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Select Committee on Electricity Prices
Electricity price increases in Australia

McCONNELL, Mr Terry, Private capacity


CHAIR: Welcome. Do you have any comments to make on the capacity in which you appear?

Mr McConnell : I would like to put on the record that I am here as a private individual; however, I have been closely associated with the industry for the last 14 years, specifically in the areas of energy efficiency and demand management. As a result that is probably why I am sitting here, because I have worked very closely with the Energy Efficiency Council and they basically asked me to come along. I recently left Energex after 14 years.

CHAIR: Do you have an opening statement you wish to make?

Mr McConnell : I would like to, if I may.

CHAIR: Go ahead.

Mr McConnell : As I have said, I am speaking here as a private individual and not on behalf of any organisation. I spent the last 14 years in the energy sector, specifically starting out in the area of retail with Energex where I was responsible for the commercial sales of electricity to the national market through New South Wales, Queensland and Victoria.

About four years after that, I took up a role as group manager in the deregulated division of the company where we delivered energy efficiency projects to commercial and industrial customers in south-east Queensland designed to reduce energy consumption and greenhouse gas emissions.

In 2008 I moved across to network performance where we specifically had a group set up for delivering energy conservation and demand management strategies to both the residential and the commercial and industrial areas. We achieved the objectives via education, incentives and community trade. In addition we work very collaboratively with the Queensland government in this area.

Generally I believe that there is a severe lack of understanding about the energy sector and in particular why energy prices are rising. It is a very complicated field, as has been said here a number of times this morning. However, I do not believe there is a silver bullet for the problem of energy prices. I have said on a number of occasions throughout Australia that it is more like a silver buckshot. There are a number of steps that will bring about change.

In the residential area, we have the problem of changing lifestyle. That is the thing that has jumped out at us very much here in south-east Queensland and probably in the rest of Australia. In the area of commercial and industrial customers, I strongly believe there is a lack of motivation from them to really do anything about energy prices. I am happy to expand on this, should the committee wish.

As I said, the specific issues I have addressed over the last few years are lifestyle change, particularly in the residential sector, and lack of motivation in the commercial and industrial area. We are really dragging our feet compared to the rest of the world on energy efficiency. The McKinsey curve, which I think most people would be familiar with, has demonstrated energy efficiency can deliver significant cost savings. Green schemes have been undertaken by people that can afford them. The underprivileged cannot get on board with those. On top of that, in the residential area, we have a whole range of lifestyle things—house design, black roofs and square boxes—which have impacted on prices across the board. Equipment standards as well have made a difference to energy prices.

That is basically my opening statement. I am happy to answer any questions which the committee would like to put to me.

CHAIR: The principal term of reference of this committee is to look at the reasons behind electricity price increases. You have worked in the game for many, many years. What is your analysis of the reasons electricity prices have been increasing so dramatically over the last decade in particular in Australia?

Mr McConnell : As I said to Dr John Bell this morning, as part of preparing for the hearing I went to my file and brought with me the last three years of my own energy bills. It is quite interesting to see what has changed and what has not changed. In fact, they have not gone up that much. I am presently with Origin on a franchise tariff, so they have not changed dramatically. Yet you hear things like this morning's Today show, where people are seeing 300 and 400 per cent increases in their bills. Quite frankly, and without looking at specific bills, after 14 years in this business I cannot see how that can be realistic.

The company I have worked for in the last 14 years has spent a lot of time and a lot of money and made a lot of investment. We have heard this morning about having targets for demand management and energy conservation. Certainly, in the company that I work for we have very specific targets, determined through the AER determination 2½ years ago. The target that Energex has now is 170-odd megawatts over the period of the determination. Until one month or so ago, when I left them, we were actually on target to achieve that reduction. What that can do is not reduce people's bills but limit the impact of additional network augmentation.

