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Select Committee on Electricity Prices
Electricity price increases in Australia

ARCHER, Mr Brad, First Assistant Secretary, Energy Market and Policy Coordination Division, Department of Climate Change and Energy Efficiency

BAILEY, Mr Andrew, First Assistant Secretary, Energy Efficiency Division, Department of Climate Change and Energy Efficiency

DE JONGH, Mr David, Assistant Manager, Retail Policy Team, Department of Resources, Energy and Tourism

FOSTER, Ms Alana, Branch Manager, Seniors and Means Test Branch, Department of Family, Housing, Community Services and Indigenous Affairs

LOCKE, Dr Chris, General Manager, Electricity and Gas Markets Branch, Department of Resources, Energy and Tourism

McGLYNN, Mr Gene, Assistant Secretary, Building Energy Efficiency Branch, Department of Climate Change and Energy Efficiency

MORLING, Mr Brendan, Head, Energy Division, Department of Resources, Energy and Tourism

STORY, Mr Oliver, Manager, Demand Side Policy Team, Department of Resources, Energy and Tourism

WHELAN, Mr Geoff, Manager, Retail Policy Team, Department of Resources, Energy and Tourism


CHAIR: The committee would now like to welcome representatives of the various Commonwealth government departments—the Department of Resources, Energy and Tourism, the Department of Climate Change and Energy Efficiency and the Department of Families, Housing, Community Services and Indigenous Affairs. It is quite a big team.

Senator WILLIAMS: We are outnumbered now!

CHAIR: We certainly are!

As Commonwealth officers you will not be asked to give opinions on matters of policy, although this does not preclude questions asking for explanations of policy or factual questions about when and how policies were adopted. The committee has received your recommendations. Do any of you have an opening statement that you wish to make to the committee? If not, we will proceed straight to questions.

In the course of the committee's inquiry—and we have been in a number of capital cities throughout the country—there have been a number of consistent themes that are emerging in the evidence that has come before the committee. One is in respect of network upgrades and the investment regime in network upgrades. Many of the submitters have claimed that the way the rules relating to the national electricity market works provides an incentive for overinvestment. Even this morning Professor Ross Garnaut made the point that in his view the way that the rate of return and the regulation to the price on the rate of return in respect of transmission and distribution was being set was too high, and that was obviously leading to inflated rates of return that were running through the electricity prices.

I am just wondering whether the departments have a response to those numerous submissions that have made that claim, that there are perverse incentives within the system at the moment that encourage overinvestment?

Mr Morling : I might start. I guess that the starting point is, as we mentioned last time when we appeared before the committee, that these issues are being examined through the Australian Energy Market Commission rule change process. A key component of that rule change process goes directly to the cost of capital. We have seen a draft rule change and we are now waiting for a final rule change, expected in November. As I said last time, quite properly this is an independent process, so it is not appropriate at this point for us to comment on that rule change process.

Just by way of background, the rule change process works also independently of ministers. Once the AEMC makes its final rule change determination then that becomes the rule for electricity networks. In conjunction with that, as I mentioned last time, of course there is a review or an appeals process. This afternoon the independent panel that has been looking into the appeals process released its final report with some quite significant recommendations. I just want to make the point that that is open for everybody to read. We have notified stakeholders that if they wish to make submissions that is available to them. But that remains a report of an independent panel and the recommendations are just that, of the independent panel, and that now has to go through a process of consultation with stakeholders and for eventual decision by ministers. That is the background to what is being done in this space in terms of network investment and the regime under which the network investment takes place.

The only other thing I would mention in terms of incentives is that determinations for network businesses are made by the independent regulator, the Australian Energy Regulator. To the extent that they have made determinations under the previous regime, that is now a part of the new process. I guess it is really a matter of seeing what the Australian Energy Market Commission comes up with in their final rule determination—as I say, the cost of capital is a key part of that—and how ministers will respond to the report of the independent panel.

CHAIR: Can you inform the committee of the likely time frame on the rule change?

Mr Morling : We would expect the rule change to be completed sometime in November. On the independent panel, I cannot give you a time frame on that. As I say, they have only just published their report.

CHAIR: That is the review of the limited merits review?

Mr Morling : Yes.

