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Select Committee on Electricity Prices
25/09/2012
Electricity price increases in Australia

ARCHER, Mr Bradford John Henry, First Assistant Secretary, Energy Markets and Policy Coordination Division, Department of Climate Change and Energy Efficiency

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

HOPKINS, Mr Alan, Assistant Manager, Demand Side Policy Team, Energy Division, Department of Resources, Energy and Tourism

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

WALLACE-GREEN, Ms Andrea, Section Manager, Climate Change Household Assistance Section, Seniors and Means Test Branch, Department of Families, Housing, Community Services and Indigenous Affairs

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

Committee met at 9:12

Evidence from Ms Wallace-Green was taken via teleconference—

CHAIR ( Senator Thistlethwaite ): I declare open this public hearing of the Senate Select Committee on Electricity Prices. The committee's proceedings today will follow the program as circulated. These are public proceedings. The committee may also agree to a request to have evidence heard in camera, or may determine that certain evidence should be heard in camera. I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to the committee.

If a witness objects to answering a question, the witness should state the ground upon which the objection is to be taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may of course also be made at any other time.

The committee has authorised the recording, broadcasting and rebroadcasting of its public proceedings in accordance with the rules contained in the order of the Senate concerning the broadcasting of committee proceedings, including by electronic means. Media outlets may record the public proceedings subject to the following conditions: the committee or a witness can object to being recorded at any time and the committee may require that the recording cease at any time; recordings must not occur from behind the committee or between the committee and witnesses and must not otherwise interfere with the proceedings; computer screens and documents belonging to senators must not be recorded; and flashes must not be used.

I welcome everyone to this hearing. In particular, I welcome representatives from 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. As Commonwealth officers you will not be asked to give opinions on matters of policy, although this does not preclude questions asking for explanation of policy or factual questions about when and how policies were adopted. The committee has received the Commonwealth's submission, No. 61. Mr Morling, do you wish to make an opening statement?

Mr Morling : Thank you. I would like to thank the committee for the opportunity to appear before this inquiry. I would just like to make a brief statement on matters around electricity prices, reform and the role of our department, the Department of Resources, Energy and Tourism.

Broadly, the department has Commonwealth portfolio responsibility for energy market policy. That being said, we share this responsibility with the states and territories, which remain directly responsible for many of these matters. The Commonwealth works cooperatively with the states and territories on energy market reform through the Standing Council on Energy and Resources; previously this was done through the Ministerial Council on Energy. The previous council and the standing council are both chaired by the Minister for Resources and Energy. Underpinning this ministerial structure is a series of committees and working groups comprising officials from the Commonwealth through our department, as well as the states and territories. The department also provides secretariat services to the standing council and these working groups.

The cooperative arrangement has been a successful formula in achieving substantial reform over the last decade or so. Achievements include the creation of the National Electricity Market, covering the fully interconnected electricity grid across the eastern and southern states. We also have the National Electricity Market legislative and regulatory framework, supporting efficiencies in energy markets. Importantly in the reform process is the establishment of the three energy market bodies, and I understand you are speaking to the Australian Energy Market Commission next. We have the Australian Energy Market Operator, which is the market and system operator for the NEM, the Australian Energy Market Commission, which is the rule maker and the market development body, and the Australian Energy Regulator, which regulates energy networks and monitors wholesale market activity and recently took over responsibility under the National Energy Customer Framework for those states that have implemented, the ACT and Tasmania.

As I have said, I understand these bodies have made submissions and are due to provide evidence at these hearings as well. Specifically with response to retail electricity pricing, this is the responsibility of the states and territories with the exception of Victoria. Those states and territories continue to regulate retail prices for households and small businesses. The department is obviously aware of recent increases in electricity prices for consumers and we are aware that rising network charges are a common driver as significant investment is required in new and ageing networks to meet rising demand and ensure supply reliability.

Climate change policies have also put upward pressure on prices, but we note the government is providing targeted assistance to help households adjust to cost increases arising from the carbon price.

Our reform process is designed to make sure that energy market and regulatory frameworks remain efficient and effective to ensure consumers can access reliable energy at least cost. This is ultimately where SCER's reform agenda is at. As such, we are focusing and continue to focus on areas such as network regulation, the potential for greater demand-side participation, customer framework protections and enhancing retail market competition as well as working cooperatively with the states and territories. This is also done in conjunction with the market bodies and particularly the Australian Energy Market Commission. As you mentioned at the start, we have provided our submission, which is a submission from the department which provides greater detail. That concludes the opening statement and we are happy to take questions.

