Debate rages over energy reform

MAJOR changes to the electricity market were recommended a month before conservative state energy ministers accused the regulator of failing and ignoring consumers.

The Power of Choice review draft report was released by the market rule-maker, the Australian Energy Market Commission, on September 6, a month ahead of Friday's meeting of the Standing Council on Energy and Resources.

Media reports on Friday morning said the state ministers were itching for a fight over energy market reform, naming ministers from Queensland, New South Wales and Victoria as planning to push for sweeping changes to the national regulation of the sector.

But the conflict comes as a Senate select committee was already halfway through an inquiry into the matter, as well as the Power of Choice draft report release, which recommended 27 changes to the energy market to help lower costs for consumers among other issues.

Prime Minister Julia Gillard has reportedly angered the ministers over her comments the states were "gold plating" electricity network, driving up the price.

The "gold plating" of networks is the practice of some companies over-investing in new poles and wires to profit from incentives for such investment, pushing up the price consumers paid on their electricity bills.

The argument state ministers were expected to put to Energy Minister Martin Ferguson was that it was a Commonwealth body in charge of regulating the largely state-owned power networks.

But during Senate committee hearings a week ago, the Australian Energy Regulator said the rules it had to enforce were originally set too weak - an issue the AEMC was looking to partly address through the Power of Choice review.

"While much of this investment (in state-owned poles and wires) was necessary, weaknesses in the regulatory framework - that is, the rules that set out how the AER must regulate prices - have led to price increases beyond what has been necessary for a safe and reliable supply," AER chairman Andrew Reeves said.

Mr Reeves said work had begun in September last year on fixing the problems with the market rules, in the commission's draft report, it recommended the appropriate changes to ensure the practice of "gold plating" networks could no longer happen.

"While network businesses will continue to be rewarded for undertaking efficient and necessary investment, consumers would not be required to foot the bill for inefficient over-investment in the network."

In the official communiqué from Friday's meeting, it noted "a range of views were expressed".

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