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House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
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Bills

National Gas (South Australia) (East Coast Gas System) Amendment Bill

Committee Stage

In committee (resumed on motion).

Clause 6.

Mr PATTERSON: Regarding the reliability and system adequacy functions, what consideration has been given when making the functions of powers so as to not impose unnecessary administrative burden and costs on market participants?

The Hon. A. KOUTSANTONIS: I am advised that, yesterday, AEMO published a public information paper, which answers much of this but, for the benefit of the shadow minister, I will give him a brief description. On page 4, under 'Reducing the reporting and compliance burden', it states:

The key changes that have been made to reduce the reporting and compliance burden for industry are summarised below:

Removing the overlap and duplication between the Part 27 and Bulletin Board reporting obligations by removing some of the proposed disclosure requirements in Part 27 and making minor amendments to the Bulletin Board reporting obligations (i.e. in relation to reporting on maintenance and storage cushion gas).

Removing the requirement for retailers and large gas users to report medium-term demand forecasts (these forecasts will instead be developed by AEMO).

Focusing on those market participants and facilities that can have the greatest impact on reliability and supply adequacy in the east coast gas system, by:

employing the same reporting threshold to that used for the Bulletin Board (i.e. so only facilities with a nameplate rating greater than or equal to 10TJ/d have to report);

providing automatic exemptions to facilities that are exempt from the Bulletin Board (i.e. remote facilities and exempt NT facilities); and

allowing AEMO to exempt a relevant entity from the obligation to provide an item of information in specified circumstances and to use a default or standing value in place of the relevant information.

Taking other steps to reduce the reporting and compliance costs, including by:

aligning the Bulletin Board and Part 27 information standards, which should reduce compliance costs through the adoption of a common information standard.

enabling the Procedures to:

define materiality thresholds for information updates, to minimise reporting costs;

allow for the use of standing or default values, which should alleviate reporting for users with relatively stable demand; and

allow for the appointment of a reporting agent, or a reporting entity for those cases where there are multiple owners, operators or controllers of a relevant entity, which will reduce the reporting costs.

I should just clarify that that was not published by AEMO on its website: it was published by officials, instead of AEMO. It is on the Energy Council website.

Clause passed.

Clause 7.

Mr PATTERSON: I suppose this is really the guts of the changes regarding this bill. It does span a lot of it, but obviously there are only a few questions we can ask. In section 91AF, AEMO's power of direction into the east coast gas system, subsection (1) provides that AEMO may give a written direction to a relevant entity for one or more of the following purposes:

(a) to maintain and improve the reliability of the supply of natural gas within the east coast gas system;

(b) to maintain and improve the adequacy of the supply of natural gas within the east coast gas system.

That gives really significant powers, and we have tried to go a little bit into the distortional effects on the market that could happen; for example, I think you said it might impede the efficient allocation of gas across the market, and it could potentially affect competition as well in key parts of the supply chain.

You have made the point that it is really going to be used in emergencies because there are critical issues in the system, and if an emergency arises it tips it over the edge. Just around that, you have answered the question of whether these powers will be used in emergency cases. Is it only when it is a short-term threat to the system's security or reliability of supply that is unlikely to subside without intervention? If that is the case, what are the circumstances under which AEMO would be able to use this emergency power? Is it purely for short term and not that they see a long-term issue and try to act without giving it time to resolve itself, and what are some circumstances where they would be able to use this power?

The Hon. A. KOUTSANTONIS: It is not AEMO's role to fix the long-term gas issues this nation faces. AEMO cannot change the position of the Liberal Party where it has banned the exploration of gas in prospective parts of the state. It cannot change the opinion of a Liberal-National government in New South Wales about Narrabri and Santos's stranded $1.5 billion asset. It cannot change the long-term policy settings that have put us here.

The purpose of this act is largely to facilitate an improved response to what we saw last year, when there were gas shortages. I think we need to break this down. The longer term questions about invoking a trigger by the national government about exports is separate from what AEMO would do. AEMO looks at short-term crisis situations where they can intervene. This legislation is not designed to solve a long-term structural problem in the gas market. This is simply giving us the ability, or giving the regulator the ability, or the operator the ability, to intervene in the short term. The long-term problems will be sorted out by governments and policymakers and elected officials, and that is a much broader, longer question.