CHAIR: Many of the submissions that the committee has received point to the issue of incentives for network service providers to over-invest in infrastructure. They say the current structure of the rules and the operation of the market provide an incentive for network service providers to over-invest, particularly in respect of the capital expenditure basis for accounting for a number of the assets that result from investment. I want to tease out whether the department has done any analysis of that issue or whether it has a view of that submission?

Mr Morling : I think you are referring to a number of submissions mentioning that, not particular individual submissions. I guess one of the things we would start with is the regulatory framework. Network investment is subject to approval by the independent regulator. The regulator operates, in the case of electricity, under the national electricity law and the rules. The rules are subject to change and it is open to any person to put in or propose a rule change where they feel that the rules are not providing the outcomes according to the objective. When the regulator does make determinations on expenditure matters, it has to do so in terms of the national electricity objective, which, importantly, has the component that it must be in the longer-term interest of consumers.

The other thing that is important to note is the regulation of networks has been subject to a recent rule change proposal. That has been under consideration by the Australian Energy Market Commission and continues to be under consideration by the Australian Energy Market Commission. We do not want to make particular statements on that other than to say that a draft determination has come out which points to a number of potential areas of reform including around the discretion of the regulator in making determinations and, importantly, further consideration of cost-of-capital issues. Like I say, there is a draft ruling out at the moment. We would expect a final ruling by the end of the year. We think it appropriate that the rule change process sees through to its natural course. The other thing I would mention is that as well as the rule change framework there is a merits review process available to the businesses. That merit review process is also under review by an expert panel led by George Yarrow at Oxford University. That panel has released its second interim report and it also is in the process of finalising its report, which potentially has significant implications for how the system as a whole operates. We would expect that report to be available publicly around the middle of October.

CHAIR: Some of the submissions point to the fact that there are no real grounds for the regulator to challenge any of those costings that are put in by the network service providers. I am wondering if you have a response to the claim that the rules are not established so that there is a real basis for the regulator to challenge some of those submissions regarding investment that may be seen as gold plating—if you like—or over the top.

Mr Morling : Given that it is still under consideration, I do not wish to say too much about the rule change process. The thing I would say is that, I think it is fair to say, the regulator itself is would say that it is bound to accept proposals that are reasonable.

It may be that it is harder to prove that a proposal is unreasonable than to put forward something and have it accepted as reasonable, but these are issues that are under consideration as part of the rule change proposal. As I said, it is more a complete package, so you have to consider the regulatory framework in which the regulator operates as well as those processes that may be available to deal with appeals from those decisions.

The other thing I would point out, which may come up later, is that there is an issue, raised by a number of people, around the ability of consumers to participate in the determination process. That is an issue that is under consideration, not just by government but by the consumer bodies themselves in terms of perhaps doing some work to provide a more effective and cohesive response to determinations from consumer groups as a whole rather than individual consumer groups approaching it from each of their different angles, with resources perhaps split amongst those groups.

CHAIR: Many of the submissions are supportive of a further rollout of smart meters across the country. But, importantly, a lot of them point to a caveat that there needs to be appropriate protections in place for vulnerable consumers. I am wondering whether the department has done any analysis on how you do that—how you provide that protection for vulnerable consumers. Does anyone have a view on that? Perhaps FaCHSIA could provide a view on that, as well.

Mr Morling : I might just start with my colleague Mr Hopkins, who has been working on a paper on that particular issue: consumer protections for smart meters.

Mr Hopkins : The department has been coordinating a paper on national smart meter consumer protection and pricing framework. We are going through the final stages of that now. We have produced the final document and it is going through quality checking. Hopefully it should be released some time either towards the end of this year or early next year. There are a number of issues we discuss in that paper, relating to vulnerable consumers—in particular how the transition might work. Some of the issues are around the fact that smart meters enable time-of-use pricing and other types of pricing arrangements. One of the great benefits of smart meters is the new pricing arrangements to help tackle the issue of peak demand. There are obviously a number of issues that come up there for vulnerable consumers. One of the things we have recommended is that states and territories may wish to review their concession regimes when smart meters are in place. There are also a number of other monitoring arrangements we can do through the AER to look at the impacts on vulnerable consumers.

Also, we note that some work has been done in Victoria about vulnerable consumers. They commissioned a study by Deloitte, which basically came up with the conclusion that time-of-use pricing did not particularly disadvantage vulnerable consumers. If you give me a moment I will—

Mr Morling : We can come back to that if you have further questions specifically.

