AUSTRALIAN ENERGY MARKET COMMISSION ESTABLISHMENT (CONSUMER ADVOCACY PANEL) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 25 October 2007. Page 1143.)

The Hon. D.G.E. HOOD (11:27): I rise to support the second reading of this bill. Family First wishes to thank the Consumer Action Law Centre, based in Melbourne, for its submissions to us concerning this bill, as it has been of great assistance indeed. In its submissions, the CALC pays tribute to the South Australian parliament for being the lead parliament in national energy legislation. In other words, the other states and territories are watching the progress of this legislation and, according to the CALC, will follow, which perhaps explains its cross-border advocacy on this bill. As I believe one honourable member said in contrast, we are also a test case or perhaps crash test dummies on this; however, I choose to take a more positive view.

I will read into Hansard something the CALC has provided to us concerning the Consumer Advocacy Panel that will be created by this bill. I know that the Hon. Mr Parnell read the whole letter into Hansard; however, I will read just a portion to highlight the part I wish to emphasise. The CALC states that the report that led to the establishment of the existing panel said:

Small and medium end users, in particular, currently generally do not have access to sufficient human and financial resources to ensure adequate representation whatever those arrangements. They should not be left out of the decision-making process solely because of lack of resources. The diverse and diffuse nature of the customer base, however, and the individually small scale of the direct benefits to those end-use customers as a result of national market reforms means that it is unrealistic to expect self-funding coalitions of small and medium end-users to emerge.

The core constituency of Family First would, of course, reside within that bracket of small and medium end users, being the households of families at the smaller end and, to some extent, small family businesses using power towards the medium end of the spectrum.

The parameters for defining who will be small and medium level consumers (which is not before this parliament) will be defined by regulation. In other words, the definition contained in clause 5 on page 4 of the bill defines a small and medium consumer of electricity or gas by reference to an annual consumption not exceeding a level of megawatt hours (in the case of electricity) or terajoules (in the case of natural gas), both of which will be defined in the regulations.

We were told during the second reading stage that the thresholds that will be set in regulations will be 4 gigawatt hours for electricity and 100 terajoules for natural gas. Family First is very concerned about those parameters. The CALC says that 4 gigawatt hours equates to an annual power bill of $350,000 for electricity. Even more significantly, it says that 100 terajoules equates to an annual gas bill of about $1 million. Yet those are the limits we are being asked to set for a 'small to medium size user'.

I take on board that in his second reading explanation the minister said that the definition of small to medium users does not rule out others being involved in advocacy but, to my mind, the thresholds that the minister proposes to set by regulation would result in that category (supposedly representing families, small businesses, pensioners and the like) actually being dominated by fairly large businesses. Let us not forget that this is the precursor to national legislation, as I said at the outset.

My understanding is that the average Australian household power bill is somewhere in the range of $900 to $1,300 per year. The CALC backs this up by suggesting that an average family consumes 6 to 8 megawatt hours per year, and that is a long way short of 4 gigawatt hours—or, put another way, some 4,000 megawatt hours. Let us look at a dry cleaner, what we think you could fairly say is a large electricity user in a medium size user bracket. Estimates we received were in the range of 60 to 100 megawatt hours, or bills of $6,000 to $14,000 per annum. So, a dry cleaner, which we consider would fit at the top end of the bracket we are seeking to define, nonetheless falls somewhere at the bottom end of the range, that is, 1.5 to 2.5 per cent of the limits the government proposes setting.

Furthermore, I am told that the Victorian Environment Protection Authority's greenhouse program, which places requirements on business to mitigate their greenhouse gas emissions, sets its largest consumer category of business at a usage of more than 7 terajoules of gas or 1.4 gigawatt hours of electricity—again, 7 per cent of the limit the government proposes setting here for gas and some 35 per cent for electricity in the definition of small to medium users category of electricity. I do not want to be misunderstood on this. The setting of those parameters does not rule out families and small businesses participating in advocacy. However, there are two very relevant points that I wish to raise. First, the CALC states in an email to my office:

The proposed thresholds include almost all businesses in Australia and only exclude businesses that make large metal processes, paper makers, cement makers and car manufacturers.

They are obviously very large businesses indeed. Secondly, if the intention of this bill is to provide financial assistance towards advocacy for small to medium size consumers, I am concerned that the bigger fish in those consumption ranges are going to gobble up that assistance and then leave the truly small to medium size participants high and dry. As a condition of full retail competition for electricity throughout Australia, there is a legal obligation to supply power to small customers if they should request it. Small customers are then defined, I am told, at 160 megawatt hours as a median across the nation, with Tasmania and the Northern Territory the only, and slightly higher, exceptions to the median .

