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Legislative Council - Fifty-First Parliament, Second Session (51-2)
2007-11-14 Daily Xml
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NATIONAL ELECTRICITY (SOUTH AUSTRALIA) (NATIONAL ELECTRICITY LAW—MISCELLANEOUS AMENDMENTS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 25 October 2007. Page 1192.)

The Hon. P. HOLLOWAY (Minister for Police, Minister for Mineral Resources Development, Minister for Urban Development and Planning) (11:03): Perhaps the Hon. Ann Bressington could make a contribution on clause 1 in committee on this bill, or perhaps on the companion bill to this measure. I think that all other members who have indicated their willingness to speak have had the opportunity to do so. I thank members who have made a contribution to the bill. I put on record answers to some questions raised mainly by the Hon. Rob Lucas. I think the Hon. Mark Parnell asked some questions about the Australian Energy Market Commission establishment, an amendment that is a companion bill for this one. I will place on the record answers to all questions asked by the Hon. Rob Lucas, and I understand that he has been given a copy of these replies earlier by the office of the Minister for Energy.

In the first question raised by the Hon. Rob Lucas he referred to some policies the government had introduced for door snakes and a few other things like that, and he asked about the claim that the government has significantly increased competition in the South Australian marketplace. The energy efficiency program for low-income households delivered a range of energy efficiency services through established community-based welfare organisations to householders experiencing financial hardship caused by rising energy costs.

A review of the program by Adelaide University's Australian Institute of Social Research in February 2006 indicated significant benefits. During the three years the program ran from December 2003, over 16,100 home energy audits were completed. Just under 1,600 inefficient fridges were retired and 288 interest-free loans were approved for energy efficient appliances, with greenhouse gas emissions reduced by 32,000 tonnes. The government also provided a $50 payment to concession card recipients who moved from a standing contract to facilitate competition, and this offer continued until 13 August 2004. In that period about 93,000 people took advantage of this government initiative, which provided a considerable boost to retail competition. In short, the government has taken a number of measures that have been effective in boosting retail competition.

The second issue raised by the Hon. Rob Lucas was that he said that the government was to give the Essential Services Commission (ESC) emergency reserve powers to cap retail prices if it found that tariffs were unjustifiable and excessive. He wanted my response on what the government has done to implement that promise. The ESC Act was established with price-setting powers under section 25, which established a safeguard to ensure that all South Australian customers, both existing and new, were guaranteed at least a standard contract upon the commencement of full retail competition on 1 January 2003 by placing an obligation on the incumbent retailer AGL to supply power to all small customers under a standing contract.

ESCOSSA was given regulatory oversight over such standing contract through being empowered to set a price if it is not satisfied with the existing price and justification. Also, to ensure compliance, ESCOSSA was provided with the power to enforce increased penalties with the breach of a pricing determination having a penalty of up to $1 million. This increased scope of functions and powers was implemented through an amendment to the Electricity Act in 2002. Prices for standing contracts have been undertaken in accordance with the provisions. ESCOSSA is in the process of undertaking its review for the electricity standing contract tariffs to operate from 1 January 2008. The South Australian government has made submissions to this review. ESCOSSA is due to commence its review of gas standing contract tariffs for the next period which will operate from 1 July 2008.

The third matter raised by the Hon. Rob Lucas was regarding maintenance standards. He asked the government what action it took to give the Essential Services Commission the power to impose penalties of up to $1 million on ETSA utilities. It was not able to keep up maintenance standards to whatever standard the government had indicated it wanted. The answer to that question is that the electricity distribution code, written by the Essential Services Commission of South Australia (ESCOSSA), establishes comprehensive service standards that ETSA Utilities is required to comply with as a condition of its licence. ESCOSSA's electricity distribution price determination for the period 2005-10 includes a service standard framework that provides strong incentives on ETSA to improve reliability in the network. Section 25(1) of the Electricity Act 1996 makes it an offence to contravene licence conditions with a maximum penalty of $1 million.

The fourth question the Hon. Rob Lucas asked related to a comment of minister Conlon. He reportedly said that government-run businesses in Queensland, if he had his way in South Australia, would be taking the risk with taxpayers' money—because it is not your own—to build plants when, he says, it makes no sense to do it because you do not know what your returns are going to be. Mr Lucas summarised it in one sentence, as follows:

The foolishness of the Labor position and the foolishness of minister Conlon's position—I invite a reply from the minister.

The response is that, as minister Conlon indicated during debate, there are other choices available for the government with public ownership that are not available following privatisation, such as a choice to take a lower profit margin than the private sector might, or a choice to put customers before profit. In regard to investing in generation in the absence of a national greenhouse policy, the government could choose to take a broader view of risks than just direct financial risks and invest earlier than the private sector might so as to minimise the risks to the community from having insufficient generation capacity when needed.

