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Legislative Council - Fifty-First Parliament, Second Session (51-2)
2007-11-15 Daily Xml
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NATIONAL ELECTRICITY (SOUTH AUSTRALIA) (NATIONAL ELECTRICITY LAW—MISCELLANEOUS AMENDMENTS) AMENDMENT BILL

Committee Stage

In committee.

Clause 1.

The Hon. R.I. LUCAS: In the interests of managing the committee stage, I propose to respond to some of the issues to which the minister replied at the end of the second reading and canvass some general issues in relation to the committee stage on clause 1. Yesterday the minister provided answers to questions raised by members during the second reading, and I want to pursue a number of matters with the minister at this stage. The first matter relates to a question I asked in the second reading debate about government policy on the Essential Services Commission having emergency reserve powers to cap retail prices if it found that tariffs were unjustifiable and excessive. I quote the response from the government:

The ESC Act was established with price-setting powers under section 25, which established a safeguard to ensure 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.

Does the minister say that this was a new power placed in legislation, or did not that power already exist under the preceding act which governed the Independent Industry Regulator that existed prior to the Essential Services Commission?

The Hon. P. HOLLOWAY: My advice is that specific explicit price justification procedures were put in the Essential Services Commission Act in 2003. Prior to that there had been some powers, but they had not been prescribed. There were general powers in the Electricity Act, but they had not been proclaimed.

The Hon. R.I. LUCAS: My question specifically is that, under the old South Australian independent industry regulator (the old regulatory authority that existed prior to the Essential Services Commission), is it not correct that under that legislation there were price setting powers that established a safeguard to ensure all South Australian customers, both existing and new, were guaranteed at least a standard contract upon the commencement of full retail competition?

The Hon. P. HOLLOWAY: My advice is that it was not specifically in the prior legislative arrangements. It is of historical interest more than prospective interest as far as the bill is concerned, but if the honourable member wants that information we can dig it up. We do not have that legislation here, but my advice is that it was not explicitly in that act.

The Hon. R.I. LUCAS: I thank the minister for that undertaking. I am happy not to delay the proceedings any further. It was certainly my understanding that there existed a safeguard prior to the establishment of the Essential Services Commission legislation of 2003. If it was not in that legislation my belief is that it existed somewhere in some piece of legislation. I am happy for the minister to take it on notice and provide an answer by correspondence some time in the not too distant future. If that did not exist, that is, that there was some sort of guarantee prior, I would have thought that there would have been an even greater controversy at the time of the debates in early 2000—just prior to and after the 2002 state election—in relation to the actions of the former government with regard to retail pricing. The whole issue is a very sensitive one and there will be further debate in committee on that issue. I will not further delay the committee at this time.

The further part of the minister's response was that ESCOSA is in the process of undertaking its review for the electricity standing contracts tariffs to operate from 1 January, and the government has made submissions to the review. Is the minister indicating that, with this legislation passing in the next week or so, ESCOSA will be the body that will continue and conclude that task, or will it transfer to the Australian Energy Regulator?

The Hon. P. HOLLOWAY: No, ESCOSA will continue to be the price setting regulator for retail prices.

The Hon. R.I. LUCAS: The minister's reply says that ESCOSA is due to commence its review of gas standing contract tariffs, which will operate from 1 July 2008. Will the minister confirm that ESCOSA will continue to implement that task and have responsibility and not the Australian Energy Regulator?

The Hon. P. HOLLOWAY: I can confirm that.

The Hon. R.I. LUCAS: During the second reading debate I broadly canvassed the issue of the transition arrangements, if any, in relation to the regulatory reset for the distribution companies in the national electricity market. We are talking about ETSA in South Australia and the equivalent bodies in other states. I understand that the regulatory reset is a fair way down the path in New South Wales, I think, from my discussions with the Australian Energy Regulator earlier this year. With the passage of this legislation can I just clarify whether the Australian Energy Regulator will conclude that particular task or will it will be the state-based regulatory authority in New South Wales?

The Hon. P. HOLLOWAY: My advice is that the Australian Energy Regulator will be undertaking that task; that is one of the reasons we need this bill to be passed fairly quickly. I have been advised that the Australian Energy Regulator will actually begin consultation on it tomorrow, so I guess that is one of the reasons this bill is needed.

The Hon. R.I. LUCAS: I must admit that in my discussions with the Australian Energy Regulator (which, as I said, were initially conducted earlier this year) I thought one of the options being canvassed related to New South Wales because they were so far down the path. Whilst the minister indicates that the Australian Energy Regulator is commencing discussion stages tomorrow, when one looks at a regulatory reset one sees that a large amount of work is done over a very considerable period of time—certainly much longer than the period between, say, November this year and June or July next year. That is, my advice is that the state-based regulator had already commenced a lot of the initial work being done. Even if that is the case, I assume all the work that has been done by the state-based regulator in New South Wales will just be handed over to the Australian Energy Regulator.

The Hon. P. HOLLOWAY: Yes. Indeed, my advice is that there are actually specific provisions in the rules' transitional provisions to facilitate that.

The Hon. R.I. LUCAS: Similarly, in relation to the South Australian regulatory reset, which is further away than the New South Wales regulatory reset, can I confirm that it is the intention that any work that has been done by ESCOSA here in South Australia would be handed over to the Australian Energy Regulator, and that it would be solely the responsibility of the Australian Energy Regulator to implement and manage the total consultation and decision-making process for the next regulatory reset for the distribution company in South Australia?

The Hon. P. HOLLOWAY: My advice is that there are provisions to enable the transfer of confidential information from ESCOSA over to the energy regulator. Given the time, the AER should be able to undertake the entire task, but there are other provisions so that they can get the base information.

The Hon. R.I. LUCAS: Are those provisions actually in the national electricity law that we are looking at, or are they in the rules?

The Hon. P. HOLLOWAY: They are in both; I am told they are in the law and also in chapter 9 of the rules.

The Hon. R.I. LUCAS: Another one of the replies the minister gave yesterday was in response to a question I asked about the power of ESCOSA to impose penalties on ETSA Utilities in relation to maintenance standards, and I want to clarify this with the minister. His response was that 'section 25(1) of the...act makes it an offence to contravene licence conditions, with a maximum penalty of $1 million'.

Well, that is unexceptional and I understand that particular provision, but my question specifically related to the issue of maintenance standards, which is quite different to licence conditions. Is the minister suggesting that the government has in some way made it a licence condition; that is, if maintenance standards are not maintained to the level required, that it is a breach of licence conditions and there is a maximum penalty of $1 million for that breach?

The Hon. P. HOLLOWAY: My advice is that there is a safety, technical, reliability and maintenance plan which is required to be maintained. On the advice of the technical regulator it is approved by the regulator, and that is what the participants have to abide by; it is a licence condition to abide by that.

The Hon. R.I. LUCAS: I think the understanding of those involved in this debate has always been that there are what I would call thresholds or essential conditions that have to be maintained in terms of the safety and reliability of the networks, and I accept the argument that that is a licence condition. My understanding is that that existed prior to the changes of 2003, but I am happy to get advice from the government on that. However, the debate at the time was really about the humdrum—although that is not entirely correct when we are talking about the essential safety of the system—or the actual maintenance standards in relation to blackouts. That was the debate that raged at the time of these particular statements made by the now minister—the public debate about blackouts, their frequency and the maintenance of the system, etc.

As I said in my second reading contribution (as well as on previous occasions), it was my understanding that the debate was about maintenance standards at that particular level—not at the threshold level of the safety and reliability of the system in terms of ensuring that basic things required to be done by a distribution company are done to continue the operation of its service. My understanding, and the advice I have received, is that maintenance issues are not licence conditions in relation to performance; they are governed by performance incentive schemes and a variety of other mechanisms that the regulators have to encourage better performance in terms of fewer minutes off-line and other measures of the maintenance standards of the distribution companies.