CHAIR: On notice.

Mr Morling : The bottom line is that there is a comprehensive paper that we would hope to work through with the states and territories and we will release that, hopefully by the end of the year.

Senator EDWARDS: Good morning, Mr Morling. I will just go back to the review, if I can. From what I gather and from what I read it would appear that there is an industry which transmits power and is able to charge and to continue to increase its charges to the retailers without real fear of scrutiny from what would appear to be a fairly toothless organisation in stopping these increasing charges. The review which is currently underway—can you just expand on what your department is looking to get out of that review?

Mr Morling : I would just like to clarify a couple of issues with your question. When you say 'review', do you mean the rule determination process.

Senator EDWARDS: Yes.

Mr Morling : The structure of the market is such that we leave it open to the independent body to determine the outcome of those rule changes. There is no further political gate. Once the Australian Energy Market Commission decides it is going to make a rule change, that becomes the new set of rules. Our issues are broadly along the lines of, as I stated, making sure that the objective is fully taken into account—obviously we would expect the Australian Energy Market Commission to do that—which means looking at the safe, secure and reliable supply of electricity on an efficient basis in the longer term interests of consumers. It is sometimes forgotten that consumers place a high value on reliable supplies of electricity and that needs to be balanced in any consideration of the rules. The regulator is independent and it does, in our view, a robust job. But it does that according to the regulatory framework. Where there is dissatisfaction with the outcomes, I think the best place to look at that is through this rule change process of the independent regulator.

Senator EDWARDS: You are involved in that? You provide input into that? It would seem that you are expressing a veiled suggestion that perhaps it is not all it could be. Do you and your learned colleagues alongside you have an input into making sure that the commission does function properly and that nothing slips through the cracks?

Mr Morling : We do not have an input in our role. We are concerned but we are very clear that it is an independent rule-making process.

Senator EDWARDS: Can you just tell me what your concerns are? You just said that you have some concerns. Can you just outline them for me, please?

Mr Morling : No, what I meant was that we are concerned to make sure that all the factors are taken into consideration. You would have seen from the draft rule change that the AEMC has raised a number of issues which it has concerns about. But again—I cannot reiterate the point enough—it is an independent rule-making process and we do not have a role in that. It is a submission put forward by the Australian Energy Regulator, which it is entitled to do. Ministers themselves are entitled to put forward rule changes if they so desire, but in this case the rule change has been put forward by the Australian Energy Regulator and it is being appropriately considered by the independent rule maker.

I will make one further point. The area you are talking about is networks. Networks are monopoly regulated businesses. The other two sectors, generations and retail, are competitive sectors. So what we are really talking about in this rule change process is the regulation of the monopoly owned network businesses.

Senator EDWARDS: Do you have any concerns that all the regulations might not be addressed through this review process, the aim of which should be to create a functioning market?

Mr Morling : This process has not finished. We will wait to see the outcome of this process and then it will be up to energy ministers, appropriately, to decide if they wish to take it further. But, at this stage, the view is that this is an independent process appropriately undertaken according to the framework. We will wait to see the outcome.

Senator MILNE: When the modelling was done for the national energy savings initiative, did it look at the relationship between demand reduction and electricity prices?

Mr Archer : The modelling exercise is currently underway. We do not yet have any final results from that exercise but the modelling is well and truly underway. We would expect there would be results to hand over the coming weeks. There is an expectation that there will be public consultation on the basis of those results and an accompanying regulatory impact analysis of the proposal for a national Energy Savings Initiative. But just at the moment we do not have results that we can discuss today.

Senator MILNE: When do you expect that RIS to be out?

Mr Archer : Our current planning, at least at the departmental level, is that we would have a report available in October or November but, ultimately, it will be at the discretion of government ministers as to when it is released.

Senator MILNE: Recently I was talking to people in the commercial building sector and they were basically pointing out that the output of solar panels better corresponds with the demand profile of commercial buildings and the residential sector. I wonder whether the government has considered the impact PV can have on peak demand in parts of the network with commercial buildings? I wonder what you are doing about how you can encourage the uptake of PV on commercial buildings and facilitating their access to the grid?

Mr Morling : I am aware—and I will have to chase up the details for you—that the Property Council of Australia has put in a rule change proposal around the treatment of embedded generation of which solar PV could be one source but not the only source. Apart from that, I am not aware of anything specific that the government is doing, but I am happy to chase up some further details on that proposed rule change from the Property Council of Australia.

