Bills

Statutes Amendment (National Energy Laws) (Wholesale Market Monitoring) Bill

Second Reading

Adjourned debate on second reading.

(Continued from 19 March 2024.)

Ms HOOD (Adelaide) (15:51): I rise to continue my remarks from yesterday. I was speaking of a trip down memory lane and some of the things that were said during the debate when a former Liberal government privatised ETSA and our state's electricity assets. I was speaking about how the former Treasurer of that time and then of the previous Marshall Liberal government, Rob Lucas, had said that privatisation would 'lead eventually to lower prices for industry and business'.

Yet, as I was saying, more than 2½ decades later, privatisation has most definitely not delivered lower prices for households, industry or business. As a result, here we are today debating a bill that is needed because the market bodies that oversee the electricity system are calling for more powers to rein in the rapacity of the profit of the private market.

I also want to recall what Labor leadership said at the time when that privatisation occurred more than 25 years ago. Firstly, the other side of politics had clearly failed to keep its promises. The then opposition leader, Mike Rann, noted that the Liberal Party had gone to the 1997 election promising that they would not privatise ETSA. The then Liberals promptly did an about-face and put all our state-owned electricity assets on the auction block.

Of course, that was all ominously similar to the 2018 election, when the then Liberal leader, Steven Marshall, promised, 'We don't have a privatisation agenda,' before going on to privatise the public rail transport network and the state-owned emergency electricity generators and also investigate privatising other government services.

Mr Rann also had much clearer insight into what would happen under a privatised electricity market. Mr Rann said:

Battling South Australians would pay for Premier Olsen's privatisation agenda many times over. First, there is the loss of a huge income generating asset. Then there are the cuts to essential services that would come from the loss of that income…Then there are the higher prices consumers will be charged by the private owner, and there will be nothing consumers will be able to do about it.

He also went on to say:

Privatisation is a policy that will expose South Australians to more and more risk, more and more liability. That is the Government's policy: privatise the profits; socialise the risk.

Those comments were made by Mike Rann on 26 May 1998. Time has proved Mike Rann was right: privatisation has hurt consumers, it has ended a steady but modest source of revenue for government, and it has not shielded the public from the risks in the electricity system.

So, how will this bill before the house today help us clean up the mess that was created by the Liberals' privatisation of the electricity system? Let's consider the purpose of the market bodies, particularly the Australian Energy Regulator (AER), which will gain greater powers of market monitoring under this bill. The regulator's role is to ensure energy consumers have access to a reliable and secure market and that they pay no more than necessary for energy to their homes and their businesses.

The regulator sets maximum revenue allowances for monopoly networks and pipelines and sets an annual default market offer (DMO) for electricity consumers. The DMO is a price cap for consumers on basic contracts, which are otherwise known as standing offers, and acts as the reference point for all other contracts for households and small businesses, also known as market offers. To do its work, the regulator monitors wholesale, network and retail market performance.

However, it has faced formidable barriers to doing its work as effectively as it can, because much of the contracting and trading occurs behind closed doors. Ultimately, these trades determine the prices that consumers pay. In calling for the reforms in this bill, the regulator says:

The proposed changes will greatly enhance the AER's ability to assess performance, competition and efficiency in the wholesale energy markets and ensure consumers are not unduly impacted by high energy prices due to an uncompetitive market.

To ensure consumers and policy makers have confidence in our energy system, it is vital to understand the drivers and impact of participant behaviour and subsequent market outcomes. In electricity for example, participant behaviour can be influenced by a variety of factors, including their portfolio of technologies, prevailing market conditions, weather, fuel availability, and particularly their risk management strategies and positions. Every megawatt hour of electricity is traded multiple times in the secondary markets, and the cumulative value of this trade is worth many multiples of the settled spot market price. Participants also use a range of additional contract products to manage wholesale market risk such as fuel contracts, power purchase agreements, weather derivatives, and carbon abatement contracts.

Let me repeat part of that sentence: every megawatt hour of electricity is traded multiple times in the secondary markets—so, unlike a system which is owned and operated by government where prices would be based on actual costs, the electricity system is run by companies with complex webs of intersecting contracts and deals, with lots of players taking their clip of the ticket for being in that financial web rather than for being in the physical business of supply and demand for energy. It is no wonder consumers are being stung. This is the price for so-called private sector efficiency that the former Liberal governments hailed 25 years ago, and that is why this bill is needed: to lift the veil of secrecy and see where the money is actually going.

This bill is part of the national energy reforms for which the South Australian parliament has the honour of being the lead legislator. Giving the AER these powers will benefit all jurisdictions, but this reform will be particularly useful in the South Australian context. One of the regular tasks of the AER is to set the annual default market offer (DMO)—that is, the ceiling price for consumers on standing offers from retailers and the reference point for market offers from retailers to consumers who shop around for a better deal.

