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Legislative Council - Fifty-First Parliament, Third Session (51-3)
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NATIONAL ELECTRICITY (SOUTH AUSTRALIA) (NATIONAL ELECTRICITY LAW—AUSTRALIAN ENERGY MARKET OPERATOR) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 17 June 2009. Page 2692.)

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (15:21): In closing the debate, I will take the opportunity to answer questions that were asked by the Hon. Mr Lucas in his contribution on this bill and the Hons Mr Ridgway and Mr Parnell on the cognate bills. I will use the opportunity to answer questions on the three cognate bills.

The Hon. Mr Ridgway asked what the impact of this package would be on retail pricing to consumers. I assure the council that this package will have a limited direct impact on prices. In accordance with the Australian Energy Market Agreement (AEMA), retail pricing remains a jurisdictional responsibility. As members would be aware, the Australian Energy Market Commission (AEMC) has undertaken a review of the effectiveness of competition in South Australia in accordance with the AEMA.

The AEMC found that the market was effectively competitive and recommended that retail price controls be removed. The government has responded to the AEMC, indicating that there needs to be a greater consensus on the effectiveness of competition.

In addition, with the significant uncertainty regarding the design and impact of the Carbon Pollution Reduction Scheme (CPRS) on the major transformation of the energy supply industry that will occur as we transition to a carbon constrained future, there is a clear need for an independent umpire to review and determine whether any price increases are fully justified. Accordingly, the Essential Services Commission of South Australia (ESCOSA) will be meeting its legislative responsibilities by undertaking reviews to determine the standing contract prices that will apply from 1 January 2011 in electricity and 1 July 2011 in gas. Network pricing will continue to be regulated by the Australian Energy Regulator (AER).

The area where this package has the potential to impact on prices was highlighted in the second reading explanation, with the Australian Energy Market Operator (AEMO) having responsibility as the national transition planner (NTP) to develop a national transmission network development plan (NTNDP).

The AER must have regard to the NTNDP when making a price determination in response to a transmission network service provider's (TNSP's) regulatory revenue proposal. In addition, the NTP's independent strategic view of the network will add value to a TNSP's regulatory test assessments of investment proposals.

AEMO's ability to make submissions will assist in ensuring that local network investments complement the broader strategic direction of the network. This recognises that even small investments in one section of the network could potentially have significant impacts on the wider grid. Accordingly, the NTP will promote an efficient investment framework across the national electricity market. This should be of benefit to customers generally and to South Australia as a preferred source of renewable energy to the rest of the national electricity market.

Mr Ridgway has also asked about impacts on the gas supply. Nothing in the package fundamentally changes the current framework for market supply of gas in the relevant jurisdiction, noting that the Gas Statement of Opportunities (GSOO) will become a valuable source of information on the outlook for the gas industry.

The current retail gas market rules in each jurisdiction will be transferred with minimal charge to AEMO and the national framework. Accordingly, Victoria will maintain its wholesale gas market while the other jurisdictions will maintain their current processes to enable retail customers to transfer and market settlement to occur. Bringing these together into one organisation will provide the opportunity to develop and rationalise the procedures across jurisdictions over time where that can deliver benefits.

The next development in the gas industry is the proposal for the implementation of a short-term trading market to enable more transparent short-term pricing, initially with trading hubs in Sydney and Adelaide. This development has been led by the industry through the Gas Markets Leaders Group under the guidance of the Ministerial Council on Energy.

In relation to Mr Parnell's contribution with respect to the role of customers, it is important to recognise that AEMO's functions are conferred by this law and the National Gas Rules (the rules). Importantly, consumers have the opportunity to influence the development of the rules through the rule change processes set out in the law.

While Mr Parnell indicated that he did not think that this package assisted with the transition to a carbon constrained future, the NTNDP will clearly need to take into account the impact of various policies to address climate change, such as South Australia's feed-in tariff, the Carbon Pollution Reduction Scheme (CPRS), increased Renewable Energy Targets (RET) and energy efficiency programs.

The significant increase in large-scale renewable energy associated with RET and CPRS will transform supply. Distributed generation, such as the solar systems encouraged by feed-in, as well as the energy efficiency programs, such as South Australia's hot water standards and the Residential Energy Efficiency scheme (REES), are likely to significantly change customer demand.

The collective impact of these policies will place new and different pressures on the development of the national transmission system. In preparing the National Transmission Network Development Plan, AEMO is required to undertake detailed consultation processes on inputs and scenarios and must take those submissions into account when preparing the NTNDP for release. These processes should ensure that the national plan developed properly reflects these changing needs.

Clearly, understanding the implications of these climate change policies will be a key output of the NTNDP. Information within the development plan, such as current and future congestion and network development strategies under a range of different future supply and demand scenarios, will take into account the various policy, technological and economic inputs on climate change and will assist all participants in the ongoing development of and investment in the energy supply industry.

Mr Lucas asked what the mechanism was for determining the 60 per cent vote for jurisdictions and the 40 per cent vote for industry membership of AEMO. Each of the participant jurisdictions—that is, all states except the Northern Territory and Western Australia—or their nominated proxies will have an equal share of the 60 per cent of voting rights at a meeting. Similarly, industry members or their nominated proxies at a meeting will have an equal share of the 40 per cent voting rights.

Mr Lucas inquired as to who would be undertaking the review of membership of AEMO in three years and what is its purpose? is it just confirming the 40 per cent or could it go up or down? The Ministerial Council on Energy will be undertaking the review. Its purpose will be to review the effectiveness of the new governance arrangements associated with providing industry with a role in managing the market operator. While there is a range of views across jurisdictions, there is a clear recognition that there continues to be significant public interest associated with the operations of the market.

Mr Lucas wanted clarification as to the NTP submissions; are they to be AER, revenue resets or some other regulatory body? As was highlighted in the response to Mr Ridgway, AEMO will be able to provide submissions as part of the AER's revenue reset process. The AEMC also proposes in its rule for regulatory investment test for transmission that AEMO be consulted by a transmission network service provider in carrying out a regulatory test assessment.