The fifth issue raised by the Hon. Mr Lucas was that minister Conlon said during estimates committees, and everywhere else, that the Liberal Party in some ways set higher transmission and distribution pricing systems, because it was just trying to ratchet up the sales price of the assets. The response is that with respect to higher transmission and distribution prices as part of the privatisation process, the pre-tax real Weighted Average Cost of Capital (WACC) utilised to establish the initial prices for the privatisation of the networked businesses was 8.26 per cent. Subsequent reviews by the relevant independent regulators reduce the respective pre-tax real WACCs to 7.17 per cent for ElectraNet and 7.13 per cent for ETSA utilities.

The Hon. Rob Lucas then asked the minister to provide the additional increment to the generation capacity in the South Australian market since the Labor government took power in March 2002. The answer is that additional conventional generation has been a 50 megawatt peaking plant at Angaston and Origin Energy has announced construction of a 120 megawatt expansion at Quarantine. In addition, 388 megawatts of wind capacity has been constructed, and 342 megawatts is under construction. The seventh matter raised by the Hon. Rob Lucas was:

I am wondering whether the minister, first, can provide information on the number of occasions when the ministerial council has directed the Australian Energy Market Commission to carry out reviews and to provide reports to the Ministerial Council on Energy and on what particular issues were those reviews to be conducted.

The response is that the Ministerial Council on Energy has directed the AEMC to undertake six reviews as follows:

review of compliance with and enforcement of technical standards;

congestion management review;

as part of the comprehensive reliability review, the MCE requested the AEMC to provide advice on the effectiveness of the current market arrangements in managing generation input constraints and energy shortfalls;

review of the electricity transmission revenue and pricing rules;

review of the effectiveness of competition in the gas and electricity retail markets in Victoria; and

National Transmission Planner.

The seventh matter raised by the Hon. Rob Lucas was:

On how many occasions—and the details of those—has the Ministerial Council on Energy initiated rule change proposals under the current rules that have prevailed for the past two years?

The answer is that the Ministerial Council on Energy has proposed for rule change requests as follows:

process for reaching change;

reform of the regular tree test principles;

transmission at last resort planning; and

reform of dispute resolution process for the regulatory test.

The eighth matter raised by the Hon. Rob Lucas was:

Will the minister clarify whether, in this piece of legislation we have before us in 2007, there are any changes to that thinking, or are the changes we are looking at in 2007 consistent with the statement made by the minister in 2005? In particular, I am wondering whether there are changes which we are being asked to look at on this occasion which have been taken out of the law and been placed in the rules.

The answer is that the legislative framework has not changed from the position as stated in 2005. These amendments confer functions and powers on the AER in relation to economic regulation distribution networks and add some additional powers in relation to information gathering. The amendments also introduce a mechanism for limited merits review of certain regulatory decisions made by the AER. The new chapter 6 of the National Electricity Rules will guide the AER when it is making a revenue and pricing determination for distribution services. The ninth matter raised by the Hon. Rob Lucas was:

I am seeking advice from the minister as to whether, since 2005, there has been any further derogations sought by the South Australian minister or, in this particular legislative change, are we seeing or about to see further derogations in relation to South Australia's position?

The answer is that there have not been any further derogations sought by South Australia since 2005 under the process set out in the rules. As part of this package, a number of derogations to the national framework are proposed in the bill and in the draft rules. First, a provision has been included to ensure that ESCOSA is authorised to provide confidential information that it has obtained in the past from regulated entities to the AER, with an ability for the AER to disclose such information for the purposes of undertaking distributory determinations. This provision is considered necessary in light of privacy laws.

Secondly, the bill ensures that the existing South Australian distribution tariff equalisation scheme and matters integral to its operation, such as the setting of state-wide transmission and distribution loss factors, are continued for South Australia. Thirdly, a further provision has been included to ensure that the AER applies any continuing provisions of the electricity pricing order (EPO) made by the then Treasurer under the Electricity Act 1996 (SA) on 11 October 1999.

In addition, the draft rules include a number of derogations to ensure a smooth transition to the first revenue determination under the new national framework. The rules also include a requirement that the supply charge for small customers must not increase by more than $10 from one regulatory year to the next. The tenth matter raised by the Hon. Rob Lucas was:

I will need to take advice from him, and perhaps also from my colleague the Hon. Mr Lawson, regarding exactly what this particular form of merits review will mean in practice. I would also appreciate it if the minister could provide any greater detail or explanation to a non-lawyer in relation to that.

The honourable member was referring to the merits review. The answer is that merits review provisions provide a review of regulatory decisions that significantly impact on the regulated businesses. A limited merits review mechanism is appropriate to balance the costs and delays of the merits review process and the fact that regulatory decisions are usually reached after extensive public consultation processes. Proceedings may be brought before the Australian Competition Tribunal in respect of:

AER pricing and revenue determinations for transmission and distribution;

disclosure of confidential information; and

pass through applications (will be added by regulation).