CHAIR: Some of the organisations that have appeared before us have said that there are perverse incentives in the rules and the system at the moment for many distribution businesses particularly to overinvest or gold-plate their infrastructure. I wonder what your view is of that and of how we deal with it in terms of recommendations by this committee.

Mr McConnell : I can only speak from the point of view of where I have come from. I do not believe that there has been gold-plating. As a result of the Somerville report in 2004, the company had to do something. They then approached, I think, both Ergon Energy and Energex through their AER determination. They were quite serious about deferring additional capital expenditure. Hence they lead the country in this whole program of demand management. So what other jurisdictions are doing I could not comment on.

CHAIR: What is your view on greater exposure by consumers to variable-pricing tariffs?

Mr McConnell : We have heard a couple of comments about that this morning.

CHAIR: In particular how you protect vulnerable consumers.

Mr McConnell : I would have to agree with the previous witnesses. I think time-of-use tariffs will come in, but it will not be across the board; it will be for people who volunteer. You have to protect the disadvantaged people, so there should be a safety net for those, but I definitely think time-of-use tariffs will come in eventually.

CHAIR: What about smart metering?

Mr McConnell : Who pays? The previous witness mentioned—and it is one of the things that has jumped out at me over the years—education, or the lack of it. Smart meters will go a long way to improving that education and informing the community and business. But, at the end of the day, who pays for it? It is a very vexed question.

CHAIR: If you had an opt-in system, I assume the consumer would end up paying for it through their retailer if they wished to take it up.

Mr McConnell : Yes. Again, you are only going to get a certain number of people who will do that. It is like a time-of-use tariff: a certain number of people will, a certain number will not and a certain number just will not care.

Senator IAN MACDONALD: You said you were involved over the past 14 years in trying to reduce people's energy use. Were you involved in the Carbon Challenge? Remember the Carbon Challenge? It was a kind of competition or incentive around Australia.

Mr McConnell : No, we were not. My area after moving out of retail was basically delivering energy performance contracts to commerce and industry in South-East Queensland. It was competing in a commercial sense with private enterprise but specifically aimed at large energy consumers.

Senator IAN MACDONALD: Are you conscious of how many electricity authorities are now required to advise on their bills what part of the bill relates to the carbon tax?

Mr McConnell : I know there are some.

Senator IAN MACDONALD: It happens in Queensland, does it? Are you familiar with it?

Mr McConnell : I do not believe it is happening as yet. Certainly it is not on my latest bill, but I am not aware as to who and who has not. I know it is coming; that is all.

Senator IAN MACDONALD: And when you spoke about the lifestyle impacts on energy consumption, what exactly were you meaning?

Mr McConnell : That is a good question. Speaking specifically for South-East Queensland, some years ago we actually did a graph of a typical Queensland house. If you go back a number of year, they did not have air conditioning, they did not have plasma televisions, they did not have microwaves, they did not have swimming pools, they did not have a television in every child's room, so the life style has changed in terms of the amount of electron consuming stuff that we have.

On top of that, we have also had a demographic change in the people coming up from New South Wales and Victoria. I happen to be one of those. The old days of the traditional Queenslander house have made an impact. They are off the ground, have verandas all around and open windows. We have New South Wales and Victorian people coming up here trying to build similar style homes to what they had in their state—Georgian boxes with no air eaves. All of a sudden they get into them and then they find that now they have to put in ducted air conditioning and in two or three or four televisions.

They also put pools in. There is nothing wrong with that, but one of the things with pools is that, when you construct the pool, you are actually buying a life style and anybody that puts a pool in does not go into the discussion with the installer about how much it is going to cost to run it. So traditionally the last thing that the consumer wants to know about is what size the motor is, just as long as they have the pool there. There has been quite a change just in pools with variable speed drive pumps and Energex has worked very hard at working with the industry to get that on board. Two years ago, VSD pool pumps basically did not exist up here. There are now 29 different manufacturers who are out there providing VSDs. That is what I mean about life style. The life style of a traditional Queenslander has changed through technology. That has had an impact on the distributors through increase demand.