In an issues paper published by the AER as it works on the 2024-25 DMO, the agency draws attention to the South Australian trading situation. The AER says that its usual approach to estimating what the wholesale electricity price will be for the forthcoming financial year is to examine the publicly available ASX trade data to price futures contracts for base, peak and cap contracts. It says this methodology relies on a vibrant, liquid futures market to give a valid perspective on what to expect in real-time wholesale prices.

However, the AER has observed there are liquidity concerns in every jurisdiction where it sets the DMO, most particularly in South Australia—and the situation has been worsening. In South Australia, it found there has been a steady decline since 2019 in publicly visible base contracts being held. The AER says that this:

…indicates that liquidity is worsening as new contracts are not being opened at the same rate existing contracts are closed. This may be an indication that retailers are purchasing different contract products to minimise their exposure to the South Australian spot price.

To set the annual DMO—a benchmark, which has a real impact on household bills—the AER has a stack-building system to set the final price. It takes the wholesale price, plus the network cost of poles and wires, plus the cost of any government schemes, plus the cost of the retailer providing a service, plus a reasonable profit margin for the retailer. The two biggest components of the price stack are the wholesale costs and the network costs. Networks mostly function as monopolies, and the AER determines a revenue allowance for the network service providers so that those costs can be estimated accurately, but wholesale prices are volatile and far more difficult to estimate.

Without a complete picture of wholesale prices, there is a real risk the AER estimates, which are fed into the DMO process, will end up with consumers paying far more than they should be. That is why the AER wants the powers to inspect the annual contractual arrangements that retailers are using. It is a power that has been necessitated by the foolish decision to privatise the market. It is a power we must support in the interests of consumers.

I also rise today to welcome the fact that electricity prices for households and small businesses will start to fall in July. The cuts of 2.5 per cent or $57 for the average household and 8.2 per cent or $481 for small businesses were announced yesterday by the Australian Energy Regulator in their draft ruling. The price reductions are in stark contrast to the outrageous claims and fearmongering by the Liberal opposition, who were claiming that the regulator would announce rises of as much as 25 per cent. I would recommend that the shadow energy minister perhaps sack his psychic because it was very far off the mark.

With increasing renewable energy generation in South Australia, wholesale electricity costs have fallen dramatically. Lower wholesale costs are the main factor in the regulator's draft decision to cut prices, and I very much welcome these energy cuts going through and flowing through to consumers. With those comments, I commend the bill to the house.

Mr BROWN (Florey) (16:02): It is with great pleasure that I rise to speak on the Statutes Amendment (National Energy Laws) (Wholesale Market Monitoring) Bill 2023. Electricity and gas prices are a concern shared by just about every South Australian. Certainly, in my electorate, people are frustrated with the prices that they are paying, despite the good news from yesterday, and that is a more than reasonable way to feel. The Malinauskas government is keenly aware that electricity and gas prices are putting further pressure on South Australians amid a time when many if not most in our community are experiencing significant cost-of-living stress.

The Statutes Amendment (National Energy Laws) (Wholesale Market Monitoring) Bill, introduced by the minister late last year, is actually quite an important element in the suite of reforms which have been proposed through the Energy and Climate Change Ministerial Council which, for any members who may be unfamiliar, is a forum bringing together the commonwealth, Australian states and territories and New Zealand to work collaboratively on issues of significance and key reforms in the energy and climate change sectors. Governments from each of the affected jurisdictions have agreed to this bill being presented to the South Australian parliament, with South Australia acting as the lead legislature.

The bill seeks to add to the capabilities and responsibilities of the Australian Energy Regulator (AER) in order to assist the AER in fulfilling its role of ensuring markets are performing competitively. In short, the bill proposes to allow the AER to access information on electricity contract markets as well as to require the AER to monitor and report on competition in the wholesale gas markets. The AER's remit has it responsible for ensuring that consumers have access to reliable, clean and secure energy and that they pay no more than is necessary for energy delivered to their homes and businesses.

The AER's role is to, firstly, set the annual default market offer for electricity. This is a price cap for consumers on basic contracts, also known as standing offers, and acts as the reference point for all other contracts for households and small businesses, which are known as market offers. The AER determines the maximum revenue that monopoly network business can earn. In SA, these are SA Power Networks, ElectraNet and Australian Gas Networks. It also monitors markets and performance and enforces compliance with energy legislation.

