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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2009-04-07 Daily Xml
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STATUTES AMENDMENT (ENERGY EFFICIENCY SHORTFALLS) BILL

Second Reading

Adjourned debate on second reading (resumed on motion).

(Continued from page 1844.)

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (17:32): I thank honourable members for their indication of general support for this bill. A number of issues were raised, but I will refer first to the point made by the Hon. Michelle Lensink in relation to an amendment that has been tabled by, I think, the Hon. Ann Bressington, which I understand was proposed to be moved by the member for MacKillop in another place.

We will obviously have a discussion when we come to that amendment, but I want to point out that the intention of the design of the penalty regime is to specifically encourage compliance by energy retailers with the Residential Energy Efficiency Scheme and not to raise revenue to otherwise achieve the scheme's objectives. The potential size of the monetary penalty which would be incurred, as well as the significant risk to reputation and the commercial risk associated with not complying with the Residential Energy Efficiency Scheme, is a considerable deterrent.

I notice that the Hon. Mr Hood is not here at the moment, but he talked about the $100,000 penalty that is attached in the bill. I point out that, in addition to that fixed penalty, there are also additional penalties, depending on the shortfall, which could run into many millions of dollars. The point is that, potentially, there could be a very significant penalty associated with this, quite apart from the reputation risks and the commercial risk associated with not complying. Given the way in which this penalty regime is designed, few penalties, if any, are expected to be incurred over the life of the scheme. In fact, if penalties are incurred, we will not have achieved our goal with this measure. Because those penalties are so severe, we would expect this level of compliance.

The commission will incur administrative costs in establishing, administering and reporting on the type of scheme envisaged by the amendment. Penalty moneys depend on the size of any shortfall as such. There is no guarantee that even administrative costs for such a scheme would be recovered by penalty amounts, and additional expenditure is likely to be required. The commission's costs are recovered through licence fees, which would be recovered by energy prices, potentially for no consumer gain.

It is worth noting that the Residential Energy Efficiency Scheme includes a 'make good' provision for energy audits. This means that the energy retailer must make up the shortfall in audits in the next year, as well as pay the penalty, thereby ensuring the target number of audits is undertaken. The energy savings targets, as a key feature in designing the Residential Energy Efficiency Scheme, will ensure that the overall costs do not become excessive and thereby exceed the benefits. So, a 'make good' provision for this target is inconsistent with this feature. Importantly, it is also expected that the size of the penalty will be sufficient to severely discourage noncompliance.

As I have said, we will have that debate later, but I just want to indicate that the problem with the proposed amendment is that it would add this cost of establishing a scheme, including reporting and the like, when the expectation is that, if the scheme works properly, as we expect it will, there would not be any penalties because it should be a sufficient deterrent for companies to comply with the measure. As I have said, we can discuss that later.

There were also some comments made by, I think, the Hon. Mr Parnell in relation to the commonwealth's carbon pollution reduction scheme. I guess the first point we should make is that that scheme has not yet passed the parliament. I think it is before a committee as we speak. Certainly, we have to address this issue on the basis of our own goals within this state and not what form may come out of that particular scheme. However, there is a central point that needs to be made. I refer to what the Hon. Pat Conlon, the Minister for Infrastructure and Minister for Energy, said when this measure was debated in the House of Assembly:

The central point is that it is an energy efficiency scheme for residences where people do it primarily, oddly enough in this world, because it will save them money. It will also, as a result of using less energy you would think, reduce carbon emissions. The audits have worked and it worked in an outstanding fashion when they were run by us. I thought maybe for some of the speakers on the other side it would be a bit of a give away that the scheme is particularly aimed at low income households for two reasons: they are the people we would like to see benefit from residential efficiency; and, they are also the type of people who have not had either the information or the capacity to make the investment to improve energy efficiency in their homes.

The minister later goes on to make the point:

If voluntary action, voluntary improvement, saves people money and reduces the burden on industry, I do not have a problem with it and I do not know why you do. I certainly do not have a problem with it. I can tell you this: if you take your logic to its conclusion that we should not have these voluntary improvements in existing homes, you must then say that we should not mandate new designs for new homes to make them more energy efficient, because that just lets the polluters off the hook.

That is the important point. If you take it to the logical conclusion, that is where you end up. Then the minister goes on to say:

In terms of the penalties going somewhere other than Consolidated Revenue, my view is that we will see very few penalties out of the scheme and I would hope that to be the case. The government is aiming to achieve not fines but outcomes.

I thank members for their contribution to the bill, and I guess we can discuss those issues further in committee.

Bill read a second time.

Committee Stage

In Committee.

Clauses 1 to 3 passed.

Clause 4.

The Hon. A. BRESSINGTON: I move:

Page 4, after line 3—Insert:

(11a) The Commission must establish a scheme for the use of any amount recovered as a shortfall penalty under this section for 1 or more of the following purposes:

(a) to assist persons who may have failed to benefit from activities relating to energy efficiency on account of any electricity retailer's energy efficiency shortfall;

(b) to support other programs or activities to promote or support energy efficiency or renewable energy initiatives within South Australian households.