It remains my view that maintenance standards do not involve a licence condition breach: that is an issue in terms of the general performance of the company which is governed by incentives and performance management schemes the regulatory authorities have, as opposed to being a $1 million penalty for a breach of licence conditions.

The next issue I will comment on briefly relates to the vexed issue of whether or not the former government had set high transmission and distribution pricing systems to try to ratchet up the sale price of the assets. Without revisiting that whole debate, the government's reply has been, 'Well, the initial pre-tax, real weight and average cost of capital was higher than what occurred on regulatory resets here in South Australia.'

I make the point that that was the case in all other states. With the passage of time, the regulatory resets reduced during that particular period, when one compared it with the period in and around 1999-2000 and then for the years afterwards, whether it be 2003, 2004 or 2005, whenever the resets came. Certainly, that was the experience in Victoria and, from my recollection, in other states as well.

So, I think the issue should be one of comparing the debate on what was occurring at the time and acknowledging what the minister put on the record in the committee stage in the other place, that is, the particular circumstances that relate to our distribution company in South Australia. As I highlighted during the second reading debate, many of the things minister Conlon highlighted in the committee stage in the House of Assembly mirrored statements we made at the time about the particular circumstances that related to South Australia: the peaking nature and geographic spread of our system, and a variety of other issues like that relating to the challenges for a distribution company having to provide and maintain a service for a state like South Australia.

The other point I would make relates to the minister's answer on additional increments of generation capacity. It is worth noting that the only non-wind capacity increments that have been noted by the government since 2002 involve a small 50 megawatt peaking plant at Angaston, and Origin Energy has announced the construction of a 120 megawatt expansion at the quarantine station here in Adelaide.

Companies Australia-wide—it is not just a South Australian situation—announce new plants and then 12 or 18 months later, because of changed circumstances, they do not proceed with them all the time. Can I just clarify that Origin Energy's 120 megawatt expansion is actually going ahead and, if it has not yet gone ahead, can the minister indicate what the commitments from the company are and what is the government's understanding regarding the likelihood of that expansion going ahead?

The Hon. P. HOLLOWAY: My advice is that Origin is going ahead with its project and that it has engaged in some preliminary works. I am advised that Origin has negotiated a contract to provide the generator itself.

The other point I would like to make relates to the honourable member's comments about what happened in 2003—and it is more for historical interest. As I understand it, before 2003 there was a requirement for a safety and technical management plan. The changes in 2003 not only added the $1 million penalty but also extended the scope of those plans to include reliability and maintenance, in addition to the safety and technical standards. So, prior to 2003, there were requirements for management of the safety and technical perspective, but the scope was specifically extended to include reliability and maintenance, and that $1 million penalty was provided at the time.

The Hon. R.I. LUCAS: I am happy for the minister to take the following question on notice. Can the minister undertake to perhaps send me the detail of exactly what was added in 2003 in terms of maintenance and reliability standards into that plan the minister is talking about?

The Hon. P. HOLLOWAY: Yes.

The Hon. R.I. LUCAS: I thank the minister for that undertaking. The other issue that is, I guess, one of the more significant aspects of our regulatory regime here in South Australia is the issue I canvassed (and we certainly had a long debate about it in 2005) in my second reading contribution. The minister has provided a brief response, which I want to explore. I thank the minister for a copy he has provided to me and to other members of the amendment to the Australian Energy Market Agreement between the commonwealth government and all the states—a signed agreement by the Premier of South Australia on the state's behalf.

I refer to the section on retail price regulation in that agreement, which as I have said is an agreement, signed by the Premier on our state's behalf, with the commonwealth government and all the other states. The clause states:

The parties reaffirm their commitment to full retail contestability in accordance with the National Competition Policy agreements.

Members should note that full retail contestability in and of itself means for the householders' electricity market and also assumes that there will be retail price deregulation. Clause 14.11 of the agreement states:

All parties agree to phase out the exercise of retail price regulation for electricity and natural gas where effective retail competition can be demonstrated and that:

(a) the AMC will access the effectiveness of competition for the purpose of retention, removal or reintroduction of retail energy price controls, whereby:

(i) the criteria for assessing the effectiveness of competition was developed by the MCE in consultation with the AEMC and other interested parties based on the principles set out in annexure 3;

(ii) the assessment process will commence from 1 January 2007 starting with those jurisdictions most likely to have effective competition; and

(iii) reviews will be conducted biennially, unless the AEMC recommends otherwise, until all retail energy price controls are phased out or at the request of a party thereafter;

(b) social welfare and equity objectives will be met through clearly specified and transparently funded state or territory community service obligations that do not materially impede competition; and

(c) The AEMC will publicly report on its assessments of effective competition in which it will provide advice to each jurisdiction on their compliance with clauses 14.10-14.14 and on:

(i) ways to phase out the exercise of retail price regulation if competition is determined to be effective and an appropriate timeframe; or

(ii) ways to promote the growth of effective competition for those users or areas of jurisdiction which do not enjoy effective competition.

Clause 14 then goes on with some other subclauses which are not as important as the ones that I have just outlined. That agreement was signed in May or June last year. Some of the signatures are actually in March and April. Mike Rann's signature was on 10 May 2006, and some of the other premiers signed as early as March and April.

The Hon. P. HOLLOWAY: The Prime Minister signed it in June, I am told.

The Hon. R.I. LUCAS: The Prime Minister cannot sign it, as I understand it, until all states have signed it.

The Hon. P. HOLLOWAY: It is a long process.

The Hon. R.I. LUCAS: Yes. The first premier signed it in March, our Premier signed it in May and then ultimately the Prime Minister signed in June. As I said, this was soon after the last state election, or only a couple of months after it. Our Premier had signed this clear commitment on our behalf that if certain conditions are met—and I want to explore those—he would hand over retail price regulation to the national regulatory authority, which is the Australian Energy Regulator. During the second reading debate, when I asked what had been agreed to, this was the minister's response:

The Australian energy market agreement provides that the Australian Energy Market Commission will assess the effectiveness of competition for the purposes of retention, removal or reintroduction of retail energy price controls commencing from 1 January 2007. In March 2007, the Ministerial Council on Energy agreed to the sequential review for competition assessment of jurisdictional retail energy markets by the AMC, commencing with Victoria in 2007, South Australia in 2008, New South Wales in 2009 and, if required, the ACT in 2010. Whilst it is yet to be determined, it is expected that the AEMC's final report on the South Australian review will be due in December 2008. The South Australian government needs to provide a public response to the AEMC's advice within six months of receiving the final report.

It is clear from the signed agreement—as I said, signed soon after the state election, and the minister interjected and said that these things take some time—that all of these issues had been discussed by officers and ministers prior to the March 2006 election. Certainly, in discussions I have had with representatives from other states and territories, it is clear that these agreements—although not formally signed until soon after the election—had all been notionally signed off on and agreed to prior to the state election in March 2006.

The minister will remember that in 2005 (prior to the state election), I spent many hours in this chamber pursuing exactly what the state government's position was on retail price regulation. The minister may want to strike it from his memory but I asked him a long series of questions about the government's policy, because minister Conlon had given an exclusive interview to the Sunday Mail in which he indicated that he had agreed to handing it over. In essence, minister Conlon let the cat out of the bag about what is in this agreement in an exclusive interview with Kevin Naughton of the Sunday Mail. There was an exclusive story in the Sunday Mail indicating that the state had agreed to hand over powers in relation to retail price regulation.

That was potentially a hugely controversial issue for a Labor minister and a Labor government, given the statements they had made prior to 2002 and particularly in the period leading up to the 2006 election. The minister might recall that he went through an agonising process of trying not to respond to questions that were put to him about why the minister had made these statements to the Sunday Mail. Eventually, he said that the minister had been taken out of context (even though they were direct quotes), and he had not taken up at all the issue of seeking a retraction by the Sunday Mail. I will not go through all of that debate again.

