Peer Feedback Discussion Assignment
Draw on this week’s readings, the tutorial discussion, and additional materials to explore one of the regulation strategies*, what industry it can be used in to regulate, and who the main actors are in terms of the regulator and regulated. Explain the crime/behaviour it is seeking to control. Then argue the strengths and weaknesses of this model using a real-life example.
You can focus on a particular organisation/regulator if you like, in the jurisdiction of your choice.
*This refers to the strategies in topic 2, including Command and Control, Incentive-Based, Market-Harnessing, Disclosure, Direct Action and Design, Rights and Liabilities.
Student has answered the following and I need to provide peer feedback in the comment section that are thought prompting and make the student think. You can ask them questions.It can be on simple language just about 100 words.
The Australian Energy Regulator or AER was established in 2005 as an independent body for energy network regulation and enforcement (Reeves, 2013). The objective of the AER is “to promote efficient investment in, and efficient operation and use of, energy services for the long term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply of energy (AEMC, n.d.)”. The regulation of the energy market by the AER is an example of Incentive-based regulation (Reeves, 2013; Australian Energy Market Commission , n.d.). Incentive-based regulation is an alternative to command & control regulation theory with the goal to induce the desired behaviour through incentives rather than restrictions and rules (Baldwin, Cave, & Lodge, 2012). The way the energy market is incentivised by the AER is via revenue or price determinations which are made for each energy network business for a set period (Reeves, 2013). Peer Feedback Discussion Assignment
The result of over-investment in poles and wires by the government in pre-1990 approach to regulation that was owned and run by the state has shaped the role of the AER (Schultz & Sharpe, 2014). Australia and the states are moving to privatisation of the energy market to encourage competition and reduce the burden of the government to replace aging infrastructure (Reeves, 2013). As the energy market is privatised these companies need to be regulated. The AER regulates electricity networks and natural gas pipelines by setting the maximum amount of revenue they can earn to limit price gouging and monopolies in an industry that has numerous barriers to entry (Australian Energy Market Commission, n.d. b). The regulator is there to ensure the efficient and continuous supply of energy to the market despite the costs of managing large infrastructure. It also encourages businesses to be more efficient in its investment in capital expenditure (Reeves, 2013).
With the implementation of the Better Regulation Program the involvement of the community as part of the consultation process gives more legitimacy to the AER whilst also providing community engagement (Reeves, 2013). To ensure that there is actual meaningful consultation this is assessed by the AER when business submit their cost proposals for revenue and price determinations (Reeves, 2013). The move to privatisation is meant to generate competition which should equate to lower prices for consumers.
Despite such intentions, NEM household electricity prices have become a significant factor of national concern, having increased 73% between 2003 and 2013 (Schultz & Sharpe, 2014). These price rises are a result of a number of issues. One such issue is that much of the delegation of powers is state based rather than a central organisational structure run by the federal government (Schultz & Sharpe, 2014) Another issue is the 13 or so different pieces of legislation and regulations, makes it difficult for the regulated. This results in increased costs to obtain advice from consultants to ensure they are compliant which is passed onto the market (Australian Energy Market Commission, n.d. b).
Whilst the AER’s objectives are noble, there is a clear issue with the complexity of the regulation making it difficult for the regulated to understand and meet their obligations. As a result, this has limited competition and increased costs which have been passed onto the consumers. Only through simplification of the regulations and unity amongst the states to streamline legislation can the AER be effective as a regulator and the regulated meet their compliance requirements.
References
AEMC. (n.d.). Regulation. Retrieved from Australian Energy Market Commission: https://www.aemc.gov.au/regulation/regulation
ASX. (2015). Energy Sector Profile. Retrieved from Australian Stock Exchange: https://www.asx.com.au/documents/products/asx-energy-sector-profile.PDF
Australian Energy Market Commission . (n.d. a). Regulation. Retrieved from AEMC: https://www.aemc.gov.au/regulation
Australian Energy Market Commission. (n.d. b). About Us. Retrieved from AEMC: https://www.aemc.gov.au/about-us
Baldwin, R., Cave, M., & Lodge, M. (2012). Understanding Regulation. Oxford: Oxford University Press.
Reeves, A. (2013). Energy etchings: Energy network regulation: Consumers in focus. Australian Journal of Competition and Consumer Law, 21(285).
Schultz, J., & Sharpe, O. (2014). The Role of Regulation in Australia’s Future Energy Mix. Australian Environmental Law digest. Retrieved from search.informit.org/doi/10.3316/informit.715702242167666.