Under current arrangements, the AER relies on information about electricity market trading that is publicly accessible, namely the auction process run by the Australian Energy Market Operator and the futures market run by the Australian Securities Exchange. A significant issue is that much of the trading, especially in the electricity market, is done through private, bespoke, over-the-counter contracts between generators, financial intermediaries and retailers.

Being kept in the dark in this way makes it very difficult for the AER to accurately estimate what retailers are paying to buy the energy that they then turn around and sell to households and businesses at the prices consumers actually see. This has a particular impact on the AER's setting of the default market offer and its role in monitoring and promoting effective competition in the market. Wholesale costs make up about a third of the final retail bill that consumers pay. One should make no mistake as to whether the wholesale figures are material to outcomes for consumers.

The reforms before us have undergone two rounds of public consultation. The consultation paper released in April 2023 offers a great deal of insight that supports our understanding of the need for these reforms. In its overview, this consultation paper explains:

The price and quality of energy services that consumers pay for is impacted by the level of competition and efficiency of electricity and gas markets. Costs associated with electricity and gas wholesale and contract markets comprise a significant proportion of a consumer's energy bills. Wholesale costs made up around 32% of the price charged to retail electricity customers in [the 2021-22 financial year]. Effective competition in electricity and gas wholesale and contract markets will promote efficiency and ensure that consumers pay no more than they need to for these services. Increased competition should also increase innovation and investment, which are needed to secure an efficient transition to a low-carbon energy sector. The amendments to the NEL [National Electricity Law] and the NGL [National Gas Law] set out in the draft Bill that accompanies this consultation paper are designed to ensure there is an appropriate level of visibility over competition in these markets, and a greater understanding of the factors that may be impacting or limiting effective competition.

To date, the AER's ability to undertake its electricity wholesale market monitoring (WMM) responsibilities has been limited by provisions in s. 18D of the NEL that place significant restrictions on the AER's ability to gather, use and disclose information. These restrictions were intended to ensure the costs of the WMM function are minimised, and to protect commercially sensitive information. In practice however, these restrictions have hampered the AER's ability to gain sufficient visibility of the market, which is increasingly important for understanding market participant behaviour as market conditions evolve alongside the energy transition.

The electricity contract market is a crucial link between generators and retailers. It is the means through which retailers manage wholesale market price volatility for their customers, and generators reduce risk relating to future revenue, including revenue streams that can underpin investment in new generation. The events during winter 2022 demonstrated the risks that energy consumers are exposed to when there is a lack of visibility of electricity contract markets. The energy system came under extreme pressure due to unprecedented high prices and price volatility in the spot market due to the war in Ukraine, high international fuel prices, fuel supply shortages, and generator outages. As a result, retailers struggled to access electricity contracts to hedge their retail load against high spot prices, and several retailers failed. Without an ability to gain information about electricity contracts markets trading and liquidity, the AER and the Commonwealth had incomplete information throughout this crisis.

It goes on to read:

The AER currently has no official function requiring it to monitor competition in the east coast gas market. This leaves the AER with no ability to assess competition in the wholesale gas markets, determine whether parties are exercising market power, or identify factors that are detrimental to effective competition in gas markets. As in the electricity sector, the winter of 2022 saw unprecedented high prices in the gas market, due to global increases in gas prices following the war in Ukraine, higher than anticipated demand by LNG exporters and gas-powered generators, and lower than expected supply from some sources.

The gas market will continue to evolve and adapt as Australia’s energy transition progresses. Declining production in legacy basins in the south, which are forecast to be offset by gas coming from Queensland and the Northern Territory, is anticipated to occur at the same time as consumption is forecast to become more volatile. This reflects the integral role of gas as a flexible fuel which can be used to firm renewables, particularly during extended periods of reduced output from wind or solar generation. These factors, combined with forecast reductions in overall demand due to electrification and energy efficiency measures present difficulties to producing long term outlooks.

The reforms to the AER’s [wholesale market monitoring and reporting] WMMR function will provide the AER with the visibility it needs to identify and investigate issues in a timely and well-informed manner and make an ongoing assessment of whether these markets are operating competitively. It will also enable the AER to better monitor electricity and gas markets to understand the drivers of volatility and the level of liquidity in the market, to better anticipate and provide information in the event of future crises. Enhanced information gathering powers will also equip the AER to monitor the progress of the energy markets as they adapt and innovate as part of Australia’s energy transition. This will better enable the AER to provide information that can inform more targeted and effective long-term policy and regulatory reform.

As the report outlines, these are reforms that are manifestly and substantially in the public interest to progress. Enacting reforms that will produce improvement in the experiences of households and businesses who are consumers of electricity and gas is something that every jurisdiction should rightly be interested in acting upon, and these reforms enjoy broad support and approval.