Similarly, for gas, on average, the limit for the definition of a small gas user is, as a median, 1 terajoule per annum, with the exceptions of Victoria at 5 terajoules and Tasmania at 10 terajoules. Compare that with the threshold set by the regulations, if that is what actually eventuates, and you have the national median household usage at 100^th the limit the minister intends to impose. I raise this now because we do not have an amendment proposed at this time, as it may not be necessary. Indeed, the regulations are probably the appropriate place to set these limits. However, I am interested to have the minister's comments on this issue in his summing up.

I will add that I have foreshadowed this issue with the minister's office and, interestingly, the reply arrived at my office only yesterday morning, when this bill was scheduled for debate. I accept from the outset that setting such a high maximum clearly captures within that range the concerns of the very smallest users (families, pensioners and the like).

However, Family First is concerned that there is scope for an abuse of this advocacy support system—namely, that with such high limits at the upper end big business could well take over the advocacy, pretending to be advocating for the small to medium end users. On my understanding, for instance, there was only one small user representative on the panel, which sees them clearly outvoted by industry representatives and big business combined, which is a significant problem that will need to be addressed in the summing up.

It may be that the definition of small and medium users needs to be broken into two to ensure advocacy assistance is available to both of them. At present we are uncomfortable about the way that this matter is handled in the bill. I would also like to ask: how will the Energy Consumers Council, which seems to have more than doubled in size, from four to nine members, according to the recent 2006-07 Auditor-General's Report, interface with the consumer advocacy panel created by this bill? Will it recommend or even make appointments to the consumer advocacy panel?

Aside from the issue of the protection of families, pensioners and small businesses— consumers that Family First has raised in detail today—the bill is otherwise in our view very sound, and for that reason we support the second reading. However, as this is a comment directly about the architects of this national scheme and not so much about the minister himself, Family First expresses its strong desire that the interests of genuine small businesses and families are represented on this consumer advocacy panel. As I said, I look forward to that being addressed in the summing up.

The Hon. A. BRESSINGTON (11:36): I rise today to briefly indicate my support for the second reading of this bill. This bill complements the National Electricity (South Australia) (National Electricity Law Miscellaneous Amendments) Amendment Bill for which I will indicate my support tomorrow. This proposes amongst other things to establish a consumer advocacy panel designed to advocate on behalf of consumers in decisions relating to the energy market.

This bill recognises the need for active participation by energy users and suppliers for the development of a more efficient and adaptable energy market. I share some of the reservations of the Hon. Rob Lucas, particularly about the potential effectiveness of the panel and where the money assigned to it will be allocated. However, I also appreciate the need for a formalised body to represent small to medium consumers and, for that reason, I support this bill. I also indicate very briefly my support for the national electricity miscellaneous amendments.

This bill seeks to make key reforms to the National Electricity Law. Under this legislation the regulation of electricity distribution networks will be made more efficient by allowing a single regulator, the Australian Energy Regulator, to regulate all distribution networks in the national electricity market. The combination with earlier reforms to transmission network regulation will make certain that the national electricity market has a single national regulatory framework for electricity networks. As other members have noted, South Australia is the lead legislator with our decision setting the framework for other states as part of the national electricity market. Our decisions are therefore very important. This bill is sensible and warranted.

I support the establishment of a regulatory framework to provide an acceptable balance between providing certainty for network businesses and avenues for consumer protection. I am confident that this bill will strengthen and improve the quality, efficiency and national make-up of the economic regulation of the national electricity market. I am all for legislation that will reduce the cost of regulation and simplify it for investors, increase regulatory certainty, and decrease competition barriers.

Electricity has long been a controversial issue in this state; however, I am confident that this bill will deliver positive outcomes to South Australians. Having said that, I note the concerns of the Hon. Rob Lucas once again, and I look forward to the minister's response during the committee stage.

The Hon. P. HOLLOWAY (Minister for Police, Minister for Mineral Resources Development, Minister for Urban Development and Planning) (11:39): I thank honourable members for their contribution to this bill. The Hon. Rob Lucas and the Hon. Mark Parnell asked questions on 25 October, to which I will briefly respond. The first question asked by the Hon. Rob Lucas was:

This is the only question that I will leave with the minister: what is the indicative size of the budget, and did the government take up the prospect of trying to limit the amount of money spent on administration? Does the minister and the government have a view as to what level administrative expenses ought to be kept to as part of the total budget?

