ACCC/AER Regulatory Conference 2016

Welcome and opening address

Paula Conboy, Chair, Australian Energy Regulator

International update and perspectives

What are the big issues in the world of infrastructure regulation? The speakers in the opening plenary session will provide an update on the current issues relating to the economic regulation infrastructure from an international perspective. This will include a focus on the conference theme of ‘The future of economic regulation: does the conventional wisdom still apply?’

Chair:

Cristina Cifuentes, ACCC Commissioner and AER Board Member

Speakers: 

Presentation by Janice Beecher, Professor and Director, Institute of Public Utilities, Michigan State University ( PDF 4.92 MB )

Speech by Sonia Brown, Director, UK Regulatory Policy and Public Affairs, Visa Europe ( PDF 224.1 KB )

Presentation by Richard Schmalensee, Dean Emeritus and the Howard W Johnson Professor of Management and Economics, Emeritus, at the Sloan School of Management, Massachusetts Institute of Technology ( PDF 226.58 KB )

11.00-12.30

Plenary 2

How should regulation address the possible market power of non-vertically integrated monopoly infrastructure?

An argument is sometimes made that it is unnecessary to regulate to address monopoly pricing, because monopoly pricing is the simple transfer of economic rents between parties in a supply chain. The conventional wisdom is also that where monopoly pricing should be regulated, the first choice should be a ‘light-handed’ approach. In practice this often takes the form of price monitoring, that is, rather than a regulator setting prices, it simply monitors and reports on prices (and/or other measures, such as costs or quality of service)

Recent experience suggests that this approach may not be working. Price increases by newly-privatised monopolies are a source of concern for users, and there is scepticism around the effectiveness of price monitoring to constrain monopolistic behaviour. Does this mean light-handed monitoring fails to prevent inefficiencies, or does it allow adverse impacts on competition? If so, are there solutions in the existing regulatory frameworks, or is there a gap that needs to be filled?

Moderator:

Joe Dimasi, Professorial Fellow, Monash Business School, Tasmanian Economic Regulator (Chair), and Senior Commissioner (Chair) Independent Competition and Regulatory Commission, ACT

Speakers/panel:

Nevenka Codevelle, General Counsel and Company Secretary APA Group

Dayna Field, General Manager Legal, Virgin Australia

Peter Harris, Chair at Productivity Commission

Rod Sims, Chair at Australian Competition and Consumer Commission

1.30-3.00

Breakout 1

A) Future of Electricity Industry and what it may mean for regulating the grid

With increasing penetration of battery storage, solar PV, embedded generation, electric vehicles and other distributed energy resources, there is a broad consensus that the electricity industry of the future will look quite different from the industry of today. How can the industry transition to a future with peer-to-peer trade in electricity and where entrepreneurs are free to develop and connect a range of devices and appliances for the production, consumption and storage of electricity?

Chair:

John Bradley, CEO, Energy Networks’ Association

Speaker: 

Presentation by Paul Centonella, Vice-President, Analysis Group and Former Commissioner of Public Utilities, Ohio ( PDF 1.63 MB )

Discussant:

Tony Wood, Director of the Energy Program, Grattan Institute

B) Implications of Over the Top (OTT) Services for Regulation of the Telecommunications Sector

The conventional wisdom is that monopoly bottleneck infrastructure is a characteristic of telecommunications networks and these markets have typically consisted of vertically integrated operators providing voice and data services directly to end users. Regulatory intervention is predicated on the lack of competition and the consequential detriment to the long term interests of end users that results from these market structures.

Does this conventional wisdom hold in the face of the proliferation of over the top (OTT) services, including apps? What are the implications of OTT for telecommunications market participants? Has one form of market failure (vertically integrated monopolist) been replaced by another (network externalities)? Does access regulation have a role in the changing market environment? Has the nature of the required regulatory intervention changed?

Chair:

Delia Rickard, Deputy Chair, ACCC

Speaker:

Presentation by Jeffrey Church, Department of Economics, University of Calgary ( PDF 361.7 KB )

Discussant:

Rosemary Sinclair, Part-time member Australian Communications and Media Authority, and CEO, Energy Consumers Australia

3.30-5.00

Breakout 2

A) The Threat of Arbitration as an Alternative to ex ante Price Regulation

Conventional wisdom is that the threat of arbitration can provide incentives for monopolists to provide access on reasonable terms without the need for ex ante requirements. This approach has the potential to facilitate efficient commercial solutions while avoiding unnecessary regulatory burden. However, this has not always held in practice. For example, in the telecommunications space the previous arbitration regime was abandoned in favour of ex ante price setting.