Senator IAN MACDONALD: Of course. Mr McConnell, you would have been around in those blackouts we had in Queensland which I suspect were one of the reasons why there was this 'somewhat belated—my words—insistence by the government of the day that the electricity companies get their finger out and stop—

Mr McConnell : That was 2004, right?

Senator IAN MACDONALD: causing us the government all this political pain because you have not been able to deliver. There are allegations that there has been gold plating and too many poles and wires. Could you just put that all in perspective? I am asking for your view as an expert. But I would assume that, following those blackouts, Queensland companies were told to get going and make sure that does not happen again. Is that correct?

Mr McConnell : As a result of that time in 2004 there was the Somerville report which frankly was fairly scathing about he amount of money that was being invested. In those days, Energex were spending in the order of about $400 million per annum on network augmentation. That has now changed fairly dramatically to upwards of $1.2 and $1.3 billion. Is that gold plating? I think the next couple of speakers after me will probably be better suited to answer that question because they happen to be the acting CEOs of Energex. From my level, I think you are damned if you and damned if you don't. If we had not spent the money would the blackout stills continue? I think we have stopped that.

Senator IAN MACDONALD: You may not want to enter into this and, if you do not, please do not feel obligated to do so. There are allegations from some of the witnesses that the electricity companies have been ripping off huge profits because they are able to do it. I did not get the opportunity to ask question, but I wonder what they are as a return on capital investment. In my state of Queensland these electricity authorities principally were government owned and the government has got big dividends out of them.

Would you care to venture a comment about all those things, if you can draw them together? Do they rip off too much profit? Do they do that because governments require it?

Mr McConnell : With respect, I am not able to answer that question. You might like to address that to the next two speakers. I do not think that would be fair.

Senator EDWARDS: I am sure you have an opinion, but that is well said.

Senator IAN MACDONALD: I do not want to embarrass you in a political fight—and I am not sure what your answer would be, so perhaps I should not ask the question—but do you have an insider's expert view on what the impact of a carbon tax might be on the cost of electricity?

Mr McConnell : I have heard figures—I really have not seen them—of $7 per $100 of the average bill. That is the figure that has been bandied around. I cannot qualify whether that is accurate or not, but that is the figure that I have heard that has been put out there.

Senator IAN MACDONALD: It must have an impact.

Mr McConnell : It is going to. And the figure I have heard is $7, which, again, without looking at the numbers, sounds reasonable. But is it correct?

Senator IAN MACDONALD: What is $7?

Mr McConnell : If your bill is $100, $7 of that account will be as a result of the carbon tax. That is the figure that I have heard.

Senator IAN MACDONALD: And just confirming, you say that in the last three years your bills have not gone up appreciably—

Mr McConnell : I am happy to table them. They are sitting over on my computer. I would not mind tabling them.

Senator IAN MACDONALD: No, I take your word for it.

Senator EDWARDS: Is that because people have left home?

Mr McConnell : No, my son actually left home some time ago.

Senator IAN MACDONALD: And you get bills every—

Mr McConnell : Every quarter. That is where I am confused, as an individual. As I said, you see reports of people—and the previous speaker may have better evidence—and I saw evidence as late as this morning on the news, where people are talking about a bill going from $400 or $500 to $1,300. My immediate reaction, if I were wearing that hat—putting on a retailer's—would be to have a look at the bill and have a look at what has gone on in that particular property, because something is not right. That is just wrong. Using my own example, it has not changed that much and, as for my lifestyle, we have not turned lights or power off; we are aware. That is where we are at.

Senator IAN MACDONALD: I do not really need to ask this—it is a matter of common sense that your last bill would not yet have an impact from the carbon tax.

Mr McConnell : No. I have not received the latest one, as yet.