Mr Lucas asked whether an NTMDP will be published in 2009. As an interim measure, due to the timing associated with its establishment, AEMO will publish a more limited national transmission statement by 31 December 2000.

Mr Lucas asked about the commitments regarding the AEMO regional office, including with regard to resources and the most senior officer for AEMO. As was indicated in the second reading explanation, the strategic nature of the NTP will require the establishment of regional offices. I am advised that all of the staff of the Electricity Supply Industry Planning Council (ESIPC) are transferring to AEMO, including the chief executive, who has been appointed to a senior executive position of AEMO.

Section 50B of the new national electricity law provides for AEMO to undertake additional advisory functions to be provided in South Australia, effectively duplicating the work of the ESIPC and its resource requirement. These provisions allow AEMO to conduct more detailed electricity network planning in South Australia in addition to the work it will undertake nationally as the NTP. In addition, being part of AEMO will provide access to significantly greater technical expertise and resources.

Mr Lucas asked whether there is any requirement in any of the agreements to repeal the Electricity Supply and Industry Planning Council. The answer to that is no. Mr Lucas asked as to the number of staff who had transferred from ESCOSA to AER and as to the size of the local AER office. I am advised that three officers transferred from ESCOSA to the AER. The local office of the AER, which also includes market monitoring staff, employs 21 officers, although this includes a number who are currently on maternity leave.

Mr Lucas asked why the Victorian transmission revenue was not subject to approval by the AER and why not in Victoria. The AER will continue to regulate the majority of electricity transmission revenue in Victoria. The arrangements for funding AEMO's planning role for the Victorian electricity system are being aligned with AEMO's governance arrangements to reduce unnecessary legislation. The AER will oversight AEMO's pricing methodology for the Victorian electricity transmission planning function. In particular, transmission revenue for the electricity transmission services provided by the owner of the Victorian system transmission system (SP AusNet) will continue to be regulated by the AER in accordance with the revenue determination provisions in the national electricity law and rules that apply to all regulated electricity transmission systems in the national electricity market.

In Victoria the function of planning and directing the augmentation of the transmission system, currently vested in the Victorian Energy Networks Corporation (VENCorp) will be vested in AEMO. As with VENCorp, AEMO will recover its annual revenue requirement for the Victorian system planning and direction function, along with a portion—around 85 per cent—of SP AusNet's annual revenue requirement attributable to shared network services by charging transmission use of system (TUoS) and common service charges. For prescribed services, those charges will be determined in accordance with an AER approved pricing methodology.

Direct regulation of the charges for the Victorian electricity planning function will be discontinued, given that AEMO will be a not for profit entity with independent management, consultation, reporting and industry membership arrangements. In these circumstances, and given the 85 per cent of transmission charges, Victoria will continue to be a simple pass through of SP AusNet's costs, as regulated by the AER

The regulatory requirement for direct AER control of AEMO's charges for the Victorian planning function imposes an unnecessary cost.

Mr Lucas asked, in relation to load shedding, what the new role for the Office of Technical Regulator would be, what was the government's position with regard to releasing the information and whether the government has directive power with regard to this function with the OTR. The OTR will be the jurisdictional system security coordinator. The decision to release the list will be for the Office of Technical Regulator to make. The Electricity Act 1996 does not expressly provide for a power of control and direction of the Office of Technical Regulator by the minister.

Mr Lucas asked whether any statement of policy principle had been released by the Ministerial Council on Energy and whether the AEMC has considered these and disagreed and had to issue reasons. To date, the Ministerial Council on Energy has released one statement of policy principle with regard to the roll out of smart meters. The AEMC considered the statement as part of the Victorian jurisdictional derogation advanced metering infrastructure roll-out rule change.

Mr Lucas asked whether any new regional reference nodes had been issued within regions of the national electricity market. The AEMC has undertaken a detailed review of the regional pricing arrangements, which was finalised in late 2007. The outcome of this review was that the Snowy region, between New South Wales and Victoria, was dissolved so the regional boundaries align with state boundaries, with a new process established for considering future changes.

Mr Lucas indicated that he understands that ESCOSA's analysis of prices since full retail competition up to 2007 indicated that in real terms they are near the same level. He asked whether we could provide a reference and whether ESCOSA or anyone else has updated it. Data provided in the Essential Services Commission of South Australia's 2007-08 Annual Performance Report—Energy Retail Market of November 2008, page 33, indicates that, since 2003-04, average real electricity prices, calculated as total annual revenue divided by total annual consumption for residential customers, have decreased by 10.1 per cent, with small business electricity prices decreasing by 11.4 per cent.

Over the same period, large business has experienced an average price decrease of about 7 per cent, although the reported data indicates a real price increase of almost 9 per cent in 2007-08 over the previous year, following a period of declining average prices. Retail price adjustments for 2009-10 are yet to be determined. ESCOSA is scheduled to release these adjustments later this month.

Mr Lucas asked about the status of the tranche of legislation related to retail issues that was due in 2002 and when we will be likely to see it. The next tranche of national energy reform legislation, which will include retail issues, except for price regulation, is expected to be introduced in the South Australian parliament in 2010. I have already addressed Mr Lucas' question with regard to the AEMC review of the effectiveness of competition in South Australia in my response to Mr Ridgway's question on pricing.

Mr Lucas asked what proposals the government has put to national bodies regarding better operation of the reserve trader. The government made submissions regarding indicating a preference for a standing reserve to the reliability panel in September 2006 and October 2007. Subsequent to the events of this summer, the Ministerial Council on Energy requested that the AEMC undertake a further review of the market framework in light of extreme weather events. The reliability panel is currently consulting on a proposal to provide improved flexibility for the reserve trader to enable NEMMCO/AEMO to establish a panel of reserve capacity that could be implemented at short notice, such as 24 hours.

Mr Lucas asked, with respect to MIOs and MINs, as to the current position of industry and, if still opposed, what is the government's response and what was wrong with the current arrangements. Industry still has ongoing issue with the broad nature of MIOs and MINs. In performing its role as the national transmission planner, AEMO has the function of preparing and publishing the national transmission network development plan.