It was an important issue in terms of transparency: what this government was doing in the ministerial council. As I said, my information from other jurisdictions was that Mr Conlon's statements to the Sunday Mail were entirely accurate; that is, he had agreed but he was not going to formally sign off on it—and the state would not formally sign off on it—until after the state election. The hope was that, if they signed the agreement straight after the election, there would be another four years before the next state election.

In a political sense, that is correct, Mr Acting Chairman, as you realise but, in terms of the openness and transparency of this particular issue—which has been a controversial one—certainly minister Conlon, in particular, and the government have been left exposed in terms of having, with a nod and a wink, secretly agreed to most of these issues and then left the formal signing off until straight after the state election.

As I said, when you look at this particular agreement—and the minister, very helpfully in his interjection, said these things take some time—the first signatures were, I think, 25 March, which was—

An honourable member interjecting:

The Hon. R.I. LUCAS: Exactly. It was just days after our state election. So, this agreement had been ready for signing and was being signed by various state leaders in that March period, soon after our state election, and we then signed it in May. My information—and I am sure this is now backed up by the dates of these particular signatures—is that this had all been agreed notionally by minister Conlon, although he was not honest enough to tell the people of South Australia or to provide the people of South Australia with the sorts of decisions that he had taken, and that if re-elected he was going to recommend to his government that it implement it straight after the state election. However, I guess we get used to that with this minister and with this government.

The question that now remains is: where to from here? We have one tranche of legislation before us. We certainly have another tranche of legislation—the minister has conceded—in relation to non-price retail regulation, if I can describe it that way. So, that is definite. If the government agrees to hand over retail price regulation to the AER, we will potentially have another tranche of legislation to implement that. That means we have this debate, we certainly have one more, then we have another one on gas and then we have the non-price retail regulation. So, we definitely have two more to come after this one, and then potentially we might have retail price regulation as a third tranche of legislation to come over the next two years or so.

The question remains now as to what the government—having signed this agreement—believes its commitments are. It is quite clear from this agreement that the government has agreed to phase out retail price regulation for electricity under certain conditions. Premier Rann has signed this agreement which says, 'We reaffirm our commitment to full retail contestability and we agree to phase it out subject to certain conditions'. The condition is that the AEMC will conduct a study of the retail price market in South Australia next year, and it is assumed there will be a report by the end of the year.

I indicated, I think in my second reading contribution, that the AEMC has conducted the study in Victoria already and it has recommended that there is healthy price competition in Victoria and that, therefore, under these provisions the agreement will be implemented, one would assume, in relation to Victoria, although obviously that question has to go to the Victorian government.

It is my view that when the AEMC does its study of South Australia in 2008—given that the minister has been highlighting that we do have a competitive market in South Australia, and the government has often quoted that there has been significant movement away from the dominant retailer to other competitive retailers (I do not have the exact figures, but I am sure the government does)—it will find that, as with Victoria, there is effective retail competition for electricity in South Australia.

My question to the minister is: what is the government's understanding? I accept that the minister will say, 'Look, we do not know what the AEMC will find', but I put the question: if the AEMC conducts its review and finds that under this agreement there is effective retail price regulation, does the government agree that this agreement it has signed means that it is therefore required by this agreement to hand over retail price regulation to the AER?

The Hon. P. HOLLOWAY: The requirement is that if it is found that there is a competitive market then the state is obliged to hand over the responsibility for that. What is important to understand is that the AEMC will present its final report on the review of South Australian retail competition, including recommended policy responses, in December 2008—in 12 months. The government would then need to provide a public response to the AEMC's advice within six months of receiving the final report. As I said yesterday, it is possible that the government could come to a different view than the AEMC on the effectiveness of retail competition and the appropriate policy responses.

In the event that that were to happen, I guess that would then be in the sphere of a political negotiation as to what exactly the agreement requires. One would expect, given that the procedure has been set out that there has to be a detailed report first of all, taken over the next 12 months, then the state responds within six months, there would be some argy-bargy as to an agreement as to what competition actually means. My advice is there is no formal dispute resolution process, but I am sure that the procedure with these reports—the report first of the AEMC and then of the state—will lead to those issues being clarified. As to what ultimately happens, we will have to wait and see.

The advice I have, in fairly broad terms, is that we know that about 60 per cent of customers have moved to market contracts, so that leaves about 40 per cent still on standard contracts. That is just a snapshot, if you like, of the broad measure of competition.

The Hon. R.I. Lucas interjecting:

The Hon. P. HOLLOWAY: My advice is that it is a bit lower, but we can probably check that. It is possibly a bit lower but comparable.

The Hon. R.I. LUCAS: I want to clarify the government's position. Is it arguing that, even though it has signed this agreement, if the AEMC reports that there is effective retail competition under this agreement, the government still has the right, under the process he has indicated, to come to its own conclusion that the AEMC is wrong and therefore refuse to hand over retail price regulating powers?

The Hon. P. HOLLOWAY: Essentially, that is correct. Obviously, the parties have signed an agreement, and I suppose that, in good faith, they will try to reach some resolution and common understanding. After all, the core issue is: what is effective competition? You can assess that in different ways. One would hope that the process would lead to some common agreement as to whether or not effective competition exists.

The Hon. R.I. LUCAS: If that is the government's interpretation of the agreement (which is interesting, I must say), I remind the minister what the government has signed, as follows:

14.11 All parties agree to phase out the exercise of retail price regulation of electricity and natural gas—

that is clear—

—where effective retail competition can be demonstrated and that:

(a) the AEMC will assess the effectiveness of competition for the purposes of retention, removal or reintroduction of retail energy price controls...

There is no mention of the state government and the state minister assessing the effectiveness of competition. It is quite clear and quite explicit that the AEMC will make the judgment. Again without binding the persons I spoke to (because it was an informal discussion), my understanding from the Australian Energy Regulator's office was that this particular understanding and agreement was that it was the AEMC independently that made the decision. Given the agreement the Premier has signed, can the minister explain how he believes that, even though it states that the AEMC will be responsible, the minister can disagree and therefore not be bound by the terms of this signed agreement?

The Hon. P. HOLLOWAY: Clause 14.15 of the agreement states:

The parties further agree that, for the purposes of the phase-out of the exercise of retail price regulation under clause 14.13, the process for responding to advice from the AEMC, under clause 14.11(c)(i), will be as unanimously agreed by the MCE by 1 July 2006.

As I have indicated, the states have six months to respond. That has been agreed by the MCE but, as I indicated earlier, no further dispute resolution process has yet been agreed. As with all these things, presumably the MCE would consider it if it were necessary to do so.

The Hon. R.I. LUCAS: All clause 14.15 is saying is that the process for responding to advice from the AEMC will be as unanimously agreed by the MCE by 1 July 2006. Is that right—by 1 July or on 1 July?

The Hon. P. HOLLOWAY: My advice is that we are not sure that we have met the exact detail of agreeing the process, but the process that has been agreed is that the states will respond in six months.

The Hon. R.I. LUCAS: Can I clarify this: is clause 14.15 in error? It states 'will be as unanimously agreed by the MCE by 1 July'. Is that meant to be 'on 1 July 2006'?

The Hon. P. HOLLOWAY: Yes; we believe so.

The Hon. R.I. LUCAS: That probably makes more sense. I take it that the unanimous agreement of the MCE on 1 July 2006 was that the jurisdiction would have six months to respond: is that correct?

The Hon. P. HOLLOWAY: My advice is that that is the process that has been agreed by the MCE, although it may not have been on 1 July. It is certainly the process that has been agreed.

The Hon. R.I. LUCAS: Is the minister telling us that it is not just that the word 'by' is wrong; it may well be that the date is also wrong?