Without wanting to go too far off topic, as a government and an opposition we are beset with fringe groups all around us that are attempting to influence this debate one way or another. You have some groups that do not believe that climate change is real and want to see the exploitation of fossil fuels to their full extent in this country. Then you have other extremes, like Extinction Rebellion and the former Marshall government, which are opposed to the development of fossil fuels or want to see it banned completely.

Then you have the Greens, then you have One Nation and you have all these other groups. In the middle somewhere, in the centre, should naturally be the Labor Party and, hopefully, the Liberal Party, where we can come up with a sensible long-term solution to transition to renewables, hopefully using lower emission fossil fuels like gas as a transition towards a zero carbon future.

This legislation is not designed to fix that. This legislation is simply about when there is a crisis in the energy market, we are short of gas, there is a surplus here and a shortfall there, it is causing major disruption to the market and we have to intervene or millions of people go without power or an industry goes without gas. That is what it is designed to do.

I cannot give the member a more detailed answer, because the problems that are facing us in this transition are so complex that I do not think there is any jurisdiction anywhere in the world that has come up with a solution that is going to see this transition become smooth. We are in the middle of climate wars around the world, real wars in Europe, proxy wars in South-East Asia, proxy wars in Europe. The energy market is in the most destabilised time I have ever known it. I suppose that is why we need these extraordinary powers, because we are facing these extraordinary challenges.

Who would have thought? Last year AEMO intervened and basically shut down the market, the entire country. After the statewide blackout, the market was managed by AEMO for a period of time before it was restored. They made a similar comparable intervention in the electricity market last year, because of what was occurring in terms of price and availability and they had to intervene in the market. We are facing extraordinary measures because we are facing extraordinary crises.

There is no simple solution to this. This legislative tool is simply trying to address what we saw last year. That is why, to be entirely frank, it is rushed, because the country does not have the legislative tools it needs to deal with this crisis. We are trying to quickly give the country the tools it needs to manage these shocks that we face.

The shadow minister is right to raise these concerns, because these concerns are real, but this legislation does not deal with the long-term issues. That will be dealt with by policymakers, who are the shadow minister and myself. The short-term issue is policymakers giving the tools to the operator to get us through days, if not weeks, of a crisis and then handing it back to the market. I hope that answers his question.

Mr PATTERSON: For the avoidance of doubt, I understand that it is not tied to just long-term issues. I was trying to get to the nub of the emergency powers to make sure the emergency is short-term and that the market is unlikely to subside without intervention. You have answered that, and it gives a guide going forward.

I make the point about the Liberal Party that there is conventional gas exploration happening down in the South-East. There are wells being found, capped, even as of two years ago. You are trying to conflate that with fracking and unconventional gas exploration. That is not to be seen as trying to say there is no exploration down in the south and there is no gas exploration encouraged by the Liberals. That is certainly not the case at all.

Having said that, in regard to supply adequacy and reliability standards, will they be clearly defined? Will the relevant standards and thresholds be informed by a measured cost-benefit analysis?

The Hon. A. KOUTSANTONIS: There are two aspects to this legislation. The first is the short-term implementation to make sure we have the tools ready before winter. After we get through winter, there will be a reliability standard developed, and there will definitely be a cost-benefit analysis done on what the reliability standard should be. But in the short term it is to keep the lights on, keep the gas flowing and make sure the country is able to operate. They are short-term KPIs, as it were, of this legislation—long-term, absolutely.

Again, I say to the shadow minister, we are rushing as a nation to give our operator tools to deal with a situation we have never had before. That is why we are in this situation, because we are facing unprecedented challenges we have never had to face before.

Mr PATTERSON: Will AEMO have the power to direct capital expenditure by relevant entities if it serves the purpose of maintaining or improving reliability or adequacy of the supply of natural gas?

The Hon. A. KOUTSANTONIS: My advice is no.

Clause passed.

Clause 8.

Mr PATTERSON: I just have some questions around infrastructure service providers. They do not typically own the gas; they transport it to and fro. If there is a direction to an infrastructure service provider to deliver gas to make its facilities available without an equivalent order from the owners of that natural gas, there are potential issues that have been pointed out to me, such as that the infrastructure service provider may be placed in the untenable position of deciding which contracts to break, or that customers of infrastructure service providers may not understand or follow the directions.

If following a direction requires curtailing some customers, an infrastructure service provider may inadvertently exacerbate the market, leading to that direction. Will directions to infrastructure service providers consider title to natural gas? If there is a direction to an infrastructure service provider to deliver gas or make its facilities available, will there be an equivalent order to the owners of the natural gas?

