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Legislative Council - Fifty-Fourth Parliament, First Session (54-1)
2018-11-06 Daily Xml
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Statutes Amendment (National Energy Laws) (Binding Rate of Return Instrument) Bill

Introduction and First Reading

Received from the House of Assembly and read a first time.

Second Reading

The Hon. R.I. LUCAS (Treasurer) (18:17): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted into Hansard without my reading it.

On 14 July 2017, the COAG Energy Council agreed to implement a binding rate of return instrument for the rate of return components of the Australian Energy Regulator's and the Western Australian Economic Regulation Authority's regulatory determinations.

Accordingly, the South Australian Government is amending the national energy laws to introduce a binding rate of return instrument into the process for setting the revenue of regulated electricity and gas businesses. This amendment will provide greater certainty and reduce the regulatory burden for network businesses and consumer groups by establishing a single rate of return instrument that will apply across all determinations made by the regulator.

The Statutes Amendment (National Energy Laws) Binding Rate of Return Instrument Bill 2018 will amend the National Electricity Law and National Gas Law to require the AER to make an instrument that is binding on the AER and regulated electricity and gas network businesses.

The AER regulates the revenue network businesses can earn which determines the prices they can charge during a regulatory period. It does this by making distribution and transmission determinations that apply over a five year period. This Bill does not change this. It allows the AER to establish the methodology it will use to determine the rate of return in the regulatory determinations for all businesses once every four years. The AER will no longer use a different approach for each business.

Energy Ministers consider this an important step in stabilising energy prices over time. This is because the rate of return makes up the largest revenue component, accounting for up to two thirds of network businesses' regulated revenue.

The Bill's intention is to provide a rate of return that will allow the regulated businesses to recover their efficient financing costs. It will also support investment in the long term interest of consumers, as required by the National Electricity Objective and National Gas Objective. In developing the instrument, the AER must also have regard to the Revenue and Pricing Principles set out in the national energy laws. Businesses will be able to seek judicial review if the AER fails to have regard to the National Electricity Objective and National Gas Objective and the Revenue and Pricing Principles.

The approach retains incentive-based regulation while providing flexibility for regulatory innovation. Reasserting the primacy of the Revenue and Pricing Principles will ensure network businesses continue to have an incentive to make efficient investment decisions. The key concept of a weighted average of an allowed return on debt and an allowed return on equity has been included to provide greater guidance to the AER. The AER will also be required to explain its decision-making processes and conclusions in the explanatory information it must publish with the instrument.

The Bill will make the AER's decision making process more transparent through improved consultation requirements. It will provide stakeholders with the opportunity to contribute evidence and advice about appropriate methods and relevant market data to underpin the content of the instrument.

A consumer reference group will be established to advise the AER on implementing the consumer consultation process and facilitate consumer input into the design of the instrument.

An independent expert panel will also be established to review the draft instrument, ensuring that the AER's decision is based on sound reasoning.

The Bill will require the AER to review and replace the instrument every four years.

The Bill will provide that once initial Rules have been made by the South Australian Minister on the subjects provided for in the Bill, the Minister will have no power to make any further Rules regarding regulated networks' rate of return.

I commend this Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of National Electricity Law

4—Amendment of section 2—Definitions

Definitions are inserted for the purposes of the measure.

5—Amendment of section 15—Functions and powers of AER

The functions and powers of AER are amended to reflect the new Division relating to the rate of return instrument.

6—Insertion of Part 3 Division 1B

New Division 1B is inserted into Part 3. In general terms, new Division 1B will require the Australian Energy Regulator (AER) to make an instrument that specifies the way to calculate the rate of return on capital and the value of imputation credits or the way to calculate that value.

Procedural requirements relating to the making of the instrument are set out, such as that the AER must engage a consumer reference group, seek submissions on the making of the instrument, seek concurrent evidence from experts, release a draft instrument, seek submissions on the draft, and engage an independent panel to assess and provide a report on the draft.

The rate of return instrument will commence on the day after it is published on the AER's website, and remains in force until replaced. It must be replaced every four years (i.e. on the day that is the fourth anniversary date of its publication).

