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House of Assembly - Fifty-First Parliament, Second Session (51-2)
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NATIONAL ELECTRICITY (SOUTH AUSTRALIA) (NATIONAL ELECTRICITY LAW—MISCELLANEOUS AMENDMENTS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 27 September 2007. Page 972.)

Mr WILLIAMS (MacKillop) (11:03): I am the lead speaker for the opposition on this bill. That does not necessarily mean I will take some hours to get through it, but I say at the outset that this is a very involved and technical piece of legislation. It is yet another tranche of a number of pieces of legislation which will establish and refine the national electricity market. Because it is a very technical and involved piece of legislation, some clauses run to many parts. In fact, one clause has something in excess of 30 parts to it. Just to indicate the complexity of the bill before the house, I think it is an abuse of the parliament for the government to introduce a piece of legislation such as this and then expect it to be debated in the house within less than a fortnight of its introduction. I think it was introduced on the last sitting day, so it is about a fortnight, and we are now debating a pretty amazing piece of legislation.

Due to commitments and other responsibilities I have as a member of parliament and, indeed, as a shadow minister, I was unable to receive a briefing from the government in the first week after the bill was tabled and was only briefed on this a bit over a week ago. So, I make the point that I think it is an abuse of the parliamentary process to put this sort of legislation through in such a hasty manner, particularly when it has been debated by the minister, the first ministers and the industry outside of the parliament for probably 2½ years.

It is a piece of legislation that has had a very long gestation and, indeed, in the briefing I had from the government I was informed that the original expectation was that this legislation would pass through parliament probably more than 12 months ago—more like 18 months ago. So, it has been very long in getting to parliament, and I question the motives of the government in expecting the opposition to become fully versed with the legislation and debate it in a very short time frame, namely, about a fortnight.

As a consequence, the opposition and I, as shadow minister for energy, are still getting our heads around some of the aspects of the legislation. I indicate that the opposition will not oppose it in the assembly but, of course, given those circumstances, the opposition will reserve its right to alter its position come the debate in the other place. If it is revealed to the opposition that all is as we have been told, I am sure we will see the bill proceed through the other place without amendment. I hope that is the case but, notwithstanding, I am somewhat disturbed by the hastiness with which this piece of legislation has been brought on.

I know the government has an excuse, if only because, as we have seen all year, there has been an incredible paucity of legislation coming into the house and the government has the sitting dates locked down and needs to bring something to the house for us to debate. The paucity of legislation before the house I think is probably a result of the fact that the government, and no doubt members of the Labor Party generally, are spending much time otherwise occupied, namely, in a federal election campaign. Indeed, that has occupied them for a long time—many months; I am sure it has not just started for them this week.

The SPEAKER: Order! The member for MacKillop will have to turn his attention to the bill at some stage.

The Hon. P.F. Conlon: I don't think he knows much about it.

Mr WILLIAMS: I concur with the minister. I am not sure how much the minister knows about it. Indeed, if I was aware that the second reading speech was going to run to 26 pages, I might have withdrawn leave for him to have it inserted in Hansard without reading it. It might have been the first time he had read it. But, I can assure the house that I have, in fact, read it. To claim that I understand every bit of it at this stage is a claim I would not make. Notwithstanding, I will first go through some background to the legislation.

Of course, the National Electricity Market (NEM) came into operation in December 1998, and South Australia is the lead legislator for the national electricity law and, as such, enacts the relevant legislation which is then extended to the other jurisdictions via application acts passed by the other parliaments. Interestingly, while I was researching some of the background, it came to my attention that the reason South Australia is lead legislator is that (certainly under the previous government) in the cabinet handbook the decision had been taken that the cabinet of the government of South Australia would not entertain picking up legislation via the process of utilising an application act. It may have changed, but that was my understanding when the Liberal Party was last in government.

In July 2005 significant amendments were made to the original act to enshrine in the law the Australian Energy Market Agreement, as signed by all first ministers in June 2004. That legislation established the Australian Energy Market Commission and the Australian Energy Regulator, with responsibility for electricity wholesale and transmission regulation. The policy-making role was enshrined in the Ministerial Council on Energy with rule-making, market development and economic regulation and enforcement being the province of the commission and regulator. In June 2006 the Australian Energy Market Agreement was further amended with the agreement of all first ministers.

The legislative package reflects advice from the Expert Panel on Energy Access Pricing of April 2006 and is the Ministerial Council on Energy's response to that report. The bill comes as a result of the Council of Australian Energy Ministers' agreement to have a single regulator, the Australian Energy Regulator, to regulate all transmission and distribution networks in the national electricity market. It is worth noting that proposed gas distribution networks will also come under this regulation shortly, and I believe the house can look forward to that legislation in the not too distant future.