I will speak to both my amendments, as they are consequential. They seek to establish a secondary scheme to the residential energy efficiency scheme, in which any moneys derived from the imposition of a shortfall penalty are, under the guise of the Essential Services Commission of South Australia, to be reinvested in renewable or energy efficiency initiatives as opposed to general revenue, as it is presently proposed. The residential energy efficiency scheme mandates that electricity and gas providers are to reduce greenhouse gases emitted by their consumers by supplying efficiency measures, such as providing ceiling insulation or halogen light bulbs.

A portion of these efficiency savings is to be targeted at low income households, defined as 'priority group households'. In addition, energy providers will be required to conduct a number of energy audits to priority groups. This scheme is meaningfully mandated by the fact that non-compliance will result in monetary penalty, known as a shortfall penalty. In drafting these amendments, I intended that money derived from shortfall penalties be reinvested with two priorities. The first would be those consumers who fail to see a benefit due to the non-compliance of their energy provider. This is self-evident. The second would be those priority group consumers who have had an energy audit conducted and had significant issues identified, but not had those issues addressed by their energy provider as part of the REES scheme.

Due to much of the REES scheme being governed by regulation, unfortunately only the first can be included in the bill without significant amendments being made. However, it is hoped that if this amendment gains the support of the majority of members this second intention will be reflected in the regulations. In addition to these two priority groups, my amendment provides a broad discretion to the Essential Services Commission of South Australia to reinvest money collected in any program or activity that promotes energy efficiency or renewable energy initiatives in households, which is quite simply a much more fitting outcome than swelling the coffers. I commend these amendments to members and am hopeful of their support.

The Hon. P. HOLLOWAY: As I indicated in my second reading response, the government opposes the amendment because we do not expect that there will be any income by way of these penalties because they are so severe and the whole purpose of having these penalties is to try to ensure retailers conduct the audits as required. The dilemma is that, if we pass these amendments, even though no revenue may be going into those schemes, as we hope would be the case because the companies have complied, they would then still have to meet the set-up, administrative and reporting costs, which would be passed on to consumers, of the type of scheme envisaged by the amendment. Essentially that is why we would oppose this, because it would add to these administrative costs, even though no money may be coming in. We hope there would be no money coming in because of the size of the monetary penalty that would be incurred, and the reputation and commercial risks associated with not complying with the REES scheme are a very considerable deterrent.

As it is designed, we expect few penalties, if any, to be incurred. Therefore, this is not about raising money but about trying to put sufficient deterrent into the scheme so that the retailers will meet their obligations in terms of the number of audits they undertake. For those reasons, the government opposes the amendment.

The Hon. M. PARNELL: I accept what the minister says in relation to the purpose of the penalty being a deterrent. I hope he is right, but I accept what he is saying is that, if the scheme is successful, there will be very little or no money recovered through these penalties. What flows from that is the government will not be budgeting for it. There will not be a budget line item in the same way that you could budget for speeding fines, because we know how many there are likely to be in a year.

The Hon. S.G. Wade: Then we get a windfall.

The Hon. M. PARNELL: The budget line would be zero. As the Hon. Stephen Wade says, any penalty that does come into this scheme is a windfall and therefore it will be a pleasure to someone to have to work out what to do with it. As the scheme currently exists, basically it would go into consolidated revenue. The Hon. Ann Bressington's amendment, as I understand it, basically says that, if any money comes in through the payment of a penalty, it should be directed back towards the objective of the legislation, which is to encourage energy efficiency.

Looking at the honourable member's amendment, paragraphs (a) and (b) identify the two ways these funds could be directed. I can see some difficulties with paragraph (a), which is 'to assist persons who may have failed to benefit from activities relating to energy efficiency on account of any electricity retailer's energy efficiency shortfall'. I can see a difficulty in identifying real people who might have missed out, but I do not think that is fatal to the amendment because paragraph (b) is the catch-all. Basically it says that, if any money comes in, it can be used to support other programs or activities which promote energy efficiency or renewable energy.

It seems to me to be a reasonable amendment. However, one thing the minister said is that the money that comes in (which may be very little) will not be enough necessarily to even support the scheme. In the minister's answer, is he talking about the REES scheme or is he talking about the scheme that the honourable member's amendment says must be established, because the way I read the honourable member's amendment the commission must establish a scheme. I would have thought that the scheme could consist of as little as a letter saying, 'If we get a windfall of money, this committee will be established to work out how to spend it.'

It is not necessarily a scheme in the sense of having a dedicated unit that is engaged in thinking about it. It would not even come into existence unless a bucket of money appeared because someone had to pay their shortfall profit. Will the minister clarify what dangers he sees in terms of the money coming in not being enough to pay for the scheme? If he meant the REES scheme, is it the government's intention to fund the REES scheme through penalties?