Senator MILNE: They mentioned to me that that rule change is in. It seems to me that one of the big issues here is to enable them to actually do what they can to assist and, at the moment, there is no incentive for them to get really engaged in this.

Mr Morling : Sure. That is the question you might also wish to raise with the Australian Energy Market Commission.

Senator MILNE: Thank you, Chair.

Senator CORMANN: I am looking here at data released by the Australian Energy Regulator, AER, and it shows that, for 2011-2012, electricity costs in South Australia and Tasmania are far higher than in any of the other states in the national electricity market. Would you be able to shed some light as to why that would be the case? Is that related to renewable energy generation?

Mr Morling : Could I just get some clarification about what AER release you are talking about—whether you are talking about the level of prices or the change in prices?

Senator CORMANN: I am actually talking about both. I am looking at a table here, which shows average price increases 2009-2010, 2010-2011, 2011-2012 and the estimated annual cost. South Australia is $2,492 per annum; Tasmania, $2,210 per annum; and Queensland, New South Wales, Victoria and the ACT are significantly lower than that. In fact the ACT is $1,541 a year and Queensland, $1,812 a year. So that is quite a marked gap between South Australia and Tasmania on one side and the other states on the other.

Mr Morling : We can provide some information on recent price increases by state. I guess the reasons for the levels currently being where they are would have some historical aspect to it. We might not be able to provide as much information on that, if any.

Senator CORMANN: You are saying that you do not know why electricity prices in South Australia and Tasmania are that much higher than in New South Wales, Victoria, Queensland and the ACT.

Mr Morling : Why the level is particularly where it is at the moment—no, I do not have particular information on that. Why we have seen recent increases of the magnitude that we have, we can provide information on that. The other thing I would say is that, apart from Victoria as I mentioned at the beginning, retail prices are regulated by the independent state regulators. Retail prices are not regulated by the Australian Energy Regulator, where those prices are regulated.

Senator CORMANN: You know there have been pretty significant electricity price rises over the last five years. Household electricity demand has not reduced a lot as a result. The government's carbon tax plan envisages that electricity demand reductions bear a significant part of the overall emissions reduction burden, which is unlikely to be achieved without higher increases in electricity prices moving forward. How do you see that aspect of the carbon tax emissions trading scheme playing out moving forward in the context of increased electricity prices having an impact on levels of electricity demand?

Mr Morling : I cannot comment specifically on that aspect. Maybe my colleague Mr Archer might want to, but one thing I would say is that the Australian Energy Market Operator recently released a set of independent demand forecasts and we are seeing average demand falling and reasonably significantly. When it went through, if memory serves, it is not clear why demand is falling but some of the reasons they put forward were that the impact of price increases were beginning to impact on demand and some impact coming through from the rollout of distributed generation, particularly micro PV and potentially some of the impact of energy efficiency schemes. I think we are seeing some impact on demand overall without knowing fully what the specific components affecting demand are, but we are seeing that come through. The real question is: what is going to happen to peak demand and, for most jurisdictions, that is a question of summer issues? We have seen a couple of mild summers in a row but the AEMO worked and it pointed to some impact on demand.

Senator CORMANN: In your submission you report on the initial costs of the renewable energy target. Do those increases that you reported on in your submission take account of the additional network infrastructure that is needed to support renewable energy supplies?

Mr Morling : That is not a question we can answer. I think—and others might correct me—what we have picked up there are the allowances provided for by the state regulators when they are setting retail prices for standing offer contracts for their estimate of the impact of the rate in their particular jurisdictions. For specific components of what is behind the allowance they have made for the rate, you are better off talking to the state price regulators about that.

Senator CORMANN: And you are not able to tell us about whether these estimates take account of additional costs of needing back-up supply for intermittent sources of renewable energy such as solar and wind?

Mr Morling : No, not offhand.

Senator CORMANN: Some of the subsidies to renewable energy sources tend to decrease incentives for investment in energy supplies such as gas.

Mr Morling : I cannot really comment on that. Essentially, investment in gas is, as far as I am aware, a commercial decision for companies.

Senator CORMANN: So you have not done any work on the size of any such effect in the context of the renewable targets and the potential impact that would have on energy prices?

Mr Morling : Not that I am aware of that has been done in my department.

