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Thursday, 1 November 2012
Page: 8773


Senator THISTLETHWAITE (New South Wales) (12:31): I present the report of the Select Committee on Electricity Prices entitled Reducing energy bills and improving efficiency, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

Senator THISTLETHWAITE: I move:

That the Senate take note of the report.

Why has my electricity bill increased so much? That is a question that I often get when I am travelling throughout New South Wales, and it is a fair one. Households and businesses have had large increases in electricity costs in recent years and it has been putting pressure on families. From 2008 onwards, household electricity prices have risen rapidly, with the average national rise of around 40 per cent in real terms over the last three years. That is why the Gillard government established the Senate Select Committee on Electricity Prices, to get to the bottom of the reasons for and the causes of increases in electricity prices over recent years, and to come up with recommendations to take pressure off prices, improve regulation of the national electricity market and, ultimately, improve energy efficiency.

The report of the Senate Select Committee on Electricity Prices investigated the reasons for recent large increases in households and businesses' electricity bills and made recommendations regarding the regulation and operation of the national electricity market and energy efficiency. The recommendations of the committee, if adopted, will put an end to gold-plating of assets by network businesses, save consumers hundreds of dollars on their electricity bills and improve energy efficiency. These recommendations are a win for consumers and the states must adopt these reforms when they are presented to COAG later this year.

There are many reasons for recent increases in electricity prices. Some, like replacing old infrastructure, are unavoidable; others are avoidable and are unfair on consumers. In the committee's view, the most significant of these unfair increases is due to overinvestment in network infrastructure by predominantly state government owned network businesses. This has been commonly referred to as gold-plating.

The current rules of our electricity market mean that there is a perverse incentive for network businesses to spend more than they need to on their assets. This inefficient overinvestment in network infrastructure—the poles and wires—must stop. Many of the recommendations of the committee go to that issue and will provide relief for consumers over time. To address this issue, the committee has made a number of recommendations that will ensure the Australian Energy Regulator has greater scrutiny powers over network investment proposals and the ability to stop inefficient investment.

Adoption of new guidelines for assessing rates of return and the requirement that these guidelines are reviewed every three years will ensure fairer outcomes when it comes to network investment over time. Changes to the national electricity rules to ensure more efficient forecasting of capital returns, return on debt and capital and operational expenditure should be adopted. Greater guidance should also be provided for tariff setting by network businesses. We are recommending that the Australian Energy Regulator have the ability to conduct ex-post reviews of network business capital expenditure so that they can stop any inefficient investment being included in the next regulatory period for the assessment of the cost of capital.

Peak demand has also contributed to recent electricity prices. On very hot or cold days, demand for electricity spikes when people turn on their air conditioners or heaters. These peak demand events usually only occur for about 40 hours in any year, yet 25 per cent of network infrastructure is devoted to dealing with the spikes in demand during those 40 hours, and all consumers pay for this. Effectively, low-income households without air conditioners are subsidising the cost of high-income households running air conditioners during peak times. This is unfair. To reduce the impact of demand events on the system and subsequently on retail electricity prices, the committee has recommended that the Standing Council on Energy and Resources agree to the introduction of cost-reflective pricing and the introduction of smart meters under certain circumstances. Those circumstances would be that, predominantly, consumers would have the option to opt into this new system, particularly vulnerable consumers who would maintain the ability to remain on a regulated flat tariff if they liked. For large consumers, this option should be mandatory. Large consumers of electricity should be on cost-reflective pricing and operating smart meters. Medium consumers should be deemed to be on a cost-reflective tariff and smart meter, with the ability to opt out of that system. Small consumers, typically households, should be deemed to be on a flat regulated tariff with the ability to opt into a variable tariff and smart meter.

Prior to the introduction of these measures, the Commonwealth and the states should fund and undertake a comprehensive consumer education and information program. As consumers become more savvy about their electricity consumption and its effect on their bills, the government should consider the introduction of changes to regulation and operation of the National Electricity Market that would encourage and allow consumers or authorised third parties to sell their demand back into the wholesale network, and they should be offered the spot price on the wholesale network. This would allow someone who has excess demand, who may be running a business, to reduce their energy consumption and to sell that to a third party, who would then link that up with someone on the same system who is looking to augment or increase their electricity consumption. That will see no net increase and cost demand on the network. It is a sensible outcome and should be encouraged.

Many residential and commercial electricity consumers are installing embedded generation—cogeneration, trigeneration and solar photovoltaic generation on their roofs. This is having a positive effect on both electricity prices and the environment. The committee heard that network design, connection and cost barriers currently impede energy produced via embedded generation being fed into the grid. The committee has made a number of recommendations that the SCER should deal with to reduce some of those barriers and allow embedded generation to be fed back into the grid on more occasions. The committee believes that the Standing Council on Energy and Resources should examine these barriers and consider appropriate regulatory and operational reforms to encourage more connection of embedded generation to the electricity grid.

Most resident consumers are poorly informed when it comes to retail electricity arrangements, the price of their electricity and how their electricity consumption impacts on their bill. In the information age, consumers should have easy access to information to allow them to make better decisions about their energy needs and the cheapest plan that suits their circumstances. The Gillard government has introduced the National Energy Customer Framework to ensure consumers get better access to more information about their electricity and gas consumption and retail plans. Better information for consumers will allow them to make better decisions about their energy needs and reduce their bills.

There is also exciting technology now available for consumers to help them manage their energy consumption and improve their energy efficiency. Smart meters can provide real-time information to consumers through a web portal or home display about the amount of electricity being consumed and the cost of that consumption. Such technology can also inform consumers how much energy particular appliances use. Home energy network monitors allow consumers to switch off appliances remotely from their computer or smart phone so that appliances can be scheduled to run in off-peak times, saving consumers money.

A comprehensive public information and education campaign should be undertaken by the federal government and the states to promote access to this technology and the benefits for consumers. Smart meters should be rolled out across Australia but in a gradual and planned manner and in predetermined locations on an opt-in basis. These reforms will save consumers and households hundreds of dollars on their electricity bills and improve energy efficiency. They are a win for consumers. As a consequence, consumers have been able to access and choose retail electricity offers better suited to their needs and modify their electricity consumption in ways that will help minimise their electricity cost. I commend this report to the Senate and I thank the committee secretariat for their very hard work in assisting the members of the committee in preparing this report.