Australian Energy Market Commission Chairman John Pierce presented his analysis of the evolution of energy regulation in Australia in the keynote address to the 25th Anniversary Conference of the Regulatory Policy Institute at the University of Oxford this month.
Mr Pierce was invited to deliver the keynote for the two-day retrospective on regulatory and competition policy experiences over the past 25 years both in the United Kingdom and around the world to explore what has worked well; what hasn’t; and to critique lessons learned.
“As policy priorities and regulatory mechanisms evolve there is a need for everyone involved to be disciplined and clear about the specification of objectives, constraints and institutional roles,” Mr Pierce said.
The address explores the essential feature of Australia’s electricity reforms – the reallocation of risk in a workably competitive market, so that responsibility for investment decisions rests with the business making those decisions and consumers do not subsidise industry through higher prices: “In the simplest of examples, overinvestment and excess supply leads to falling prices in a competitive market,” Mr Pierce said. “The incentives on consumers, retailers and generators are all very different in these circumstances. This changes real decisions and actual outcomes.
It also explored the experience and importance of Australia’s energy governance framework: “In reflecting on what has worked well and what hasn’t over the last 20 years or so, it appears that the following three things are determinative. The sharper the distinction between specification of policy objectives and the design of mechanisms used to achieve them the better. If the design of a policy mechanism or a regulatory framework depends on a particular view of the future, such as forecasts of demand or the relative costs of different technologies for it to be successful, you are heading for a world of pain. When joining together the mechanisms used to achieve different policy objectives, great care is needed to make sure they fit snugly together, or you risk damaging them all.
The Regulatory Policy Institute was founded in 1991 to promote the study of the regulation of economic activity. It aims to deepen understanding of the drivers and impacts, intended and unintended, of public policies; and to contribute to more effective policy development.
The Institute’s Distinguished Fellows include
- Sir Bryan Carsberg first Director General of Telecommunications, later Director General of the Office of Fair Trading.
- Sir Ian Byatt first Director General of Water Supply, later Chair of the Water Industry Commission for Scotland
- Peter Freeman QC, CBE, current Chair of the Competition Appeal Tribunal ,former Chair of the Competition Commission
- Professor Stephen Littlechild, first Director General of Electricity Supply, later a Member of the Postal Services Commission
- Eileen Marshall CBE, Deputy Director General of Gas Supply, later Managing Director at Ofgem
- Sir Callum McCarthy, first Director General of Ofgem, later Chair of the Financial Services Authority
- Clare Spottiswoode CBE, first Director General of Gas Supply, later a Member of the Independent Banking Commission
- Sir John Vickers, former Director General of Fair Trading and Chair of the Independent Banking Commission, now Warden of All Souls College, Oxford Univeristy
Speakers at the RPI 25th anniversary conference included
- Steve Smith, former Managing Director of Markets, then Networks at Ofgem
- Harry Bush, former Head of Economic Regulation at the Civil Aviation Authority
- Lord Currie (David Currie), now Chair of the Competition and Markets Authority, former Chair of Ofcom,
- David Gray, now Chair of the Gas and Electricity Markets Authority, former Managing Director (Networks), Ofgem,
- John Pierce, Chair of the Australian Energy Market Commission
- Maxine Frerk, former Partner Ofgem
- Martin Stanley, former Chief Executive of the Competition Commission and of the Postal Services Commission
- Professor George Yarrow, Chair of the Regulatory Policy Institute, former Member of the Gas and Electricity Markets Authority,
The (Energy) Restaurant at the (Other) End of the Universe
Australian Energy Market Commission
A speech presented at the Regulatory Policy Institute 25th Anniversary Conference,
12-13 September 2016, Oxford University, United Kingdom