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House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
2023-02-23 Daily Xml
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Bills

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

Second Reading

Adjourned debate on second reading.

(Continued from 22 February 2023.)

Mr BROWN (Florey) (12:01): I rise to speak in support of the National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022, and wish to preface my remarks by saying how much I appreciate the support of the minister's office in providing me not only with a comprehensive briefing but also assisting me to put together a contribution on this bill.

While this bill is labelled 'South Australia', it is one of the national energy reforms that will affect all the markets on the eastern seaboard. It has emerged because of the significant challenges that occurred in the east coast gas markets in 2022, particularly in Victoria.

The Energy Ministers' Meeting, which brings together states, territories and the commonwealth, agreed in August last year that these challenges must be addressed urgently, particularly because of analysis by the Australian Competition and Consumer Commission and the Australian Energy Market Operator forecasting risks of gas supply shortfalls emerging this year.

It is instructive to consider the position as outlined in the discussion paper published under the aegis of the energy ministers. This is what the consultation paper said:

The Australian gas supply-demand balance has been tightening over recent years due to the gradual fall in southern gas reserves and increasing reliance on gas from Queensland. The supply-demand balance is expected to deteriorate further, with AEMO forecasting the risk of substantial declines in production in southern states from next year.

This situation means the domestic east coast gas market has become more susceptible to external shocks. For example, in 2022 the global pandemic recovery and the resource availability impacts resulting from the Russian invasion of Ukraine increased international demand for Australian gas (in the form of liquefied natural gas). Concurrently, coal generator outages and lower renewable energy generation during winter 2022 increased domestic gas demand for gas-powered generation. This confluence of factors, amongst others, led to record high spot prices during mid 2022 and interventions from the Australian Energy Market Operator to address supply adequacy risks in the Victorian Declared Wholesale Gas Market (DWGM).

The ACCC and AEMO have cautioned that domestic gas supply adequacy has deteriorated substantially since early 2022. AEMO's Gas Supply and Systems Adequacy Risk report and the ACCC's July 2022 Gas Inquiry interim report have both highlighted increased risk of peak day and seasonal gas supply shortfalls in the southern states in winter 2023.

In response to these warnings of risks to gas supply, which would have severe and wide-ranging impacts, the energy ministers' forum agreed that the Australian Energy Market Operator must immediately be given improved visibility of the market and enhanced powers to manage supply adequacy and reliability risks. This bill seeks precisely to achieve those outcomes.

The key intent of the bill is firstly to provide AEMO with the ability to monitor the interconnected east coast gas system, secondly to seek market responses to resolve any emerging risks, and thirdly to enable AEMO to more directly intervene if market responses are not forthcoming. This is the first phase of two, to ensure that AEMO has multiple options to better manage any forecast threats for winter 2023. The second phase is intended to cover matters that are either less urgent or need a longer time to develop.

The bill formalises the existing gas supply guarantee (GSG) through gas supply adequacy and reliability conferences (GSARCs), which is the approach used in the existing GSG to enable AEMO to (a) monitor market conditions, (b) identify any threats of a gas supply shortfall that could affect the operation of gas power generation in the National Electricity Market during peak demand periods and (c) convene conferences of relevant gas market participants to assess the likelihood of a shortfall and call for a market response or determine whether a market response has occurred.

While some information will be made available to AEMO in assessing supply adequacy through the gas market transparency reforms recently introduced through the National Gas (South Australia) (Market Transparency) Amendment Act 2022, these amendments do not provide sufficiently frequent data to ensure AEMO can adequately monitor gas supply adequacy across the east coast system on an ongoing basis.

To ensure AEMO has the necessary information to undertake its new function, a regulatory framework will set out additional disclosure obligations on certain industry participants over specific forecast periods. In addition to those explicit additional disclosure requirements, the regulatory framework will enhance AEMO's ability to seek specific information relevant to exercise its functions from a wide range of entities, including gas producers, pipeline operators, storage providers and larger users.

AEMO will develop procedures in parallel with the development and implementation of the legislative amendments which is consulted with stakeholders. AEMO will publish any necessary procedures and guidelines as soon as practicable once the legislative amendments commence. AEMO does not currently have the ability to issue directions in the broader east coast gas market. The regulatory reforms set out a range of directions powers, which are similar to those which AEMO can use in relation to the Victorian Declared Wholesale Gas Market (GWGM) but modified to be more generally applicable to the east coast gas system as a whole.