The Hon. P. HOLLOWAY: We do not know when the agreement was finalised, but I am sure that the signatories to the agreement all fully understand their obligations in relation to this six-month period of response to the recommendations of the AEMC. Clause 3.2 of the agreement states:

The parties will use all reasonable measures to comply with the dates in this agreement but acknowledge that any date may be altered by the unanimous agreement of the MCE ministers.

When you are getting these things signed over three or four months, as suggested, I guess that is why you have to have those flexibility clauses. When you have seven or eight jurisdictions, or whatever it is, sticking rigidly to those time controls is always a problem.

The Hon. R.I. LUCAS: This is one of the things I found curious in the agreement. As I say, I am pleased that the minister gave it to us yesterday. Bearing in mind that this document was signed by some premiers in March 2006, and our Premier signed it in May 2006, how do our Premier and other premiers sign an agreement that states:

The process of responding will be as unanimously agreed by the MCE on 1 July 2006—

which is actually three months later? How do you know that it is unanimously agreed on a date that is later than when you actually signed the agreement?

The Hon. P. HOLLOWAY: As my adviser says, it is really just a date by which you seek to get unanimous agreement—that is, by that time. I assume the premiers and the Prime Minister and other chief ministers do so on the advice of their ministers, departments and advisers negotiating these things, in the expectation that an agreement will be reached.

The Hon. R.I. LUCAS: This is getting curiouser and curiouser, to use a phrase. I could understand if the minister 'fessed up and said, 'Hey; the draft has got this wrong and the date is actually 2005,' or something. That at least, whilst an error, would make some sense, but his purported explanation—based on advice, I accept—does not make any sense at all. Again, it provides, 'will be as unanimously agreed by the MCE' on a date three months after some premiers have already signed it.

I know of no lawyers who would knowingly draft an agreement along those lines, providing for unanimity. You have no idea whether it will be unanimously agreed, yet I am assuming that this six month right for the jurisdictions to respond is probably something on which most of them will have notionally signed off during the 2005 negotiations. If the minister were to stand up and say, 'This is wrong; there is obviously an error and it should have been a date preceding when the minister signed it,' I could perhaps understand it, but I cannot accept or understand the minister's latest explanation, which is, 'Hey, look; they signed it three months before a date which is mentioned in the agreement.'

The Hon. P. HOLLOWAY: The point here is really that it is a statement of intention to try to get these things in place. My advice is that there are probably other dates in there that have not been met either, but when you have these sorts of agreements they are signed on the best information and intentions at the time and the time lines by which you can expect to achieve certain milestones. I mentioned earlier clause 3.2, which indicates that, whereas the jurisdictions undertake to use their best endeavours (if I am paraphrasing correctly), they will not necessarily meet those objectives. I am told that there are some other deadlines in there as well where there has been some slippage.

The Hon. R.I. LUCAS: Again, one accepts with this debate (I highlighted in the second reading debate that we were expecting to discuss this tranche of legislation two years ago) that there has certainly been slippage, but that is not the slippage we are talking about here. This provision came as a result of the questions I was asking earlier about the AEMC investigation or review, and the government's response was, 'Look; we do have the power to respond.' The minister indicated that there was a six month period, and the reference was, 'Okay; this is as has been explained or described in section 14.15.'

I ask the government to take on notice to get formal advice from whoever has drafted this agreement to confirm the position, that is, that this was not an error in terms of the date, that there had been a unanimous agreement by the MCE on an earlier date than 1 July 2006 and that by error the wrong date had been put in the agreement. As I said, that would be, whilst sloppy, at least an understandable explanation.

I accept that the minister was not party to all these decisions, and perhaps the officers themselves might not have been engaged in this issue as well, but I ask whether the minister would be prepared at least to take this issue on notice and state specifically what the error is—I think the officers have already conceded that the word 'by' should not be there: it should be 'on'—and whether or not there is an error in relation to the actual date that is listed there.

The Hon. P. HOLLOWAY: It is important to explain that clause 14.15 provides that 'the parties further agree that for the purposes of the phase-out…will be as unanimously agreed by the MCE by 1 July 2006'.

The Hon. R.I. Lucas interjecting:

The Hon. P. HOLLOWAY: Whether it is 'on' or 'by' does not really matter: the important thing is that it provides, 'will be as unanimously agreed'. It is signed before the date; it is an intention that the states will work together to get a unanimous agreement by that time. However, you read that with clause 3.2, which provides that, as much as we might try as jurisdictions, there will be some slippage on occasions. What I can say is that my advice is that the Ministerial Council on Energy has unanimously agreed on those conditions that are relevant to that clause 14(15), that is, that there will be six months.

As to the date when that was done, whether it was by, on or after 1 July, probably does not matter, given clause 3.2. The important thing is that the MCE has unanimously agreed that there will be the six months for the government to respond. However, what the agreement does not have is any dispute mechanism should there not be agreement. I think we have already covered that. I hope that answers the fact that the agreement is really a statement of intention to try to get something agreed by that date. The important thing is that there has now been that unanimous agreement, and therefore I would argue that under the terms of the agreement that arrangement applies. However, there is no agreement about what should happen in relation to any dispute over it.

The Hon. R.I. LUCAS: I am happy to take this on notice if the minister is prepared to undertake to provide a copy of the agreement that the MCE entered into on whatever date it was; if the minister was prepared to provide a copy of the actual agreement between the ministers on this issue and the date on which that was entered into.

The Hon. P. HOLLOWAY: The minutes would give the dates. I do not know whether there is any confidentiality but, subject to that—I am not sure whether we can provide that; it would depend on whether for some reason it might be confidential. I am sure we can at least get the date; that should not be a problem anyway.

The Hon. R.I. LUCAS: I take it that the minister is indicating that he will at least inquire as to whether it can be provided. Having had some experience with this body, I can see no rational reason why this particular decision would be confidential, given that it is obviously providing powers to jurisdictions to comment, but I will await advice on that.

In the agreement that has been signed it is quite clear that it is the AEMC that does this review; it does not say that the minister will do it. The minister is now saying, 'At some time the ministers have agreed that there is a process for responding to the advice from the AEMC.' Will he indicate what else is in this resolution? That is, it says that there will be six months to respond to the advice of the review by the AEMC. What else does it say, other than that the jurisdiction has six months to respond to that advice?

The Hon. P. HOLLOWAY: The only advice that I can provide at this stage (that my advisers give me) is that, really, it is essentially just restricted to what we have said; that there will be six months to provide that advice. However, we are already looking at whether we can make it available. If there is anything further, we can provide that information when we get a date on it. However, for the purposes of this debate, the information we have now is that it really does not go much beyond indicating that there is six months for the states to respond.

The Hon. R.I. LUCAS: My discussions with the Australian Energy Regulator officers and officers in other jurisdictions have led me to believe something quite contrary to what the government is putting at this stage. That is, that the Australian Energy Market Commission is the body which independently assesses whether or not there is competition. There was a view from those pushing the national market that if you leave it up to the politicians and the jurisdictions, they will make judgments which are politically saleable or manageable within their own jurisdictions. So, the view was that you had to have an independent body to do the assessment and, therefore, the AEMC, and that is why it is drafted this way.

The minister is indicating that there is six months for the jurisdiction to then respond to the AEMC advice. That could be entirely consistent with the advice that I have had: that is, the independent body makes an assessment or a judgment and the jurisdiction can then have six months—a period of time—to say, 'We think it is fantastic,' or, 'We disagree,' but that it is the independent body that eventually has the final decision, which is consistent with this particular agreement. The minister, however, is saying, 'No, it's not just that; it's also that the politician can say, "No, we don't think there is competition within the six months",' and disagree, and that there is no dispute-handling resolution.

What the minister is saying is that the Australian Energy Market Commission says there is competition, therefore, you have to hand over your retail pricing powers; that is what this agreement also says. The minister is now saying, 'The jurisdiction can have six months to comment, but not just comment on that and acknowledge that the AEMC makes the judgment as to whether or not there is price competition in the market and, therefore, you have to hand over your powers.'

