Reforms for the electricity, gas, water and road transport sectors

The National Competition Policy reform package, and subsequent COAG reform initiatives, included specific reforms for the electricity, gas, water and road transport sectors that were designed to introduce competition to industries on which businesses rely. The Victorian Government has achieved broad and significant reform in these areas, promoting increased efficiency, improved service quality and reliability, and lower prices for consumers.

Energy Markets

“Victoria has been a leading state in NCP energy markets reform”, 2002 NCP Assessment p.xxix.

The 2007 World Energy Retail Market ranking released by VaasaEtt has ranked the Victorian energy market as the most competitive in the world, putting Victoria first in terms of the capacity of customers to exercise choice among competitive energy retailers.

In reforming Victoria’s energy markets the Government has maintained a commitment to national markets and the introduction of competition where appropriate, while remaining focussed on the protection of Victorian consumers.

Electricity

Structural reform during the 1990s transformed the Victorian electricity industry from a State-owned, vertically integrated monopoly, into a competitive market structure.

These reforms included:

• the integration of the Victorian electricity industry into a national electricity market featuring an interconnected electricity grid and a single wholesale market for the supply and purchase of electricity. The National Electricity Market extends across southeast Australia and is operated by the National Electricity Market Management Company ; and
• the disaggregation of the various elements of the market into competing, privately owned bodies, including:
  • generation companies which produce electricity and compete to sell it into the wholesale National Electricity Market;
  • distribution companies which distribute electricity over distribution networks in their region on a monopoly basis and remain regulated; and
  • local and independent retailers which buy electricity from distributors for sale to end users (consumers). The introduction of full retail contestability in 2002 has allowed all Victorian consumers to select their electricity retailer from competing providers.

Gas

The Victorian gas industry was similarly restructured during the 1990s, being transformed from a State-owned monopoly to a competitive industry.

Reform measures included:

• the separation of transmission, distribution and retailing sectors of the former Gas and Fuel Corporation into:
  • three host gas retailers;
  • three gas distributors which own and operate the existing gas distribution systems in defined areas of Victoria, with prices and service standards regulated by the Essential Services Commission ; and
  • a transmission business which maintains existing high-pressure transmission pipelines in Victoria and undertakes related activities;
• application of the National Gas Pipelines Access Code, which provides the terms and conditions for third party access to the services of natural gas transmission and distribution pipelines; and
• introduction in the retail gas market of full retail contestability, which gives consumers the opportunity to choose their retail supplier.

National Energy Market

In this new energy market, consumers have greater protection than ever before. The Essential Services Commission provides greater transparency and broad consultation into the regulation of utilities. Improved arrangements for consumer advocacy included the establishment in 2002 of an independent Consumer Utilities Advocacy Centre to provide consumers with information about utilities and to facilitate effective consumer input to regulatory processes. The industry-based Energy and Water Ombudsman was established to protect consumer interests and resolve disputes between customers and electricity, gas and water providers. Energy Safe Victoria monitors and promotes electrical and gas safety in Victoria.

The Ministerial Council on Energy agreed on new governance and regulatory arrangements for the energy market in December 2003. Under these arrangements, rule-making and enforcement functions will transfer to the new Australian Energy Market Commission and the Australian Energy Regulator, respectively. This transfer began in 2008 and will conclude in 2009.

The Australian Energy Market Commission is currently undertaking a review of energy market frameworks in light of the introduction of new policies to respond to climate change - in particular the Commonwealth's Carbon Pollution Reduction Scheme and expanded renewable energy target.

Water

Since 1995, reforms have been implemented in the Victorian water industry to improve its structure and regulatory framework while retaining government ownership. These changes separated the community service function of parks and waterways management from the commercial activities of supplying water and sewerage services, to encourage more effective and efficient service delivery, lower prices for consumers and improved environmental outcomes. Structural reforms included the disaggregation of Melbourne Water into one wholesale and three retail water businesses, and the amalgamation of more than 80 water authorities, (which previously supplied Victoria’s provincial towns) into 15 regional and rural water businesses.

Since the agreement of National Water Initiative in 2004, the Victorian Government has made significant progress in reforming the water sector to create an industry that is both efficient and sustainable, providing high quality water services to the people of Victoria. Key reforms to the water industry have included:

• Water pricing: Including the introduction of inclining block tariffs for Melbourne; a 5% environmental charge on urban (2% on rural) water authorities to fund environmental repair activities; and the extension of COAG-endorsed full cost recovery pricing principles for rural and regional authorities (including a commercial rate of return).
• Water trading: Further development of water markets through the unbundling of existing water entitlements into a volumetric right, a site use licence and a delivery capacity share; conversion of ‘sales’ water into a new, lower security tradable water right; relaxing restrictions on trade; and allowing Rural Water Authorities to discontinue supply (subject to a process). Water rights have also been separated from property rights, so water rights can be traded more easily.
• Environmental allocations: Environmental allocations are designed to ensure the health of our river systems - many of which are already stressed - does not deteriorate over time. Through the implementation of River Health strategies the environmental allocations in many systems will be supplemented in future years to improve ecological outcomes.
• Economic regulation: The extension of economic regulation by the Essential Services Commission to include the Rural and Regional Urban Water businesses as well as the metropolitan water businesses.

The oversight of national water reforms was transferred to the National Water Commission (link www.nwc.gov.au) in 2004.

In July 2008, the Victorian Government committed to further reforms of the metropolitan urban water sector, as recommended in the Victorian Competition and Efficiency Commission’s Water Ways Inquiry into the Metropolitan Water Sector. These reforms include clarifying the wastewater and recycled water rights framework, developing an access regime for water and wastewater, and in the longer term considering appropriate roles and responsibilities for system management.

On 3 July 2008, the Council of Australian Governments signed an intergovernmental agreement that established new governance arrangements for the Murray Darling Basin. The Basin will now be governed by an independent, expert-based body, with the States and Territories agreeing to a limited test-based referral of powers.
The Australian Competition and Consumer Commission is now responsible for advising the Commonwealth Minister on water market and charging rules for the Murray Darling Basin.

Transport

The development of efficient transport services is important to the performance of a wide range of Victorian industries, facilitating the efficient movement of goods within the State as well as to and from other states and overseas markets.

Victoria has completed the range of reforms to the road transport industry required under NCP. Designed to increase efficiency and improve safety, these reforms included:

• adoption of the national regulatory framework for the carriage of dangerous goods by road;
• implementation of the National Heavy Vehicle Registration Scheme, including nationally agreed procedures and requirements for registration of vehicles;
• implementation of the National Driver Licence Scheme introducing uniform requirements for key driver licence transactions and the introduction of common and simplified national licence categories;
• application of national standards for common mass and dimension limits, and associated conditions of operation for heavy vehicles;
• application of nationally consistent standards for construction and roadworthiness, fatigue management and mass and loading limits; and
• expanded road access for approved large vehicles.

Further reform of transport, including road transport, has been agreed at COAG and through the Australian Transport Council. Details of these reforms are available from the Australian Transport Council and National Transport Commission