The directions capability will be comparable to similar powers which AEMO has in the National Electricity Market. These direction powers will provide AEMO with a range of specific options. Directions may relate to the operation, maintenance or use of any equipment, the control of the flow of natural gas, or any other matter that may affect the reliability or supply adequacy of the east coast gas system.

Should the market fail to respond, the bill will give AEMO the power to manage reliability and supply adequacy threats through seeking further information, engaging the market to identify and implement actions, including trading in gas. This may include related services, such as procurement of pipeline services or services provided by a compression service provider or a storage provider, as well as directing participants in the market to better manage existing issues.

During consultation on the bill, several stakeholders raised concerns about AEMO being able to issue directions to market players and concerns about AEMO being able to trade. It should be noted that the bill, in section 91AF(2), specifies that AEMO may only exercise these powers if it is 'of the opinion that the giving of the direction is necessary to prevent, reduce or mitigate an actual or potential threat'. Therefore, AEMO will not have unfettered capability to intervene in the market.

The draft rules on this issue say that, without limiting the matters AEMO may consider, AEMO may consider the following before issuing a direction:

(a) the time within which AEMO considers an actual or potential threat is likely to manifest;

(b) the magnitude of the actual or potential threat relative to the impact of giving or not giving a direction;

(c) the time within which action is, or will be, required to prevent, reduce or mitigate an actual or potential threat;

(d) the impact of the giving of a direction on consumers, market participants and other entities;

(e) the impact of the giving of a direction on the operation of the east coast gas system, including its effect on the relevant markets;

(f) alternative actions that may be taken by AEMO, including seeking a market response, that could result in the same or substantially similar outcomes to those achieved by giving the direction;

(g) the reasonable ability of a relevant entity to whom a direction is given to comply with the direction within the time frame specified in the direction;

(h) safety or technical requirements under jurisdictional legislation;

(i) the operation or use of emergency powers within each affected jurisdiction; and

(j) whether the direction will, or is likely to, contribute to the achievement of the national gas objective.

When it comes to trading by AEMO, this bill allows for the establishment of a trading fund of $35 million. The fund can be topped up annually to the $35 million level. In the context of a market where hundreds of millions of dollars of gas are traded, the AEMO fund is very modest. Clearly, the intention is that AEMO will only trade in very rare circumstances when absolutely necessary. Similarly to issuing a direction, AEMO will consider a range of factors before it commences trading.

In winter last year, gas prices spiked to unacceptably high levels, and Victorian gas shortages were drained to levels which were unacceptably low. The community, both businesses and households, are not prepared to accept such outcomes in a nation which is blessed with bountiful reserves of gas. Accordingly, this bill contains measures which are necessary to ensure supply is reliable. I commend the bill to the house.

Ms HOOD (Adelaide) (12:11): I rise in support of the National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022. This bill aims to address the risk of supply shortfalls in the east coast gas system. It follows the winter of 2022 when supply was extremely tight, particularly in Victoria. Of course, supply and price are closely related. Tight supply will push up prices, and consumers want both reliable supply and affordable prices. Therefore, this bill's focus on supply will be a major lever in ensuring prices do not return to the unacceptable heights of last year.

In a report last month as part of an ongoing inquiry into gas, the Australian Competition and Consumer Commission recorded what happened in the middle of last year. This is what the ACCC reported:

Prices offered for 2023 supply in the domestic market increased significantly from mid-2022.

We observed record high prices for bids and offers as well as some of the highest spreads and average prices in the Gas Inquiry to date.

Producer offers reached an average of $19.77/GJ with a spread of $10.15/GJ-$65.25/GJ between March and August 2022…

Between March and August 2022, retailer offers to commercial and industrial (C&I) users averaged $20.01/GJ, 103% more than the previous 6 months, with prices offered ranging from $10.56/GJ-$36.04/GJ.

The ACCC observed that not only did prices reach record levels but that many offers were made on very short-term contracts, if at all. This had a detrimental effect on major commercial and industrial users.