CHAIR: When the Energy Efficiency Council appeared before us they raised barriers faced by businesses seeking to connect co- and trigeneration systems to the grid. In particular, they suggested that businesses should be charged only for the portion of the grid that they use, rather than being charged as if they were using the whole grid. Has the government sought to address the barriers to embedded cogeneration and trigeneration systems in connecting to the grid?

Mr Morling : I might ask Mr Story to answer that.

Mr Story : You asked something related to this question the last time the department appeared. We provided some supplementary material this afternoon which you may not have seen yet. I will run through a rule change proposal that has been put to the Australian Energy Market Commission. That was proposed by ClimateWorks, Seed Advisory and the Property Council of Australia, so proponents of medium generators. That proposes to make a more efficient process for connecting embedded generators to distribution networks, so clarifying the process. It also proposes that a common technical standard be adopted across the different networks, so that goes to the issues you are raising about how easy is it for medium generators to connect to distribution networks.

At the Australian government level, with the other state governments, as part of the National Energy Customer Framework, we will be introducing similar process improvements which are targeted more at the smaller generators, like the solar panels and up to around a 10-kilowatt generator.

A third thing is currently in train. This is about your need, once you have the physical connection to the energy network, to be able to sell your energy to someone. The way that usually works is you sell that to your own electricity retailer at the moment. That is the most common commercial arrangement. But some companies seek to sell their energy to the a wholesale electricity market and historically there has been quite a significant transaction cost to establish that arrangement. The Energy Market Operator has proposed a rule change, which is called the small generation aggregation rule change, which the commission is also currently considering. The purpose of that is to reduce the transaction costs for small generators wanting to sell their energy through the wholesale market.

CHAIR: Thank you. Obviously, if these changes are occurring, these issues must be real. When the network businesses have appeared before us they have said, 'No, there are no problems,' and they went as far as saying, 'We can guarantee that anyone that wants to connect to the grid should be able to and there wouldn't be a problem with it.' But you are saying that obviously, if this process is going ahead, there are some issues.

Mr Stor y : Yes. In a previous review by the Australian Energy Market Commission, there were some findings that some improvements should be made in this area and those recommendations were accepted by ministers. The rule changes I have outlined seek to address the issues identified.

CHAIR: When you say ministers, is that through the—

Mr Story : That was, as it was then, the Ministerial Council on Energy.

CHAIR: The predecessor, okay.

Mr Stor y : There certainly is some activity happening, so these rule changes really seek to reduce the transaction costs and increase the level of activity to a more efficient level. So we would say it is probably below its efficient level at the moment.

CHAIR: One common theme that is coming through in the evidence is the lack of understanding, particularly amongst consumers, about how the system works, how they can improve energy efficiency and how the price system works, and a call for a public education campaign that would be either a predecessor to or complementary to any changes to the way the system works. Anyone who has been a supporter of the recommendations made in the Power of choice review has made that submission as well: that there needs to be greater public information about issues such as variable time pricing and the role out of smart meters. Is that something that the department is aware of? What is being contemplated to deal with that call for greater information?

Mr Morling : The issue of consumers and their role in the whole process is very much part of the current ministerial consideration. You would have seen in the communique that was released after last Friday's meeting that ministers are considering actions around four broad themes. Empowering consumers, which is providing end users with greater access to information to better understand and manage their energy consumption, is a key theme of what ministers are considering. In terms of what occurred on Friday, it was essentially a first run-through of potential reform proposals. You will know that at the end of the year it is talking about energy ministers' considered actions for the next phase of National Energy Market Reform, for the consideration of COAG. These are proposals that energy ministers are considering, the outcome of which will be a report to COAG, and then COAG will consider these at the end of the year. But clearly providing greater information to consumers is a key part of that consideration and, as you pointed out, a key input into all that will be the Energy Market Commission's final Power of choice review.

CHAIR: Thank you.

Senator MILNE: I want to ask a question of Mr Archer in particular. One of the decisions that were made in the UK, which has brought about considerable reform in the operation of their national electricity market, was to incorporate an environmental objective into the objectives of the national electricity market. The Australian electricity market does not have an environmental objective. Given that the Australian parliament has now put reducing greenhouse gas emissions as a central objective, has the department done any work on whether, or is it the department's view that, we should incorporate an environmental objective into the goals of the National Electricity Market?