The minister is now saying that it is the South Australian government's view that if the jurisdiction disagrees—that if the minister says, 'No, no, there isn't competition; we don't want to hand over our powers,' therefore, the AEMC cannot implement this particular agreement, there is no dispute-handing resolution and, therefore, it will be ultimately an issue for either negotiation or for the courts in terms of resolving the particular dispute.'

As I said, the minister's construction of the circumstances is entirely different to my understanding of discussions I have had with a range of others involved in this particular issue. It is a critical issue. As I have highlighted, the sensitivity of this issue meant that the government and the minister were less than honest with us, prior to the 2006 election, as to what they had agreed. They signed all of this up within days and weeks after the 2006 election. This issue is potentially controversial. It is sensitive for the Labor government, given what it has said on previous occasions.

This agreement, to me, is quite clear. The minister is, however, saying that it is not; that there is this other resolution of the MCE which we at this stage do not have and which therefore throws it in doubt; that is that the minister can say, 'No, I disagree with that and, therefore, this agreement cannot be implemented.' I think it is fairly fundamental to this whole debate about the national electricity market. This is not some trifling issue that does not have widespread impact. This is the issue as to which body (the state or the federal regulatory authority) will actually control retail pricing through all of our consumers in South Australia. It is a fundamental issue in terms of the national electricity market.

The Hon. P. HOLLOWAY: The price-setting powers are contained in the Electricity Act. My advice is that for them to transfer over to the AEMC it would have to be done through a change to the act. It is not just the minister or the MCE: it is a matter for this parliament ultimately agreeing to a change. We are moving towards a national electricity market. We have the MCA, and all states and territories and the Commonwealth are agreeing to move in a particular direction. Whereas the intention expressed by that agreement is that we should move towards this regulator, clearly there are these provisos in there, and the key issue is whether or not there is effective competition: that is a key part of that agreement. Within the terms of that agreement, that is the condition on which the transfer takes place.

In the first instance the state would have to be satisfied. It has six months to respond and take up the issue with the AEMC if it does not believe that there is effective competition. That is something about which we can all have different views and debate, but there are lots of objective measures of what effective competition is. However, at the end of the day, this parliament would have to be satisfied before the Electricity Act could be changed to give effect to that transfer of powers.

The Hon. R.I. LUCAS: That is a touch cute for the minister, and he knows it. I think the frustration expressed by a number of members—the Hon. Mr Xenophon, the Hon. Sandra Kanck (in the past) and others—is that, by and large, the government and the alternative government have accepted this notion or convention that these agreements have been negotiated between governments and it is well nigh impossible for an individual jurisdiction, after that has occurred, to actually amend the agreement. He will be the first minister who has stood up and said we have spent months and years negotiating this.

The Hon. P. Holloway interjecting:

The Hon. R.I. LUCAS: I accept that, but the minister will also come to us and say that the Premier of the state actually signed an agreement on behalf of the state which said, in essence—

The Hon. P. Holloway: Subject to effective competition.

The Hon. R.I. LUCAS: But the Premier signed an agreement that said 'subject to effective competition, which would be assessed by the AMC'. I can understand it if he had a rider in there that said 'and the jurisdiction has to agree that there is effective competition'.

The Hon. P. Holloway interjecting:

The Hon. R.I. LUCAS: It does not say that. The minister is saying that there is another decision that says that the states have a right to respond. By responding, it does not mean that they have the power to overturn the decision. They can put a response to the body that makes the decision, the AEMC, but ultimately under this agreement it is the AEMC that makes the decision.

The Hon. P. Holloway interjecting:

The Hon. R.I. LUCAS: But the Premier of the state has signed an agreement that says he will. The Premier and the minister will come to the parliament and say, 'Hey, we have negotiated these things; I have signed an agreement on the state's behalf which says that is what will occur', and by and large that is how most of the legislation has been passed. It is not a criticism in relation to the legislation of just this government. The former government as the lead legislator brought legislation that was equally criticised by minor parties and independents saying, 'You've entered into this, but what say does this parliament have in relation to some of the issues?'

In the last debate the Hon. Nick Xenophon moved a series of amendments that the government and the opposition opposed on the basis that this would be the national agreement that had been entered into and, even if some of us might have thought that some small aspects of what Mr Xenophon moved might have made some sense, we were not in a position at that stage to be able to do it. I will not revisit all that debate again, but the principle is evident to the minister. When in opposition I am sure he probably expressed similar views and frustrations about the national electricity laws and other national laws imposed on state parliaments.

The Hon. P. Holloway interjecting:

The Hon. R.I. LUCAS: Yes, the opposition is similarly supporting issues in the national interest. Obviously there is a fundamental disagreement in terms of the position. Post this debate I intend to raise the issues with the Australian Energy Regulator and other jurisdictions and people familiar with it to confirm the position. It will be interesting to speak with the commonwealth minister although, if there is a change of government, there will be a new commonwealth minister who will need to come up to speed. I will be surprised if the commonwealth minister shared the view the state minister has put in relation to this issue, given the well known and public views that he has expressed on any number of occasions in terms of the importance of a national market and the removal of state-based regulators, and so on.

Nothing much more can be resolved at this stage on that. In relation to the position of the state-based regulator, I asked the question in 2005 and the minister's response was that it was still a bit too early to tell. One of the major pushes in terms of the legislation before us and the whole legislative package was that ministers Macfarlane and Conlon have been running around saying that we have too many regulatory authorities in Australia and we need to reduce the number. I highlighted at the time that we were not reducing the number but either maintaining or increasing the number with the establishment of the AER, the AEMC and a continuing role for ESCOSA.

Has the government come to a landing two years later from the 2005 debate as to when the next two tranches of legislation have been resolved and on whether we still need an ESCOSA of the size and shape we have currently?

The Hon. P. HOLLOWAY: I seem to recall the answer a couple of years ago and I think we talked about residual functions and there is certainly rail, ports and other areas. Some staff will be transferred and that is in the information I provided in the second reading that currently ESCOSA staff working in the energy area have been guaranteed positions in the AER, with the ability to stay in Adelaide. The current expectations for Adelaide are a staffing compliment of 15 to 20 people once all the energy functions are transferred. There will still be some role for ESCOSA in other areas, so there are residual responsibilities.

The Hon. R.I. LUCAS: In relation to the current operations of ESCOSA, because one of the major tasks it is involved with is the regulatory reset for the distribution company. It is a huge task and takes up enormous resources. Do we still have four commissioners at ESCOSA or has the government reduced the number of well paid commissioner positions within ESCOSA?

The Hon. P. HOLLOWAY: We still have four commissioners.

The Hon. R.I. LUCAS: Why would we still need four positions on ESCOSA when the major task it undertakes is being handed over to the Australian Energy Regulator and, even if there are residual functions within ESCOSA, surely it is capable of being handled by one commissioner, as originally the independent regulator constituted just a single individual?

The Hon. P. HOLLOWAY: As I understand it, the Essential Services Commission Act is assigned to the Treasurer, so it is something the Treasurer would ultimately have to consider. I do not think the current Treasurer, like previous treasurers, is given to spending money if it is not necessary.

ESCOSA still has significant functions up until at least the end of next year—and possibly longer with these transitional phases. Obviously, that would be a matter for the Treasurer to consider at some time over the next year or two when these functions are transferred.

The Hon. R.I. LUCAS: My personal view (and it is not something we have discussed as a party) is that the South Australian independent industry regulator, constituting a single individual, has for some time had a very broad set of functions. It was then expanded (for reasons I understand), but we are in the process of handing back probably the biggest task of the Essential Services Commission, and the advice you gave in response to an earlier question was that all that work would be done by the Australian Energy Regulator as from the passage of this legislation. So there would appear to be no earthly reason why the government would want to continue with the same number of commissioners. Clearly the number of staff will be reduced (I assume) through this transfer process the minister has outlined.