The ACCC surveyed 19 major businesses, which collectively account for more than 40 per cent of industrial demand. All of the 19 businesses said they were extremely concerned about high prices. This was compounded by problems in securing supply. These were some of the comments made by businesses to the ACCC.

'Only one wholesaler had any volumes to market for 2023…far less wholesalers are marketing gas volumes for years 2023-24 compared to normal.'

'[There has been a] significant decrease in offers, particularly in 2023 where it is effectively impossible to secure a firm offer for gas supply…there are almost no offers available.'

'There seems to be less supply offers to the domestic market due to the high export prices into Europe/overseas.'

'It seems that people who need supply for next year are in big pain.'

It is untenable for such a situation to continue. At a commonwealth level, the Labor Party's return to government has seen decisive action, ending the paralysis of 10 years of the Liberal-National Coalition on energy policy.

In the first step, the commonwealth signed an updated heads of agreement with liquefied gas exporters on 29 September last year. Under the terms of the new heads of agreement, excess gas produced by the LNG producers must be offered to the domestic market for reasonable supply periods with reasonable notice, on competitive market terms and at prices no more than international customers will pay, before being offered to the international market.

LNG exporters additionally committed to increased transparency measures, including publishing offers and expressions of interest on their website to make gas available more broadly to the Australian domestic market and providing a quarterly report to the Minister for Resources outlining their respective actions and commitments.

Further, in December, federal parliament legislated temporary price caps on new gas and coal contracts. Pleasingly, the price caps appear to have had an immediate effect on prices. In his opening statement on 15 February to federal parliament's Economics Legislation Committee, the Treasury secretary, Steven Kennedy, said price rises of gas were now expected to be far less severe than earlier forecast. Dr Kennedy said:

In December, the Government announced a package of measures to moderate the sharp rise in household energy bills. The announcement included a mandatory code of conduct for gas producers, temporary price caps for wholesale coal and gas, and energy bill rebates for households to be jointly funded with the states.

Following the December announcement, National Electricity Market futures prices have declined significantly. This is consistent with the price caps on gas and coal helping to ease price pressures in the generation market. If sustained, lower futures prices will be reflected in the Default Market Offer announced by the regulator around the middle of the year.

For gas, at (Federal) Budget we expected consumer prices would rise by 20 per cent in 2022-23 and another 20 per cent in 2023-24, but now expect prices to rise 18 per cent and 4 per cent over the two years. Following the temporary intervention, we have observed a moderation in prices in the wholesale gas market.

The average east coast wholesale gas price is now sitting around the temporary 12-month price cap of $12 per gigajoule, down from around $20 per gigajoule in November.

While any price increases of basic utilities such as gas are not welcomed by consumers, it is good to hear that federal Treasury has now significantly downgraded its expectations on price rises.

Fixing the mess left to be cleaned up after the Liberal Party and National Party occupied government in Canberra will take time. Fortunately, at a state level, the Liberal Party was only in government for one term. Just like Canberra, it was a period where not much happened on the energy front. There were foolish decisions to privatise operation of the state-owned electricity generators and an over-reliance on building the Project EnergyConnect transmission line to New South Wales. On the gas supply front, South Australia hit the doldrums during the Marshall government period in office in comparison to the previous Labor government's final four years.

Australian Bureau of Statistics data on petroleum exploration show that in the period from 2014-15 to 2017-18, when Labor was in government, companies spent $791 million in South Australia, seasonally adjusted. During the Marshall government's tenure, 2018-19 to 2021-22, petroleum exploration expenditure slumped to $443.7 million or not much more than half of the previous four-year period.

Exploration is essential to ensure continued, reliable supply. The Malinauskas government will work with industry and collaborate with other jurisdictions, including the commonwealth, to ensure that consumers and businesses have access to reliable and affordable gas. This bill is one of the many measures needed to fix this mess. I commend the build to the house.

Ms CLANCY (Elder) (12:18): The bill before this place today gives me cause to reflect on our changing energy system, a system in which our state has proudly often not just been nation-leading but world-leading, with a clear focus on renewable energy. Here we have a bill that seeks to patch up problems affecting the natural gas system, problems that need to be addressed even as we embark on the change to renewable gases, including the key development of hydrogen as a fuel gas.