Mr Archer : I am not aware that we have done any work on that particular issue. I would note that the National Electricity Rules are the responsibility of my colleagues from the Department of Resources, Energy and Tourism, so they might like to offer a view on that. But that is not something we have given particular attention to.

Senator MILNE: Can you indicate why that might not have come across your policy team, in the sense that if reducing greenhouse gas emissions is a national objective then surely reducing emissions has to be part of the objectives of the electricity market?

Mr Archer : I think what is most important is that the electricity market is operating efficiently, so that the price signals—through such mechanisms as the carbon price and the Renewable Energy Target—can work most efficiently in terms of the impact that they have on the behaviours of players in the market. So our first and foremost consideration is supporting measures which promote competition and efficiency in the electricity market. The question of the objective of the national electricity law again is not something that we have really focused on in that context.

Senator MILNE: Perhaps, Chair, if I could just ask the Department of Resources, Energy and Tourism whether, in their policy unit, any thought has been given to—as the British have done—incorporating an environmental objective, so that, in delivering reliable, safe, secure supplies of energy, that is done in the most environmentally friendly way possible.

Mr Morling : As Mr Archer points out, this is an objective in the national electricity law, which is our portfolio responsibility. The answer to your question is that this has been considered a couple of times since the original objective was put in place and, at each time, the objective has remained unchanged, with the focus on the long-term interests of consumers. It was also covered off in the government's draft energy white paper; that talked about it. It is also far from clear how non-energy policy goals could be coherently reflected in a single set of market rules. These issues, which are referring to the issues you are raising, are best dealt with outside the market settings, as this allows for more targeted and therefore more effective action.

Senator MILNE: Just to follow up there: you think the market is to deliver better outcomes for consumers; surely, in the long term, better outcomes for consumers can be achieved by getting greenhouse gas emissions down.

Mr Morling : This is an economic efficiency objective in the national electricity law and, similarly, in the national gas law and also in the national energy retail law. That is the focus of the objective. As was pointed out in the draft white paper, these issues are best dealt with outside the energy market framework, which focuses on the economic efficiency outcomes, and that allows—as the quote says—more targeted, more effective outcomes. Quite clearly, now we have an energy market that operates with both a carbon price and a renewable energy target.

Senator MILNE: The UK, of course, has that as well, but they incorporated the environmental objective to drive towards their common goal. Are you saying that it has no place in their scheme?

Mr Morling : I cannot comment on the UK issue. All I can say is: in Australia it has been considered with each of the three legislative packages; it has remained unchanged. The view, clearly, is that those issues you are talking about are better off operating outside the energy market itself, so they can be better targeted.

Senator MILNE: When you say 'the view is', whose view?

Mr Morling : These laws are passed through the South Australian parliament, but they have to have the agreement of all the relevant state and territory energy ministers, as well as the Commonwealth energy minister.

Senator MILNE: Yes, but you said your department has looked at it. Are you saying your policy team has looked at it and decided against an environmental objective in the electricity market?

Mr Morling : I am happy to be corrected, but I did think I said that these issues have been looked at in terms of the legislative package that has come through. I do not think I said that our department has specifically looked at it. At the end of the day, the objective contained within the legislation is a decision for ministers.

Senator MILNE: Yes, but I am interested to know whether there has been any active discussion of the inclusion of an environmental objective in your department.

Mr Morling : Not that I am aware of, and the situation from the Australian government perspective was set out in the draft energy white paper. I am not aware of any plans to reflect on or change that particular view.

Senator MILNE: Okay. I move on to reliability standards. It has been put to us by various witnesses that one of the problems with cost is that the standards have been set too high and that in the case of Queensland, where they changed the standard, that has led to significant reductions. Would someone like to comment on the issue of whether or not the current reliability standards are above what is actually required?

Mr Morling : I might start. The issue of reliability standards is currently under examination by the Australian Energy Market Commission. It looked specifically first at distribution standards within New South Wales, and it is now moving on to consideration of national distribution reliability standards. I guess—others may also want to come in and comment—that the bottom line of the findings in the AEMC's report was that a change in distribution reliability standards in New South Wales might lead to lower reliability outcomes but not be particularly significant in terms of delivering cost reductions for consumers. The other thing I would say is that the AEMC report found that customers do value reliability of supply very highly.

Senator MILNE: Yes, I do not think anyone is suggesting that we would want to jeopardise reliability of supply, but the implication has been that the standards have been set so high that it has led to a considerable increase in cost for no real benefit in terms of security of supply.