In order to most effectively undertake this task, the AEMC recommended that AEMO be conferred with broad information-gathering powers, and the MCE agreed with this approach. In addition, the Electricity Supply Industry Planning Council has very broad information-gathering powers to acquire information it reasonably requires for the performance of its network planning functions, while the Victorian regulator has imposed licence conditions to ensure the relevant information is provided to VENCorp.

As AEMO will assume the planning functions currently undertaken by both ESIPC in South Australia and VENCorp in Victoria, it is necessary for it to be conferred with consistent, transparent and targeted information-gathering powers to enable it to most effectively perform its national planning functions and to encourage appropriate future investment choices. In exercising its information-gathering powers in the law, AEMO is required to consider the following:

whether the exercise of this power is reasonably necessary for the exercise of a relevant function;

the reasonable costs of compliance with the market information instrument; and

any written submissions made in response to consultation with persons subject to the instrument prior to its making.

In addition, AEMO's information-gathering powers are constrained by only being available for a relevant function. A relevant function is:

the NTP (that is, the national transmission planner);

an additional advisory function;

a declared network function;

the GSOO; and

a declared system function.

However, basic legal protections are maintained when responding to an information instrument, including the privilege against self-incrimination and legal professional privilege. Also, a person is protected when complying with an information instrument from an action for breach of confidence or breach of contract. It is also possible to seek judicial review of the service of an information instrument.

To further constrain any possibility of misuse of an MIO or MIN, the incoming chief executive of AEMO has undertaken to require the approval of a senior member of AEMO (that is, the chief executive officer or the chair) before the instrument is issued. The Ministerial Council on Energy has also indicated that it will be closely monitoring the use of information instruments via the power for the MCE or a minister of a participating jurisdiction to request information, a report or other services.

Whilst the above regime provides a flexible and clear information-gathering basis for particular functions of AEMO, it is anticipated that the current cooperative approach to information gathering which has developed between market operators and market participants will continue.

Mr Lucas asked for an indication of what specific problems either have been experienced or are predicted to occur to require this additional immunity to be included in the legislation. This new provision has been elevated from the National Electricity Rules (rule 3.17.2) into the National Electricity Law and replicated in the National Gas Law, as it is considered a key immunity which is more appropriately located in the National Electricity Law and the National Gas Law.

With those responses to the questions asked, I commend the first of these three bills to the council and look forward to their passage.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. R.I. LUCAS: Mr Chairman, I am really in your hands or those of the minister. With previous electricity bills we have traversed the bulk of the issues in the clause 1 debate and minimised later discussion on the individual clauses. I am happy to proceed that way if the minister is happy to do so. He is nodding, and the chair is in agreement.

I thank the minister and, in particular, his officers, who have obviously worked hard overnight and this morning to provide replies to the questions asked by the Hon. Mr Ridgway, the Hon. Mr Parnell and myself. I will move sequentially through the prepared speech rather than the way I raised them in my contribution or in order of the clauses in the bill.

The first issue in the minister's response was that of retail pricing. He indicated that the Australian Energy Market Commission had undertaken the review of the effectiveness of competition. Can the minister indicate when that review was completed? In addition, the South Australian government had up to six months to respond. Can the minister advise when the government's response was concluded and sent to the AEMC?

The Hon. P. HOLLOWAY: The second and final report was released on 18 December 2008, and the minister's response is dated 6 April 2009. I would also like to make a correction in relation to answers to the honourable member's questions that I read out previously. In the section relating to the current retail gas market rules in each jurisdiction, I inadvertently said that they would be transferred 'with minimal charge' to AEMO; I should have said 'with minimal change' to AEMO.

The Hon. R.I. LUCAS: I assume that both the report and the South Australian government's response are both publicly available. If they are, would the minister indicate from which websites they can be downloaded?

The Hon. P. HOLLOWAY: I am informed that they are on the AEMC website.

The Hon. R.I. Lucas: Not on the MCE website?

The Hon. P. HOLLOWAY: The AEMC website.

The Hon. R.I. LUCAS: As I indicated in my second reading contribution, in May 2006 the South Australian government—and the Premier, specifically—signed the intergovernmental agreement in relation to these issues. This basically said that the parties (including South Australia) 'reaffirm their commitment to full retail contestability in accordance with the national competition policy agreements.' I then placed on record clause 14.11 of the agreement, which states that all parties (which, obviously, includes South Australia) 'agree to phase out the exercise of retail price regulation for electricity and natural gas where effective retail competition can be demonstrated'. I then quoted the section that said 'the AEMC will assess the effectiveness of competition for the purpose of retention, removal or reintroduction of retail energy price controls'.

That was the agreement entered into by the South Australian government with all the other jurisdictions. So, put simply, it said that as soon as there was effective price competition the governments agreed to get rid of retail price regulation. Then it said, in essence, that the AEMC would be the independent body that would assess whether or not effective price competition had been introduced into the marketplace. The minister's reply indicates that the AEMC did the review and found that there was effective competition, which is the key part of the agreement.

If I read it correctly (and I seek further clarification on this), I think the minister is now saying that the government's response of April this year is that it would like to see further investigation. It says:

The government has responded to the AEMC, indicating that there needs to be a greater consensus on the effectiveness of competition.

I seek clarification from the minister on exactly what that means. The agreement signed by the government says that the AEMC would be the one to make this judgment. It has made the judgment. What is the South Australian government's position about there needing to be a greater consensus; from whom; and how is that to be achieved?

The Hon. P. HOLLOWAY: If I can refer to the debate we had when we last visited this issue. I do not have the exact page reference in Hansard but, as I said yesterday, it is possible that the government could come to a different view from the AEMC on the effectiveness of retail competition and the appropriate policy responses, and I guess that is effectively what has happened. In his letter to the Chairman of the AEMC we have just referred to, the Minister for Energy made the following comments:

I appreciate the time and effort both you and your staff have put into the review process and meeting with me over the course of its development. I acknowledge the AEMC has provided an additional level of detail in the final report for a number of the recommendations contained in the draft report. It is currently the government's intention to retain price regulations for both the electricity and gas markets in South Australia.