I will quote from submissions to the consultation process, including from the Australian Competition and Consumer Commission:

The AER receiving the power to monitor the electricity hedging contracts market will improve transparency and aid policy development. This will protect competition and facilitate the effective functioning of the electricity market by supporting the provision of risk management options to smaller, non-vertically integrated retailers.

From Energy Consumers Australia:

Our extensive survey data overwhelmingly demonstrates that consumers primary concern in the energy system relates to affordability. The present electricity market is not delivering electricity at prices consumers consider affordable, and accordingly we applaud the overall direction of the proposed marketing, monitoring and reporting reforms.

From the Public Interest Advocacy Centre:

PIAC considers these changes to be in the long term interests of consumers, bringing greater transparency to the market and encouraging more efficient and competitive market outcomes.

Transparency is essential for consumers to have faith in the system and to understand whether or not they are getting a fair deal. There is no doubt that, at the moment, there is a distinct lack of transparency, and South Australian consumers do not believe they are getting a fair deal.

Professor Allan Fels, a former chair of the Australian Competition and Consumer Commission, puts it rather well in a report published earlier this year; that is, in February 2024. The report, 'Inquiry into price gouging and unfair pricing practices', was commissioned by the Australian Council of Trade Unions because, as Professor Fels says, the union movement is concerned about 'the impact of prices on the cost of living of ordinary Australians'.

Professor Fels chaired the inquiry, which looked in detail at specific sectors, as well as providing an overview. These sectors included food and groceries, aviation, pharmaceuticals, banks and electricity. On electricity, the report says the wholesale market has a bidding process that is intended to encourage efficiency and reflect the true cost of supplying electricity at different levels of demand. The process is that generators submit bids to AEMO, which then creates a merit order for dispatch, starting with the lowest price bids and ending with the final bid under which the aggregate supply will meet the expected total demand at that period in time. Then, all dispatch generators are paid at the rate bid by the final generator, even if their bids were at a lower price. Fels' report says:

However, complexities arise in the system. For example, generators can rebid their capacity at different times of dispatch. This flexibility is meant to account for a change in conditions, like unexpected plant outages or demand surges. Yet, it can also be used strategically by generators, especially those with significant market power, to influence market prices. This has led to concerns about the potential for price manipulation, or 'gaming'.

The report noted the work of the University of Sydney Professor Lynne Chester that this rebidding can take place right up to a few minutes before generators are required to supply electricity and that 'the incentive to gouge is enormous'. Professor Chester asserts that derivatives trading is a significant factor in the bidding and rebidding strategies of generators. The Fels report says:

The fact that the volume of derivatives trading surpasses NEM demand (and has for quite some time) is indicative of the speculative activity about future wholesale and retail electricity prices plus the role being played by non-NEM participants such as speculators and hedge funds.

This imbalance between the physical delivery of electricity and the speculation in the financial markets can be seen clearly in the numbers. Futures trades were worth more than $109 billion at face value in calendar year 2023, according to the ASX's 2023 market review report. This is considerably more than the traded value of physical electricity. The Australian Energy Regulator report on the state of the energy market for the 2022-23 financial year recorded turnover on the NEM at $27.2 billion—that is, roughly four times as much trading is taking place on the financial market than the physical market That is only the publicly visible financial data, not the private arrangements being made in the over-the-counter trade.

Clearly, somewhere along the line, someone is making a lot of money, and this is happening at the same time as the electricity bills consumers pay have been rising. That is why we must give greater powers to the AER to shine a light on where the money trail leads. It is highly consistent with our responsibilities to the South Australian people—and it is just sensible policy—to progress these reforms. I commend the bill to the house and look forward to its passage.

Mr HUGHES (Giles) (16:16): I also rise in support of the Statutes Amendment (National Energy Laws) (Wholesale Market Monitoring) Bill 2023. I guess a number of people have touched on the fact that one of the reasons for this bill and a whole series of other bills and the various regulatory changes over time is as a result of largely dealing with a privatised electricity market within the National Electricity Market.

I think it would be very fair to say that, if our assets had not been privatised, we would not be having this debate today. There is a very clear compare and contrast example when it comes to electricity pricing. South Australia, the Eastern States and Tasmania are all on the National Electricity Market. Most of the assets in that market, as I said, have been privatised. The generating assets, the transmission and distribution assets and retail are nearly all in private hands—there is a bit of an exception up in Queensland.