Mr Morling : Reliability standards still remain an issue for each of the jurisdictions, so it is not really an area that we can comment on a lot. All I can do is repeat the findings of the AEMC investigation into New South Wales that a reduction in reliability standards is not likely at this point to lead to a significant cost saving for consumers. On the role of reliability standards in leading to levels of network investment, the question is probably better placed with either the Australian Energy Regulator or the individual jurisdictions themselves.

Senator MILNE: I wonder if anyone else wants to comment on that issue before I move on to the next topic.

CHAIR: Does anyone else wish to comment? No.

Senator MILNE: Okay. Professor Garnaut today in his contribution said that in his view, particularly in relation to transmission and distribution, the rate of return price is set too high and the fact that it is guaranteed means that it is riskless from the point of view of the people making the investment, and therefore it is an internal impediment to getting better outcomes. I do not think he said this straight out—I might need to be corrected on this, because I did not come back for the second half—but his implication, I think, was that the rate of return price ought not to be guaranteed and that it was too high generally. So I just wonder what your take on that is.

Mr Morling : We cannot really comment on an issue which is still under consideration by the Australian Energy Market Commission. That is a central part of its consideration of the rule change process. These are regulated monopoly networks.

The issue of a rate of return is obviously key to it all. The only thing I would say is that in the draft rule change—and I emphasise that it is just a draft—the AEMC did recognise that it was looking at a proposed common framework to set the rate of return and that framework would require the regulator to make an estimate of the rate of return that is consistent with an overall objective. That objective is focused on a rate of return required by a benchmark efficient service provider with similar risk characteristics as the service provider subject to the decision. It is clearly part of the AEMC's undertakings and further work. It is just at this point in time we have not seen the final rule determination.

Senator MILNE: I am interested in your view then as to what is the single most important thing we need to do to bring down power prices when you look across the current way that the national electricity market operates. We have heard a lot of people talk about the fact that state governments have got a vested interest in making sure nothing changes because the volume across the system is their guaranteed income et cetera. I am interested in the department's view. What would be the rule change or what would be the most significant change we could make so that we remove the disincentive, if you like, that currently exists for enabling new sources of supply to enter the system or to get better demand side management and aggregation of demand side management in the system?

Mr Morling : I will start off and Mr Story might provide some more information on the demand side. If you consider the driving factors behind the recent price changes then clearly network expenditure has been a substantial factor in those increases. What we would say is that ministers are well aware of that and what we have and what was put out on Friday in the communique was a comprehensive package of measures and inquiries to look at those issues. We have talked about the economic regulation of network service providers rule change. We have seen the final report of the limited merits review panel released today. There is also the ongoing Productivity Commission inquiry into benchmarking as well as looking at an efficient level of interconnector investment. Then we have a series of measures that try to provide more information to consumers and empower consumers to have a greater role in their energy choices, so we have the power of choice review which we are expecting a final report from. We have also released a demand side participation work plan. A lot of that is based around the power of choice as a key input. Ministers have also released a statement on smart meters, so metering is also recognised as an important part of the solution.

Depending on where the power of choice review gets to, that will be a key component but encouraging competitive outcomes in each of the markets and looking at the potential to provide different solutions, some of which may be based around different tariffs with the necessary customer protections that come through in packages such as the national energy customer framework, that is pretty much a comprehensive package that ministers are looking at. It is a bit difficult for us to say what the single most important factor is, but if you are looking at the single issue that has the most attention in terms of driving price increases in network expenditure and rates of return on network then ministers clearly have a package of reviews and reports in place to deal with that and they will respond accordingly to the review of the merits regime and we will see what the Australian Energy Market Commission comes forward with in its rule change proposal.

As I said, they do not have a further role in the rule change proposal; once the market commission decides, that is it. Mr Story might have something to add to that.

Senator MILNE: Before we go to Mr Story, achieving a national target for energy efficiency is clearly a policy objective that would facilitate some of these changes across the network. Mr Story, as you add something, perhaps you can also tell me what coordination there is between the move towards adopting a national energy efficiency target as well as facilitating demand side changes to enable consumers to save themselves money and further reduce demand.