The submissions received by the AEMC show differing views on the level of effective competition in the South Australian energy market. I note that 33 per cent of electricity and 38 per cent of gas small customers remain on standing contracts with regulated prices. Before accepting a recommendation to remove price controls, the government would want to see less polarisation of stakeholder views regarding effective competition.

And the letter continues. I trust that answers the rest of the question.

The Hon. R.I. LUCAS: Does the reference to 'less polarisation of stakeholder views' mean that the government is setting the test that there would be a lower percentage figure than the 33 per cent and the 38 per cent on standing contracts? Is that the test the government is indicating, or is it talking about companies or industries that have expressed views about the level of competition?

The Hon. P. HOLLOWAY: I think the minister was just pointing that out as an illustration of the issues, rather than indicating that that would be the definitive test.

The Hon. R.I. LUCAS: Then, if the government's position is that there needs to be less polarisation of stakeholder views, given that the AEMC did the analysis and said there was effective competition, which stakeholders in the industry disagreed with that—that is, that there was not effective competition?

The Hon. P. HOLLOWAY: I have no advice on that. The officers we have here were not involved in that particular discussion, so we would have to take that question away if the honourable member particularly wants an answer.

The Hon. R.I. LUCAS: I do seek an answer, and I am happy to accept an undertaking to provide that on notice. However, I am assuming that, whilst the detail is not here, the minister is indicating, via his advisers, that, whilst we do not know the names of those stakeholders, there were stakeholders—either businesses or associations—that were expressing a view to the South Australian government that there was not yet effective competition in the South Australian marketplace.

The Hon. P. HOLLOWAY: Our belief is that they were consumer groups, but we would have to confirm that, particularly where some smaller groups were expressing that view.

The Hon. R.I. LUCAS: As I have said, I am happy for the minister to take that on notice. Can the minister therefore indicate that it is the South Australian government's position that, because of these stakeholder views (and the minister will provide the names of these stakeholders who do not agree with the AEMC's position that there is effective price competition in South Australia), the South Australian government, should it be re-elected, will continue price regulation for an indeterminate period, or perhaps until the South Australian government of itself makes a judgment that the polarisation has disappeared or dissipated?

The Hon. P. HOLLOWAY: My advice is that, at some stage in the future, the AEMC is likely to conduct a further review. I cannot give the honourable member any indication when, but we understand that it will be undertaking a further review in the future. I guess that the government would reconsider it then.

The Hon. R.I. LUCAS: To make it clear to the committee, as I indicated in my second reading contribution , the government has a political imperative as well—it does not want to make this decision prior to the state election in March 2010. If this government is re-elected or if there is a new government, it is entirely possible—even if this inter-governmental agreement has been signed—for a re-elected Labor government minister or a future Liberal government minister to maintain indefinitely retail price controls in South Australia, because the minister can take the view that they do not agree with the AEMC's first, second, third or fourth reviews that there is effective price competition in South Australia.

The Hon. P. HOLLOWAY: Commensurate with what I said the last time we debated this, it is possible that the government could come to a different view than the AEMC on the effectiveness of retail competition as a result of the appropriate policy responses. I suppose that if there is no shift in evidence, if I can use that word, that is possible. I suppose that one would expect that if the AEMC is doing further reviews there may be some convergence over time. One would think there would be some convergence of views over time. Theoretically, if it continues to be the view of the government, then there is that disagreement on the effectiveness of retail competition. Presumably, future governments could continue to take this position.

The Hon. R.I. LUCAS: Is there any other government in the national market that has taken a similar position? I am aware of only Victoria where the AEMC has made a decision that there was effective competition in the Victorian market, but there may well be others; I am not sure. Have any other governments taken a view similar to the South Australian government's view, that is, even though the AEMC has conducted a review that says there is competition, the government has disagreed and has therefore not abolished retail price controls?

The Hon. P. HOLLOWAY: My advice is that, at this stage, only Victoria has price control, but I understand that there will be future reviews in New South Wales and Queensland. Following the review, price controls have been removed in Victoria, but in New South Wales and Queensland the review has not yet considered those jurisdictions.

The Hon. R.I. LUCAS: That is all on that issue. The next issue relates to the structure of the AEMO. I was asking about the 60 per cent vote for jurisdictions and the 40 per cent vote for industry membership. My recollection of the structure of NEMMCO, which AEMO replaces, is that you have a board of NEMMCO with a chair, a chief executive and the staff who do all the hard work underneath. Is AEMO to be structured similarly, that is, a board, a chair, a chief executive and all the people doing the work underneath?

The Hon. P. HOLLOWAY: I am advised that there will be a board, a chair, a managing director and staff beneath that, and 10 directors.

The Hon. R.I. LUCAS: When we are talking about the jurisdictions having 60 per cent of the voting rights at a meeting, I assume we are talking about a meeting of the board of directors.

The Hon. P. HOLLOWAY: This would be at a special general meeting, so it would not be the directors but, rather, the members. The directors are appointed by the Ministerial Council of Energy, but there are two classes of shareholders: the first being the seven jurisdictions that have 60 per cent of the vote and the second being the industry members that have 40 per cent of the vote.

The Hon. R.I. LUCAS: In terms of the ongoing operation of AEMO, there will be a board of 10 directors but, in relation to the 60/40 per cent, are we talking about an annual shareholders' meeting in relation to the general policy directions of AEMO? If that is the case and the 60 per cent is to be the seven jurisdictions, are we saying that the shareholders' meeting will be one representative of each of the jurisdictions, each with about 8 per cent of the vote, and 40 per cent vote for industry membership? Who are the industry members of AEMO? Are they individual companies? Are they industry associations? How do you come to be an industry member of AEMO?

The Hon. P. HOLLOWAY: The industry shareholders are registered participants in both the electricity and gas industries who apply to be members. No-one has yet applied so we do not know who they are. Collectively, they will have 40 per cent of the vote and the seven jurisdictions will have 60 per cent of the vote, distributed equally amongst the seven of them.

The Hon. R.I. LUCAS: First, from what the minister seems to be saying on advice, if an individual company such as AGL, or any electricity or energy company, a retailer, was to apply to be a member, they can be a member. Who either accepts or rejects applications for membership of AEMO? Secondly, can industry associations, such as ESAA and the national generators forums, and those sorts of bodies, be industry members, as well, of AEMO?

