that this section extends to and has effect for the purposes of the local energy instrument. [Schedule 1, item 32, subsections 44AAEC(1), (10) and (11), Competition and Consumer Act 2010]

Commonwealth board members are associate ACCC members and not full time ACCC members

3.20 Currently, the Commonwealth Australian Energy Regulator member is also a full-time ACCC Commissioner (see sections 44AM and 44AN, Competition and Consumer Act 2010). Given the workload of the Australian Energy Regulator, it is no longer desirable to require one person to perform two full time roles.

3.21 As such, under the new law, all five Australian Energy Regulator members are instead automatically taken to be Associate Commissioners of the ACCC. This is consistent with the current status of State/Territory Members of the Australian Energy Regulator. [Schedule 1, items 1-9, 14, 16 and 17, definition of 'Commonwealth AER member' in subsection 4(1), the notes to subsection 7(2) and subsection 8AB(1), subsections 8AB(1)-(3), definition of 'Commonwealth AER member' in section 44AB, the note to subsection 44AM(1), subsections 44AM(3) and (4) and section 44AN, Competition and Consumer Act 2010]

3.22 Currently, the Commonwealth member of the Australian Energy Regulator is paid as a member of the ACCC, and receives no additional remuneration for the role as Commonwealth Australian Energy Regulator member. Under the new law, Commonwealth members of the Australian Energy Regulator are paid as determined by the Remuneration Tribunal. This is consistent with the current arrangements for State/Territory members. [Schedule 1, items 24, 25, and 26, subsections 44AT(1), (2) and (4) and subsections 44AU(1) and (2), Competition and Consumer Act 2010]

3.23 Under the new law, the Chair and Deputy Chair must be full time members of the Australian Energy Regulator, while the remaining members may be appointed as either full time or part time members. Currently, the Commonwealth member must be full time - this requirement will be removed, so that all members of the Australian Energy Regulator (other than the Chair or Deputy Chair) may be full time or part time members. [Schedule 1, items 13, 17 and 21, subsection 44AM(1), section 44AN and subsections 44AR(2) and 44ARA(2), Competition and Consumer Act 2010]

Appointment of members of the Australian Energy Regulator

3.24 Currently, members of the Australian Energy Regulator are appointed by the Governor-General, but must be appointed in accordance with the Australian Energy Market Agreement to be eligible (section 44AM, Competition and Consumer Act 2010). Clause 7.3 of that agreement limits the Australian Energy Regulator to three members and provides that the Commonwealth member is to be recommended for appointment by the Chair of the ACCC. As the Australian Energy Regulator will be expanded to five members and Commonwealth members will no longer be required to also be ACCC Commissioners, it is appropriate to remove this requirement.

3.25 Under the new law, appointments of members of the Australian Energy Regulator are valid even if they are inconsistent with the Australian Energy Market Agreement. However, the requirement that persons have knowledge of or experience in industry, commerce, economics, law, consumer protection or public administration to be eligible to be appointed to the Australian Energy Regulator will be applied in relation to the nomination of all members. Currently it only applies in relation to State/Territory members. [Schedule 1, item 16 and 19, subsections 44AM(3) and 44AP(3), Competition and Consumer Act 2010]

3.26 Similarly, the current requirement that the Australian Energy Regulator Chair be nominated for appointment in accordance with the Australian Energy Market Agreement no longer applies under the new law. However, the new law still provides that the Chair must be a full-time member of the Australian Energy Regulator. [Schedule 1, item 21, subsection 44AR(2), Competition and Consumer Act 2010]

Appointment of acting members of the Australian Energy Regulator

3.27 Appointments of acting Commonwealth members of the Australian Energy Regulator are, under the new law, made by the Minister instead of by the Chairperson of the ACCC. Acting Commonwealth members of the Australian Energy Regulator no longer need to be members of the ACCC. However, they must have knowledge of or experience in industry, commerce, economics, law, consumer protection or public administration. [Schedule 1, item 18, section 44AO, Competition and Consumer Act 2010]

3.28 Appointments of acting State/Territory members of the Australian Energy Regulator will be valid even if they are inconsistent with the Australian Energy Market Agreement. This is necessary for the reasons outlined above (see paragraph 3.24). Appointments of acting State/Territory members of the Australian Energy Regulator will continue to be made by the Minister. It will continue to be a requirement that they have knowledge of or experience in industry, commerce, economics, law, consumer protection or public administration. [Schedule 1, item 20, section 44AQ, Competition and Consumer Act 2010]

Compulsory Examinations

3.29 Under the new law, all Members of the Australian Energy Regulator may preside over compulsory examinations under Part XII of the Competition and Consumer Act 2010 in their capacity as Associate Members of the ACCC. Currently, only the Commonwealth member may preside over compulsory examinations in their capacity as an ACCC Commissioner. This allows the ACCC to draw upon the skills and expertise of Australian Energy Regulator members, when appropriate, when conducting compulsory examinations. [Schedule 1, item 33, paragraph 155(1)(c), Competition and Consumer Act 2010]

Application and transitional provisions

3.30 The new law commences on a date set by proclamation. This mechanism is used so that the commencement date can align with appointment and administrative processes related to the expansion of the Australian Energy Regulator board.

3.31 If a date is not proclaimed within six months of the Bill receiving Royal Assent, the new law commences automatically at the end of six months. This is a standard provision to ensure that laws which have not commenced do not sit on the statute books indefinitely.

3.32 The new law also includes transitional provisions that are intended to ensure that changes made by the new law do not negatively impact the current operation of the Australian Energy Regulator board. In particular, the new law provides for the continuity of both appointments and acting appointments as follows:

•

if, immediately before the commencement of the new law, a person held the office of Commonwealth member, State/Territory member, or Australian Energy Regulator Chair, the continuity of the person's appointment is unaffected by the new law; and

•

if immediately before the commencement of the new law, an acting appointment of a Commonwealth member or a State/Territory member is force, the appointment has effect as if it had been made under the new law.

[Schedule 1, items 34 and 35]