4.2.1  Sector-specific considerations

Almost all of the sectors under consideration in the Audit are subject to sector-specific legislation and regulations. Within each sector, the structure of governance and regulation is not consistent between the sub-sectors or jurisdictions.

In the transport sector, where most sub-sectors are subject to both federal and state legislation, the governance and regulatory framework is often unwieldy and complex. There has been a recognition in recent years that Australia's economic efficiency would benefit if some of the governance and regulation of transport and its sub-sectors were to be standardised and made 'national' in application. Of note, the National Transport Commission (NTC) was originally established in 2003 'with ongoing responsibility to develop, monitor, maintain uniform or nationally consistent regulatory and operational reforms relating to road, rail and intermodal transport'.94

The regulatory framework is also complex for the water sector, which is subject to health, environmental and economic regulators at state and regional level, as well as the national legislation of the Water Resources Act 2007 (Cth).

In the energy sector there are three national market bodies - the Australian Energy Market Operator (AEMO), Australian Energy Regulator (AER) and Australian Energy Market Commission (AEMC) - while services are largely delivered by a mix of state-owned and private businesses.

Sector specific legislation and regulation across the infrastructure sector has been the focus of several recently concluded or ongoing inquiries by the Australian Government and relevant agencies.

The Productivity Commission's inquiry report into electricity network regulation,95 released in 2013, found that the current regulatory regime encourages businesses to build more infrastructure - or to a higher standard - than is necessary. The report also found that state-owned network businesses have conflicting objectives, frustrating the effectiveness of incentives regulation and recommended that they should be privatised.

The final report of the Competition Policy Review Panel (the Harper Review), released in March 2015, notes that reforms aimed at encouraging competition have been made to varying degrees across the infrastructure sectors. The Panel proposes that further benefits could be harnessed in all sectors by extending these pricing, governance and regulatory reforms. For example, the Panel identifies that consumers are benefiting from price-monitoring and regulatory reforms in aviation through cheaper air travel, but notes that other reforms, such as the introduction of access regulation for airports, may result in further market benefits.96

The Panel recommends removing government impediments to competitive infrastructure markets, through privatisation of assets where appropriate, and introducing cost-reflective pricing to markets where monopoly characteristics have impeded pricing reforms. These findings broadly align with those of the Audit, as increased competition will allow the supply of infrastructure services to more efficiently meet customer demands.

The Panel also notes that market reforms in the water sector have been slower to be implemented than in the electricity and gas sectors. In the water sector, the Panel recommends implementation of the principles of the National Water Initiative, while strengthening economic regulation and pricing reforms in the urban water sector. In the electricity and gas sectors, the Panel proposes finalisation of the energy reform agenda, including deregulation of both electricity and gas retail prices.97

The Australian Government released its Energy White Paper in early April 2015.98 The paper focused on three key themes of: increasing competition to keep prices down, increasing energy productivity to promote growth, and investing in Australia's energy future. Key priorities underlying these themes include:

■  implementing market reforms agreed by the COAG Energy Council;99

■  rolling out cost reflective tariffs;

■  further developing market frameworks to encourage innovation and improve consumer choice;

■  privatising state-owned electricity assets;

■  better regulation and facilitation of responsible development of unconventional gas resources; and

■  developing a National Energy Productivity Plan and increasing energy productivity by up to 40 per cent by 2030.

The emphasis on market-led reform and effective regulation is broadly in line with the findings of the Audit. The reforms agreed by the Energy Council build on existing regulatory arrangements and reforms as a means to improve efficiency in the energy sector.

The White Paper also sets out the Australian Government's priorities for the Energy Council for 2015. These priorities also align with Audit's support for using markets to drive efficiency and consumer choice. The priorities include:

■  rolling out network tariff reform by the end of 2015;

■  reducing investor uncertainty, particularly in electricity generation, including specifying that the government will not pay for exit of surplus generation capacity;

■  accelerating the development of a more liquid wholesale gas market;

■  better use of non-proprietary data, reducing duplicative survey and collection, reducing costs; and

■  improving community engagement and understanding with the resources sector, including sharing leading practice approaches.

COAG is currently undertaking a review of the energy sector, with a report due by September 2015. Specifically, the review will examine the market structure and legislative framework of the sector and whether this system achieves sustainable outcomes that will benefit the long-term interests of consumers.

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94.  Department of Infrastructure and Regional Development (2014a)

95.  Productivity Commission (2013)

96.  Competition Policy Review Panel (2015), p. 206

97.  Competition Policy Review Panel (2015), pp. 202-205

98.  Department of Industry and Science (2015)

99.  Council of Australian Governments Energy Council (2014)