I now turn my attention to the bill before us, which confers the economic regulation of electricity distribution networks on the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER). The bill will place in legislation the objectives of the law, and sets the objectives as the promotion of efficient investment in, and the efficient use of, electricity services for the long-term interests of consumers of electricity with respect to price, quality, reliability and security of supply of electricity, and the safety, reliability and security of the national electricity system. Certainly, during the committee stage I will be seeking from the minister an explanation of the subtle change in the objectives—which are stated as being the objectives of the law rather than the objectives of the market—because the wording changes little. In fact, the only change (from my reading of the existing legislation and the bill before us) is to remove the word 'market'.

The AEMC must test changes when making rules against this objective, as must the AER when performing its functions. Matters of broader social and environmental objectives have been deliberately left to other legislative instruments and policies outside the national electricity law. The bill will allow for two forms of regulation: direct control network service, where the price is fixed by an AER revenue or pricing determination; or a negotiated network service, where transmission and distribution services are regulated under a negotiate/arbitrate regime as opposed to upfront price control.

The regulator is able to determine the regulatory scenario based on the potential of the market power to be exploited by the service provider. Factors considered by the regulator in this determination include the presence and extent of barriers to entry in a market, the interdependent nature of network services and any network externalities as potential sources of market power, countervailing market power possessed by consumers of the services, the potential of substitution by or for other products, and the extent to which information regarding the efficient use of providing the service is available to customers.

The amendments provide for the inclusion of six revenue and pricing principles to guide the AER, and those principles are:

that regulated network providers should have a reasonable opportunity to recover at least the efficient cost incurred in providing the service to provide effective incentive to promote economically efficient investment;

that the regulator has regard to the regulatory asset base adopted in any previous determination;

that prices and charges allow for a return commensurate with the regulatory and commercial risks involved;

the regulator has regard for the economic costs and risks of the potential for both under and/or over investment by a service provider; and

the regulator has regard to the economic cost and risks of the potential for both under and/or over utilisation of the network.

The bill establishes a fit-for-purpose decision-making regulatory framework. This framework will give the regulator the flexibility to make an independent assessment with regard to each of the national electricity rules, given a level of discretion within the established market rules. The bill gives amended powers to the AER with regard to information gathering, including search warrant provisions. The power includes:

(a) the ability to issue a general regulatory information order which would apply to all network providers of a specified class, specifying the information to be kept and the manner in which it is to be available; and

(b) a regulatory information notice which is specific to a network service provider.

The AER's information gathering powers are extended to parties related to the service provider, and the ability to issue an urgent regulatory information notice is also envisaged.

The AER is able to publish performance reports on the financial and operational performance of network service providers. Whilst confidential information should be protected, the AER may disclose information if the public benefit warrants. Such decisions are subject to a merits review. It should be noted that performance reporting is already part of the regulatory regime here in South Australia. The amendments will introduce a mechanism for limited merits review by the Australian Competition Tribunal, and parties including network service providers, users and consumer associations may seek leave from the tribunal for a review of the primary transmission and distribution determinations made by the AER.

Regulations may prescribe other decisions which may be subject to a merits review. It is intended that passed through applications will be so prescribed. Merits review will be limited to where the original decisions contained errors of fact or if the original decision maker's discretion was incorrectly exercised or the decision was unreasonable, having regard to all the circumstances.

Furthermore, reviews will be available only for revenue related determinations where the amount at issue is more than the lesser of $5 million or 2 per cent of the annual average regulated revenue. Wide scope will be available for intervention in reviews by interested persons or groups once a review is commenced. The review may affirm or vary a decision set, set aside a decision and substitute a new decision or refer the matter back to the AER for reconsideration. Amendments will allow the AER to act as an arbitrator in the case of disputes relating to access, and determinations made will be binding.

The bill provides for the initial electricity rules to be made by ministerial instrument, and thereafter the Australian Electricity Ministerial Council (AEMC) may amend the distribution rules through a statutory rule change process. The rules provide the framework within which the AER makes its determinations. The basis for the initial asset base is established by the rules, as is the framework to consider capital and other expenditure requirements, and the process for determining the cost of capital.

The recognition of passed through events is guided within the rules, and the AER can develop incentive schemes around capital and operating expenditure efficiency, services standard efficiency and demand management via the national electricity rules. The new rules are also designed to enhance the uptake of renewable and distributed generation, with homeowners using solar PV units (photovoltaic units) to benefit from reductions in network charges, and large customers who make lasting demand reductions to also have tariff allocation reassessed. Existing determinations will continue to operate under the current rules until they expire.

The bill allows for the continuation of South Australia's tariff equalisation arrangements which protect small customers in isolated areas. Additional obligations arising from the South Australian pricing order are maintained and recognised in the regulatory guidance established as part of the South Australian electricity privatisation process. In the short time that has been available, I have met with representatives from the federal minister's office, ElectraNet, ETSA Utilities, the Energy Networks Association and Envestra. Whilst the service providers have some reservations, they support the legislation, given their belief in the net benefits and their desire to move forward under the national arrangements. The national regulator will be constantly making determinations, giving industry a continuous insight as opposed to the current five-year cycle experienced in South Australia under the state-based regulatory regime.