Mr Morling : Before Mr Story starts, I will add that the government is currently examining a national energy savings initiative. There is a group of officials looking at that, with some from our department and some from the Department of Climate Change and Energy Efficiency. The Department of Climate Change and Energy Efficiency might be better placed to answer questions on energy efficiency and national targets, but I will ask Mr Story to answer the question on demand side.

Mr Story : I thought that Mr Morling's overview was a very good overview of the general package on demand side, so I would be hesitant to pick out any one single reform that would be 'the one'. Obviously, you would do that by looking at the economic value that would be delivered by each reform. In the Power of choice review, the final report stated that they are attempting to provide a better estimate of the specific benefits from and costs of the different areas of reform. But at the moment what we are aiming for is a package that covers the major areas across the pricing and incentives at the retail level, the network level and the wholesale market level so that they all work together to provide consumers with a range of options for how they manage their own energy use. It is that package of things together that you need, not one single thing.

Senator MILNE: Further to that—and maybe the Department of Climate Change and Energy Efficiency is better placed to answer this in relation to getting change—it has been put to us in the course of these hearings that there are real impediments to facilitating the aggregation of demand side savings, particularly from substantial industrial complexes. That seems to me to be something that would make a significant difference without too much trouble. What is the main impediment to that?

Mr Story : I certainly agree that there is significant potential for a higher level of demand side participation from industrial and commercial customers. We have a certain degree of demand side participation from industrial customers, but it is not very visible in the market because of the way that the contracts and arrangements are structured. In fact, the energy market operator participant in the Power of choice review reference group has said that they sometimes have difficulty knowing exactly how much participation is happening.

There are several recommendation in the Power of choice review which come to that issue around wholesale market participation. They are about allowing a company to purchase its energy from a retailer and to effectively sell its demand response to another company. At the moment, a large consumer effectively has to structure its retail purchase contracts to specifically accommodate its demand response. Some companies do that but others are not willing to go to that trouble, so that change could certainly help.

Senator MILNE: And is that being considered?

Mr Story : Certainly. That is part of the AEMC's Power of choice review and their draft report. We are looking forward to their final report next month. I think that submissions on that are due in a couple of days. We will be very interested to see what the different participants have to say about that proposal.

Mr Morling : I want to reinforce that that is a draft report at this stage. It has some quite significant recommendations, but it is just a draft report.

Senator WILLIAMS: The biggest complaints that I get in my job when I travel around country areas especially are about the cost of living. We have seen through this inquiry that in New South Wales, for example, electricity prices went up by 18 per cent on 1 July. Nine or 10 per cent of that was the carbon tax, with the rest being due to poles, wires and other infrastructure. Have you done any modelling on where the price of electricity is going to be in, say, five, six or eight years time? Is that too long a bow to draw, not knowing the price of coal, the price of generators, the price of other things, renewable energy targets, meeting criteria or whatever? Do you do any research or modelling to give us some idea of what the future price of electricity is going to be, such as by 2020?

Mr Morling : No, we do not. The Treasury would have done some modelling around its carbon package. The Australian Energy Market Commission has produced a report that takes prices out to 2014. I do not know whether Dr Locke wants to provide some background to that, but that is quite a useful report.

Dr Locke : That report has been mentioned by a number of people who have given evidence to the committee.

Senator WILLIAMS: This is the first day that I have been here; I have been away.

Dr Locke : Essentially, the then MCE, now the Standing Council on Energy Resources, has tasked the Australian Energy Market Commission to provide annual reports on the outlook for retail electricity prices in the coming three years. The last of those reports was put out in November 2011, so another one is due soon. The commission uses a range of data sources, including its own modelling, to give that three-year snapshot of electricity prices. But that is the only near-term—

Senator WILLIAMS: What did that November 2011 one predict for 2014? Did it have a percentage increase on 2011 prices by 2014—a figure or anything like that?

Dr Locke : There is a range of figures, and I think we provided some in our submission. Essentially, it varies from state to state but in terms of a national indicative figure, it talked about a price in 2013-14 in cents per kilowatt hour of around 29.01c.

Senator WILLIAMS: That is the retail price to the average house?

Dr Locke : That is right. If you are looking at the percentage increase—

Senator WILLIAMS: What is it on now? What was it in November 2011? If it is talking about it being 29-point-something in 2014, what is the current price? I thought it was close to that now.