The Hon. P. HOLLOWAY: The short answer is that those industry associations cannot be a member, but any of the registered participants within the meaning of section 2 of the National Electricity Law can apply for admission as an industry member. Perhaps I will put it this way: in the case of an application for admission as an industry member, it is a person who is a registered participant within the meaning of section 2 of the National Electricity law; or is a registered participant within the meaning of section 2 of the National Gas Law; or is a service provider within the meaning of section 2 of the National Gas Law; or is required to provide information to the operator of the National Gas Services Bulletin Board under section 223 of the National Gas Law.

The Hon. R.I. LUCAS: To whom do you apply? Who rejects you?

The Hon. P. HOLLOWAY: The directors of AEMO would make that decision.

The Hon. R.I. LUCAS: The ministerial council would set up the directors of AEMO and then there would be applications from registered participants, saying, 'We want to be an industry shareholder,' and it would be up to the ministerial council's nominees or directors on the board of AEMO either to accept or reject, based on some rules or guidelines.

The Hon. P. HOLLOWAY: They will decide it in accordance with the constitution.

The Hon. R.I. LUCAS: I confess my ignorance in relation to the structure of AEMO; I had not realised we had a second level. In relation to the 10 directors, are they jurisdictional representatives and industry representatives or is there no restriction on the ministerial council in terms of who these directors are going to be? Is it possible that the ministerial council employed 10 bureaucrats, departmental advisers from each of the jurisdictions, to be the sole directors of AEMO?

The Hon. P. HOLLOWAY: I am advised that the 10 board members have been appointed to the AEMO transitional board. Following the passage of this legislation they will be transferred on 1 July. They are: Dr Thomas Parry (chair), Matt Zema (managing director), Ian Fraser, Leslie Hosking, Greg Martin, Patricia McKenzie, Karen Moses, Kathryn Spargo, Michael Lavarch, and Dr Michael Sargent AM. There is I believe a skills matrix with which they have to comply, six of those directors must be independent of the industry, and the whole 10 must not represent any particular jurisdiction.

The Hon. R.I. LUCAS: I do not recognise all the names. A number of those obviously have past experience within the electricity industry, but the minister has made it clear that none of the 10 are jurisdictional representatives. I take it that none of the 10 are currently advisers or departmental representatives of governments within the national electricity market.

The Hon. P. HOLLOWAY: That is my advice.

The Hon. R.I. LUCAS: Under this process, the 100 or 200 registered participants seek application to be industry participants for this 40 per cent voting right. Let us say that they are all approved. Can the minister indicate how at the general meeting the 40 per cent vote works? You have 200 separate interests (from AGL through to the smallest possible electricity company), you have transmission providers, generators and retailers. How do they agree to vote their 40 per cent, or does it all just get divided up by the number 200 and they have half a per cent of the vote each?

The Hon. P. HOLLOWAY: As I indicated earlier, they have equal voting rights. So, if they are a registered participant, they each get the same vote. So if there are N companies, they get 40 over N of the vote each.

The Hon. R.I. LUCAS: Under the current operations of NEMMCO (and, therefore, AEMO) the main task is to operate the national market, to run it as an ongoing operational business throughout the year. So, the directors are clearly going to be taking most of those decisions on a daily, weekly or monthly basis, controlling the staff. What are the sorts of decisions that the shareholders' meeting (the 60 per cent and the 40 per cent) is intended to take?

The Hon. P. HOLLOWAY: A member of AEMO can do five things. They can dismiss directors, although greater than 50 per cent of members would need to vote in favour of that; they can set directors' pay; they have the power to call a general meeting; they can alter the constitution, although more than 75 per cent of members need to vote in favour to do that; and, because it is a shelf company, they can contribute to the winding up of the company.

The Hon. R.I. LUCAS: I take it that one of their powers is that they can wind up AEMO.

The Hon. P. HOLLOWAY: If the board decides that it has finished its job, that is what it would have to do. I do not think we are expecting that to happen, but it has to be part of any constitution of any organisation. You have to allow for the disbursement of assets in the event of its finalisation, but we do not expect it to happen.

The Hon. R.I. LUCAS: I take it from the second function or power that this shareholders' meeting (if I can refer to it that way; I am not sure whether it is the correct description) will have the power to reject executive pay increases or salary increases. I think that is clear from what the minister has said. I would assume it has no power in relation to either the appointment or dismissal of the chief executive and that that would remain a board function.

The Hon. P. HOLLOWAY: The managing director is a board member, so I am not sure; we would have to check. We are trying to check the constitution. It would appear that directors can remove the managing director.

The Hon. R.I. LUCAS: Shareholders presumably can, as well.

The Hon. P. HOLLOWAY: It would appear not: it is only the director. If there is anything different, we will check. Our understanding is that the managing director, even though he is a director, can be removed only by the other directors. We will confirm that.

The Hon. R.I. LUCAS: I am happy for the minister to take that on notice and confirm that advice or anything different, but specifically I want to know whether a shareholders' meeting can dismiss the managing director, given that the managing director is a member of the board of directors of AEMO. Finally, in relation to the powers of the shareholders' meeting, I think the minister indicated that it had the power to vary the constitution of AEMO, I presume. In doing so, does it therefore have the power if it gets this 75 per cent vote to change the 60 per cent/40 per cent voting division between jurisdictions and industry participants?

The Hon. P. HOLLOWAY: We will confirm that. It is probably best that we look at this in some detail.

The Hon. R.I. LUCAS: I am happy to receive an undertaking, perhaps in writing after the debate confirming the answer to that. If that is the case, it is possible that the 40 per cent industry shareholders, together with three or four of the jurisdictions, could combine to get the 75 per cent vote required to change the constitution to change that number, which may or may not be in the interests of a smaller jurisdiction such as our own.

The Hon. P. HOLLOWAY: We have been able to check, and it does appear that, apparently, the formula for the voting rights, the 60/40 rule (it actually reminds me of the ALP at one stage, which had a 60/40 voting rule and it was 75/25) is part of the constitution, so obviously that could be changed, but obviously it needs 75 per cent of the vote. Presumably, if jurisdictions did it, that would have broader implications for the whole agreement. I think we probably do not need to go into that.