But the compare and contrast is with Western Australia, which is not on the National Electricity Market. The Carpenter Labor government, way back, did not privatise electricity assets. In addition to not privatising electricity assets, it also introduced a domestic gas reserve scheme, where a percentage of the gas produced in Western Australia had to be used domestically. At the time they introduced that scheme, the Howard government went on a full-on attack on the Carpenter government. He called them the Venezuela of Australia, amongst other things. The multinational fossil fuel companies that were operating in Western Australia said, 'We will not invest in Western Australia if this was to go ahead.' It went ahead, and guess what? The companies still invest in Western Australia, and the Howard government was wrong.

When you compare and contrast, given the recent significant price increases on the NEM last year and the year before—and it could have been far worse if the Albanese government had not intervened—we are talking 20 per cent to 25 per cent or higher increases with regard to the states on the National Electricity Market; at the same time in Western Australia energy prices rose 1 per cent to 2 per cent. There is a living world example of why privatisation is bad and why a domestic gas reserve scheme, especially if you are a big gas producer like Western Australia, is a very sensible approach.

The bill before us, the Statutes Amendment (National Energy Laws) (Wholesale Market Monitoring) Bill 2023, is a reform that will benefit consumers. As I said, it is a reform that is needed because of the nature of the system that we have.

Energy bills are a significant cost for household budgets, particularly for families and individuals on lower incomes. The report by the advocacy group Energy Consumers Australia provides some insightful data about energy bills and how there is a different impact based on household income. This national survey, published last August, found that households with income above $150,000 a year were paying the most in average energy costs, at $236 a month for electricity and gas. This equated to about 1.5 per cent of those households' income.

Lower income households were paying less in dollar amounts per month: $184 a month for households earning between $60,000 to $80,000; $142 a month for those on $20,000 to $40,000; and $159 for households earning below $20,000. Where the pain really comes in is the proportion of the households' income needed to pay for electricity and gas. The $60,000 to $80,000 group's energy bills used up 3.1 per cent of income. That is twice as much as the wealthier families were paying by proportion. The $20,000 to $40,000 group had to allocate 5.7 per cent of their money to energy bills. For households below $20,000 a year, some 12.7 per cent of earnings went to keeping the lights on and, hopefully, keeping cool and keeping warm, but there is no guarantee that that was happening.

As lawmakers, we must do everything we can to lower costs, particularly for those on lower incomes and despite the constraint of the energy markets being privatised; and privatisation is a big constraint. The board and executives of private companies must act in the interests of their shareholders and, typically, shareholders want companies to maximise profits. When it comes to maximising profits in this country, much of the profit is repatriated overseas, given the penetration of overseas companies in the electricity market. We know energy companies have been very successful at making profits.

While the company executives act for their shareholders, we must act in the interests of our constituencies, the households and businesses we represent. Accordingly, we must provide the Australian Energy Regulator with the powers that that agency has requested to extract information on all of the trades in the wholesale market and thereby ensure consumers are getting a fair deal and that the market is competitive.

The powers proposed in this bill will let the AER look beyond the publicly available trade information and examine the private over-the-counter (OTC) hedging and other arrangements which ultimately consumers pay for. Encouragingly, there are positive signs and trends of the costs falling in the public markets, and it is probable that those trends are occurring in the OTC markets. Whether we look in the rearview mirror or towards the future, prices are falling in the wholesale markets.

The wholesale energy markets were viciously impacted by a confluence of events in 2022. The biggest driver for the sudden upward surge in prices was the illegal invasion of Ukraine by Russia. This caused a global shock to gas prices, which in turn affected coal and electricity prices. It is often interesting to reflect on the denial that goes on when it comes to what happened with those in the Coalition at the federal level and indeed the opposition at this level, denying somehow the invasion of Ukraine and the disruption to gas markets. This is not the reason. Of course, the reason was, just by coincidence, that there was a federal Labor government elected, and that is absolute nonsense. In fact, if it was not for the intervention of the federal Labor government when it came to these massive price increases we would have been in a far worse situation.

These—largely multinational—fossil fuel companies were more than happy to gain windfall profits at the expense of consumers and, indeed, at the expense of the manufacturing industries that we still have here in Australia. It was the intervention of the federal Labor government that put a cap on black coal prices and gas prices, and the federal Coalition squealed about that. They would rather have had companies making windfall profits at the expense of consumers and businesses in Australia. Fortunately, we had a federal Labor government that was willing to intervene.

The biggest driver for the sudden upsurge in prices was, as I said, the illegal invasion of Ukraine by Russia. This caused a global shock to gas, which in turn affected coal and electricity prices. Australia has been left vulnerable to these shocks for a decade due to a decade in the doldrums while the Liberal-National Coalition held government in Canberra and did nothing. It sat on its hands for a decade. It was a complete failure when it came to energy policy. In all those 10 years, there was no coherent energy policy, and they have not learned the lesson from that.