The Hon. P. HOLLOWAY: I would like to correct one thing before we move on. I am advised that there will still be some residual functions. Whereas I agree with the Hon. Rob Lucas that most of the responsibilities will go to the AER, I am told that there are still some functions retained. These would be:

distributed technical safety business licensing and authorisation schemes that require the demonstration of technical capability;

small customer dispute resolution;

the obligation for distributors and retailers to have internal dispute resolution schemes and participate in independent dispute resolution ombudsman-type schemes;

a load shedding and curtailment customer supply reduction sequence to maintain system security;

service reliability standards (which ensure network security and reliability);

metering, and policies on the types of meters required for specific customer classes;

accredited service provider arrangements and load profile arrangements; and

distribution and retail service areas (specification of geographical areas in which responsibilities and obligations apply).

So, there are those residual functions, but pricing is obviously the key issue.

The Hon. R.I. LUCAS: In relation to the Adelaide office for the Australian Energy Regulator, the minister's reply to a question in the second reading was that staff currently deal mostly with market enforcement and compliance. Would the minister expand further on that? In particular, what role, if any, do they have in terms of the distribution sector of the national electricity market?

The Hon. P. HOLLOWAY: I am advised that there are none as yet; this act will transfer those functions.

The Hon. R.I. LUCAS: I need to clarify my question. I understand this act moves powers relating to distribution to the Australian Energy Regulator nationally. My question relates to the local office of the AER—that is, the local office in Adelaide. We are told that the staff currently deal mostly with market enforcement and compliance. Before I get to the second part of the question, and to assist the debate, can the minister indicate which particular sectors of the national electricity market that market enforcement and compliance are in? Is it generational retail in particular?

The Hon. P. HOLLOWAY: My advice is that under the current act the AER has responsibility for the monitoring and enforcement of laws. In particular, that relates to transmission, generation and the market operation systems.

The Hon. R.I. LUCAS: With the passage of this legislation, will it be the Adelaide office staff of the AER who will conduct the regulatory reset for ETSA Utilities or will that be conducted out of the Melbourne office?

The Hon. P. HOLLOWAY: That is a matter for the AER to determine. I think we did indicate that there would be significant staff but exactly how their functions are assigned is, I guess, up to the AER. I suppose they will use expertise where it can be best deployed.

The Hon. R.I. LUCAS: I ask the question because during the 2005 debates, and in the period leading up to them, the minister indicated that it would not make sense to have decisions relating to the distribution industry being made by people in an Eastern States office, and he lobbied strongly for a local office of the Australian Energy Regulator. As I said, I have been advised that the current staff within the local office of the AER have nothing to do with the key issues that relate to the distribution sector—that is, regulatory reset and maintenance standards, and all those sorts of issues. Those officers are probably in Melbourne or in other parts of the national electricity market.

I guess I am trying to clarify what commitments the minister gave in relation to what the local office of the AER would actually do and what would be its involvement in the distribution sector. As I said, obviously the key issues there will be the pricing and maintenance issues. Is the minister able to confirm that it is still the state government's position that the local office of the AER will have responsibilities in these areas and that these key decisions will be taken in Adelaide rather than in the Eastern States?

The Hon. P. HOLLOWAY: At present, if the AER does not have the functions of distribution and retail then, obviously, one would not expect them to have the expertise or that they would be doing it. What we have indicated is that staff will be transferring over, and the indications are that they will be based in Adelaide. So, there will be significant staff transfers, and that will give the AER the capacity to undertake these services here in Adelaide.

Ultimately, the AER will determine that, but it is obviously logical that, if those staff who have been undertaking that function are transferred over to the AER and they are located here in Adelaide, it makes sense that they would undertake that function here in Adelaide. However, if there are other people with expertise in other parts of the country, I suppose it is really up to the AER how it wants to arrange them. However, what is important—I guess, the bottom line, if you like—is that the staff located here in Adelaide are familiar with the market and have the expertise to contribute to the process.

The Hon. R.I. LUCAS: I will leave the following question with the minister and, ultimately, I guess, it is for the minister responsible and his advisers to provide a response if the minister so chooses. What discussions is the minister having and what expectations does the minister still have in relation to the role of the local office of the Australian Energy Regulator in South Australia?

As I have said, I will not take up the committee's time by going back through the statements the minister made at the time, but I will summarise by saying that he indicated that it did not make much sense to be, in essence, running, managing or oversighting the distribution sector in South Australia from the eastern states, and he led everyone to believe that the local office would have a significant role in relation to that. So, I leave that question with the minister and, if there is a response that the Minister for Energy is prepared to provide by way of correspondence, I would certainly be interested in receiving it. However, if we do not, when the legislation comes before the parliament again in the next 12 to 18 months it will be an issue that we will pursue at that time.

Clause passed.

Clauses 2 to 4 passed.

Clause 5.

The Hon. M. PARNELL: I move:

Page 10, after line 13—Insert:

(5A) NEL, section 2, definition of electricity services—after 'consumers of electricity' insert:

or that are relevant to the management of demand for electricity in association with the supply of electricity;

I have a total of 14 amendments to this bill, and they follow a number of themes. The first five amendments relate to the various definitions that are included in clause 5 of the bill, and my later amendments are changes that incorporate those new definitions.

The themes around my amendments, if I can speak briefly to them in toto, relate to demand management. I have some amendments in relation to greenhouse gas emissions, renewable energy and the creation of a renewable electricity and emissions intensity panel. These amendments come together most importantly in my amendment No. 6, but I will speak separately to a number of these amendments individually.

What I will say at the outset is that, as has been said before in all of the second reading contributions, we are talking about proposed national laws, but national laws for which South Australia is the lead agency. It does beg the question, when we debate bills like this, as to the role of the state parliaments, given various negotiations and agreements that have been reached between ministers. My view is that, whatever deals might have been done at the executive level through the various jurisdictions, we cannot and should not abrogate our responsibilities to the community.

I have taken as my primary guide for these amendments, including the first one, the amendment package which was provided to all members and, as I understand it, to all members of all state and territory parliaments (and I referred to this amendment package in my second reading speech) and which was put together by a large number of non-government organisations. I will not read through the whole list, but it represents the peak bodies in relation to the environment, community welfare and the peak bodies representing consumers.

What those groups have collectively done is to plead with all premiers, all energy ministers and all members of legislatures that we should accept some amendments to these national laws to make them fairer for consumers and more sustainable environmentally, particularly in relation to minimising greenhouse gas emissions and promoting renewable energy.

My amendment No. 1 proposes to include, after the definition of 'electricity services', the concept of the management of demand for electricity in association with the supply of electricity. In other words, it tries to bring together the fact that efficiency, as we think of it in common parlance, and particularly in relation to electricity, is not just about supply. There are two sides to the equation. There is a supply side and there is a demand side. Being more efficient in our use of electricity does not mean the same thing as increasing the supply of electricity. It can and should, especially in relation to greenhouse gas emissions, mean a reduction in demand for electricity as well.

The groups that I referred to—the conservation, social welfare and consumer groups—have pointed out that the demand side of the equation is almost completely absent from this legislation. What they say is that the national electricity market is a supply-side dominated market and that that is at the expense of consumers, the environment and efficiency. Inefficiency by consumers increases consumption and, therefore, the income of the energy providers; in other words, the suppliers. While the regulated networks are in a position to implement and benefit from demand management, many barriers exist under the code that prevent or fail to encourage demand management initiatives.

The national electricity law should make the development of demand management an objective; likewise, the immaturity of the demand management provider market should be addressed. It is not as sophisticated a market as the supply-side market. I will be seeking to incorporate the concept of demand management into the national electricity objective in a later amendment, but for now the important thing to do is to acknowledge the concept by including it in clause 5 in the definition.

