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

Second Reading

The Hon. K.J. MAHER (Minister for Aboriginal Affairs, Attorney-General, Minister for Industrial Relations and Public Sector) (16:55): I move:

That this bill be now read a second time.

I seek leave to insert the second reading explanation and explanation of clauses in Hansard without my reading them.

Leave granted.

Under the current National Electricity Law (NEL) the AER has responsibility for monitoring and reporting on the wholesale electricity market. The AER has powers to gather information about wholesale electricity trade to monitor and report on the competitive functioning of the market.

Events during winter 2022 in Australia demonstrated the risks that energy consumers are exposed to when there is a lack of effective competition in, and visibility of wholesale electricity and electricity contract markets. During this time the Australian energy system came under extreme pressure. This was due to unprecedented high prices and price volatility in the wholesale electricity market. The war in Ukraine, high international fuel prices, fuel supply shortages, and generator outage contributed to these issues.

Multiple electricity retailers struggled to hedge their retail load in contract markets against these high wholesale electricity market prices. Without an ability to gain information about trading and levels of liquidity in electricity contract markets, the AER and Australian governments had incomplete information throughout this crisis.

The winter of 2022 in Australia also saw unprecedented high prices in the Australia gas market. This was due to global increases in gas prices following the war in Ukraine. It was also due to higher than anticipated demand by LNG exporters and gas-powered generators, and lower than expected supply. Given the AER's lack of wholesale market monitoring and reporting (WMMR) functions and powers for gas markets, it had limited ability to assess competition or whether participants were exercising market power.

Additionally, several recent reports, including the Australian Competition and Consumer Commission's Inquiry into the NEM Report, have recommended expanding the AER's WMMR functions and powers to gas wholesale markets or electricity and gas contract markets.

Noting the significance of these events and reports, on 19 October 2023 Energy Ministers agreed to a WMMR legislative package and progressing it to the South Australian Parliament.

The Statutes Amendment (National Energy Laws) (Wholesale Market Monitoring) Bill 2023 proposes to extend the AER's WMMR function to include the electricity contract market and wholesale gas market. It will also ensure the AER has the information it needs to perform this expanded function. The Bill will require the AER to monitor these markets and produce reports on this function at least every two years.

Electricity generators and retailers use the electricity contract market to manage their exposure to financial risks resulting from the volatility of wholesale electricity prices. The electricity contract market contributes to the functioning of the wholesale electricity market. It is a crucial link between electricity generators and retailers. By extending the AER's WMMR function to include the electricity contract market, this will enable the AER to gain insight into whether there is effective competition within this market. It will also give the AER insight on whether market power exists, and whether there are factors that are detrimental to effective competition. Additionally, this expanded market monitoring function will enable the AER to better understand the resilience of generators and retailers.

The Bill will mirror the AER's WMMR function for the electricity markets, in the National Gas Law. It will task the AER with monitoring and reporting on the competitive functioning of the wholesale gas market. The AER will determine whether parties are exercising market power. It will also identify factors that are detrimental to effective competition in gas markets. Bringing the wholesale gas market into the remit of the AER's WMMR function will contribute to improving competition and efficiency in the gas market. It also has impacts for the wholesale electricity market. Gas powered generators use gas purchased from the wholesale gas market for the generation of electricity to be sold into the wholesale electricity market. This link was demonstrated when high wholesale gas prices contributed to increased electricity prices surrounding the suspension of the market in June 2022.

The Bill will also remove existing limitations on the way the AER undertakes its existing WMMR function. The current legislation requires the AER to first identify a relevant matter using publicly available information. It is only following this, that it can seek to get confidential information from market participants through its compulsory information gathering powers. These constraints were created to ensure the costs of the WMMR function were minimised. They were also designed to protect confidential information provided by a market participant. In practice these constraints have hampered the AER's ability to gain enough visibility of the market. This visibility is important for understanding market participant behaviour as market conditions evolve alongside the energy transition.

The Bill will provide the AER with new information gathering powers. The AER will use Market Monitoring Information Orders (MMIO) to gather information from a class of persons. It will also use Market Monitoring Information Notices (MMIN) to gather information from individual businesses. The MMIO and MMIN will set out the information that will have to be prepared, maintained, kept, and provided to the AER. They will also set out the reasons the AER needs this information, the form the information must be provided in and the way it's to be provided.

The Bill will also require the AER to prepare and consult on guidelines setting out how it will undertake its WMMR functions. Additionally, the AER will need to publish the final guidelines within six months of the reforms taking effect.

Alongside removing constraints imposed on the AERs performance of WMMR functions, the Bill will introduce new transparency and accountability measures. These measures will ensure the AER undertakes WMMR functions appropriately and transparently, reduces the impost on businesses and protects commercially sensitive information.

The Bill will require that a review of the reforms starts as soon as possible after four years and six months after commencement of the Bill. By that point, the AER will have completed two reporting cycles under its new WMMR function.

Finally, the Bill will also create a power for the South Australian Minister to make rules setting out consultation requirements for the AER in developing the guidelines and MMIOs. The South Australian Minister will have the power to make those rules once only. The Australian Energy Market Commission may make later amendments.