The Hon. R.I. LUCAS: I thank the minister for that. The next issue that was canvassed was in relation to—I think in the second reading explanation—the reference to AEMO in terms of making submissions. I am just clarifying that the bottom line of the minister's reply is that we are talking about the capacity for AEMO to make submissions to the Australian Energy Regulator on various issues. Is that correct?

The Hon. P. HOLLOWAY: Yes, but in addition AEMO will have to comment on regulatory test proposals. For infrastructure investment they will be able to comment on those proposals as well.

The Hon. R.I. LUCAS: Is this a new power, that is, NEMMCO did not have the capacity to make similar submissions and this rewrite is now providing a new power for its replacement body, AEMO, to make these submissions?

The Hon. P. HOLLOWAY: I understand it could, but this makes it more explicit and specific in the national electricity rules. However, it could do it previously.

The Hon. R.I. LUCAS: If it could do it, did it make submissions in the sort of examples the minister's advisers are indicating? Did NEMMCO make submissions in relation to these issues?

The Hon. P. HOLLOWAY: My advice is that that was not generally the case, because it did not previously have the function of enhanced transmission planning. Now that that function is enhanced, obviously that power will become more important, and that is why it is made explicit in the rules.

The Hon. R.I. LUCAS: The next issue raised related to the AEMO regional office. I thank the minister and his advisers for the answer to the related question on whether there was a requirement on any of our intergovernmental agreements to repeal ESIPC, and the answer is no, but nevertheless this package is proceeding with the repeal of ESIPC. The minister's reply indicates that all the staff of ESIPC are transferring to AEMO, and that the chief executive has been appointed to a senior executive position of AEMO. Is the chief executive of ESIPC going to be the head of the AEMO regional office in South Australia or has he been appointed to a senior executive position of AEMO, wherever AEMO's headquarters will be—I presume in Melbourne?

The Hon. P. HOLLOWAY: My advice is that he will have a national executive position, but located in Adelaide.

The Hon. R.I. LUCAS: What is the government's knowledge of what the senior operational executive position in South Australia will be? I presume the chief executive is still David Swift. If he is to be located in Adelaide but have a national senior executive position, what is the most senior position in the South Australian regional office; has a person been designated to undertake that position as soon as this legislation goes through; and what authority will that most senior position have in South Australia in relation to the functions we will be seeking for the regional office of AEMO?

The Hon. P. HOLLOWAY: My advice is that Mr Swift will be the senior officer in the Adelaide office and the AEMO contact in relation to local issues, but he will have a national function as well. I think his national title is manager, regulatory development, but effectively he will be the regional contact and head of the office here in Adelaide.

The Hon. R.I. LUCAS: When the South Australian government is seeking advice from AEMO—and the minister's second reading explanation indicated that some of the ESIPC functions in terms of providing advice for South Australia will be provided by AEMO—will the South Australian government and its minister direct Mr Swift as the most senior officer in relation to these issues? What will be the process of interaction between the South Australian minister and AEMO in relation to the specific functions relating to South Australia?

The Hon. P. HOLLOWAY: The formal powers are provided under section 50B, relating to additional advisory functions, and under that section the minister can require a report, as I think was mentioned earlier. The presumption is that that would involve the managing director of AEMO.

The Hon. R.I. LUCAS: That adds to the concerns I expressed on the second reading, namely: how will it be possible under this model for people who are working for a national regulatory body such as AEMO to, at the same time, put on a South Australian hat and provide advice to the South Australian government and minister? I would have thought that, if there are relevant South Australian senior officers such as Mr Swift (or his replacement in future), the South Australian minister would be able to seek advice directly there.

The answer we have been provided with is that, in essence, a future South Australian minister would have to go to the managing director in Melbourne and through the managing director in Melbourne, I assume, request that work be undertaken to advise the South Australian government. As I said, I think that places South Australia in a much weaker position in terms of getting comprehensive, expert and prompt advice, as we have in the past from ESIPC.

The officers, such as Mr Swift and others, will then, I assume, be placed in a position where they are undertaking their expected work on behalf of AEMO. As the minister has indicated, Mr Swift will have a national director's position, a national regulatory function—

The Hon. P. Holloway: Corporate development.

The Hon. R.I. LUCAS: Corporate development—for which he will be responsible for the whole market, not just South Australia. That will be, in essence, almost a full-time job. The South Australian minister will then say to the managing director, 'We want Mr Swift and his team to do some work to advise the South Australian government on particular issues,' and that team will then have to try to meet that particular additional work requirement over and above its national responsibilities as well.

The concerns I expressed in the second reading debate, and I do so again today having received this reply, is that inevitably we in South Australia, being one of the smaller jurisdictions at one end of the national electricity market, will not be in a position to get the sort of advice and expertise that we have in the past. I have expressed my reservations on that and confirm them on the basis of the replies that the minister has given in the committee stage.

The Hon. P. HOLLOWAY: I will make one comment on that before we let it rest. It should be pointed out that that, as I understand it, South Australia is the only state that has section 50B, the particular provision for requesting that information, so that should allay some of the fears. The reality is that the officers who were doing the work previously for the Electricity Supply Industry Council are doing the work for AEMO, and Mr Swift will effectively be the head. I do not think it would be any different if one looks at some of the commonwealth departments or agencies, for example, Telstra; you have your local heads, and they do their function here. I do not think it will impact at all at an operational level in terms of the service that we would get.

The Hon. R.I. LUCAS: We will agree to disagree and I will not prolong the debate or the argument. I do not accept the minister's argument on that, but let us leave it at that. The next issue that was canvassed was why the Victorian transmission revenue was not subject to approval by the AER. I must admit that I have now looked twice at the minister's response and I am still not clear, in simple terms, as to why that is not the case. The minister states in his reply:

The AER will continue to regulate the majority of electricity transmission revenue in Victoria.

Yet, as I said, the minister, in his second reading explanation, states:

Relevant amendments to chapter 6A of the NER will ensure that AEMO's revenue for its Victorian TNSP function is not subject to approval by the AER.