The Hon. A. KOUTSANTONIS: It is an excellent question, and it is a very, very important matter. That is why AEMO will be forming conferences, where all the parties are present to best design the outcome about curtailment, which supply to move, what pipelines to make available. It will be a cooperative approach. The stakeholders will be notified, and AEMO, again, will form these conferences to decide how best to implement their directions, taking into account all the things, correctly, that the shadow minister has raised.

If you have a pipeline and you are told to move X number of gigajoules from X to Y, which contract do you break? You have to have everyone in the room so that AEMO can make an informed decision. We are not trying to transfer risk here to a pipeline provider. The risk here is being decided by AEMO; that is, the states and the commonwealth have agreed to task AEMO with this, not the pipeline operators. So we are not asking the pipeline operators to decide whose contracts to break: we are asking AEMO to do that.

It is a good question. The way AEMO and the officers at officer level have developed this is that we put everyone in a room, even virtually, and we work out exactly what contracts to break and what gas to move, then we know who to compensate. Yes, all these things have been thought through, and it is a good question. It is going to be difficult. This is why this is only for emergency use. This is not the type of thing that you would use day to day. Clearly, if there is an emergency, AEMO will put everyone in a room and triage, I think, what would be considered which contracts to break. Depending on what the situation is, what the crisis is, they will triage appropriately on which gas to move and how to break it and who to compensate.

Mr PATTERSON: That does provide some comfort because that is a concern that there is the motivation and the desire to consult. I suppose maybe the question is: it is an emergency, things have to happen really quickly and there is not that time to get everyone around the table over weeks or months; it actually needs to be done really quickly. Is there at least a best endeavours requirement in this to require AEMO to consult? What assurances can you give the industry regarding the levels of consultation before a direction is issued, even if it is a really short time period?

The Hon. A. KOUTSANTONIS: I am advised I will publish rules that will require AEMO to consult with the entity that it intends to direct to the extent it considers appropriate given the nature, timing and circumstances of the risk or threat on the proposed direction. So we are going to make it a part of the rules that they have to do this in a timely manner.

Clause passed.

Clause 9.

Mr PATTERSON: We have time to actually consult and get all the parties around the table, so I think the mechanism looking to do that is that gas supply adequacy and reliability conference. But even having said that, it still anticipates that is going to occur amongst small groups of market participants and potentially is confidential. The ACCC has some concerns around that, by virtue of the fact that some market participants may have information that is not available to the wider market when there is resulting increase in risks. What measures will AEMO put in place to safeguard that any arrangements being put in place do not have unintended consequences and which may facilitate broader coordinated contact between market participants?

The Hon. A. KOUTSANTONIS: AEMO will be required to advise the market once a direction has been made so that all the participants know. If a participant in the market has made a decision or acted in a certain way, AEMO will inform everyone that this was done under direction.

Mr PATTERSON: How will AEMO ensure these transparency requirements will avoid duplication with existing disclosure obligations, to minimise additional administrative burden on market participants?

The Hon. A. KOUTSANTONIS: Market participants are not the ones making the declarations; it is AEMO. AEMO will require the market participants to direct gas or make pipeline available. But the publication of those directions will not be the responsibility of the participants. It will be the obligation of AEMO. When I tell you off, it is my obligation to tell the house how you have acted inappropriately. You do not have to get up and say, 'Tom's told me I'm no good.'

Mr Patterson interjecting:

The Hon. A. KOUTSANTONIS: Exactly, yes.

Mr PATTERSON: My question was more: if that is the direction side—

The ACTING CHAIR (Mr Brown): Sorry, you might just wait for the call, member for Morphett.

Mr PATTERSON: My apologies, Chair. I am apologising to you today. The question was less about the directions and more about the lead-up—so gathering the information, those transparency measures. There are already existing disclosure obligations, so the question is around what AEMO is going to do to ensure that the information they are asking for around adequacy of supply is not duplicating but is actually getting further information and making sure that it is not causing an additional burden on them.

The Hon. A. KOUTSANTONIS: I am going to take that on notice between the houses, but just to make the point again: there are already obligations on participants in the market. Those obligations do not change. The extra administrative burden of having to submit to a direction—the reporting requirements and the work being done with that falls on AEMO. If you are talking about if AEMO asked a participant, 'How much gas do you have available? How much capacity do you have in your pipeline?' and you are saying that is an administrative burden, then that will form a form of compensation within the act. What the recompense is is all taken into account.