The Hon. P. HOLLOWAY: No, I was referring to the scheme that would be established if this amendment were to get up, which would be a scheme for the use of any amount recovered. Clearly, you would have to set up accounts. You would have to dedicate members of the staff for that purpose. You would have to account for it properly in some way in terms of statements to treasury and the like. Even if it did have a zero amount, you would still have some administrative costs involved in reporting and accounting for it all. That is really the point that I was making.

The Hon. M. PARNELL: I thank the minister for his answer. I am not convinced that there would be a standing cost that would be prohibitive. Let us say a sum of $50,000 came into the system. Basically, you would pull together a team of people appropriate to dispense $50,000—and you would not spend $50,000 on the salaries of the people whose job it was to work out how to spend it because that would be inefficient government. I will not drag things on, but my inclination is to support the honourable member's amendment.

The Hon. P. HOLLOWAY: The point is that, once you have the money, obviously you have to develop criteria on how to spend it. The commission would have to dedicate resources not only to defining an account into which you put the money but also procedures, if you did get any money, about how you would have to spend it. These things do require significant resources. You only have to look at the number of funds we have in government to understand that, whenever any money is dedicated through legislation, it has to be accounted for separately and audited, and procedures have to be in place for both the receipt of the money and also the expenditure of it—and that is appropriate.

I think it is understood that, once you have any fund, you do need to have proper accounting, auditing, a receipt trail and so on. It does have a cost associated with it. The point is that, if the whole purpose of the scheme is to have sufficient deterrent that retailers will not pay a penalty because they will abide by their obligations, you are setting up a reporting scheme which may have no function but which will still have costs associated with it. That is the point the government makes.

The Hon. A. BRESSINGTON: I make the point that, if there are no penalties, there is no fund or administration. However, some of the shortfall deterrents, as I understand it, could be up to $1 million.

It would take one shortfall payment to establish quite a significant fund toward promoting renewable energy and energy efficiency. I think that, as the Hon. Mark Parnell said, there should be a committee to dispense those funds in the most efficient way. That would probably make consumers of electricity feel a little more confident knowing that prices of electricity are going to rise, as the Hon. Dennis Hood indicated in his contribution. It is a given. I think that people would like to see some level of government accountability for these schemes that are set up to ensure that the taxpayers are not the only people wearing the burden for this.

We talk about these specific funds, but we had the fund for the River Murray, which had quite a significant amount of money in it, and I understand (and I stand to be corrected on this) that no-one is really quite sure where that money went. I do not believe that it is not possible. If the taxpayers of South Australia can see that government is prepared to put back in and share some of the burden of these initiatives to get greener and to reduce greenhouse emissions, it is basically an act of faith on the part of this parliament.

The Hon. P. HOLLOWAY: I understand the point the honourable member is making. Incidentally, the maximum penalty, I suppose, could be anything up to $5 million if it involved a retailer such as AGL doing absolutely nothing. However, I think that in terms of the commercial risk the reputation penalty would be so huge that its backers would be very nervous indeed if it were just to thumb its nose at the provision—apart from the penalty. In any case, the honourable member needs to understand that there is a make-good provision in here, so that, in terms of addressing any deficiency of action, they must undertake the energy audits within the next year. In a sense, that has been addressed. Anyway, again, I can only reiterate the government's point.

The Hon. J.M.A. LENSINK: I indicated in my second reading contribution that we would be supporting this amendment and, indeed, it was flagged by our energy spokesman, the member for MacKillop, Mitch Williams. I think that part of the rationale is that this could potentially be a nice little earner for the government, quite frankly, and we are a little suspicious about what those funds might go to. We think they should be clearly targeted towards things of similar merit.

The Hon. D.G.E. HOOD: Family First is not one to support anything that creates an impost on business. However, in this case, I think that the Hon. Ann Bressington has a point, namely, that if there are no fines, there is no administration and, therefore, there is no cost. From that perspective, I cannot see that it is an impost at all, and for that reason we are inclined to support the amendment.

The Hon. P. HOLLOWAY: I make the point that the legislation says that the commission must establish a scheme. The point is that you must establish a scheme even if there is no income. I suppose that, if there is no income, it may not involve a lot of resources in terms of processing but, presumably, you must still create an account at the bank because you are required to do so by this provision.

Amendment carried; clause as amended passed.

Clause 5.

The Hon. A. BRESSINGTON: I move.

Page 5, after line 36—Insert:

(11a) The commission must establish a scheme for the use of any amount recovered as a shortfall penalty under this section for one or more of the following purposes:

(a) to assist persons who may have failed to benefit from activities relating to energy efficiency on account of any gas retailer's energy efficiency shortfall;

(b) to support other programs or activities to promote or support energy efficiency or renewable energy initiatives within South Australian households.

The explanation for this amendment is the same as for my previous amendment. I will not take any more time with that.

The Hon. P. HOLLOWAY: The government's position is the same as with the previous amendment, so I will not repeat all the arguments. I assume that the votes will be the same way, so at this late stage we will not bother dividing.

Amendment carried; clause as amended passed.

Title passed.

Bill reported with amendments.

Third Reading

Bill read a third time and passed.


[Sitting suspended from 18:00 to 19:48]


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