COAG Energy Council agree to significant reforms

The COAG Energy Council have agreed to significant reforms to put downward pressure on electricity prices, streamline the consideration of interconnectors and reduce costs for gas users after a meeting this morning.

While consensus was not reached on the Commonwealth’s position to save consumers money by abolishing the Limited Merits Review (LMR) process, ministers did agree that the existing LMR arrangements were failing and that immediate reform was required.

“Wide-ranging amendments to the LMR regime will seek to tighten and clarify grounds for review, introduce strict timeframes and ensure that the AER’s costs in defending network appeals are borne by network businesses,” Energy Minister Josh Frydenberg said in a statement.

Officials will finalise detailed amendments for consideration and approval in the first quarter of 2017, with a review of these amendments to be conducted two years following their implementation.

New gas laws to improve liquidity and supply will also be progressed following recommendations presented by Dr Michael Vertigan AC in his Examination of the Current Test for the Regulation of Gas Pipelines.

“The Council is acting to reduce costs for gas users and improve liquidity and supply in the gas market,” the COAG Energy Council Meeting Communique said.

Dr Vertigan found that there is an uneven bargaining relationship around the transportation of gas, and that reform is needed to balance out the relationship given transportation makes up 15 per cent of the price of gas.

In response, Council agreed to mandate commercial arbitration and greater disclosure and transparency of pipeline services and pricing.

These measures will commence from May 1 2017, subject to passage of amendments to relevant legislation.

“With the continued decentralisation of generation and increasing adoption of intermittent renewables, the COAG Energy Council recognised the need for greater connectivity between states through assets like interconnectors,” Mr Frydenberg said.

“Improvements will be made to the Regulatory Investment Test for Transmission to ensure high impact, low probability events, like the South Australian blackout are taken into account and to ensure the consideration process is more streamlined.”

Ministers were provided with an update by Australia’s Chief Scientist, Dr Alan Finkel, on his review of energy security.

It was agreed by the COAG Energy Council to fast-track for consideration in February additional measures to strengthen the National Electricity Market responding to security and reliability issues identified in his preliminary report.

These measures could include undertaking proof of concept for technical solutions to improve system security, like the use of storage to provide fast frequency response.

Energy Users Association of Australia CEO Andrew Richards welcomed the meeting results.

“The reforms agreed are a good start on a path to build a more stable and cost effective energy market but much more needs to be done,” he said.

“What is required is not baby steps but giant leaps forward if we are to address supply, security and cost issues that are already hurting energy users.”

COAG Energy Council ministers will next meet again in February 2017.