Senator CORMANN: Has the government benchmarked Australia's electricity prices in the recent rapid increases against prices and the growth in prices overseas; and, if so, what are those results?

Mr Morling : I think we have produced a chart of where Australia's electricity prices sit against other developed nations. I might ask Mr de Jongh to comment on that, or we might come back to you on that point.

Mr de Jongh : The Bureau of Resources and Energy Economics has put out a publication, Energy in Australia2012, which provides a comparison of Australian electricity prices and electricity prices of other developed countries. There is a statement that says:

Households in Australia face relatively low retail electricity prices compared with many OECD economies.

Although Australian electricity prices were above those in some countries such as the United States and Canada, they were just below the OECD average in 2010.

That is based on prices in 2010. The data is sourced from the International Energy Agency for other countries and data from Australia is sourced from the Australian Energy Market Commission.

Senator CORMANN: Is there any major investment in Australia into new coal fired power stations that you are aware of?

Mr Morling : Not that I am aware of. These issues are picked up pretty well in terms of planned investment through the Australian Energy Market Operator's Electricity statement of opportunities, which is published annually. But I am not aware of any major coal fired power stations, at least in the NEM.

Senator CORMANN: China, India and others are rapidly expanding their coal fired electricity supplies. What is holding back coal fired electricity in Australia, do you think?

Mr Morling : I could not speculate on that.

Senator CORMANN: Does the department or the federal government have estimates of the average cost of producing different sources of energy, such as coal, gas, wind, solar et cetera, and are you able to provide us with a summary of those costs if you do?

Mr Morling : We are perfectly happy to provide the committee with as many copies as it wishes of the Australian energy technology assessment, which is a cost of assessment of all electricity-producing technologies.

Senator CORMANN: Is there new data when the white paper is supposed to come out? Initially it was supposed to come out in 2009—from memory, when I asked you questions about this in a different committee. Do you have a revised date yet for the release of that white paper?

Mr Morling : We understand that the white paper will be released before the end of the year, but that is at the discretion of the government. It will use, as I just noted, those technology costs that were incorporated in that Australian energy technology assessment publication, which we are happy to provide to the committee.

Senator CORMANN: Has the department undertaken modelling as part of the development of that white paper? If so, what carbon price does the department assume in that modelling once the carbon tax reverts to a trading scheme?

Mr Morling : I am not aware of any other modelling. The technology assessments were done in conjunction with the Australian Energy Market Operator, which did most of the modelling. I am not actually responsible for the energy white paper, but I will get back to you on that point. All I can say is that it will incorporate the costs that were published in the middle of the year as part of the Australian energy technology assessment.

Senator CORMANN: This discussion about the white paper is a bit like ground hog day. I think we had the exact same conversation two or three years ago.

CHAIR: Senator Cormann, we have limited time and you have had a pretty good go at it. Perhaps you could put further questions on notice.

Senator CORMANN: Sure.

Senator XENOPHON: Mr de Jongh, in your outline of electricity prices, Australia back in 2010 was below the OECD average but paying more than the United States and Canada. That would have changed in the last couple of years, though. Now in September 2012 we would be above the OECD average, would we not?

Mr de Jongh : I do not actually have the data on that. This data relies on reporting from the International Energy Agency and so there is a bit of a time lag in terms of governments around the world providing the data.

Mr Morling : We cannot speculate, Senator. We obviously have more up-to-date data for Australia but, as David has said, to do a comparison—

Senator XENOPHON: But, Mr Morling, in the opening paragraph of your submission you said that electricity price rises have been increasing on average by over 40 per cent in the last three years. That would bring us well above the OECD unless those countries are increasing at a similar rate, which seems unlikely given the state of the European economy.

Mr Morling : As I say, Senator, we cannot speculate, but clearly there have been significant price rises in Australia.

Senator XENOPHON: Are you able to take on notice whether we are now paying above OECD rates for electricity?

Mr Morling : Subject to data availability for other countries.

Senator XENOPHON: Sure. Can I also go to the issue of the limited merits review undertaken by Professor Yarrow, the Hon. Michael Egan and Dr Tamblyn. Their interim stage 2 report released on 31 August is quite a scathing assessment of the national electricity market rules and the way that disputes are dealt with. Would you agree with that?

Mr Morling : All I will say is that work is ongoing. The reason we got an independent panel was entirely to get expert views from people who are outside the system. We are not going to comment on interim reports. We will wait for the final report and then of course the response is entirely a matter for ministers.