The eleventh matter raised by the Hon. Rob Lucas was:

If the government adopts the position that it is not going to hand over the power of retail pricing then there might be a third tranche of legislation when, and if, the government eventually decides to do what Mr Conlon told the Sunday Mail in an exclusive interview a number of years ago, that he had agreed to hand over retail pricing powers to the commonwealth regulator. I want to confirm whether that is correct, that we potentially see another three tranches of legislation in implementing further stages of the national electricity market and, in particular, whether the minister can indicate when he and the ministerial council expect the parliament to see those pieces of legislation.

The answer is that the MCE is currently working on the National Gas Law (NGL) and it will be considered by parliament in the near future. The next major piece of legislation following the passage of the current economic legislative package will be the retail legislative package, which will pick up the non-economic distribution and retail (non-price) regulatory functions currently administered by ESCOSA. The current timetable for this legislation is for it to be passed by July 2008. Given that the legislative package is expected to be very detailed, the timetable is currently under review by officials and is expected to be considered by the MCE at its December 2007 meeting.

The Australian Energy Market Agreement (AEMA) does not require the transfer of retail pricing powers to national legislation. The AEMA outlines an agreed approach for jurisdictions to consider the question of ongoing price controls, which involves the Australian Energy Market Commission (AEMC) undertaking reviews of competitive effectiveness in each jurisdiction. This process is detailed in a response to a separate question from the Hon. Rob Lucas. The twelfth matter raised was:

I asked the minister to indicate: what is the staffing complement? What is the status of the most senior position with the Australian Energy Regulator in Adelaide? How many staff came across from ESCOSA to the Australian Energy Regulator in South Australia?

The answer is that the Australian Energy Regulator (AER) office in Adelaide currently has a complement of nine staff, more than double the staff inherited from the former National Electricity Code Administrator (NECA). These staff currently deal mostly with market enforcement and compliance. The most senior positions are all filled by directors at Executive Level-2, which are senior positions within the commonwealth staffing hierarchy. This position may change when ESCOSA staff are transferred to the AER.

At this stage there have been no staff transfers from ESCOSA to the AER. Staff transfers will only take place with the transfer of responsibilities from ESCOSA to the AER, for which the current bill is the first step. Currently, ESCOSA staff working in the energy area (around 10 to 12) have been guaranteed positions in the AER, with the ability to stay in Adelaide. The current expectation is for an Adelaide AER staffing complement of 15 to 20, once all the energy functions are transferred. This will result in the AER having a significant presence in South Australia. The thirteenth matter raised by the Hon. Rob Lucas was:

I am asking for the minister to indicate exactly what he has agreed to in relation to a transfer of retail pricing powers to the Australian Energy Regulator... what deals, if any, has the South Australian government done to hand over the critical power of retail pricing of electricity to an Australian energy regulator?

The answer is that the Australian Energy Market Agreement (AEMA) provides for the removal of retail price controls where there is effective retail competition, with the Australian Energy Market Commission (AEMC) to undertake an assessment of the effectiveness of competition for the purpose of retention, removal or reintroduction of retail energy price controls commencing from 1 January 2007.

In March 2007 the Ministerial Council on Energy (MCE) agreed to the sequential review for competition assessment of jurisdictional retail energy markets by the AEMC, commencing with Victoria in 2007, South Australia in 2008, New South Wales in 2009, and (if required) the ACT in 2010. Whilst yet to be determined, it is expected that the AEMC will present its final report on the South Australian review of retail competition, including recommended policy responses, in December 2008.

The South Australian government would then need to provide a public response to the AEMC's advice within six months of receiving the final report. It is of course possible that the government could come to a different view from the AEMC on the effectiveness of retail competition and the appropriate policy response.

The 14th matter raised by the Hon. Rob Lucas was: in this legislation in 2002, the Labor Party and others talked a lot about tougher penalties and major changes in relation to rebidding. He wanted the minister to summarise exactly what the government has achieved in relation to tougher penalties. The answer is that the government sought the agreement of the other jurisdictions to create a new penalty for breaches of the rebidding provisions of up to $1 million, which is included in section 58 of the NEL as part of the definition of civil penalty. This provision was included in the original NEL via the National Electricity (South Australia) (New Penalty) Amendment Bill 2003. The rebidding provisions are set out in clause 3.8.22A of the rules, included in the code at the time, following extensive review and consultation by the former NECA and ACCC, which requires that all bids must be made in good faith.

Some other questions were asked in relation to the Australian Energy Market Commission Establishment (Consumer Advocacy Panel) Amendment Bill, and I will address those when we come to that legislation. I trust that I have adequately answered all those matters in relation to the National Electricity (South Australia) (National Electricity Law—Miscellaneous Amendments) Amendment Bill. I commend the bill to the council and look forward to the committee stage.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

Progress reported; committee to sit again.

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