The legislation has been a long time coming, as I said, and has resulted in significant compromise, with much discussion centring around the balance between what would be in the act and what would be within the rules. The industry is, by and large, satisfied with the outcome but does have some reservations, and I will come to those points in a moment. The federal government has also encouraged the opposition to support the bill. So, as I said earlier, the opposition does indicate at this stage that it is supportive of the bill before us. This follows the Liberal Party's belief in the market-based system that we now have, or are in the process of finalising. It has been evolving since the late 1990s and, we believe, it is integral to the position in which South Australia finds itself and in which other states will shortly find themselves with the privatisation that occurred in South Australia with regard to our electricity assets some years ago.

It is now an almost universal belief that it is not necessary for the public to own particular assets through governments to ensure that the service is provided. It is ironic that, with this legislation, the Labor Party—which opposed the privatisation of South Australia's electricity assets, I would remark, for political purposes—is now party to these sorts of changes which build the regulatory regime which enables the public to get the same protection—in fact, better protection—than what they would have by publicly owned electricity assets. We see that many other jurisdictions—notably New South Wales, I believe—will very soon be moving to a position that was adopted both in Victoria and South Australia where they utilise such regulatory regimes to protect consumers rather than tying up billions of dollars of taxpayers' funds, which only leaves open the ability for ministers of the government of the day to take capricious decisions for political purposes.

Indeed, with the completion of this series of legislation—and this will almost bring it to a close; I believe there is little more to come—there will be no argument left at all in places like New South Wales and Queensland for the retention of public ownership of electricity assets. It is interesting to note that this process will continue with regard to gas and that we will have an Australian energy regulatory regime. It is also interesting to note that it was a former Labor government of South Australia that privatised our gas network and distribution system yet argued against the same thing happening with regard to electricity but is now party to establishing the very regime that offers the protections that it argued at length would only be available if the taxpayer was investing billions of dollars into electricity assets.

I have a number of questions which would probably be easier to raise during the committee stage, but there is one question with regard to retail price control in South Australia to which I would like the minister to respond. When the last piece of legislation went through the house back in 2005 I think the minister was somewhat confused about where the government was going. He said one thing in the parliament and something else in the local press with regard to where South Australia was heading in terms of retail price control.

What we as a parliament have done over the years with regard to legislation (obviously, Labor has been the lead party in this) is to remove in-house, local, or South Australian control over much of the regulatory process, and we will hand that over to a national regulator. So, ESCOSA (the South Australian-based Essential Services Commission) will no longer have control over a wide range of things that impact on the price of electricity in South Australia. We have already handed over regulatory powers to the national body for interconnection services or transmission facilities—

The Hon. P.F. Conlon: No, we haven't. The ACCC has always made those decisions, mate. We didn't hand it over to them.

Mr WILLIAMS: I will be corrected by the minister: the national regulator, under the 2005 changes, took control of transmission regulation, and also took control—

The Hon. P.F. Conlon interjecting:

Mr WILLIAMS: The minister is correct in saying that they took it from the ACCC. However, the other area is the—

The Hon. P.F. Conlon: We didn't hand it over; you admit that?

Mr WILLIAMS: I do admit that. However, the other area is the regulation of the wholesale price; indeed, we are now handing over control of regulation of distribution networks. My question to the minister is: what is going to happen with regard to retail price control in South Australia?

The Hon. P.F. Conlon: It's in the second reading explanation; the non-economic aspects of retail.

Mr WILLIAMS: My understanding is that a review will probably be undertaken next year, which will ask the basic question: are electricity supply services operating in a competitive market in South Australia? I believe that review will indicate that South Australia does have a competitive market right across the board with regard to its electricity supply services. What will be the government's response? Will it free up retail price control, or will the government maintain the ruse that it has its finger on the pulse and will intervene when and if necessary? I guess that is the main question in relation to where we are going. In the past, the minister has steadfastly said that the government's position is always to maintain that retail price control here in South Australia so that the minister has the ability to intervene if and when necessary.

It seems that other jurisdictions do not believe that is necessary within their jurisdictions. I would like the minister to indicate what his reaction will be when the upcoming review informs him that we do have a competitive market here in South Australia, because that was the intent of the former Liberal government when it took the decision to sell the electricity assets. We know that privatisation has been beneficial to South Australia and that commercial and, more recently, domestic customers have received cost benefits due to that privatisation and the sort of regulatory system that has been put in place since then. Do we still need to impose a retail price control at a cost to local electricity consumers?

The Hon. P.F. Conlon: Prior to election, promising to remove it.

