Fencing wire and mirrors: the world of the National Energy System

Officially, it was part of “Creative Federalism”. This was the name given, you will recall, by Paul Keating, and taken up with gusto by John Howard and now by Kevin Rudd, to a new method of Commonwealth/State relations whereby the legal and regulatory systems of our engagingly diverse communities would be brought into greater “harmony”. The very first cab off the rank was the National Electricity Market, the NEM. It had pride of place in the first couple of meetings of COAG and has hardly been heard of since.

There were, however, problems in getting it all together. One law covering all that was needed couldn't be passed by the Commonwealth, because the Constitution didn't allow it. And at any rate the states wouldn't accept it. They were jealously guarding their energy assets, which were, in fact, milch cows, each year providing steaming flows of public revenue.

Bring out the fencing wire and the lawyers. The energy ministers of each state and territory, and the Commonwealth, could agree on a draft bill establishing a set of rules, a central operator (NEMMCO) to manage the show, and an administrator to oversee the regulations. Each government could pass the bill without amendment and the scheme could be run as though it really was a national system. Such legislation, identical in all jurisdictions, is called template legislation. It had been used before for other, relatively minor matters, to bring regulation into “harmony” across the country.

A neat trick - except there was a snag and, wouldn't you know it, it was the South Australians. Years ago they decided that they wouldn't pass or even consider template legislation. In this case they would only come to the party if they could debate and vote on the legislation before anyone else did. If they passed it first, they judged that it would be original, not template, legislation. Even then, for the scheme to work, the South Australians had to agree that the South Australian Parliament wouldn't amend the draft that the other ministers had agreed to. A bit more fencing wire was unwound, but in the end everyone signed.

South Australia could have the debates and voting and all that carry on, and everyone else, including the Commonwealth, would pass what is called an Application Act. All the pollies could get around a table somewhere, agree on the exact terms of the new electricity law for a linked, centrally administered system, and South Australia would pass it. All the others would then pass their own Application Acts making the South Australian electricity law, which is called the National Law, also the law of each of the other states or territory. No sweat.

And now the mirrors

Not only that - watch this one: those Application Acts also provided that if the South Australians amended the law at any time, after agreement with all the other jurisdictions, then those amendments would apply everywhere else, without further debate in any of the other Parliaments, including the Commonwealth. So that's what they all did, back in 1997 and 1998, with very little worry anywhere, because everybody thought it was such good housekeeping. If all the energy ministers wanted something changed, the South Australians would obligingly amend their law and it would automatically come into force in all the other jurisdictions.

Every so often the minister responsible in South Australia gets up and fires the starting shot for something new. Adelaide passes it, sometimes with a few squawks from Democrats or Libs or Nats then all the Application Acts click home and the system changes. And so it has gone: amendments to the South Australian National Electricity Law, wholesale changes to the way the system is run. There have been far too many changes even to list here.

On April 9, 2008, Mr Condon, the Energy Minister in the South Australian Parliament, introduced the National Gas Law - yes, a South Australian national gas law:

The Government is again delivering on a key energy commitment through new legislation to improve the governance arrangements for the regulation of natural gas pipeline services, for the benefit of South Australians and all Australians.

And he went on to outline a vastly complex and important new legal and economic system for gas access modelled, as he said, "on the changes made to electricity regulation in the 2005 and 2007 amendments to the National Electricity Law". Application Acts in other Parliaments were duly passed, with the same provisions as for electricity that the South Australian law could be amended without debate of the issues in other Parliaments, including the Commonwealth.

Here is part of what the NSW Parliament's Legislation Review (PDF 416KB)said about the National Gas (New South Wales) Bill after it was introduced on April 11:

What appears remiss in the scheme is the absence of any realistic scrutiny role for the NSW Parliament ... Although the NSW Parliament has the present Bill before it there is no scope to debate the need for any modification of the National Gas Law as it has already been signed off by all parties including NSW.