This bill will give more powers to the Australian Energy Market Operator (AEMO) to obtain information and intervene in the market to ensure there is sufficient reliable supply in the east coast gas system. It has come about because the market failed to meet the expectations of businesses and households that gas should be readily available at affordable prices in a country that has vast quantities of natural gas reserves.

If market participants feel any discomfort about AEMO's enhanced powers, they should attribute that to the market failure, which came on top of the decade when Australia lacked a coherent energy policy while the Coalition in Canberra tore itself apart over climate change. Fortunately, both in Canberra and across the states Australia is now moving past the tired old climate wars and working collaboratively towards addressing climate change through sensible energy policy. Here in South Australia, the development of the hydrogen industry is a crucial component of that energy policy direction.

As I have previously shared in this place, my electorate of Elder is the proud host to the Hydrogen Park SA facility in the Tonsley Innovation District. If you have never popped by the Tonsley Innovation District, I recommend everyone do so. There is a lot of cool stuff going on. As a completely unrelated side note, one of my election commitments was to make sure toilets and a drink fountain were available there on the weekends—which is handy, because while there is a lot of exciting stuff going on there in the innovation space and the gas space during the week, on the weekends it is a wonderful place to bring your family and to teach your little ones how to ride their bikes. It is free of sunshine and free of the rain, so it is a good spot for anyone to pop down to.

That aside, the Hydrogen Park SA facility in the Tonsley Innovation District is still using the largest electrolyser in Australia—the largest—and is successfully producing hydrogen from renewable electricity. It has been blending this into the gas network for 700 homes in Mitchell Park since the year 2021 and filling tube trailers to deliver hydrogen to commercial and industrial customers. I am excited to see that the owners of Hydrogen Park SA, the Australian Gas Infrastructure Group, aims to extend that blended gas to a further 3,000 homes, businesses and institutions from early this year.

Just in case you have been living under a rock or you are one of the very few people, I am sure, who missed Tuesday's question time, the Malinauskas government is investing $593 million in our Hydrogen Jobs Plan. With an aggressive timetable, the Hydrogen Jobs Plan will build electrolysers to manufacture green hydrogen, install storage and construct a 200-megawatt electricity generator. The generator will provide firming services, thereby facilitating more renewable energy projects to reach financial close in South Australia. This will create more jobs, strengthen the economy and create options for South Australian businesses to develop products stamped with a big green tick of sustainability. As the world moves to a decarbonised economy, this will be a huge competitive advantage.

As we build that future, it will be important to take lessons from the system we find ourselves in now. The illegal invasion of Ukraine by Russia, which happened a year ago today, disrupted international energy markets, particularly gas. Prices soared globally as companies and nations moved to lock in supply from sources other than Russia. Australian gas exporters looked to make quick profits exporting cargoes to the spot market, over and above their contracted obligations. High prices and tight supply then hit Australia, and those conditions led to this bill that is before us today.

As we build the hydrogen industry, it will be important that we structure the system so that we have greater resilience in Australia to withstand external shocks such as the Ukraine-Russia effect. The world is not a quiet place. There are growing international tensions. Climate change will increase these tensions further as countries compete for resources and face the need to mitigate against the worst effects of global warming.

Hydrogen will play a major role in combating runaway temperatures by providing a fuel source that does not add to greenhouse gases. In South Australia, we have a remarkable amount of sun and wind, which will power development of the green hydrogen industry. We must do so founded on a strong base of sovereign resilience. The bill before us is a reminder that markets require firm guide rails to ensure that the interests of consumers and businesses are protected while allowing entrepreneurial spirits to thrive. This bill is a necessary fix on the existing system to ensure consumers will have reliable energy supply, particularly in the winter months ahead. I commend the bill to the house.

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (12:24): Can I thank all the members who contributed to this debate. It is an important debate, and it is important to recognise that the Australian domestic gas security mechanism is not part of these amendments to the National Gas Law.

The mechanism is a commonwealth government initiative that is in place to ensure there is sufficient natural gas supply to meet the forecast needs of Australian energy users. Under the mechanism, if a gas supply shortfall is forecast for Australia, liquefied natural gas projects may need to limit exports. While it is quite topical at the moment as an industry, the Australian Competition and Consumer Commission and the commonwealth government worked together to finalise the new mandatory code of conduct and a reasonable pricing framework.