Senator XENOPHON: Perhaps I could rephrase the question. The review states, for instance, that:

… the long term interests of consumers have typically not been explicitly considered… .

It says that:

Consumer bodies and network user associations (with justification) feel excluded from the appeals process … The regime lacks legitimacy ... The lack of legitimacy puts regulatory certainty at future risk …

They are very strong statements from the independent panel. Does that indicate to you that the system is broken?

Mr Morling : Again, Senator, the panel has been pretty robust in undertaking its task.

Senator XENOPHON: Some would say 'scathing'.

Mr Morling : Even the panel itself would say it is still working on its final findings, which are due out, as I said, in the middle of October.

Senator XENOPHON: If those findings are anything like the interim report, does that mean that the government will look at changing the approach it has to dealing with disputes, which this panel says leaves consumers out in the cold?

Mr Morling : Again, the response to the panel's report will be entirely a matter for energy ministers—and that is not just the Commonwealth minister; it is a cooperative regime between state, territory and Commonwealth energy ministers in the relevant jurisdictions. But, as I also said either in my opening statement or in answer to one of the chair's questions, we are also looking at other avenues by which consumers can improve their participation in the process. One of those particular avenues is being driven by the consumers themselves, and it is to look at forming a national body which would be potentially able to provide a more cohesive voice than each of the individual organisations.

Senator XENOPHON: Mr Morling, with respect, that does not resolve the fundamental issues raised by the independent panel about the way disputes are dealt with. That is true, isn't it? You could have all the consumer bodies you want, but unless you change the rules, the rules are stacked against consumers.

Mr Morling : There is the question of the regulatory framework, which you pointed out and which I have quite clearly said is subject to an independent rule change process and an expert review of the merits review process. I would also note that that merits review process has been brought forward considerably by ministers. It was not due until sometime in the future. So, ministers are quite active in this area and the mere fact that they have brought it forward and established a substantial independent panel to look at it is an indication that they are taking the issue very seriously. Yes, the regulatory regime is very important but, as in any regulatory regime, participation can be enhanced by looking at different ways of strengthening that participation. I think it is both components, but again I am not going to comment or speculate on outcomes of processes that are still underway. The response to those processes is rightly in the rule change process. The AEMC will make a decision and that is it. In the merits review process, ministers will rightly respond at the time.

Senator XENOPHON: The member for Lyne, Mr Oakeshott, has put up a private member's bill that there effectively be a federal takeover of the electricity market. Has any advice been sought by the department as to the constitutionality of that—for instance, in terms of using the corporations power or the telecommunications or other powers for the Commonwealth to take over the regulation of electricity in Australia?

Mr Morling : We are aware of Mr Oakeshott's bill. We are also looking into Mr Oakeshott's bill and, in due course, once we have looked into it, we will provide appropriate advice to the government on that bill.

Senator XENOPHON: Has advice been sought to date by the government as to the possibility of a federal takeover of national electricity laws?

Mr Morling : I do not want to get into specifics of what we are doing but we are—

Senator XENOPHON: But have you sought advice?

Mr Morling : All I am saying is: we are investigating the bill.

Senator XENOPHON: I know, but prior to the bill has advice been sought as to the constitutionality—

Mr Morling : We are investigating the proposed bill.

Senator XENOPHON: But has advice been sought either in respect of this bill, or prior to this bill, with respect to the constitutionality of the Commonwealth taking over the regulation of electricity markets in this country rather than the state-by-state approach with template legislation?

Mr Morling : Again, Senator, we are looking into the bill and that will be—

Senator XENOPHON: I am not asking about the bill—

Mr Morling : a broad-ranging investigation into the bill, at which point we will provide appropriate advice to our minister.

Senator XENOPHON: Perhaps my question was not clear. Has the department, has the Commonwealth, sought legal advice about the constitutionality of taking over electricity regulation in this country from the states?

Mr Morling : Again, I do not wish to go into the specifics of what advice we have sought. All I will say is that we are seeking broad ranging advice into Mr Oakeshott's proposed bill.

Senator XENOPHON: I am not asking for the contents of the advice; I am asking whether advice has been sought.

Mr Morling : As I said, Senator, that is where we are at with that particular issue.

Senator XENOPHON: In other words, you may have sought advice about a Commonwealth takeover—

Mr Morling : As I said, I do not want to go into the specifics.