With the whole nuclear gambit that is going on at the moment—and I talk about this as someone with the largest uranium mine in the country in my electorate—I do not have a reflexive approach to nuclear in terms of being good or bad, but what I do have is the ability to call out the absolute nonsense, the time that it would take and the enormous cost overruns that we see around the world, especially in the Western world, when it comes to nuclear. It is not just the massive increase in cost for these plants but the time it takes to deliver these plants.

Indeed, when you talk about small modular reactors, there is not a single one to be found commercially operating anywhere in the Western world. Some of the high profile proponents, companies that were proponents in the United States, have now gone to the wall. So we need to get on with the transition, and if we are going to get on with the transition, it is about renewables and firming renewables with the technologies that we already have here in Australia.

At the same time as these pressures were going on as a result of global conditions, coal-fired power stations interstate were hit by floods in coalmines and the increasing failures of ageing generator machinery. This was compounded in South Australia by complacency from the Marshall government, which expected that a transmission link to New South Wales would reduce prices. The unfortunate reality is that New South Wales wholesale electricity prices have been higher than they are in South Australia over the last quarter and some other quarters.

The Australian Energy Market Operator (AEMO) has identified a growing price divide between expensive wholesale power in the black coal states of New South Wales and Queensland, and lower prices in the southern states in the National Electricity Market. In January, AEMO published its report for the December quarter of 2023. AEMO said:

Wholesale spot prices across the NEM averaged $48 per megawatt hour (MWh), a 48% reduction from $93/MWh over Q4 last year. While all regions experienced significant price reductions, there was clear separation between the regions, with prices in Queensland ($68/MWh) and New South Wales ($66/MWh) double those in South Australia ($33/MWh) and Victoria ($26/MWh).

The Liberal solution was to link to a state with prices averaging double the prices here in South Australia. I will acknowledge that wholesale prices over quarters do fluctuate and there is a whole range of reasons for that. There is a whole range of variables at work. But the long-term trend in South Australia, with a shift to renewables, will ultimately deliver cheaper electricity in South Australia compared to those states with a greater dependence on black coal and, to a degree, gas. I acknowledge that gas will play a role in South Australia for some time to come.

Nevertheless, it is encouraging to see the AEMO report recording that across the board there has been a near halving in the wholesale price between quarter 4 of 2022 and quarter 4 of 2023. The AEMO paper was followed just days later by a quarterly report from the Australian Energy Regulator which showed the same trend.

The Australian Energy Regulator uses a slightly different methodology, taking a volume-weighted average and looking at a rolling annual as well as quarterly changes. The Australian Energy Regulator reported average annual wholesale prices fell between 44 per cent and 64 per cent, depending on the state.

Clearly, prices are falling and these costs must be passed through to consumers, just as retailers were quick to pass through price increases from the energy shocks of 2022. We do notice that. We do notice in the energy field how quick the companies are to put on the increases and how slow they are to give us the reductions. We get that at the bowser all the time when it comes to petrol and diesel. It is not good enough.

The AEMO and the energy regulator reports are a look in the rear mirror, a look at the quarters and the years of the past. If we turn to the years ahead, the best publicly available information comes from the energy futures traded on the Australian Securities Exchange. There, too, the signs are encouraging. The 2022 price crisis effect was clear on the futures market. Back at the end of June 2022, the price of average base futures contracts in the National Electricity Market on the exchange for the following four years stood at $144 per megawatt hour. This was a near threefold increase from June 2021, when the average was $52 a megawatt hour.

Since the 2022 shock, prices have been easing. In June 2023, they were down to $109 a megawatt hour, and in December 2023 down to $93 a megawatt hour. The latest average base futures are down further, standing at $85 a megawatt hour as at the first week in February for contracts through to the December quarter of 2027.

It is one of those things. When you try to explain to people who have no awareness about the electricity market, what they look at is what they are paying at the end of the day. It is just the complexity of this market when it comes to wholesale pricing. In the days of ETSA, there was not that complexity. It was all very straightforward, and straightforward in a way that was to the benefit of the state and the benefit of consumers and, indeed, to the benefit of the public purse, with transfers of money to the state from ETSA.

Of course, wholesale prices—that is, what retailers pay to buy the energy which they then sell to households and businesses—only make up part of the cost stack of the final retail price. The retail price includes network costs of poles, wires and transmission; a small component for environmental levies; the retailer's costs of doing business; and the retailer's profit margin.

Indeed, when it comes to transmission assets and distribution assets, they are all natural monopolies. The logic of privatising natural monopolies is absolutely beyond me, but there we have it. People have said that Playford must be looking down and not be overly happy. Part of that history of Playford acting in the public interest was that he was enabled to do so by the Chifley Labor government that provided the financial wherewithal to nationalise the electricity assets in this state.