Mr WILLIAMS: The minister has been flushed out. I did not think it would happen quite so easily. He suggested that we go to an election on this issue, because he still believes that there is a political upside for him. The reality is that South Australian consumers—both at the commercial and domestic level—are the beneficiaries of a very efficient, market-based electricity service sector, as are gas consumers, notwithstanding that the former Labor government privatised the gas network and the gas distribution system in South Australia. Via his interjections, the minister has already stated his position, that he will continue to play politics with this, notwithstanding that we have a regulatory system which, as I say, protects consumers and electricity users. I am getting the wind-up; you only encourage me to talk longer, minister.

The Hon. P.F. Conlon: Talk about the bill.

Mr WILLIAMS: I have talked extensively about the bill. If the minister had listened to my contribution earlier rather than sitting in his place talking, he might have understood that I have been talking about the bill for the last 20-odd minutes. Indeed, I am about to wind up, but I briefly restate that the opposition reserves its right to ask more questions in the other place because of the technical nature of this bill.

The Hon. P.F. CONLON (Elder—Minister for Transport, Minister for Infrastructure, Minister for Energy) (11:32): I am a very charitable man, therefore I am going to attempt to assist the member for MacKillop with regard to this bill. I will try to work through the points he made in the correct order. The first point was that this bill has been sprung on the opposition with only less than a fortnight to consider it, which it thinks is most unfair. The honourable member went on to suggest that that was for some base motivation. I will come to the first point, that it has been sprung on the opposition.

Mr Williams: That is not the word I used.

The Hon. P.F. CONLON: Well, that is not the word you used, but you did say that it was introduced without sufficient time for you to understand the complexities of it. This is a reform process that has been going on for five years, and this is the latest step in what should be a well-understood reform process. This bill has been produced in draft form—I think, the first draft was in about March this year—and then another draft, and all of those were posted on the Ministerial Council on Energy website. I will get that website address for the opposition spokesperson in a moment. It has been out to extensive public consultation.

The problem that the opposition has is that the opposition spokesperson on electricity—a matter so vital to all South Australians—only discovered it when we tabled it in parliament. If the opposition spokesperson has been so bone idle that he has not attempted to inform himself of one of the most important reform processes, if he cannot access a website which most primary school children can now do, if he has not had the interest to inform himself, and if he thinks it is the duty of the government—given that he is actually paid to be the opposition spokesperson—to inform him when he does not have the gumption to inform himself, then I say he is much misinformed, and he is much misinformed on many aspects of this. His contribution included some things that were simply manifestly wrong, and I will deal with those in a moment. The notion that this has been rushed in for some objective of ours is ridiculous. I do not think anything has been more discussed with the industry and more available to the public, to everyone, except the opposition spokesperson, who has decided to approach his mastery of energy by keeping an open mind by not informing himself of anything.

Far from being rushed in for some base motivation, this measure has involved a long process. I will explain national reform. The opposition spokesperson has never been a minister and has never dealt with national reform. As I say, it is a very long process and involves getting all jurisdictions and the commonwealth to agree. The bill before the house is, of course, a result of that. The reason it is being put in now, and the reason we would like it finished, is that my colleagues in New South Wales have asked us whether it is possible for us to have it concluded by the end of the year. The reason for that is that they have a distribution reset coming up.

Mr Williams: I am aware of that.

The Hon. P.F. CONLON: He is aware of it. I do not think that he is aware of it because one of the closing comments of the opposition spokesperson is that what we are doing is sponsoring a bill to introduce the market to all those people who have not privatised, which is just such a manifest misunderstanding. The truth is that this bill has no regard for who owns the assets—no regard at all; it is simply a regulatory process. All that is happening is that a regulator that already exists (there is already a regulatory system for state-owned assets) will be transferred to a national regulator.

My colleagues in New South Wales would like it done this year, if at all possible, for the very good reason that, if the reset is to commence, they would like it to commence under the new national regulator, not under a state-based regulator and then be shifted to a national regulator. The opposition spokesperson says today that that is no problem and that he agrees. Why did he say something else? Why did he make up some story about our having some base motivation? Why did he do that? Why does the opposition do that? He now says that he knows it is not true, but why did he do that? Why does he seek to mislead people about something we are doing?

To come back to the point, this national electricity bill is the result of some five years of work on national reform. The notion expounded by the opposition spokesperson is that it is somehow hypocritical that we opposed privatisation but want to hand over regulation to the commonwealth. This again demonstrates the absence of any knowledge of this process. What occurred was that, in a privatised world, one thing we knew was that, once you lost the protection of government ownership, you had to have the best possible regulatory system you could have. So, we went to the commonwealth to seek to introduce a better regulatory system. Our original ambition was to solve the problem.

Mr Williams interjecting:

The SPEAKER: Order!