Whether or not my later amendments in relation to the national electricity objective are accepted, I think that this first amendment should be supported. If it turned out that I am including definitions that subsequently are not required because they are not referred to anywhere else in the legislation, then we could remove them. But for now, I would urge all honourable members to support my first amendment, because including demand management in the legislation is an obvious and necessary inclusion because it is the flip side to supply in the meaning of efficiency.

The Hon. P. HOLLOWAY: The government opposes the proposed amendments, and I will speak to the first two in particular, which relate to demand management. The definition is already sufficiently broad to capture the appropriate management of the supply and use of electricity in the national electricity market. These amendments are not considered necessary in the context of the existing legislation and when read in conjunction with the proposed national electricity rules amendments, which established a foundation for the efficient uptake of demand management initiatives as well as renewable and distributed generation.

I would remind the committee that it must be kept in mind that all amendments to the National Electricity (South Australia) (National Electricity Law—Miscellaneous Amendments) Amendment Bill 2007 require the agreement of all state, territory and commonwealth energy ministers. The government does not believe they are necessary, in any case, given that we would have to renegotiate with all states, and the previous debate indicated how long that process can take. The government cannot accept these amendments.

The Hon. R.I. LUCAS: I intimated in earlier contributions that the frustration of members of state parliaments—not just in this jurisdiction but in others—is understandable.

As I said, when we were in government, similar frustrations were expressed by the opposition, as well as Independent and third party representatives. Nevertheless, it is our position in opposition (and it was also our position in government, so to that extent we are being consistent) that for us as a parliament to go down the path of making changes would not be a process that would assist the further development of the national electricity market.

Clearly, it required changes, which are already two years or at least 18 months late in arriving in this parliament. If we were to make changes, clearly there would be even further delays in terms of seeking agreement; even then, there is no guarantee that we would get agreement from the other jurisdictions to some or all the amendments we contemplate. I understand the frustration, but that is the business the majority of us have accepted, for better or worse. I will not be supporting this or, indeed, other amendments.

The only caveat I place on this is that if, ultimately, there were something that were just so fundamentally abhorrent to members of parliament (and I can only speak personally) there would be an argument to stand on your dignity as a state parliament and send the government back to the negotiating table. However strongly the Hon. Mr Parnell feels on this issue or, indeed, I have felt on other issues, I do not see them as meeting that definition—that is, so fundamentally abhorrent to what we ought to be doing. I put them in the category, in this case, of improvements or important needs that should be met that are not being met by the legislation.

The issues I raised earlier are even more fundamental in terms of exactly what the government intends in the future of retail pricing. Ultimately, I have accepted, and we have accepted as a party, that it has been a long and laborious process to get where we are. We will express our views, and we will have another two or three endeavours to see whether or not we can express our view in future tranches of legislation.

The final point I make (and I will explore it later) is that, last time, I flagged some concerns in relation to the drafting of the law and the rules. I am interested in pursuing (because I am not a lawyer) whether or not any of those have been catered for in this current drafting and redrafting of the rules and the National Electricity Law. The only faint hope I hold out for the Hon. Mr Parnell and others is that, perhaps not on this amendment but on others he has, if there are issues, he might be able to obtain undertakings from the government at least to take them up in the discussions at the national level.

He need not limit himself to this debate; obviously, he can correspond with the Minister for Energy and say, 'We have another two tranches of legislation coming up. Your lot and the bloody opposition didn't support me this time. But I think this is sensible. Are you prepared to take up this issue at the ministerial council?' The minister may well still say, 'Nick off. I'm not going to agree with anything you say.' At least he has the capacity to take up the issues (and at the ministerial council level, we will have another two goes at the legislation) and see whether or not he can get agreement to some or all the issues the Hon. Mr Parnell has raised. I can only offer that as a suggestion, should the numbers not be with him on this occasion.

The Hon. P. HOLLOWAY: I think it is important that I briefly put on the record what we are doing in relation to demand management, because I would not want anyone to think this is an issue that has been neglected. The new National Electricity (Economic Regulation of Distribution Services) Amendment Rule 2007 represents a significant step forward in the development of the regulatory framework by establishing new rules to assist in the removal of barriers to the efficient uptake of demand management initiatives as well as renewable and distributed generation.

The purpose of the rules is to provide for consideration of a non-network, such as demand side response options, in meeting electricity distribution network investment, and these include provisions which ensure that embedded generators such as small scale photovoltaic units are not charged for exporting into the grid; to enable the AER to consider the extent to which the network businesses have considered and made provision for efficient non-network alternatives in forecasting capital and operating expenditure; to enable the AER to develop a demand management incentive scheme to encourage the implementation of efficient non-network alternatives; and also to ensure that customers with microgeneration facilities should not be treated less favourably than other customers in relation to the tariffs they are required to pay.

The Hon. Rob Lucas has indicated the constraints that are on us all, and the national electricity laws have been around for more than a decade now. It was a 1996 bill, I think, and all of us who have been here for that time understand the restraints on us. It is important that we record that these issues that the Hon. Mark Parnell has raised have not been neglected by the energy ministers.

The Hon. M. PARNELL: The Liberal opposition response has set the tone for this amendment and for the balance of my amendments. However, I will be moving each of them, but I will not be dividing on all of them. I will have a bit more to say about my amendment No. 6, which is at the heart of my amendments.

The Hon. Rob Lucas talked about seeking out fundamentally abhorrent aspects of this legislation. The reforms that I have pointed to: are they fundamentally abhorrent? I do not know; they are fundamentally flawed, and I accept what the minister has said about subsidiary documents such as rules incorporating things such as demand management. However, I believe, as do all of the environment, community and consumer groups that have written to me, that these issues are so important that they deserve to be in the legislation itself rather than being referred to subsidiary documents.

I am disappointed that I do not have the numbers on this first amendment, but I will proceed through my others and explain why I believe that they are important reforms. I should also say that, whether or not this parliament accepts them, I would have every confidence that every other state and territory jurisdiction that looks at these laws will be presented with amendments such as these, and I hope that those parliaments will have the courage to challenge the orthodoxy that these national regimes, written by various state and territory executives, are untouchable.

I hope some other parliament does have that courage, because what we are talking about in terms of energy is one of the most important debates of this century, and I will have some more to say about that when I get onto my greenhouse amendment. For now I am happy to test the will of the committee on my first amendment.

Amendment negatived.

The Hon. M. PARNELL: I move:

Page 10, after line 15—

Insert:

(6a) NEL, section 2, definition of electricity services—after paragraph (c) insert:

(d) the provision of measures in connection with the generation, supply or use of electricity to reduce demand for electricity;

This is effectively consequential, but it also relates to demand management and I will not speak to it further.

Amendment negatived.

The Hon. M. PARNELL: I move:

Page 10, after line 21—

Insert:

greenhouse gas emissions are emissions of—

(a) carbon dioxide; or

(b) methane; or

(c) nitrous oxide; or

(d) hydro fluorocarbons; or

(e) perfluorocarbons; or

(f) sulphur hexafluoride; or

(g) any other gas brought within the ambit of this definition by the regulations;

This is to include a definition of greenhouse gas emissions. This definition is identical to a definition that we have previously passed in this place, being the definition of greenhouse emissions in the Climate Change and Greenhouse Emissions Reduction Act 2007.

The need for this definition, in a technical sense, is because it is referred to in other amendments; in particular, my proposed amendment No. 6 which replaces the national electricity objective. I want to speak very briefly about why we need to put this in. It seems to me to be somewhat inconsistent for the state government to have sung its own praises so loudly about its commitment to the reduction of greenhouse gas emissions.

We had the Premier trumpeting the legislation that I have just referred to and pointing out the leadership that he says South Australia has in this area, and yet when we come to the single biggest source of greenhouse gas emissions in this country (namely, the production of electricity) we find that there is not a single mention of the importance of greenhouse gas emissions. We have been told by the Premier and others that this is the most important issue facing the planet today. It is an issue more important than terrorism and, yet, it is not referred to at all.