Senator XENOPHON: But you could possibly comment at this stage. Can we go to the issue of smart meters. I think one of your colleagues discussed that. There is a criticism by electricity users that the way that the way that the smart meters regime as currently proposed will be full of loopholes, will not give protection to consumers and I think EW, in a recent publication, says that the game plan was opt-in meters and that in what is being proposed, no price protections will exist as the consumer was deemed to have chosen to use the new meters with 'informed consent'. Has consideration been given to the concerns of consumers and user groups with respect to the implementation of smart meters, and what do you say to the criticism that consumers will yet again be left in the cold because of what is being proposed—that it will favour the electricity retailers?

Mr Morling : I am not exactly sure of some of the basics behind your questions as to what is the smart meter regime, because at the moment the only jurisdiction in which we have a mass rollout is the Victorian example. In other places we have some trials, including under our own Smart Grid, Smart City program. In terms of consumer protections, as my colleague stated previously, this is a substantial issue for energy ministers and we have done some quite significant work on this particular issue and we expect to release a paper on consumer protections in the near future and hopefully by the end of the year.

Senator XENOPHON: On the issue of the SCER—the Standing Council on Energy and Resources—is it the case that the rules must act 'in the long term interests of consumers' but that is actually a watering down of the previous rule or the objective which was to act in the interests of consumers. It is now long-term interests of consumers. Is that the case that there has been a change in the wording?

Mr Morling : You are stretching my memory there. As far as I am aware, I have only known one objective, which is the long-term interests of consumers. I am open to have a look at that.

Senator XENOPHON: Sure. Could you take that on notice and provide an explanation: if it has changed from 'interests of consumers' to 'long-term interests of consumers', and, if that is the case, do you agree that that has significant implications in terms of the way consumer interests are being looked at?

Before the chair winds me up—he has been very generous with me—I wish to ask about the whole issue of power prices in South Australia. We have something like 54 per cent of the nation's wind turbine capacity. Has any analysis or assessment been done in respect of what the impact could be of changing the rules to give greater incentives to baseload renewables, particularly geothermal, which seems to be an industry that has not really taken off? The proponents of geothermal energy tell me that the rules, in a sense, are stacked against them in terms of both investment and the way the renewable energy certificates are calculated for that industry.

Mr Morling : I cannot comment on the way renewable energy certificates are calculated. I think that is probably an issue for the Clean Energy Regulator. In terms of the rules, it would be useful if they could be a bit more specific. For geothermal energy, for most of the projects that I am vaguely aware of, most of it is deep hot rocks. So there are two issues, which are the drilling required and then the connections. As far as we are aware, connection assets are paid for by the generator. But of course there are some proponents who are not that far away from the current transmission network. There are some proponents of geothermal who are a long way away from the current transmission network. So, if when they are talking about the rules they are talking about connection of their generation to the transmission system and they want a more favourable system then you would have to be very careful that you are not putting in place something that favours one proponent over another. The whole issue of transmission, if that is what they are talking about, and transmission frameworks, again, is the subject of a major study that is being undertaken by the Australian Energy Market Commission.

Senator McEWEN: I wonder if somebody could tell me how state governments and networks work out what profits or returns are made to state governments under arrangements with network providers. The Total Environment Centre, in its submission, has made some comments about Powerlink and TransGrid. So I just wondered what transparency there is in those arrangements.

Mr Morling : Do you mean dividend policies?

Senator McEWEN: Yes.

Mr Morling : We have had a look at that, but I think that is a question more appropriately directed to the owners of those businesses.

Senator McEWEN: So the federal government does not have any role in setting those returns to state governments?

Mr Morling : No.

Senator McEWEN: In terms of your earlier discussion about determination on rule changes, what intervention, if any, can state governments make into those processes?

Mr Morling : As part of any rule change process, there is a consultation process. It is open to anybody—state governments, individuals, businesses—to make submissions.

Senator McEWEN: Do state governments typically make submissions to those individual authorities?

Mr Morling : They do. They can do, yes.

Senator McEWEN: They can do or they do regularly?

Mr Morling : Both.

Senator McEWEN: Do they do it every five years? Is it one of these situations that are open for negotiation?

Mr Morling : No, it depends on the particular issue. Some jurisdictions can be more active on issues than others. But, yes, state governments do make submissions. They can also attend public hearings, but as far as I am aware they tend to make submissions.

Senator McEWEN: So the opportunity is there for state governments to intervene in those processes if they wish to.

Mr Morling : You use the word 'intervene'; they are on the same footing as everybody else. They can make a submission and participate in the public process.