The Hon. P.F. CONLON: I am not surprised that the opposition spokesperson is embarrassed about this. Our original ambition was to improve the national regulatory process by filling the policy—

Mr Williams interjecting:

The Hon. P.F. CONLON: I will come to the point that consumers and commercial consumers would have been better off under the opposition, if the member for MacKillop really wants to me to. I say to the opposition: instead of debating things that are not in this bill, if he wants to have a debate with me and the public of South Australia on the merits of his privatisation (and it is not often I invite one of those people on the other side to debate because it simply raises their profile), if he wants to go to a big public debate anywhere he likes on the merits of this privatisation and support it, I will talk about what really happened any time, any place. However, I come back to the bill. What we sought to do was to fill the policy vacuum everyone acknowledged existed in the creation of the national electricity laws and to create a better mechanism than the endless debate between NECA and the ACCC.

Again, the opposition spokesperson feigns indifference and chats with his mates, because he will go to any lengths not to be informed on national electricity laws. That way he can stand up and claim not to know anything about them when they come into this place. If ever there was a confession that a person has not discharged their obligations as an opposition spokesperson, it is the fact that this fellow claims he knew nothing about what was in this bill until it was introduced in the house. That is quite astonishing, and really he should be embarrassed. That is what we sought: a sensible reform, an improvement of the 'fill a policy' vacuum, and an improvement in the relationship between NECA and the ACCC.

Members interjecting:

The Hon. P.F. CONLON: There they go; they are feigning chatter.

Members interjecting:

The Hon. P.F. CONLON: Here we go. They are speaking aloud so that they can pretend that they are not interested. We know that you are not interested; we know that you know nothing about it—nothing at all. But if you take pride in the fact that you know nothing about it, then you are a very different politician from me, and that is why you will stay on that side for ever, and it is why you have never been a minister. You do not want to know anything about anything. I hope that you know something about farming, I really do. You must know something. Coming back to the bill, we wanted to improve regulation because people had been thrown to the wolves through privatisation. But, there is a Liberal commonwealth government, and we have to get its agreement.

The federal government's price for the full reform was the creation of a single national regulator. That is not me handing it over: that was the Liberals' price to participate in the necessary reform to improve electricity regulation for consumers. We set aside the politics to improve the lot of consumers, and we incorporated the demands of the federal government because we could not achieve reform without it. This is about getting all of the states and the commonwealth to agree. It has been a long, slow process, but we got there. I invite the member for MacKillop, the opposition spokesperson on energy, to perhaps take quarterly briefings from our officers on the reform process so that he is not caught unaware of what is going on in terms of national regulation of one of the most important services for all Australians. It would be very helpful for him.

I want to address some of the other questions that were asked, and I can certainly answer them in committee. The notion that I have said two things about price capping is absolutely false. I have said inside and outside this house that I do not support the lifting of price regulation. I have advised consistently—as recently as last week when the retailers association came to see me—that I do not support that. I have said on the record why I do not support it.

The notion that, because of the work of this government in creating a competitive market, people therefore do not need protection is absolutely illogical. The people, in my view, who are not protected by the marketplace are those who are purported to be represented by members on the other side, particularly those in small regional communities. If you think that energy retailers want to go out and compete for those small groups of marginalised regional customers and small-use customers, then you are kidding yourself.

I note that the tenor of the speech from the opposition spokesperson is that the market can fix it, but that has been the attitude throughout. The tenor is that they will support the removal of price control. They will support the removal of price protection for those people whom they purport to represent. It is the consistent theme of the opposition's contribution. The member for MacKillop does not want to know about the laws, because he does not care. He has not kept track of national regulation, does not know and does not care what happens to customers. He does not care what happens to the country customers who need protection—he does not care at all. And, look, they are all getting embarrassed for him now. It is a tricky subject, but it is a very important one, and there is no excuse for not trying to get your head around it.

I continue to support retail price control. The market objectives are not all that different, nor do I think that they should be. From memory, I think that they incorporate a desire ultimately to bring together the gas and electricity markets. I do not believe they should be, even if I think it is a right objective. The objective for South Australia, being pressed into a single national regulator, is to make sure that the national regulatory process is at least as good as that in South Australia. I think ESCOSA has established, as a result of the legislation and the support of this government, an extremely good regulatory regime. We want to make sure that the national regulator is at least as good as the state regulator. There are, of course, potential benefits to national regulation and they have been set out so I will not go over them.

What I can say to the house is that the latest piece of legislation is the result of five years of very hard work, and I commend South Australian energy officials in that regard. I believe that they are as good or better than any energy officials anywhere around Australia and they have done an enormous amount of work on this. I place on the record my regard for the very hard work done by Vince Duffy and, before him, Garry Goddard. It has been very hard work to bring everyone to agreement on this bill. It is a matter of enormous importance for all Australians, particularly in a carbon-constrained world, that we get the regulation of the national energy market right. It has absolutely nothing to do with whether the distribution company is owned by government or the private sector— that has nothing to do with it.