Dr Locke : The 2010-11 price was 22.41c. It is talking about a cents per kilowatt hour increase of 6.6c, or a total percentage increase from 2010-11 to 2013-14 of 29.4 per cent.

Senator MILNE: I want to ask the Department of Climate Change and Energy Efficiency where things are up to in relation to the national energy efficiency target.

Mr Archer : I will take that one. As you would be aware, the Department of Climate Change and Energy Efficiency, working in conjunction with the Department of Resources, Energy and Tourism, is undertaking a detailed regulatory impact analysis of a possible ESI. That incorporates some very detailed modelling work. I mentioned at the first hearing that we attended that this is underway as we speak. We anticipate that the results of that modelling, in combination with the regulatory impact analysis, would be released for consultation some time later this year.

As part of that exercise, we are considering how an ESI could create incentives or requirements for activities to improve energy efficiency to be undertaken in low-income targets. That is a specific aspect of the work that we are undertaking. It is certainly feasible that some of the activities that could be recognised under a national energy savings initiative would have characteristics of or be in the form of demand side participation activities, which you asked about earlier.

I cannot comment much further, other than to reinforce that we do anticipate that the detailed results of the modelling, with the regulatory impact analysis, will be available later this year.

Senator MILNE: In the course of these hearings it has been brought to my attention that in a number of large city buildings around Australia there are cogeneration facilities that are standing idle because it is too expensive for them to connect to the grid. Does anyone want to comment on what needs to happen there? It seems to me a terrible waste of money to have invested in facilities that are just idle.

Mr Story : I think my answer to the chair earlier covered that issue. Firstly, it is around getting the physical connection to the network. There is a process to go through. If we can reduce how onerous and costly that process is, then you should see more of those generators being connected. Secondly, the companies would need someone to sell their energy to when they export it to the grid. Some of the proposals before the commission through the small generation aggregator framework give commercial companies another option for whom they can sell their energy to. Some of the proposals in the Power of Choice review draft report also canvass another option of being able to sell your output to a different retailer than you purchase your energy from. There are a few different actions on the way on that front. Cogeneration, from the electricity market perspective, is no different from any other small generator that might connect. So those things are open to any generator, be it cogeneration, solar—

Senator MILNE: Would that option mean that you could sell the energy to the tenants in your building?

Mr Story : In order to sell the energy to the tenants in the building, I do not believe that any specific arrangements are required. That would be a contractual matter between the owner and tenants. It would depend on the particular arrangements in that building.

Senator MILNE: People have basically said that the problem here is it is just so expensive for them to get access to the network. That brings me to the connection processes—firstly, for medium sized generators. There has been a lot of complaint that the networks. There is no rules about how long they connect for—they can consider whether they are going to connect for a very long time. There is no appeal procedures and so on. People are just left hanging and cannot make investment decisions when planning their buildings because there is no standardised rules about the requirement to connect. Is there anything going on now in the system to actually standardise the connection process for, say, new entrants who are medium sized generators as opposed to just households?

Mr Story : Again, I think I answered that previously. It was the NECF component improvement, which is the connection process, and also a rule change proposal that is being considered by the Australian Energy Market Commissioner.

Senator MILNE: That covers that one?

Mr Story : That comes to that issue, yes.

Senator MILNE: Professor Garnaut said today that he thought there was a good opportunity in Australia to enable communities—not only physically separated communities, like some rural communities, but say a switched on suburb or a new planning development or something—to be able to go off grid and have that facilitated as its own distributed network, effectively. What precludes that from happening now?

Mr Story : You mean in order to be completely separate and not connected to an electricity network?

Senator MILNE: Yes.

Mr Story : I have not considered that as a commercial proposition. But I have seen some proponents seek to establish a private network that is connected to the broader electricity network. There were a number of steps they had to go through and, in their projects, I have seen they have not been able to get through all of those steps. They are things like getting in place the agreement for the network connection—which you identified as an issue for small generators.

Senator MILNE: Forget the other option that I mentioned for a moment. Let us assume that you had a suburb, a street or a certain number of homes that wanted to do their own little network that was connected to the grid. What do we have to do to facilitate that? Does that get covered by the NECF changes?

Mr Morling : We are happy to follow this up but it would be useful to have a bit more detail about exactly what Professor Garnaut was talking about—whether it was a new suburb that was not connected or whether it was an existing suburb that was currently connected.