In terms of administrative burden, participating in the Australian energy system already has large reporting requirements and regulatory burdens on it. We are not trying to add to that; what we are trying to do is deal with a crisis. I take your point but I will get to you between the houses a more detailed answer.

Mr PATTERSON: Thank you, and I suppose an adjunct to that—

The ACTING CHAIR (Mr Brown): Sorry, member for Morphett. I might allow you to have one more question on this clause.

Mr PATTERSON: Thank you, Chair. Maybe when you come back between the houses—you have answered a bit about that, that there is already information provided. But it is making sure, I suppose, how AEMO ensures that these requirements they are asking are targeted, fit for purpose and minimise cost to consumers.

The Hon. A. KOUTSANTONIS: I will take it on notice.

Clause passed.

Clause 10.

Mr PATTERSON: Will there be information on potential threats published and made available to all market participants, including any information discussed at the conferences to provide transparency and predictability to market participants?

The Hon. A. KOUTSANTONIS: If there was a crisis brewing, AEMO, as they have just done recently with their forecast, will let the market know, looking for a market response first, so they will make these public notices available. They will say, 'Look, there is an issue here. We need a market response.' That will be the first step. If there is no market response or the market is unable to respond and the crisis is getting closer and closer and closer, then AEMO now has the tools to be able to respond to that crisis.

Step one, though, is always to try and allow the market to sort this out. It is no different from putting out lack of reserve notices, no different to letting the market know where they need supply. I mean, this is what AEMO does for a living, and if we get to a point where the market cannot respond, they can direct. So, yes, there will be notices first, and after the notices are made, if there is no market response, we have the emergency powers to respond.

Mr PATTERSON: Previously we have touched on post the direction and providing an intervention report afterwards. You may have said this, and forgive me if I missed it, when AEMO publishes an intervention report, will it also set out their assessment of the relevant costs and benefits arising from that market intervention?

The Hon. A. KOUTSANTONIS: I forgive you, and yes.

Clause passed.

Clause 11.

Mr PATTERSON: In terms of service of market information notice, will the decision to intervene be based solely on AEMO's assessment?

The Hon. A. KOUTSANTONIS: I am advised, yes.

Clause passed.

Clause 12 passed.

Clause 13.

Mr PATTERSON: With these powers of direction by AEMO, will they seek the lowest cost solution when deciding on a direction to issue to a market participant?

The Hon. A. KOUTSANTONIS: No, they will choose the best decision for the market and the country.

Mr PATTERSON: How is compensation going to be determined, recovered and paid to parties affected, and will AEMO ensure that opportunity costs of market participants with contractor positions are eligible for compensation?

The Hon. A. KOUTSANTONIS: We will be compensating direct costs, not opportunity costs, whatever that might be.

Mr PATTERSON: Will consideration be given to distribution impacts on small users when apportioning the costs?

The Hon. A. KOUTSANTONIS: To quote the papers published by the officials:

AEMO to make Procedures on the manner, form and methodology of payments made by relevant entities to AEMO to recover the costs of compensation the dispute resolution panel determines is payable. In doing so, AEMO must have regard to minimising inequitable distributional cost impacts to the extent possible. AEMO must also consult with the AEMC and the AER on the making of these Procedures.

So I think the answer to the question is yes.

Clause passed.

Clause 14.

Mr PATTERSON: In regard to you being able to make the rules: because it had to be put up rapidly, it has given you as the South Australian minister the ability to make new rules for six months afterwards. If you could explain in terms of those rules, if there is a change to the rules, does it have to go through the energy ministers council? Does it have to be endorsed by all the energy ministers? Is there consultation with the AEMC as it goes through?

The Hon. A. KOUTSANTONIS: Unfortunately, I cannot make them independently. I have to consult with my colleagues, my other ministerial colleagues. The last time I checked we were still a federation, so yes, all ministers must be consulted and must agree.

Clause passed.

Remaining clause (15) and title passed.

Bill reported without amendment.

Third Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (16:12): I move:

That this bill be now read a third time.

Bill read a third time and passed.

The Hon. A. KOUTSANTONIS: Mr Acting Speaker, I draw your attention to the state of the house.

A quorum having been formed:

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