Senator McEWEN: Are some state governments more active in that sphere than others?

Mr Morling : My impression is possibly, but I do not have any sort of evidence on hand. We have not done a survey of how many state governments have made submissions into rule change proposals.

Senator McEWEN: In terms of Senator Xenophon's questioning about a potential national takeover of energy provision, I appreciate that you put the department's position on that, but can you give us an outline of what the hurdles may be towards that?

Mr Morling : I am not prepared to at this stage, because we have only just started investigating or having a look at that proposed bill.

Senator McEWEN: The provision of energy is not a federal constitutional requirement.

Mr Morling : Not the provision of energy, no.

Senator McEWEN: So it would require a referendum.

Mr Morling : I cannot provide any constitutional advice.

Senator XENOPHON: It is free advice.

Senator McEWEN: I have had plenty of your advice in the past, Senator Xenophon! I have one more issue to raise, the National Energy Customer Framework. In your submission you say that, despite the clear benefits to consumers and businesses at the NECF provides et cetera, Queensland is yet to consider the matter and New South Wales has only recently publicly committed to implementing it. Can you explain what the NECF is and why it would be of benefit to consumers and businesses?

Mr Whelan : The National Energy Customer Framework is basically a means by which we have harmonised state and territory regulation of retail energy businesses in the sale and supply of energy to retail customers. I suppose we see the benefits as really flowing mostly from that streamlining of regulations, so there will be resultant cost benefits to businesses which are operating across borders which we would hope to see flow through to customers. You have a number of retailers which operate in a number of states and territories which would only require one retail authorisation, as an example. That would be one example of a cost saving, standardised billing requirements et cetera across jurisdictions. It also contains a number of robust consumer protections as a framework for consumers nationally. It includes national hardship policies which would apply for vulnerable low-income consumers. We would see that national rollout as being of benefit generally to the industry and consumers.

Senator McEWEN: Have Queensland given any indication of whether they are going to consider the matter, and, if so, when?

Mr Whelan : We understand they will be considering the matter. We are not sure exactly when.

Senator McEWEN: And other states have already bought into the framework?

Mr Whelan : I believe it is the SCER communique of early June this year when state and territory ministers have signed up to the framework and have said that they will implement as soon as practicable. There was a media release from Minister Hartcher last week, I believe, where he announced that New South Wales would implement on 1 July 2013. South Australian implementation is subject to parliamentary processes in that jurisdiction. Queensland, as I said, is yet to consider the matter. Victoria we believe is likely to implement sometime around early 2014.

CHAIR: Has the department done any analysis of demand reduction activities and the relationship to electricity prices?

Mr Morling : No, we have not. I would point to the work done by the Australian energy market operator which I referred to earlier. They have done some work on demand.

CHAIR: Ms Wallace-Green, I have a final question for you. Some of the submissions recommend moving to time-of-day pricing but one of the important caveats that many of the organisations put on it is protection of vulnerable customers and perceived inadequacies in providing that protection at the moment. Could you outline for the committee some of the programs that your department runs to work with vulnerable consumers to improve their energy efficiency? More specifically, are there any programs aimed at assisting public-housing tenants?

Ms Wallace-Green : FaCSIA administers the Home Energy Saver Scheme, which is part of the Australian government's climate change plan Securing a Clean Energy Future. It was developed in the context of the expansion of the Low Carbon Communities Program. The Home Energy Saver Scheme has funding of $50.5 million over four years and it is specifically designed to support low income households across Australia experiencing difficulty in meeting and paying for their energy needs. So it provides assistance with things such as information about affordable ways to use less energy in the home, one-on-one budgeting assistance, information on whether they are getting the right rebates and assistance, help with understanding their energy bills and energy market, advocacy and support, links to other services that may be able to assist them and also access to no or low interest loans to help them purchase energy-efficient appliances. So that is one of the schemes specifically designed for low-income families.

Of course, we have also the broader household assistance package which is designed to provide assistance to households to adjust to the introduction of a carbon price from 1 July 2012. That includes a range of assistance such as the clean energy advance, tax cuts, the clean energy supplement, the low-income supplement and the single-income family supplement as well as assistance through the Essential Medical Equipment Payment for people who have to use equipment to help them with their disability or life support needs, because they are bearing additional costs. So they get additional assistance to help with their extra costs to sustain that equipment.

CHAIR: Thank you. I thank all the witnesses for their evidence this morning.

Proceedings suspended from 10:09 to 10:20