Wholesale prices are a significant part, and they are the component which drove the extraordinary increases in prices which have hit consumers. The most recent report in the Australian Competition and Consumer Commission's ongoing inquiry into electricity prices summarised the cost stack. The ACCC's report published in December broke down average annual bills paid by a residential consumer in the National Electricity Market. The ACCC reported an increase of $100 a year to $1,494 in 2022-23 compared with the year before. Of that $100 increase, $99 was caused by an increase in wholesale costs.

Under normal circumstances, it is a fraction, but in this case, when it came to the cost increases, it was incredibly significant. One of the Australian Energy Regulator's most important rules is setting the annual default market offer, which acts as a ceiling for the basic standing offers from retailers and acts as the reference point for market offers from retailers to customers who are shopping around for the best deal. I would encourage people to shop around, even though it can be somewhat complex.

In setting the default market offer for this financial year, 2023-24, the Australian Energy Regulator said it needed to allow for higher wholesale costs. The Australian Energy Regulator uses fully accounted wholesale prices, including the effects of hedging contracts taken out by prudent retailers, not just the spot market prices.

For South Australia in 2023-24, the Australian Energy Regulator allowed retailers to charge for a 68 per cent increase in wholesale costs for customers on flat rate tariffs and a 51 per cent increase for customers with a controlled load arrangement, for example, an off-peak hot water or pool pump system. In South Australia, network costs were stable, although they were up by as much as 10.5 per cent in other regions.

The Australian Energy Regulator said environmental costs were falling in all jurisdictions. Clearly, wholesale costs were the driver for the increases in retail prices of 20 per cent to 25 per cent in the default market offers set by the Australian Energy Regulator. Now that wholesale prices and future contracts are coming down, that needs to be handed on to consumers. I commend the bill.

The Hon. A. MICHAELS (Enfield—Minister for Small and Family Business, Minister for Consumer and Business Affairs, Minister for Arts) (16:37): I rise today also to support the Statutes Amendment (National Energy Laws) (Wholesale Market Monitoring) Bill 2023. This bill represents a critical step forward in enhancing the capabilities and responsibilities of the Australian Energy Regulator (AER) and equips it with the tools necessary to ensure a competitive and transparent energy market.

As it stands, the AER is responsible for ensuring consumers have access to reliable and secure energy and that they pay no more than is necessary for energy delivered to their business or their household. It sets the annual default market offer for electricity, which is the price cap for consumers on basic contracts and serves as a reference point for all other contracts for households and small businesses. Additionally, the AER determines the maximum revenue that monopoly network businesses can earn as well as monitoring the markets and performance and enforcing compliance with energy legislation.

One of the biggest issues we are currently facing is the efficacy of the AER's oversight is dependent upon its ability to accurately estimate what retailers are truly paying to procure energy. Currently, much of that trading, especially in the electricity market, occurs through bespoke contracts that are private and not accessible to the public.

The current system requires the AER to rely on publicly accessible information, making it very difficult to accurately estimate what retailers are actually paying to buy the energy and what they should then be charging households and small businesses. This, in turn, also affects the AER setting the default market offer and its role in monitoring and promoting effective competition in the market. That is why we have this bill before us, to amend these issues and provide clarity and transparency in the energy market.

At its core, this bill aims to allow the AER to access information on electricity contract markets and requires the AER to monitor and report on competition in the wholesale gas markets. It does this firstly by requiring the AER to produce regular reports on market monitoring, at least every two years. Moreover, the bill mirrors the AER's function for the electricity markets in the National Gas Law. This will enable monitoring and reporting on the competitive functioning of the wholesale gas market and will improve the competition and efficiency within the market.

This bill equips the AER with new information-gathering powers, including Market Monitoring Information Orders and Market Monitoring Information Notices to gather information from individual businesses. In addition to empowering the AER with enhanced monitoring capabilities, the bill introduces transparency and accountability measures to ensure appropriate and transparent performance of market-monitoring functions.

Crucially, the bill mandates a review of the reforms after four years and six months to assess their effectiveness. This demonstrates a commitment to continuous improvement and ensures that the regulatory framework remains responsive to the evolving needs of businesses and consumers alike.

Lastly, the bill grants the South Australian minister the power to make rules for consultation requirements in developing guidelines and Market Monitoring Information Orders, with potential amendments allowed by the Australian Energy Market Commission.

In my capacity as Minister for Small and Family Business, I have witnessed firsthand the substantial impact of inflation and the increased cost of doing business on small businesses throughout South Australia. These challenges have placed a strain on businesses, underscoring the pressing need for assistance. This proposed legislation offers a chance to alleviate the burdens faced by small businesses and stimulate their growth. By specifically addressing the transparency and affordability of the energy market, we can deliver tangible relief to these essential contributors to our economy.