Can the minister, in simple terms, if it is possible, explain how he says that AEMO's revenue for its Victorian TNSP function is not subject to approval? Can he also respond to my question about whether the AER will continue to regulate the majority of electricity transmission revenue in Victoria?

The Hon. P. HOLLOWAY: I will try to explain it. There are two bodies, and I referred to those in my answer. One is SP AusNet, which owns the assets in Victoria. It has 85 per cent of the revenue, and that will be regulated by the AER. In relation to AEMO—and we have had the planning functions—that is not subject to regulation, but it approves the pricing methodology. The costs of SP AusNet are already passed through and have already been regulated once. They are regulated by the AER as costs are passed through, so in that sense they are regulated but they are not double regulated because SP AusNet, with 85 per cent of the revenue, is already regulated by AER. I think that is a reconciliation of the points.

The Hon. R.I. LUCAS: I was going to ask a question on clause 11, which, from the minister's reply, may well impact on the questions that I am asking. Clause 11 provides:

However, the AER—

(a) cannot make a transmission determination—

(i) regulating the revenue AEMO earns or may earn.

What revenue does AEMO earn from a transmission determination? To me, AEMO is a replacement for NEMMCO, which is a market operator; I may be wrong but I was not aware that NEMMCO, for example, earned revenue from transmission determinations.

The Hon. P. HOLLOWAY: The reason for this change is that VENCorp has now moved up into AEMO. Previously, VENCorp would have been a transmission network service provider (TNSP). That now becomes part of AEMO, so that is where it captures that revenue, from services they purchase off SP AusNet and other parties.

The Hon. R.I. LUCAS: So previously NEMMCO could not earn revenue, and it is because of these changes that AEMO is earning revenue?

The Hon. P. HOLLOWAY: Yes.

The Hon. R.I. LUCAS: I thank the minister and his advisers for that explanation. I could not work out how AEMO was earning revenue when I understand NEMMCO was not earning revenue. That clarifies those issues for me.

I turn now to the vexed issue of load shedding. I had a series of questions on this that relate to various clauses later in the bill—36 to 43 or 44—but I will raise the issues here, because it is still unclear to me. The minister's reply was that the Office of the Technical Regulator in South Australia will now be the jurisdictional system security coordinator. Was ESIPC the jurisdictional system security coordinator in South Australia up until now?

The Hon. P. HOLLOWAY: Yes.

The Hon. R.I. LUCAS: So, the Office of the Technical Regulator will be the new jurisdictional system security coordinator. If I understand it correctly, the minister's advice to the committee is that, under the new arrangements, the Office of the Technical Regulator will make the decisions in relation to load shedding—that is, which suburbs will be cut off, in which order, and on what basis—and it will do that completely independently of the South Australian government or any other national body.

The Hon. P. HOLLOWAY: Yes; it determines the load shedding list, so it is independent.

The Hon. R.I. LUCAS: I asked this question in my second reading contribution, but I want to explicitly nail it because it was an issue of public dispute and controversy with the recent load shedding—

The Hon. P. Holloway: I remember it well.

The Hon. R.I. LUCAS: You are a bit similar to me when I was minister: everything went wrong when you were acting minister. Under these arrangements, will a future minister have the power to direct the OTR in relation to changing the load shedding order? That is, a minister might say, 'I don't want Thebarton to be cut off first; I want the leafy suburb of Toorak Gardens to be cut off first', or vice versa (depending on who is the minister). Also, 'Whatever decision you take I want you to indicate publicly that this is the order, that you are going to knock off Thebarton, Richmond, Prospect and Toorak Gardens in this particular order.' I put that question in my second reading contribution, and the best I got from the minister was:

The Electricity Act 1996 does not expressly provide for a power of control and direction of the Office of Technical Regulator by the minister.

I would like to know the government's legal advice. It clearly says that the Electricity Act does not provide the power, but does that mean that under some other provision the minister has the capacity to direct the OTR in both those areas?

The Hon. P. HOLLOWAY: My advice is that there is no express power of direction in the act, and I can certainly say that there were no directions in relation to that. However, I am aware that there are a number of issues that come into this. For example, it is not necessarily suburbs; the electricity boundaries do not conform directly with suburbs, so that makes it complicated for a start. It depends on feed lines. There are also some essential services, like hospitals, which are critical facilities that will not be cut off. It basically just rotates around from the list.

It is very difficult, as I discovered at the time; you do not know how big, or how much load has to be shed. You might have to shed twice as much, and that means twice as many suburbs—or half as many, depending on the actual load that needs to be shed. So, giving advance notice is a much more complicated issue than it appears on the surface.

The Hon. R.I. LUCAS: As a former minister I understand the issues about which the minister is talking; the Victorian power unions pulled the plug on the national grid many years ago and we had to load shed at virtually negligible notice. However, the current minister indicated (and I think the Premier did, as well) that he had no problems with the release of this list but that ESIPC had decided it would not release it; he said that either he did not have the authority to order it to do so or that he would not order it to do so. While I can understand the Leader of the Government's position, the current minister expressed the view, when there was a media campaign on it, that he did not have a problem with the list being released.

The Hon. P. HOLLOWAY: I do not think there is so much a problem with releasing the list, but obviously it is the decision of the Office of the Technical Regulator. However, I suppose—and, again, I can comment, as the minister at the time—the question is of what value that list is. It does not give a lot of information.

The view I expressed when I was asked about it (and I remember it clearly) is that you would like as much information out there as possible, and you would want that information to be as helpful as possible to consumers. However, it became obvious to me that there were constraints because of time. I think the last total load shedding was about 100 megawatts for about an hour, and then a lower amount of shedding but for a little more time. Clearly, that is the complexity. In this case, the load dropped out in Tasmania—it was Basslink, if I recall correctly—and you do not get a lot of time to respond in relation to an event like that and, clearly, you have to shed sufficient load to keep the system stable. Obviously, your capacity to let people know is limited, so it is one thing I do not think the government, in principle, has any problem with in respect of a general view of the list and how the system is done. The problem is getting helpful information out there to consumers at the time they need it. The difficult part is that, with these things, you do not generally have advance notice.