The complete fabrication that supporting regulatory reform is about showing that the Liberals were right to throw customers to the wolves is simply what I have said it was—utter fabrication. It is tremendously important. I will close by saying to the person who calls himself the opposition spokesperson on energy that, having privatised it and having sold off the assets, that is no excuse for him not knowing what is going on in the world. It is no excuse for him not following national reform.

It is no excuse for him not being able to look up a website with draft upon draft of this legislation, or attend one of the consultations, or even talk to industry representatives who have been involved throughout this. Privatisation is no excuse for him not to have any knowledge, not to do anything about his area of responsibility. I am happy to answer any questions in the committee stage of this bill. Even though it is a difficult process for all those governments and the commonwealth, I really hope we are not going to see an opposition spokesperson who has not bothered to do any work on this second-guessing every state and federal government in Australia.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

Mr WILLIAMS: Given his rantings a few moments ago, will the minister explain to the committee what options would be open to a government that retained ownership of electricity assets that would not be open to a government having privatised those assets and having a regulatory regime as will be implemented by this bill and its predecessors?

The Hon. P.F. CONLON: The options that are open are: a choice to take a lower profit margin than the private sector might; a choice to charge less than the private sector might; something like an E-test scheme which exists in New South Wales; a choice to put—

Mr Williams interjecting:

The Hon. P.F. CONLON: Yes; that is right; we know that you do not like looking after the customer. We know—I have got the point. Further options are: a choice to put customers before profit; and a choice to ensure that, for example, it is not just user pays when you connect people so that country people do not have to pay an absolute fortune to get onto the system, while people in the city pay less. All those sorts of choices are available to you. We know that you do not like it; you have made your point. We will debate you on it any time you like.

Mr WILLIAMS: Country people were protected in the privatisation process. I, personally, happen to have been largely responsible for those protections. I am very aware of them and—

The Hon. P.F. Conlon interjecting:

Mr WILLIAMS: —I am delighted that those protections are still maintained in this bill. Interestingly, the minister obviously has failed to recognise that, by and large, taxpayers and electricity consumers are the same persons, and whether they subsidise the price of electricity via their taxes or they pay it via their electricity bill is one and the same thing.

Clause passed.

Clauses 2 to 5 passed.

Clause 6.

Mr WILLIAMS: Can the minister give a full explanation for the need for new sections 2B and 2C—establishing the opportunity for the regulator to have a direct control network service or a negotiated network service—and examples of where either type of regulation may be used?

The Hon. P.F. CONLON: I am not sure what the opposition's question is. A regulatory regime was established. From memory, they call it a 'fit for purpose regime'. It incorporates a regulatory regime of things that, in the past, we would have called simply regulated assets where DUOS apply, and then a further category. All this does is set out the classifications of those things and what will fall into each category. There will remain, as I understand it, a discretion in the regulator. Of course, that discretion will be about some obvious facts such as whether it is a natural monopoly. From memory (and only from memory), a whole load of matters go to that discretion, including whether there is capacity for competition and whether there is capacity for substitution of the service through such things as imbedded generation. It sets out the classifications upon which the regulatory discretions operate, and I would have thought that was something it should do.

Mr WILLIAMS: I am afraid that the minister, who apparently knows this inside out and who is obviously taking advice from someone who does know it inside out, probably does not know it quite as well as he thought he did, and—

The Hon. P.F. Conlon: Ask me an intelligent question.

Mr WILLIAMS: I am about to rephrase the question that I just asked in the hope that we might get a sensible answer from someone who knows what they are talking about. You would not look so damned foolish if you had not had carried on so much earlier.

The Hon. P.F. Conlon: Come on; give us a question.

Mr WILLIAMS: Minister, you should listen. You are the one who will continue to be embarrassed, because you display that you do not know what you are talking about. New section 2B, headed 'Meaning of direct control network service', states:

A direct control network service is an electricity network service—

(a) the Rules specify as a service the price for which, or the revenue to be earned from which, must be regulated under a distribution determination or transmission determination; or

(b) if the rules do not do so, the AER specifies, in a distribution determination or transmission determination, as a service the price for which, or the revenue to be earned from which, must be regulated under the distribution determination or transmission determination.

New section 2C is headed 'Meaning of negotiated network service', and it states:

A negotiated network service is an electricity network service—

(a) that is not a direct control network service; and

and so on. My original question—and the question I again ask—is why is it necessary to have the two types of regulatory control: one, a direct regulatory control where the regulator makes a determination up front through a process; and, the other, where, it seems, as they go forward and from time to time, the regulator acts as an arbitrator and they negotiate the price that is paid for the service from time to time? Can the minister indicate why it is necessary to have the two types of regulatory regimes in place, and can he give some examples to the committee of what sorts of services would fall into each of those regimes?

