NO.032

AUSTRALIAN GOVERNMENT BUDGET FUNDING FOR THE AUSTRALIAN ENERGY REGULATOR (AER)

The Treasurer today announced as part of the 2006-07 Budget, funding of $74.8million over the next four years for the AER to enable it to continue its existing functions, and also assume additional functions for regulating Australia’s energy markets. This includes funding of $11.3million for the AER in 2006‑07.

The AER is a key part of the energy market reform agenda agreed by the Council of Australian Governments (COAG) in 2004 and being implemented by COAG’s Ministerial Council on Energy (MCE). The AER is a single national energy regulator designed to replace multiple State energy regulators, and thereby enhance the national character of Australia’s energy markets. The AER will reduce regulatory complexity and streamline energy regulation. This will, in turn, increase the competitiveness and efficiency of Australia’s energy markets, enhancing the climate for investment and benefiting related markets and consumers.

The AER is established under the Trade Practices Act1974 as a constituent part of the Australian Competition and Consumer Commission, and commenced operations on 1July2005.

The Australian Government is providing ongoing leadership for the States and Territories through the MCE processes to progress energy market reform in a timely manner for the benefit of all Australians. In order to reinvigorate the reform programme, the Australian Government offered to fully fund the AER in return for jurisdictions agreeing to certain reform conditions, including the timely transfer of functions from state regulators to the AER. The MCE agreed to this offer in November2005.

Currently, the AER is responsible for regulating the wholesale activities and electricity transmission networks in the National Electricity Market. The AER is to assume responsibility in most jurisdictions for the regulation of gas transmission and energy distribution activities from 1January2007, and energy retailing (except retail pricing unless agreed by each jurisdiction) from 1January2008.

The timetable for the transfer of these additional functions was agreed by the MCE in November2005, and is expected to be endorsed by COAG in the first half of 2006.

In order to ensure the AER is properly resourced to perform these additional functions effectively, this Budget includes funding for the AER to employ an additional 52 staff in 2006-07.

Further information on the AER is available at http://www.aer.gov.au.

CANBERRA

9 May 2006

Contact: David Alexander

(02) 6277 7340

Supporting Information

Why is this important?

• The AER is a new independent national body responsible for economic regulation and enforcement in Australian energy markets under a new national regulatory framework. The AER plays a central role in COAG’s energy market reforms to streamline energy regulation and reduce complexity within an enhanced framework of accountability.

Who will benefit?

• The establishment and operation of the AER benefits energy businesses and investors who seek to operate in different jurisdictions by reducing regulatory complexity. More broadly, the AER greatly contributes towards achieving a truly national, competitive, efficient and reliable energy market for the benefit of all Australians.

What funding is the Government committing to the initiative?

• In recognition of the importance of having a single national energy regulator, the Government is committing $74.8 million over four years to enable the AER to continue its existing regulatory functions and also assume additional responsibilities which the States and Territories have agreed to transfer from their state regulators.
• The AER is currently responsible for regulating electricity transmission and wholesaling activities in the National Electricity Market. By 2008, the AER is to assume additional responsibilities for regulating gas transmission activities, energy (gas and electricity) distribution and retailing activities (except for retail price regulation unless otherwise agreed).
• As part of this commitment, in 2006-07, the Government is providing $11.3 million to enable the AER to continue its existing functionsand assume additional responsibilities for regulating energy distribution activities and gas transmission activities.

What have we done in the past?

• The Australian Government provided interim funding in the 2004-05 and 2005-06 Budgets for the AER’s establishment and operations which commenced on 1July2005, pending agreement between the States and Territories and the Australian Government on the AER’s long term funding arrangements.

When will the initiative conclude?

• This initiative is ongoing.
• On 10February 2006, COAG recommitted to the MCE’s energy market reform program and endorsed the Australian Government’s timelines for their implementation by early 2008 (COAG’s Communiqu of 10February2006).