The Hon. R.I. LUCAS: I understand the minister's position and arguments on that issue. In relation to the Office of the Technical Regulator, can the minister indicate who is the technical regulator at the moment, how many officers are in the Office of the Technical Regulator, are they attached to a particular portfolio and do they report to a particular minister at the moment?

The Hon. P. HOLLOWAY: Rob Faunt is the Technical Regulator and has been for some time. He is in the Energy Division of the Department for Transport, Energy and Infrastructure (DTEI), and I believe that there are about 30 officers. If it is substantially different, we will correct it.

The Hon. R.I. LUCAS: Can the minister indicate that it is within the Energy Division of DTEI?

The Hon. P. HOLLOWAY: Yes.

The Hon. R.I. LUCAS: Given that the Technical Regulator and his officers are located within the Energy Division of DTEI, is he answerable to the Chief Executive of DTEI, or senior officers within DTEI, for either staffing or resources of the Office of the Technical Regulator?

The Hon. P. HOLLOWAY: My understanding is that he is employed as a PSM act employee, so that means that, yes, he is subject to those provisions.

The Hon. R.I. LUCAS: In relation to the independence issue of the Office of the Technical Regulator, if the Technical Regulator is a PSM act employee subject to the direction of the Chief Executive of DTEI, what is it that prevents the Chief Executive of DTEI or other chief executives directing one of their employees under the Public Sector Management Act in relation to all issues relating to the office?

The Hon. P. HOLLOWAY: He is a statutory officer and has those powers. I think we had a similar debate in relation to this. The Hon. Mr Darley is not here, but I think the Valuer-General was another case where we appointed someone, probably in the same department, actually. I know there are other officers in similar positions who have these statutory functions but are PSM act employees.

The Hon. R.I. LUCAS: But they are not subject to direction by the chief executive.

The Hon. P. HOLLOWAY: We do not have legal advice on that, but I think the assumption is that, if they have a statutory obligation, their function is mentioned in the act; it is in the electricity act. I am not a lawyer and, not having had legal advice, I will not attempt to provide an answer to that question.

The Hon. R.I. LUCAS: It may well be that the minister says that he cannot do so, but I would be happy if that question could be taken on notice and directed to the Office of the Technical Regulator; and perhaps I or the committee can be advised in writing at a later stage. I assume they have had legal advice over the years in relation to their statutory position and how that will or will not be impacted by this legislation.

I am assuming, for example, that in relation to staffing and resources, he is nevertheless subject to direction from the chief executive and the government. The critical issue of staffing and resources is obviously an issue. I assume that he is subject to the decisions of the chief executive and the government generally, but I wonder whether the minister is prepared to at least refer my observations and questions, through his officers, to the Office of the Technical Regulator to see whether we might be able to get some clarification.

The Hon. P. HOLLOWAY: I can get it clarified. However, Mr Hallion has been the chief executive of my department for a couple of years, and I have enough faith in him to know that he would be well aware of the functions, and he would thoroughly respect those statutory obligations. I am sure the person holding the position of Technical Regulator would discuss these things. I would find it inconceivable that you would get that sort of conflict. However, if there is any further information, we will seek to obtain it.

The Hon. R.I. LUCAS: I accept the point. I am making no criticism of Mr Hallion, but Mr Hallion, like all of us, will not live forever. This legislation may well last for longer than either his, the minister's or my mortality. If the minister is prepared, through his advisers, to at least refer my observations and questions to the Office of the Technical Regulator for a response, I would hope we could get some sort of response.

The next issue that was raised was in relation to the MIOs and MINs in this comprehensive reply from the minister to those issues. The minister has acknowledged that there is still ongoing industry concern about the final position of the ministerial council and senior officers in relation to the use of MIOs and MINs in terms of demanding extra information, and I will not waste the time of the committee by going through the number of representations that industry representatives have continued to make about that. So, whilst there was some movement by the ministerial council and senior officers, industry is still concerned about this. What is still not clear to me is: what is the government's view as to what was wrong with the current system?

The very strong view from industry is, 'Hey, we have willingly complied with the current arrangements with NEMMCO and various other planning bodies and provided information.' Is it the contention of this and other governments that some companies and industries were not complying with requests for what was deemed to be important information to these bodies because, as I said, that is strongly contested by the industry representatives who have spoken to the opposition?

The Hon. P. HOLLOWAY: It is the government's view that there should be clear powers in relation to gathering information. It should be clear that you have the right to do it, but it is not reflective in any way that the system has not worked to date. It is simply government's belief—and I assume that of other jurisdictions—that the powers should be clear. I guess it is not unlike a lot of other legislation where governments have strong powers in relation to information, but very rarely are those sorts of powers used.

The Hon. R.I. LUCAS: The industry view is that there has been no problem. I place on the record that I agree with the industry position; that is, if there has not been a problem, why make these changes which have created this angst among industry representatives in relation to the additional powers that these bodies will have to demand information from industries that operate in the market? Clearly, if there was a problem—if some renegade companies were not complying and not providing information to enable sensible planning of the national grid, and those sorts of issues—one could see the argument. But if the minister is now confirming what the industry has been saying, 'Hey, there hasn't been a problem', it defies common sense and logic that we would create this angst for what appears to be no specific purpose.

The Hon. P. HOLLOWAY: Before we move on, I point out that the Electricity Supply Industry Planning Council had very broad powers, and I presume that is under the legislation we have had for some time. That would require information. If we had not uplifted those powers in the new body we would be going back, I guess, on the powers that we currently had. It is the government's view that we are simply incorporating those powers that the Electricity Supply Industry Planning Council had and lifting those up into AEMO, but in that sense it does not really represent a new power.

The Hon. R.I. LUCAS: The last question I have relates to the question I asked about the additional immunity in relation to software. If I understand his reply, the minister is saying that this is not really an additional power: it has just been moved from the national electricity rules into the national electricity law. Is that a correct understanding of the minister's reply?

The Hon. P. HOLLOWAY: Yes, it is.

Clause passed.

Remaining clauses (2 to 53) and title passed.

Bill reported without amendment.

Third Reading

Bill read a third time and passed.

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