The Hon. P.F. CONLON: What I will do is speak more slowly. The first type of service—now, concentrate—is those that are predominantly natural monopolies. That is the predominant consideration. For example, all those poles and wires you see running down the street, it is unrealistic to suppose that there will be a capacity for someone to compete in a geographical area with other poles and wires. If it helps the member's confusion, it is probably just the change of name. These would be called under our regime, I think, prescribed services; that is, the natural monopoly distribution network services. What happens with those is that you can do a reset every five years, give a rate of return upon assets, and estimate op ex and all those sorts of things. Is the member concentrating here—

Mr Williams: Yes.

The Hon. P.F. CONLON: —because I will be asking questions later. Those are big national monopolies that, by and large, can be regulated and reset. I will go out on a limb here and suggest that there are probably other ETSA services that will be regulated, but in a different way. For example, there are some services which are not of that nature which are not readily contestable. A classic example, I think, would be an extension for augmentation. It is impossible to set a general reset for five years on the cost of every extension and augmentation. Apart from anything else, you will not know what they are.

However, it is necessary, given that the service is not contestable, for that to be regulated; that is, you cannot simply allow the distributor to exercise market power. So, it is necessary to have two different categories of regulation. If you were to look at our existing regulatory system, you would find that ESCOSA, when it regulates the distribution system, does that. It already has different categories of regulation, from memory. You can go to the regulator if you are unhappy with an offer on an extension or augmentation of a service that is not readily contestable.

There are services, of course, that are not regulated at all, because there is sufficient competition, or there are other sufficient safeguards to do that. I would have thought that you would expect a regulator to have a capacity to regulate things differently, according to the nature of the assets. I may not have explained it well enough for the member, but if he tells me which specific part he does not understand, I can go into more detail.

Clause passed.

Clause 7 passed.

Clause 8.

Mr WILLIAMS: In my second reading contribution I referred to the subtle change in the wording to the national electricity objective. This clause amends section 7 of the act. Currently, section 7 of the principal act talks about the national electricity market objective, whereas clause 8 (inserting new section 7) talks only about the national electricity objective, that is, it removes the word 'market'. The bill further provides, ‘The objective of this law is to promote efficient investment in...'. The wording is virtually identical. Will the minister explain to the committee that subtle change and why the word 'market' has been removed? The same changes have been made to a number of other clauses. I am sure that many of the minister's colleagues would be most happy to hear the minister's explanation. I would be absolutely amazed if any other member of the parliament—apart from the minister and me—has taken the slightest notice of this piece of legislation, whether it be from the website or anywhere else.

One reason I think the parliamentary process is important is that all 47 of us—and the 22 in the other place—are charged with some responsibility. The minister might think it is a proper process to come wandering in here, slap a bill on the table and say, 'This is it. I've been looking at it for three years, therefore it is good. We should all accept what I say and get on with it.' The reality is that if the minister questioned any colleagues on his side of the chamber he would find that not one of them has been wandering through the website and following this process. I am not too sure that many of them would have taken much interest when he took it to his caucus either. That is the reason we have the parliamentary process.

The Hon. P.F. CONLON: I must answer that. I have not questioned for a moment the parliamentary process. I am a great believer in it. One cannot get away from this. The only thing I took umbrage at was the honourable member claiming that this was rushed in without sufficient notice to him and that, as the spokesperson, he had only two weeks to look at it. None of my parliamentary colleagues claim to be the shadow spokesperson on energy—that is a title the honourable member claims. I take umbrage at the honourable member's failing to inform himself of a process that has been going on for five years (in addition to widely available information) and saying that somehow we have let him down.

I will simply not accept that. People in this place are entitled to ask all the questions they like; and I will answer every one of the honourable member's questions honestly, as I have always done. The honourable member should not try to squirm out of the fact that he came into this place and claimed that this was something about which he had insufficient notice to deal with. I do not know whether he has other shadow portfolio areas, but he should spend a little less time on them and a little more time on this one.

The definition is changed for two principal reasons: first, because of the impending convergence with the gas regulation—of course, this law was based on a national electricity market; and, secondly, that the market might be read narrowly to refer to those parts of the system (such as NEMMCO, the market, the price setting, the spot market and those sorts of things) as opposed to what the law actually does cover, and that is all aspects of the delivery of electricity from supply through to consumer. It does not change a great deal in substance. It does prevent the risk of its being read too narrowly. It does not change what I think were proper objectives set out under the national electricity law.

Clause passed.

Clauses 9 to 24 passed.

Clause 25.

Mr WILLIAMS: This clause deletes old section 28 and inserts a new section 28, which gives general information gathering powers. The question is quite simple. Clause 28(7) specifically says that it is not a reasonable excuse for a person to:

(a) fail to provide information of the kind referred to in subsection (1) to the AER; or

(b) fail to produce a document of the kind referred to in subsection (1) to the AER, or to a person specified in the relevant notice acting on behalf of the AER,

on the ground of any duty of confidence.