I was pleased to hear the announcement by the energy minister that electricity prices for both households and small businesses are set to decrease come July. Small businesses are poised to benefit from an 8.2 per cent reduction, amounting to on average $481, with households set to see a 2½ per cent reduction of an average of $57. Whilst we are now seeing a decrease in wholesale electricity costs in South Australia, which can largely be attributed to our expansion in renewable energy sources, it is imperative that these reductions in wholesale costs are passed on to South Australian households and businesses. This, along with the reforms outlined in this bill, marks a positive stride towards addressing this and ensuring that energy prices continue trending in the right direction.

Of course, this is not the only initiative by the Labor government in the energy space to help reduce costs on households and small businesses. The Energy Price Relief Rebates, which were rolled out in July last year, were another vital initiative aimed at alleviating cost-of-living pressures for more than five million households and one million small businesses right across Australia. In response to escalating energy costs, the state government allocated $127 million for the National Energy Bill Relief Plan in the June state budget last year. This was matched dollar for dollar by the commonwealth, totalling $254 million for the rebate scheme.

The plan aims to provide tangible benefits to South Australian households and small businesses, offering energy bill reductions of up to $500 for eligible households and rebates of up to $650 for eligible small businesses. These reductions were directly applied to recipients' energy bills during the 2023-24 billing year, offering immediate relief to those struggling with rising utility expenses.

Furthermore, the state government agreed to extend the $650 energy bill reduction to thousands of additional businesses on embedded networks, such as retailers and shopping centres. Businesses on embedded networks risked missing out solely because they did not receive their bill directly from an energy retailer. Of course, our government listened and, together with the Treasurer, we made the changes necessary to extend that support to small businesses on embedded networks.

For small businesses in South Australia, the energy bill reductions provided a much-needed reprieve, enabling them to redirect funds towards essential business operations. I have heard personally from many small businesses throughout my time as minister, and we have all seen stories in the media of the tough times that some of them are facing. We have seen some small businesses who have voiced their concerns about rising costs through the media and the pressures they face to keep their businesses afloat, and that is why our government is implementing these measures to help.

We know that small businesses play an incredibly vital role in our economy. They contribute $49 billion to our state's economy and employ nearly 40 per cent of our workforce. On top of the energy cost relief that we are providing and the measures outlined in this bill, we have also allocated additional funding and support through the Small Business Strategy. The strategy comes with a $14.25 million investment over four years and reflects a commitment to provide practical measures to help our small businesses.

The strategy comprises six core themes aimed at bolstering small business capabilities and fostering resilience. The themes emphasise strengthening business capability and enhancing skills and workforce, both of which are particularly crucial for small businesses facing significant pressures. Additionally, navigating the digital landscape and mitigating cyber risks, fostering sustainability, embracing diversity and facilitating access to government services are amongst the key themes. Under these themes, 20 initiatives have already been identified for implementation by 2026.

Notably, the Women in Business Program and the Cyber Uplift Step Program have garnered substantial interest. A significant allocation of $1.7 million has also been dedicated to the fundamentals program, aimed at enhancing essential business skills, such as cashflow management, financial management and marketing skills, which are vital for small business success. Efforts also extend to addressing mental health and wellbeing for business owners and, importantly, the strategy remains dynamic and responsive to evolving business needs. This will ensure we have ongoing support for South Australia's small business community, with a commitment to adaptability and relevance through to 2030, the end of the strategy period.

I understand that South Australia is a small business state. Along with our government, I am working very hard to make life better for small businesses, and this bill is a step in that right direction. It is important legislation aimed at enhancing the AER's capacity to oversee a competitive and transparent energy market. By addressing the challenges of estimating true energy procurement costs and promoting transparency, this bill ensures that consumers are protected from excessive energy prices and can help put money back in the pockets of small businesses.

Furthermore, the bill complements existing initiatives, like energy price relief rebates, to alleviate financial strains on households and small businesses. This bill signifies a substantial move towards fostering a resilient, supportive environment for small businesses and our households and ensuring a brighter future for all. With that, I commend the bill to the house.

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (16:46): I thank all members who have given a contribution today on this important piece of legislation. As I said in my second reading explanation, nothing is more important than transparency. Giving the AER the tools that it needs to monitor the market, especially the wholesale market, and report its findings is an important function for the AER to have. I thank the opposition for their support, and I thank them for a speedy passage through the house.

Bill read a second time.

Third Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (16:47): I move:

That this bill be now read a third time.

Bill read a third time and passed.