The current Consumer Advocacy Panel, established under the National Electricity Rules, has a proposed expenditure of $2.08 million for the financial year 2007-08. Section 41(6)(a) of the bill clearly states that in preparing the budget the panel must seek to maximise the amount of funding available for the allocation of grants by keeping administrative costs associated with the work of the panel to a minimum. The improved governance arrangements include the Ministerial Council on Energy having to approve the panel's budget, which it is able to amend if required.

The advocacy panel is expected to continually monitor the level of its administration costs, and there is considerable pressure to keep these to a minimum. It is difficult at this stage to indicate what is a reasonable level of administration expenses, but the government, along with all other jurisdictions, has made it clear through this bill that such expenses are to be kept to a minimum. The Hon. Mark Parnell asked several questions. His first question was:

We are concerned about the proposed definition of 'small to medium consumers' which would be placed in the regulations.

The nature of the small to medium consumer definition is provided under clause 5(5) and specified in regulation. Such consumers are defined in the draft regulations and are proposed to be those whose annual consumption is less than 4 GWh for electricity and 100TJ for gas.

The existing general definitions of small and medium customers used by jurisdictions derive from threshold levels issued by the various jurisdictions when opening up their electricity and gas markets to competition. The definitions proposed in the bill broadly equate the jurisdictional definitions. The proposed thresholds would generally exclude large or industrial customers whose consumption is generally sufficient to warrant employment of staff to manage energy purchasing and regulatory issues for that company. Such customers typically include large metal processors, paper makers, oil refineries, car manufacturers, and cement makers.

It is these staff which provide the necessary knowledge to enable the business to fully engage in discussion on national energy market changes. For medium-size businesses to employ such specialists they need to gain sufficient benefit to offset the salary costs. Even at the level of consumption defined in the regulations it is highly unlikely such businesses would be able to justify employing an energy specialist. Without these staff, medium-size businesses are unlikely to be able to engage in meaningful discussions on national energy issues. I believe that also addresses the question asked by the Hon. Dennis Hood. The second question asked by the Hon. Mark Parnell was:

Really, for me, the question that arises from that communication is: where is the voice of those who are genuine small consumers? Perhaps more importantly: where is the voice for those whose desire it is to consume less rather than more energy? I think that there are omissions in the composition of the panel, not just in relation to the definition of small to medium consumers, but also in the representation or the expertise on the panel in the areas of demand management, energy efficiency and renewable energy.

Panel members are appointed by the minister on the recommendation of the Ministerial Council on Energy, and are to be selected on the basis of their skills and expertise, including knowledge of the energy sector, their ability to assess applications for funding against criteria, awareness of public interest advocacy, and the ability to identify areas of research that would benefit customers of electricity or natural gas.

The Australian Energy Market Commission (AEMC) must conduct a transparent search for panel members and provide the Ministerial Council on Energy with a list of all interested applicants, along with a short list of all applicants recommended by the AEMC. Panel members, however, will not be appointed as representatives of sectoral interest so as to minimise conflicts of interest and to ensure that the independence of the panel is maintained. It is the role of the panel to assess the grant proposals received. Under the bill and draft regulations as long as a grant proposal is of benefit to consumers of electricity and gas, or both, the subject matter of the proposals can be very wide. In relation to the third question, the Hon. Mark Parnell stated:

The Australian Greenhouse Office (AGO) and the Office of the Renewable Energy Regulator (ORER), as well as the state-based Green Power Scheme Regulators have, I believe, to date, failed to provide a robust framework to protect consumers' interest on the quality of renewable and low-emission energy products.

The answer is that I am advised that the regulatory and reporting arrangements put in place by the AGO and the ORER are working satisfactorily. For example, the ORER has ensured that renewable energy certificates (RECs) are being currently credited and then surrendered as required. Green power energy is additional to requirements for renewable energy under the federal mandatory renewable energy target, which was introduced in 2001 and is subject to annual audit requirements.

I should note that, following a number of complaints about green marketing in general, the ACCC, under the Trade Practices Act 1974, is currently scrutinising a number of claims to ensure businesses are not misleading their customers about the greenness of their products. I trust that answers the question asked by honourable members, including the honourable Dennis Hood, who spoke briefly. If there are any further issues, we can deal with them during the committee stage of the bill.

Bill read a second time.