In subclause (9) it goes on to exempt certain persons or organisations from that sort of disclosure obligation and specifically cabinet committees of a state, territory or the commonwealth. Will the minister explain why it is imperative to keep cabinet confidentiality? Somebody in this instance would be part of the electricity market but is not able to maintain the confidence in a commercial sense, yet we provide a specific exemption for a document that had been run through the cabinet process?

The Hon. P.F. CONLON: I am surprised at the question. My understanding is that it is a stock standard provision in terms of cabinet solidarity and the privilege against self-incrimination. If you do not think they are there, you are probably promoting an idea for the first time.

Clause passed.

Clauses 26 and 27 passed.

Clause 28.

Mr WILLIAMS: This clause concerns the rule-making powers. My understanding is that one of the significant debates that was had during gestation of the bill related to what was going to be in the bill, in the law and in the rules. There was a debate between the various governments and stakeholders in industry regarding that, and I understand that the industry wanted a process whereby more was in the rules rather than in the law, in order to give flexibility as they move forward. Obviously, this is a dynamic industry and it changes fairly rapidly. I believe that the initial rules will be set by ministerial decree, which I assume will be under the minister's hand as the lead legislator. Are the initial rules simply transferred from the existing rules, or will a suite of new rules be promulgated in that initial process?

The Hon. P.F. CONLON: There will be a substantial body of new rules because the national electricity law has not dealt with distribution in the past. There will be a substantial body of new rules around distribution. Whilst those rules may be introduced by me, they will have to be agreed with all jurisdictions. My understanding of the process—and one of the reasons these things take a long time—is that there will be discussion about what should be in the law and what should be in the rules. This was the agreement of the jurisdictions on the best mix. A draft set of rules is on the NEC website. What is in the law and what is in the rules has not been as big a discussion in the Electricity Act (because most of the substance does not change) whereas in relation to the Gas Act there was a big debate about what should be in the law and what should be in the rules. What is in the rules is the agreed position of all the jurisdictions and they are available on the website.

Mr WILLIAMS: In relation to the other areas that are covered by the national regulator—principally the transmission networks—are the rules the same or has the opportunity been taken to change the rules?

The Hon. P.F. CONLON: The other rules will only be changed consequentially because of the introduction of this bill.

Clause passed.

Clauses 29 to 45 passed.

Clause 46.

Mr WILLIAMS: This clause refers to the merits review. The clause provides for new sections 71A to 71ZF. I do not intend to go through all the new sections. This is one of the areas about which industry still has concern.

The Hon. P.F. Conlon: I am not surprised.

Mr WILLIAMS: Industry is concerned about the limitations to the initiation of a merits review. Secondly, although industry is somewhat relaxed, in my mind it highlighted the opportunity for third parties to enter into a merits review once the review was established, and I refer to new section 71L, which provides for leave for a user or consumer intervener in relation to a merits review. First, what was the basis for the limitation of the merits review process specified in the bill and, second, is the minister satisfied that the process of allowing intervention once a review is established will not cause a burdensome situation where reviews may become bogged down in a very lengthy and unwieldy process?

The Hon. P.F. CONLON: Suffice to say in regard to this provision that many of the aspects of this law are thrashed out among officers and this is one provision that was not. Obviously, it has been a matter of some importance and quite some lengthy debate among ministers at the ministerial council. The truth is, in terms of a review of a regulatory decision officer, there is a range of options about review. One is restricting it to a very narrow area in law, and the other is whether someone has made a right judgment. There is a full range of review. The view of ministers was that an open slather review of decisions is likely to be very costly. I have always personally taken the approach—and I think it is the approach of most intelligent people—that regulation should only be as burdensome as it must be, because the cost of regulation ultimately is passed on to the end user. That is the nature of the industry. So, there was a view among ministers that there had to be some restriction upon a merits review.

I can tell the member that I can recall at least one aspect of that, and that was that the value of a decision was the subject of amendment up and down, and discussion among ministers. So, basically what you have is something that, in my view, the ministers could agree on and the industry could live with and which does not have the potential to tie up the regulatory system through endless reviews. So, was it my perfect model? Probably not. Is it anyone's perfect model? Probably not. So, is anyone likely to be perfectly happy with it? Probably not. But the nature of setting a national regulatory regime is such that we have to get agreement, and this was the agreed outcome. I remember that, when talking to industry, the clause about provision of information was probably the one they were far more interested in, but when you reach an agreement you have to reach an agreement and you are not going to make everyone happy.

Clause passed.

Remaining clauses (47 to 92) and title passed.

Bill reported without amendment.

Third Reading

Bill read a third time and passed.

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