The instrument will apply to all economic regulatory determinations made under the National Electricity Law after it commences:

Division 1B—Rate of return instrument

Subdivision 1—Preliminary

18F—Definitions

18G—Rate of return instrument has force of law

18H—Rate of return instrument is binding on AER and network service providers

Subdivision 2—Requirement to make rate of return instrument

18I—AER to make rate of return instrument

18J—Content of rate of return instrument

Subdivision 3—Consultation requirements

18K—Process for making rate of return instrument

18L—Other matters AER must have regard to in making instrument

18M—Requirements before publishing draft instrument

18N—Consumer reference group

18O—Publication of draft instrument and other information

18P—Report about draft instrument by independent panel

18Q—Publication of explanatory information

18R—Failure to comply does not affect validity

Subdivision 4—Publication, review and other matters

18S—Publication of rate of return instrument

18T—Commencement and duration of instrument

18U—Review and replacement of instrument

18V—Application of instrument

18W—Rate of return instrument may apply for this Law and the National Gas Law

Subdivision 5—Confidentiality of information

18X—Confidentiality

18Y—Disclosure of information given in confidence

7—Amendment of section 28J—Opportunity to be heard before regulatory information notice is served

8—Amendment of section 28Q—Assumptions where there is non-compliance with regulatory information instrument

These amendments are consequential.

9—Insertion of section 90BA

A new rule making power is inserted.

90BA—South Australian Minister may make consequential Rules relating to rate of return instrument

The South Australian Minister will be empowered to make consequential Rules relating to the rate of return instrument. This is in connection with the insertion of the rate of return framework into the National Electricity Law (and its removal from the Rules).

10—Amendment of Schedule 1—Subject matter for the National Electricity Rules

11—Amendment of Schedule 2—Miscellaneous provisions relating to interpretation

These amendments are consequential.

12—Amendment of Schedule 3—Savings and transitional

Transitional provisions are inserted for the purposes of the measure. In particular, special arrangements are set out for the first rate of return instrument on account of a review being undertaken by the AER on an existing guideline. Another transitional provision relates to the application of the amendments effected by the measure to particular decisions:

Part 15—Transitional provisions for rate of return instrument

28—Definitions

29—Making first rate of return instrument if review not completed before commencement

30—Making first rate of return instrument if review completed before commencement

31—Application of this Law to particular decisions

Part 3—Amendment of National Gas Law

13—Amendment of section 2—Definitions

The amendments to the National Gas Law set out in the measure are substantially the same as the amendments to the National Electricity Law under the measure (with modifications where necessary in the context of the National Gas Law).

14—Amendment of section 27—Functions and powers of the AER

15—Insertion of Chapter 2 Part 1 Division 1A

Division 1A—Rate of return instrument

Subdivision 1—Preliminary

30A—Definitions

30B—Rate of return instrument has force of law

30C—Rate of return instrument is binding on AER and covered pipeline service providers

Subdivision 2—Requirement to make rate of return instrument

30D—AER to make rate of return instrument

30E—Content of rate of return instrument

Subdivision 3—Consultation requirements

30F—Process for making rate of return instrument

30G—Other matters AER must have regard to in making instrument

30H—Requirements before publishing draft instrument

30I—Consumer reference group

30J—Publication of draft instrument and other information

30K—Report about draft instrument by independent panel

30L—Publication of explanatory information

30M—Failure to comply does not affect validity

Subdivision 4—Publication, review and other matters

30N—Publication of rate of return instrument

30O—Commencement and duration of instrument

30P—Review and replacement of instrument

30Q—Application of instrument

30R—Rate of return instrument may apply for this Law and the National Electricity Law

Subdivision 5—Confidentiality of information

30S—Confidentiality

30T—Disclosure of information given in confidence

16—Amendment of section 52—Opportunity to be heard before regulatory information notice is served

17—Amendment of section 59—Assumptions where there is non-compliance with regulatory information instrument

18—Insertion of section 294CA 294CA—South Australian Minister may make consequential Rules relating to rate of return instrument

19—Amendment of Schedule 1—Subject matter for the National Gas Rules

20—Amendment of Schedule 2—Miscellaneous provisions relating to interpretation

21—Amendment of Schedule 3—Savings and transitional

Part 15—Transitional provisions for rate of return instrument

90—Definitions

91—Making first rate of return instrument if review not completed before commencement

92—Making first rate of return instrument if review completed before commencement

93—Application of this Law to particular decisions

Debate adjourned on motion of Hon. E.S. Bourke.

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