The South Australian government strongly supports the gas industry as a key part of a smooth transition to a net zero carbon economy. The South Australian government looks to a successful conclusion of the development of the new framework that would balance the needs of industry for investment with the needs of consumers to have access to reasonably priced gas to support industrial development.

The bill provides new powers for the Australian Energy Market Operator to better manage the eastern Australian gas system with a strong emphasis on ensuring that the industry is better informed to manage reliability. Should the industry not be able to address reliability issues, the bill provides some additional tools for AEMO so we can manage the system, including direction powers and the ability to trade gas.

During consultation, some businesses expressed concern about providing AEMO with direction trading powers. It is important to note that the bill provides for these powers only if AEMO is of the opinion that using their power is necessary to prevent, reduce or mitigate an actual or potential threat. Before making the decision to intervene, AEMO will have to regard a number of factors including whether the industry has had time to respond, whether AEMO has engaged with affected jurisdictions, what distortionary impact there may be from an intervention, and that safety should not be compromised

This is an important piece of legislation as we are about to head towards tomorrow's national energy and climate change ministers' meeting. AEMO is an important piece of hardware that we have in the arsenal to try to maintain security of reliability of our electricity system. If markets cannot respond, if markets cannot sort these issues out, and cannot resolve and identify a threat, these reforms ensure that AEMO has the ability to intervene and to issue directions while trading in gas to the extent necessary to address the threat. This is completely reasonable in my estimation and, indeed, completely reasonable in the estimation of every single Australian jurisdiction, including the previous Morrison government, including the current Albanese government, and every state and territory government.

We all know what the key features of the bill are now after a lengthy debate. I know these reforms are difficult but they should not be confused with the broader debate about east coast gas interventions. The east coast gas interventions by the commonwealth government are quite separate, different and distinct from what we are doing as energy ministers. The commonwealth government is using its powers and its powers alone to intervene, not state-based powers. So they are different. I point this out because I think there has been some confusion in some members—not all, some—and when I say 'some' I mean 'one'. But I like him so much that I do not want to name the shadow minister.

I commend the bill to the house, and I again thank the opposition. It is difficult to be in opposition at the best of times, and it is even harder to be in opposition when you are passing legislation on behalf of the nation, as South Australia is the lead legislator here. We have a long tradition in this parliament, a long tradition, of maintaining a bipartisan approach to national reforms. The hard part about supporting national reforms is that you might not agree with those national reforms, but because they have been agreed at a COAG or national level through ministerial meetings, giving assent and cooperation to have these bills passed is difficult.

I know that when you are not involved in the negotiations and you do not have a seat at the table to discuss these reforms, it can be very, very difficult. That is the case only for the opposition in this state because the opposition in other states, whether they be Labor or Liberal, have no consideration of these matters and are not forced to vote for or against them. So it is difficult, and I thank the opposition again for their support, in both houses of parliament.

It is magnanimous of this opposition and, I think, a great example to the rest of the country of how, when South Australia is put in positions of leadership—such as being the national lead legislator for these matters—our parliament can show the way, that we can pass these reforms and pass them quickly, and that the opposition of the day, whoever it is, is prepared to bear the burden and responsibility of passing these reforms, even if they do not agree with them. This is, I think, a great insight into our parliamentary democracy here in South Australia and of how strong it is. With those few words, I commend the bill to the house.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

Mr PATTERSON: The first question is: broadly, if the gas is contracted, does AEMO have the power to instruct that gas to be placed in the east coast gas market? As such, what does that mean for contracts that have already been entered into?

The Hon. A. KOUTSANTONIS: LNG exports are excluded; domestic gas contracts are included. I also point out, if I am not incorrect, that AEMO also have the power to direct generators that may be operating on contract as well to turn power on, or off, even if they are contracted to operate. These powers, while they might seem extraordinary, are in practice quite ordinary for someone operating an energy system in the nation. So yes, if you have a contract for gas and AEMO intervene, they can direct that gas but you will be compensated.