Senator MILNE: He was not specific. He was just saying that there are a variety of options which have not been considered before. Of course, there are the ones that were talked about subsequent to the Victorian bushfires. There was a lot of discussion about whether it would be more efficient in the future for some of those country towns to have a network not connected to the grid and have a distributed system for them because it would actually be safer. But I understood that what Professor Garnaut was talking about this morning—though he did not go into any detail—was the idea of suburb within a city, as opposed to just a remote community.

Mr Morling : I think it is best if we do a bit of investigation and get back to you on that.

Senator MILNE: Okay, but the issue for me is the process of getting these medium sized generators, whether they are individual or aggregate, connected to the grid. There seem to be a lot of excuses, a lot of push-back, a lot of argument about balancing the grid and this and that, which is acting as a major disincentive for people getting themselves organised.

Mr Morling : We can incorporate that in our information back to you. Again, that goes to what Mr Story was talking about, which is the subject of a rule change from ClimateWorks and Seed Advisory and the Property Council of Australia. This is an issue about how you get connected rather than how to island or isolate yourself. We will come back with a bit more information for you around that rule change process and those processes.

Senator MILNE: Given the dissatisfaction that a lot of consumers have about the investment they have made in photovoltaics, small wind turbines and thing like that—they feel that they are not getting a reasonable return through having to selling their energy to the grid—has there been any work done on risk-profiling with the speed of battery technology and the risk of people saying, 'Okay then, I'm going off the grid,' either as a collective group or in individual households or the like, in the same way that happened in the telecommunications industry with landlines? Is there a risk that the failure to properly recompense small generators will lead in the long-term to people abandoning the grid?

Mr Morling : I am not aware of any work along those lines. If I have got your question right, you have raised are a number of issues there. It may be that one of the research or scientific organisations—maybe CSIRO—has done some work around that, but I am not aware of any particular details of that sort of work.

Senator MILNE: Anyone else?

Mr Story : I have seen some speculation from a Queensland energy distribution company about what might happen if the cost of battery storage did decrease at the kind of rate that you have seen solar panels decrease over the past few years, but I have not seen any in-depth analysis of that. That was presented to the Power of Choice review and, I believe, was published as part of the review proceedings. We could provide you with that reference if that would be useful, but it is only very high-level thought.

Senator MILNE: That would be useful, but I am just wondering whether the department is taking any risk management analysis, because it does go the heart of the matter that if you fail to pay people an adequate return they will find alternatives that could see substantial impacts for people who are left on the grid if enough people leave it, as occurred with landlines and the telecommunications system when everyone went wireless.

Mr Morling : Sorry, I do not think we can add any more to what we have provided you.

Senator MILNE: I understand that, but I just think that a bit of futuristic thinking would not go astray, would it?

Mr Morling : The flip side of that issue has been raised, which is the proliferation, in some areas, of PV, brought about by feed-in tariffs, and what that means for other people in the system who do not have PV and how network charges are levied across consumers in some of those areas. There are a lot of things to take into consideration here. On your particular issue, Mr Story said that he will provide a reference from the Power of Choice. I do not think we can add much more to that.

Senator MILNE: I am just putting it across your radar, that is all.

Mr Story : We are certainly doing work on the facilitation side of it. You asked about the price. We do not set what the prices are, but if you look at the review of the role of the integration of electric vehicles into the electricity market and issues around the connection of embedded generators to electricity networks, those issues together cover the kinds of issues that arise for storage, which is effectively just a consumption device and a production device in one. I think that through those existing processes we will cover the technical and grid integration issues.

Senator MILNE: So you are doing some work on what a critical mass of electricity vehicles batteries would do in terms of shaving off a peak in a city, or something like that?

Mr Story : No, the matter of how much gets deployed, and where, is a commercial decision for the consumers or the companies that want to offer them. But we do work on what are the market arrangements that let people make decisions that are worth it for them.

Senator MILNE: It is an interesting issue, because with the taxpayer subsiding the construction of vehicles in Australia there is an opportunity to consider, in conjunction with a city like Melbourne, the production of electric vehicles at such critical mass as to work out how you might integrate them into a system in a way that actually benefits the consumer and brings down power prices. On that, have you done any work—maybe it is not your department but is infrastructure instead—to standardise electricity charging stations for electric vehicles across Australia so that we do not end up with a proliferation of different sockets and so on that are vehicle-specific?