I commend the bill to members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of National Electricity (South Australia) Act 1996

4—Amendment of section 2—Definitions

Definitions are inserted for the purposes of the measure.

5—Insertion of Subdivision heading

A Subdivision heading is inserted.

6—Amendment of section 18A—Definitions

New section 18A is inserted to provide for definitions for the Division.

7—Amendment of section 18B—Meaning of effective competition

This amendment is consequential.

8—Amendment of section 18C—AER wholesale market monitoring and reporting functions

The AER is given a function of regularly and systematically monitoring and reviewing the performance of monitored markets in accordance with the Law and the Rules. Other amendments are related or consequential.

9—Substitution of sections 18D and 18E

New sections 18D and 18E are inserted:

18D—Information to be treated as confidential

Provision is made in relation to the confidentiality of information obtained by the AER under the Division.

18E—Redaction of information

The AER must consider a request to omit certain information when obtaining a relevant agreement or information about a relevant agreement for the purposes of a function under the Division.

10—Insertion of Part 3 Division 1A Subdivisions 2 to 4

New Subdivisions 2 to 4 are inserted into Part 3 Division 1A:

Subdivision 2—Use of general information gathering powers

18EA—Limits on use of section 28 information gathering powers

Certain limits are imposed on the use by the AER of its section 28 information gathering powers.

18EB—Matters to be considered before using section 28 information gathering powers

Certain matters must be considered by the AER before using its section 28 information gathering powers.

Subdivision 3—Market monitoring information notices and market monitoring information orders

18EC—Definitions

Section 18EC provides for definitions for the Subdivision.

18ED—Urgent notices and urgent orders

The circumstances in which the AER may specify a market monitoring information notice or a market monitoring information order as urgent are provided for.

18EE—Content of notices and orders

Provision is made in relation to the content of notices and orders.

18EF—Notices and orders may be made for both past and future information

It is provided that notices and orders may be made for both past and future information.

18EG—Making and serving notices and orders

The procedure for making and serving notices and orders is set out.

18EH—AER must consult before making order

The AER is required to consult before making an order.

18EI—Publication of orders

The AER is required to publish an order.

18EJ—Opportunity to be heard before notice served

Certain procedural fairness requirements must be observed by the AER before serving a market monitoring information notice.

18EK—Compliance with notice

Provision is made to ensure compliance with notices.

18EL—Compliance with order

Provision is made to ensure compliance with orders.

18EM—Certification of compliance by statutory declaration

The AER may direct the recipient of a market monitoring information notice or market monitoring information order to verify that the recipient's response to the notice or order is accurate and comprehensive by way of a statutory declaration.

18EN—Subdivision does not limit powers under Division 3

An interpretative provision is set out.

Subdivision 4—Miscellaneous

18EO—Wholesale market monitoring guidelines

Provision is made requiring the AER to prepare wholesale market monitoring guidelines.

18EP—Review of wholesale market monitoring powers

The MCE must review the operation of Part 3 Division 1A as soon as possible after the period of 4 years and 6 months after the commencement of section 18EP.

11—Amendment of section 28—Power to obtain information and documents in relation to performance and exercise of functions and powers

This amendment is related to the amendments to Part 3 Division 1A.

12—Insertion of section 90EF

New section 90EF is inserted:

90EF—South Australian Minister to make initial Rules relating to wholesale market monitoring matters

The South Australian Minister is authorised to make initial Rules relating to wholesale market monitoring matters.

Part 3—Amendment of National Gas (South Australia) Act 2008

13—Amendment of section 2—Definitions

Amendments that are substantially similar to the amendments to the National Electricity Law in Part 2 are made to the National Gas Law.

14—Amendment of section 27—Functions and powers of the AER

15—Insertion of Chapter 2 Part 1 Division 1AA

Division 1AA—Wholesale gas markets—AER monitoring and reporting functions

Subdivision 1—Preliminary

30AA—Definitions

30AB—Meaning of effective competition

30AC—AER wholesale market monitoring and reporting functions

30AD—Information to be treated as confidential

30AE—Redaction of information

Subdivision 2—Use of general information gathering powers

30AF—Limits on use of section 42 information gathering powers

30AG—Matters to be considered before using section 42 information gathering powers

Subdivision 3—Market monitoring information notices and market monitoring information orders

30AH—Definitions

30AI—Urgent notices and urgent orders

30AJ—Content of notices and orders

30AK—Notices and orders may be made for both past and future information

30AL—Making and serving notices and orders

30AM—AER must consult before making order

30AN—Publication of orders

30AO—Opportunity to be heard before notice served

30AP—Compliance with notice

30AQ—Compliance with order

30AR—Certification of compliance by statutory declaration

30AS—Subdivision does not limit powers under Division 3

Subdivision 4—Miscellaneous

30AT—Wholesale market monitoring guidelines

30AU—Review of wholesale market monitoring powers

16—Amendment of section 42—Power to obtain information and documents in relation to performance and exercise of functions and powers

17—Insertion of section 294FE

294FE—South Australian Minister to make initial Rules relating to wholesale market monitoring matters

Debate adjourned on motion of Hon. J.S. Lee.