It is not as if we are seizing the asset and not compensating on just and fair terms. There is compensation on just and fair terms, and it is compensated through a formula that AEMO operates. So the answer to that question, broadly, is yes. If you have a contract for gas to be moved somewhere, and there is an emergency that fits the criteria for AEMO, they can direct their gas. It is no different from the ability of AEMO to tell an operator to turn its generator on if needed to do so. They are exactly the same powers.

Mr PATTERSON: In light of that, we have had forecasts from the ACCC and AEMO over the long term as well, up to 300 petajoules, especially emerging in New South Wales and Victoria, which is about half the east coast gas domestic demand. One reason is that Victoria has their moratorium on onshore gas development, and New South Wales is taking a long time to develop some of their projects, such as Santos's Narrabri scheme. That is having an impact. Maybe that is why you thought I was confused. It is just for your assurance and the committee's assurance around understanding the difference between the safeguard mechanism and what is happening here.

They are bigger issues that are outside the scope of correcting that. However, it does have an effect on the forward nature of where we are going with the gas market. Just from South Australia's perspective, will the bill allow AEMO to direct contracted gas from South Australia into New South Wales or Victoria?

The Hon. A. KOUTSANTONIS: There is one region the member forgot to mention where there is exclusion for gas exploration, and that is in the South-East of this state. He voted for, he supported and he endorsed a moratorium of 10 years on unconventional gas, yet he stands up and has the audacity to mention exploration bans on development in Victoria. There is a biblical quote that comes to mind here: 'Rather than point out the splinter in your brother's eye, how about you remove the log from your own eye before you start criticising others?' Potentially, then he would have more credibility when he got up and made statements like that.

Without wanting to start a quarrel in the house—because I have now risen above that type of behaviour in the parliament, and I want to set an example for the younger members—yes, and the problem we have is that there are politicians, like those in the previous Marshall government, who play to petty political benefits and ban gas exploration in regions causing these shortages. Narrabri is not being approved. Why? Not because of the deposit, not because of the practice, but for political considerations. There is an onshore ban on exploration of unconventional gas in Victoria. They are now moving away from it, yes, but, either way, political reasons. It is just like the 10-year moratorium on unconventional gas that the member who now asks me this question happily voted for and endorsed.

So here we are: one of the most gas rich nations in the world could potentially have shortages of gas. The member looks at me bemused, 'How could this be?' Well, look in your backyard. When you ban gas exploration, when premiers stand up in this place—like Premier Marshall did—and say, 'I don't think it's safe to explore for unconventional gas in the South-East, we are going to put a moratorium in place,' what does that tell the public? What message does that send to the public? What does it mean when the Premier of New South Wales and his energy minister, Matt Kean, will not approve Narrabri? How many more hurdles does Santos need to jump over to pass this? What is the reason for an unconventional gas ban in Victoria? What are the scientific reasons for these bans? None.

We are left at the point where, in an emergency, we may need to pass legislation because of the actions of the previous Marshall government and because of the actions of other governments in banning gas exploration and creating shortages. We may need to intervene in the system to see gas move from one jurisdiction to another to shore up the system, the same way we might move power across interconnectors to shore up systems. So while regrettable—yes.

Mr PATTERSON: That got there in the end. Will there be obligations on market participants to ensure contracts are in place to cover extreme circumstances to make sure they do not become uncontracted, but rather are still encouraged and incentivised to contract their positions for extreme circumstances?

The Hon. A. KOUTSANTONIS: We still live in a free country that has a basis of a market operation, and people will operate in the market as they see fit. They will make their contracts as they see fit. What we are giving AEMO here is basically reserve powers to intervene in that market if there is a market failure.

Mr PATTERSON: Can I have a supplementary?

The CHAIR: You can have a supplementary.

Mr PATTERSON: The question I was trying to delve into was: by AEMO being able to break contracts, does that mean it would be more likely that companies would not seek to contract in extreme circumstances because they can see AEMO moving in and helping them out because of this legislation?

The Hon. A. KOUTSANTONIS: I see where the member is going here, but that is a big risk for any company to take, because you do not know that the gas is going to be directed to you for your use. It is theoretically possible, but it is gambling in a way that is completely unlikely.

The idea that you would shorten your position on gas in the hope of an emergency and that that gas would be directed to you to maintain system security or maintain your operations does not guarantee price, it just guarantees supply—potentially. Then you have to make sure that you meet the criteria where the gas will be delivered.