All members are familiar with the reports of the International Panel on Climate Change. Each report, as it comes out, shows the situation to be more dire than previously thought. However, there is a particular South Australian context here, as well. Whilst we might talk about the proportion of renewable energy that we have in this state (and I will have a bit more to say about that later on), we also have on the table the prospect of a brand new, dirty, coal-fired power station at Kingston in the South-East.

Greenhouse gas emissions will be a live issue for South Australia. We will have to deal with that proposed power station in relation to the Climate Change and Greenhouse Emissions Reduction Act 2007. I suspect that a brand new, baseload, coal-fired power station will blow our greenhouse emissions out of the water, in much the say way that big developments which are energy intensive (such as the Roxby Downs expansion and the Penola pulp mill, unless powered by renewable energy) will also blow our greenhouse targets out of the water.

It seems to me that we have a level of hypocrisy here and, certainly, inconsistency. This state has insisted on special treatment in some parts of these laws—for example, in relation to postage stamp pricing. There is no reason why we should not build on the pride that the government says we should have in our greenhouse legislation by insisting that these national electricity laws include a reference to greenhouse gas emissions. It is an oversight of monumental proportions.

I cannot believe that all of the states and territories could sit down around the table and not include greenhouse gas emissions. Unless you have just flown in from Mars or some other planet, in the current election campaign all of the parties are talking about their credentials on greenhouse gas reductions. Yet, here we are, collectively, as a nation (with South Australia the lead legislating jurisdiction), completely ignoring this issue in our national electricity laws. I urge all honourable members to support its inclusion.

Whether or not my subsequent amendments are adopted, I still think this amendment can be passed. If it turns out that, having included the definition, there is no longer any reference to it anywhere else in the legislation, we can recommit and take it out. However, for now, I think we are sending entirely the wrong signal not just to the South Australian community but to the Australian public that we are not serious about greenhouse, unless we include it in this legislation.

The Hon. P. HOLLOWAY: The government opposes the amendments. The proposed amendments are inappropriately seeking to extend the ambit of the national electricity market to include carbon trading and other future renewable energy schemes.

While environmental objects are very important, the South Australian government is actively seeking to take leadership in responding to climate change. Clearly the Australian Energy Regulator, the Australian Energy Market Commission and market participants are not the most appropriate bodies to determine the environmental policy priorities of government across the energy sector, as with other policy objectives that are not the most appropriate bodies to determine the environmental policy priorities of government across the energy sector.

As with other policy objectives that are not directly addressed as part of the national electricity law—one can give examples such as industrial relations, occupational health and safety and specific environmental protection—they are best addressed by means of policy specific legislation. For example, the commonwealth government's mandatory renewable energy target (MRET) has achieved increased renewable energy and has indirectly impacted on the choices being made in the national electricity market without having changed the national electricity law.

I note there is now bipartisan support federally for increasing the level of mandatory renewable energy target and also that there is now bipartisan support federally for implementing an emissions trading regime by no later than 2012, which should provide the incentives to fundamentally transform over time the electricity supply industry towards low emission generation capacity. On 13 April 2007 the Council of Australian Governments agreed to establish a mandatory national greenhouse gas emissions and energy reporting system, and the issue of information reporting on greenhouse issues will continue to be developed under that national system rather than duplicated for the energy market.

While the issues raised by the honourable member are vitally important, it does not necessarily follow that one should put those policy objectives directly in the national electricity law any more than we would do so with other important issues such as occupational health and safety and industrial relations.

Amendment negatived.

The Hon. M. PARNELL: I move:

Page 1, after line 41—Insert:

(12a) NEL, section 2, definition of national electricity market—after paragraph (b) insert:

and

(c) any national market that provides for the trading of certificates or other rights created by statute to promote renewable electricity or reductions in rates of greenhouse gas emissions in connection with the generation of electricity;

This amendment includes in the definition section a reference to any national market that provides for the trading of certificates or other rights created by statute to promote renewable electricity or reductions in rates of greenhouse emissions in connection with the generation of electricity. Just as I said the issue of demand management was important to include in this legislation, so too is the issue of renewable energy. Certainly these laws provide, in a fairly traditional way, the regulatory framework for electricity supply and for some reliability aspects. However, other elements need to be included. The important issue here is the renewable components attributed to the renewable energy suppliers that enter the national market as renewable energy certificates and need to be properly regulated. This bill is one method, if not of direct regulation, of at least acknowledging those issues.

The renewable energy certificates are purchased by those who have either mandatory obligations or those who voluntarily seek to choose renewable energy, for example, those of us who choose green power, which includes renewable energy certificates. It is important to note that the accounting of renewable electricity is based on the renewable energy certificates and not the wiring; in other words, it is the ownership of those certificates rather than the physical location of the generation. Some people have been surprised to find that their solar hot water service—whilst they would think of it as theirs, producing clean power through hot water to them—in fact may well be owned by someone else.

Clearly, there are different greenhouse gas emission intensities for different methods of producing electricity—whether it be from coal, natural gas or renewables—and customers are increasingly choosing electricity that is lower in greenhouse gas emissions. That is why I think it is important to make sure we deal with these issues in the national electricity laws in an integrated way. Regardless of state or federal policies for renewable electricity or present or future policies on restraining carbon, there are obvious benefits in having one national energy regulator to administer a single energy framework that incorporates supply (such as we have in the present bill), as well as renewable energy and the greenhouse intensity aspects of electricity. Those are the elements that are missing.

The bill currently supports only one of those elements to be regulated through the Australian Energy Regulator—that is, supply. It does nothing to acknowledge how it supports or how it can integrate with the functions of other agencies, such as the Office of the Renewable Energy Regulator, particularly in relation to how that organisation regulates the national renewable energy certificates market in supporting the national mandatory renewable energy target—the MRET, as the minister referred to it. Our policy in this area is largely disintegrated between the supply side and the emissions and renewable energy side; we are treating those things as separate when they should be dealt with together.

At the national level we have the Australian National Energy Market Commission, which is focussed on the supply side, whilst the federal government, through the Australian Greenhouse Office, is the agency driving the emissions and renewable side of the electricity policy—but they are doing so in isolation. This approach to electricity policy and regulation fails to identify and address some of the significant emerging issues in the national electricity market.

I have mentioned one of those issues in this place previously, and that is this widespread double accounting of renewable electricity which is evident in a number of problems we have seen. For example, the South Australian government supports state-based renewable energy suppliers selling their energy certificates to the national market—and those are mostly sold interstate. Yet the state government claims that all this renewable electricity is used in South Australia because the location of the facilities and the wires happen to be in South Australia, ignoring the fact that the true ownership is elsewhere. It seems that there is no tracking or summary reporting of the interstate trade of renewable energy certificates at all, and if the minister believes that such reporting or tracking is taking place I would be interested to hear it.

The different state-based renewable energy policies and schemes vary widely in their value, the claims they make and the rules that govern them. For example, we have non-accredited renewable energy from old hydro-electric schemes dominating the voluntary renewable energy market despite the benefit of these sources still being included in the aggregated state greenhouse emissions. Because we have a lack of disclosure rules, households that install solar PV systems or solar hot water systems often do not realise that their renewable energy certificates have already been claimed by another person (as I have said). My information is that this double accounting is of such a magnitude that it now extends to something like 20 per cent of the entire mandatory renewable energy target scheme.

For those reasons I believe it is important to ensure that renewable energy is treated distinctly and separately in this regulation rather than just being referred to other bodies, other regimes, or, as with the minister 's response in relation to demand management, buried within the rules. I urge all honourable members to support this amendment.

The Hon. P. HOLLOWAY: For the reasons I outlined in the previous amendment, the government opposes the amendment.

Amendment negatived.

Progress reported; committee to sit again.

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