What set of circumstances are necessary for the threat of arbitration to be an effective alternative to ex ante price regulation for access to monopoly transport and other infrastructure? How can regulators ensure that the design of an arbitration regime provides the right incentives to both parties, and encourages efficient outcomes? Would a final-offer model, as recommended for the Surface Transportation Board in the US, be better able to create appropriate incentives than the traditional forms of arbitration?

Chair: 

Michael Cosgrave, EGM, Infrastructure Regulation Division, ACCC

Speakers:

Presentation by Richard Schmalensee, Dean Emeritus and the Howard W Johnson Professor of Management and Economics, Emeritus, at the Sloan School of Management, Massachusetts Institute of Technology ( PDF 363.89 KB )

Presentation by Margaret Arblaster, Teaching Fellow in Transport Economics ( PDF 678.12 KB )

Discussant:

Stephen King, Professor of Economics, Monash University and Commissioner, Productivity Commission

B) The Structural Implications of Energy Disruption

Conventional measures have been adopted to address competition issues in industries that historically have had supply chains along distinct and sequential activity lines. The emergence of new technologies and new forms of service delivery altering this traditional sequence of activities (including uptake of renewable energy generation and storage by end users) and evolving business models of the traditional network monopolies raise regulatory issues such as:

• is structural separation stifling innovation and economic efficiencies?
• would coordination between the monopoly and competitive segments of the supply chain improve efficiency?
• how should regulators and regulatory tools (such as ring-fencing) adapt to meet these challenges?

Moderator:

Rosemary Sinclair

Speakers:

Presentation by Euan Morton, Principal, Synergies Economic Consulting ( PDF 929.09 KB ) Paper by Euan Morton, Principal, Synergies Economic Consulting ( PDF 328.42 KB )

Sonia Brown, Director, UK Regulatory Policy and Public Affairs, Visa Europe

Presentation by Tim Nelson, Head of Economics, Policy and Sustainability, AGL Energy ( PDF 503.07 KB )

6.30-7.00

7.00-10.30

Pre-dinner drinks

Conference dinner

9.00-10.30

Plenary 3

Comparative Regulatory Regimes: Australian and International Perspectives

Regulatory schemes have statutory objectives such as efficiency, the long term interests of users, or achieving social or environmental objectives. A regulator or appeal body may use a range of techniques in the decision-making process. Which work best and to what extent does this depend on the objective to be achieved? Does the hot tubbing of experts assist the decision maker; do prescriptive information gathering rules address information asymmetry; does mandating consumer consultation ensure meaningful consumer participation? Our speakers will explore the risks, costs and benefits, and outcomes of different approaches as they discuss their experiences of regulatory decision making in their respective jurisdictions, Australia, the United States and New Zealand.

Moderator:

Dr Jill Walker, Commissioner, Commerce Commission New Zealand

Speakers: 

Presentation by The Hon. John Mansfield AM, Federal Court of Australia, Former President of the Australian Competition Tribunal ( PDF 278.39 KB )

Paper by Scott Hempling, Attorney at Law, Maryland , USA, commentator on the Effective Regulation of Public Utilities ( PDF 309.69 KB )

Discussant:

Robert Bernau, General Counsel, Regulation, Commerce Commission New Zealand

11.00-12.15

Plenary 4

Future of the Regulatory Compact 

At times when demand is stable and growing, service providers can usually be assured that they will be able to recover the costs of prudent investments. But what about when future demand is uncertain due to technological or market change? Should the regulatory compact explicitly recognise the potential for asset stranding or asset write-downs? If so, how should compensation be calculated?

Chair:

Roy Green, Professor of Economics at University of Technology Sydney, and Chair, Queensland Competition Authority

Speaker:

Presentation by Janice Beecher, Professor and Director, Institute of Public Utilities, Michigan State University ( PDF 4.3 MB )

Discussant:

Presentation by Joe Dimasi, Professorial Fellow, Monash Business School, Tasmanian Economic Regulator (Chair), and Senior Commissioner (Chair) Independent Competition and Regulatory Commission, ACT ( PDF 419.68 KB )