I think that is an unlikely scenario. If anyone does do that they are not fit to be in business, because it is gambling with shareholders' or your investors' money on a grand scale that is probably not likely to pay off.

Clause passed.

Clause 2.

Mr PATTERSON: Has there been a Regulatory Impact Statement undertaken for this package?

The Hon. A. KOUTSANTONIS: No; this is a national reform not a state-based reform.

Mr PATTERSON: In past bills we have seen coming out of the energy ministers' national laws they have had regulatory impact statements attached to them as part of the consultation.

The Hon. A. KOUTSANTONIS: The world is in a very different position to where we were previously. There is an outbreak of hostilities in Europe and there is a national gas crisis and an international gas crisis, so we acted quickly and swiftly. We did this out of the crisis in 2022 and we are trying to have it in place before we get to the same position in 2023, so there was little or no time. This is the official advice I have received:

Given the limited time available to consult on the changes which are required to be implemented before winter 2023, energy ministers have agreed to:

a post-implementation regulatory impact assessment being completed by the Department of Climate Change, Energy, the Environment and Water within 12 months of introduction of stage I reforms; and

the Australian Energy Market Commission (AEMC) conducting a review of the entire framework within three years.

Mr PATTERSON: That helps, and probably answers the other questions. I was just making sure that was the case before I asked this question, and perhaps you could confirm it to make sure I heard you correctly. There will be a Regulatory Impact Statement undertaken post implementation: could you just reiterate whether that is 12 months or 36 months?

The Hon. A. KOUTSANTONIS: Twelve months.

Mr PATTERSON: Clause 2 is done and there are no questions for clause 3.

Clause passed.

Clause 3 passed.

Clause 4.

Mr PATTERSON: Maybe you could help the committee by talking through what other types of directions AEMO could make, some examples of them?

The Hon. A. KOUTSANTONIS: I am advised the powers are very, very broad. They can make capacity available in pipelines, they can direct storage be emptied, they can direct storage be filled, they can direct gas be moved from one jurisdiction to another. We want to make sure that as a nation we can respond to an energy crisis in a time of international conflict, to make sure that Australians are able to know that their governments and their government institutions are making sure that we are moving energy to the places that require the stable functioning of a nation.

They are remarkable powers, but I point out to the shadow minister that when ETSA was privatised the previous Olsen government removed powers of direction from an energy minister. Every other jurisdiction kept those powers even if they privatised their assets. Those powers enabled ministers to move and direct generation on or off, move gas, direct utilities to do certain things. It is not unusual.

Post privatisation and with the implementation of the National Electricity Market and having an Australian Energy Market Operator in place, a lot of those directional powers need to be expanded to include powers that state-based ministers might have so that they can operate on a national level. I think the powers that they are asking for are broad and great, and I think we have sufficient safeguards in place to make sure that they are not abused and still maintain, importantly, an investment framework.

This is the balancing act, which I think he is concerned about. We have these powers of direction in a crisis, but will that limit in a free market investment of private capital? I would say to the member that when Victoria privatised its assets it maintained all of its powers of direction—all of them. It did not stop private investment.

In this state, to maximise the sale price of the privatised assets, the Liberals removed those powers of direction. Labor reinserted those powers of direction after the statewide blackout. While powers of direction may seem abhorrent to some free-market radicals, I think in a system where we are talking about essential utilities and monopolies we need to have powers of intervention. We have independent regulation of monopoly assets. It does not stop private investment; in fact, it probably encourages it. They have powers of direction; people are still investing.

If you want to talk about investment barriers, I think arbitrary bans on exploration activity as introduced by the shadow minister or supported by the shadow minister, have a bigger impact on investment than these types of powers. Even the private sector recognises that the state in an emergency will have control over assets. It is no different from police cordoning off a road, no different from an energy minister directing generation on if there is a shortfall or we need to stabilise the grid.

It is no different from police having powers to forcibly remove people from bushfire areas. It is no different from powers that the state might have during a global pandemic to confine people to their homes. For things that we would normally find abhorrent in a free society, for the greater good and the benefit of the state and its people, we need to sometimes give extraordinary powers to regulators. In the same way the police commissioner gets extraordinary powers during a natural disaster, this is no different.