Mr Story : There is some work underway through Standards Australia on the charging infrastructure standards, but that is not something we are driving in the department.

Senator MILNE: Who is that? Minister Albanese?

Mr Story : Standards Australia is the lead agency. The department has commissioned a review of smart grid standards, and we could provide a copy of that report for you. It is a survey of what standards are needed for smart grid and what is currently available.

Senator MILNE: That would be useful.

Mr Story : The Standards Australia work was originally commissioned by the Victorian government several years ago. I think it is now being pursued through Standards Australia.

CHAIR: When we appeared in Western Australia the Economic Regulation Authority in that state indicated that they have powers to conduct ex post reviews of capital expenditure by network businesses. The question has come up as to why the Australian Energy Regulator does not have ex post scrutiny powers in respect of businesses associated with the National Electricity Market. Can anyone explain why that is the case?

Mr Morling : That essentially was a policy decision made when the regime was first put in place. Again, the issue of efficient levels of expenditure is something that will be considered, and has been considered, by the Australian Energy Market Commission. Also, in terms of their rule change process they are also considering the potential need for transitional measures to put in place that new regime to capture the next set of determinations. And some of those transitional measures might do some mini-consideration of expenditure proposals, but it is really an issue for the Australian Energy Market Commission, and the rules. But, essentially, the overriding issue there is that the businesses, having undertaken the expenditure that has been approved by the Australian Energy Regulator, want reasonable certainty.

The only other issue is where there might be expenditure in excess of the approved amounts—then they cannot get returns on that within the current period. But what happens in the next period is also something that is being considered by the Australian Energy Market Commission.

CHAIR: One Big Switch appeared before the committee. Are you all aware of that organisation?

Mr Morling : Yes, we are aware of the campaign.

CHAIR: It is an organisation that brings together consumers to try to use the power of large numbers to negotiate better deals for consumers with retailers in regard to electricity. They advocated that there was a lack of information for consumers to make decisions about their energy needs, their bills, their plans and whatnot and, in particular, there is a lack of information associated with occurrences where a retailer changes the price they are charging the consumer midway through a plan. Are you aware of any regulations that currently prohibit consumers accessing that information from their retailer?

Mr Morling : In terms of your specific question I might have to get others to respond to that. Clearly, there is a billing cycle that provides a certain amount of information. The other issue is that when the National Energy Customer Framework is put in place in all jurisdictions, as it is currently in Tasmania and the ACT, the Australian Energy Regulator website will also provide an important source of information to allow people to make the comparisons of what—

CHAIR: Will that require a retailer to inform a consumer when the price per kilowatt-hour is being changed?

Mr Morling : Not that particular website. I do not know whether others here can help me out with retailers' obligations.

Mr Whelan : I cannot remember the specifics of obligations contained within the National Energy Customer Framework, but there are requirements around providing information to customers on changes to their tariffs. I cannot recall if that is within the next bill that reflects the changed tariff, or in advance, but we can get back to you on the details.

More generally on the issue of information for consumers, however, as Mr Morling has mentioned there is the website The National Energy Customer Framework also empowers the Australian Energy Regulator to prepare retail pricing guidelines. Those guidelines are designed to guide retailers in how they prepare and market offers, so that customers are able more easily compare offers of tariffs between retailers, in conjunction with the website—we have attempted to make pricing information more transparent.

CHAIR: Does any of that process provide dashboarding? Many of these organisations have been advocating dashboards—basic information that is available for the consumer on a website or on their bill.

Mr Morling : I am not so sure about dashboarding, but in Victoria, where we have had the smart meter rollout, we are now starting to see quite sophisticated websites built off the back of that information. To mention one, Jemena has quite a sophisticated web site.

CHAIR: Yes, they appeared before us.

Mr Story : The department has done some work on energy consumption information in the context of electricity smart meters and interval meters and the opportunities to make that better available to consumers and accessible to them to help inform tariff choices and so on. But that really depends on having the infrastructure in place before you could make use of that kind of capability. That study was published in August.

CHAIR: Thank you for your evidence. This is certainly a policy area where there is a hell of a lot going on. And it is quite an interesting area of public policy development. Before adjourning, I thank Hansard, Broadcasting and the secretariat.

Committee adjourned at 21:30