I accept his concerns. I think they are rational concerns. Why would a private investor make this investment if their investment can be usurped for the greater good? But there are compensation measures in place along the entire process so you do not miss out. If there is forced action by a private operator or a private owner, there is compensation in place. We are not just simply usurping the products and the assets without compensating; of course we are providing compensation.

Mr PATTERSON: When these directions are put in place, what is the term or timespan over which these directions would apply?

The Hon. A. KOUTSANTONIS: They will be specified each and every time these directions are put in place. It depends on the nature of the emergency.

Mr PATTERSON: When these directions are put in place, what matters would AEMO be required to consider before deciding to issue a direction?

The Hon. A. KOUTSANTONIS: I am advised that these are the broader principles, which I will read into Hansard. It must have regard to the following principles when deciding whether to exercise its directions function to the extent that AEMO considers appropriate given the nature, timing or circumstance of identified risk or threat:

The industry should be given a reasonable period of time to take action to mitigate, identify the risk or threat.

Coordination with affected jurisdictions should commence in a timely manner.

Distortionary impacts on the east coast gas system and industry and consumer costs on which AEMO has valid information should be, to the extent reasonably practicable, minimised, and safety should not be compromised.

It must consult with any entity that it intends to direct to the extent it considers appropriate given the nature, timing or circumstance of the risk or threat on: the proposed direction; the ability of the relevant entity to reasonably comply; safety or technical issues relevant to the compliance with a direction; and the need for related directions to be given in conjunction with, or as an alternative to, the proposed direction. For example, a direction to a shipper may need to be given with or as an alternative direction to a pipeline service provider.

It must provide a relevant entity with written notice of the direction and include the information specified in the rules; publish a notice as soon as reasonable practical after the exercising of a direction function to alert the rest of the market to the exercise of this function; and publish a post-intervention report within four months of the exercise of this function. The bill also requires AEMO to develop guidelines relating to the performance or exercise of its direction functions within three months of the commencement of the act.

Clause passed.

Clause 5.

Mr PATTERSON: Will the scope of AEMO's powers be set out in the National Gas Law and National Gas Rules, and not the procedures?

The Hon. A. KOUTSANTONIS: Just to make it completely confusing, there will be the national rules which will govern the procedures, which will then have guidelines. Remember the bureaucracy is developing these rules, so we do not want to make them understandable and easy; we want to make them as difficult as possible! So we will be using the existing national law to develop the guidelines and the procedures. There you go—simple.

Mr PATTERSON: Yes, that is true, and so AEMO's powers and their scope are held within the actual laws and rules as opposed to procedures. We are constraining what AEMO is able to do via rules and laws, and it is not just bleeding out into procedures as part of the parliamentary oversight.

The Hon. A. KOUTSANTONIS: Yes.

Clause passed.

Clause 6.

Mr PATTERSON: What consideration has been given when making the functions and powers to AEMO so as not to distort either market outcomes or investment incentives?

The Hon. A. KOUTSANTONIS: That is a good question. I am not naive to the impacts of interventions in markets and their distortionary impact. Whenever you intervene in the market, you will have a distortionary impact; but these are emergency powers for emergency cases.

No-one operates in a market, any market, without emergency powers. Even the stock exchange in every free country stops trading of assets on announcements, and they have emergencies, they shut down markets, things occur. There is no market anywhere in the Free World where there are not powers of intervention in a crisis.

While we try to minimise the impact and the distortionary impacts of interventions, we are talking about gas shortages because of a war in Ukraine, in Europe. In continental Europe now there are tanks and artillery being fired being supplied by great powers, and we do not know how it ends but we do know the impacts, and the impacts are that there is now a global shortage of gas. The world is trying to deal with that, and there could be further shocks depending on what occurs. The country is preparing itself to have the ability to intervene.

Will there be distortionary impacts on the market? Yes. I will give you an example. In the last term of the Marshall government, there was not one single merchant investment in new generation in South Australia—not one, no thermal generation at all—none. The only merchant investment was by AGL in Barker Inlet when I was the minister previously under the Weatherill government. That is it. Generators were leased but they were not new purchases. I seek leave to continue my remarks.

Progress reported; committee to sit again.

Sitting suspended from 12:59 to 14:00

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