Senator EDWARDS: Just on that line of questioning, that assumes, with your megajoules or kilojoules or whatever, you have reduced the power units you have used over that period of time, because power has gone up, undisputedly.

Mr McConnell : Power costs have gone up.

Senator EDWARDS: Power price per unit of power, per kilowatt of power, has gone up. So, if your bill has not changed, yours would be the only one in Queensland that has not changed. That assumes that your power usage has gone down, if your bill is the same.

Mr McConnell : I guess because of my background, we are certainly conscious and we have done all of the usual things like having off-peak hot water, energy efficient lights—

Senator EDWARDS: But does your bill say that you have used less power or that you have used the same amount of power for the last three years and it has cost the same? That does not make sense to me.

Mr McConnell : I would have to have a look in detail, but, as I said, certainly the costs are about the same, but we are an energy-conscious family. That is one of the things that we have seen—the latest graphs that I saw before I left Energex showed that people are more aware of energy consumption. So, in fact, energy consumption is dropping, and that is because people are now aware of energy efficiency.

Senator EDWARDS: Or people are struggling to pay their bills.

Mr McConnell : Yes, but the demand is still increasing, and that is the problem, again because the amount of—

Senator EDWARDS: Pools and air conditioners and everything.

Mr McConnell : Correct, so if you look at the graph of energy efficiency, it is sort of plateauing, if not dipping slightly, but the demand is till accelerating—probably not quite so dramatically, but it is still accelerating.

Senator WATERS: Thanks, Mr McConnell, for your submission so far. You started off saying that you thought green schemes were inaccessible—I think you said—to the underprivileged or to low-income households. Have you had a chance—and you may not have, because it was only released yesterday—to look at the article in New Economy, which cites statistics from the Australian Solar Council, talking about suburbs that are the most popular in terms of uptake for solar PV?

I was interested to note that 10 of the top 20 solar suburbs in Australia are here in Queensland, but perhaps the more interesting figure to me in the context of your remarks was that half of those uptakers of solar panels were in outer metro and the other half were in regional areas.

Mr McConnell : Correct.

Senator WATERS: That does not seem to fit with the general sort of meme out there that it is only rich people who take up solar panels. Can you talk a bit more about your experience, given your long history?

Mr McConnell : In fact, going back a few years, Energex as part of my group were involved in the sale of solar panels, and it was certainly my experience then and up until recently that, because of the feed-in tariff, prices of solar have come down dramatically, but they still are an expensive piece of kit to put on the roof. Then, if you look at certain demographics, the last figures I saw were that the Sunshine Coast, for example, has one of the highest penetration rates, mainly because up there you have a lot of green type focused individuals. But I still believe that, at the end of the day, if you are going to put $5,000 or $10,000 worth of equipment on the roof, there are certain demographics that just simply cannot afford to put that in. That is a personal belief that I think is relevant.

Senator WATERS: Yes, I agree with you there, and certainly I think we need greater support for those households from both levels of government—

Mr McConnell : Absolutely.

Senator WATERS: but that is perhaps a debate for another day. We have been talking generally about the impact of green schemes on the cost of consumers' bills. I am interested to understand: from your background, is that alleged increase in cost mitigated and offset by the reduction in the need for additional network infrastructure?

Mr McConnell : Do green schemes?

Senator WATERS: Yes.

Mr McConnell : Certainly in South-East Queensland, if you look at generation here—we heard figures before about South Australia—solar particularly does not really lend itself to mitigating peak demand. The peak demand in Queensland and South-East Queensland is between four and 8 pm. At seven or eight o'clock at night, solar does not work, so I cannot—

Senator WATERS: Nobody mention daylight savings; we're in Queensland!

Mr McConnell : Curtains fade! No, seriously, that is why I think that solar has a place, but solar from a demand management energy efficiency point of view—yes, it is good, but it does not really help in the areas of peak demand.

Senator WATERS: How about solar thermal, geothermal or other baseload renewables?

Mr McConnell : As generation? Solar thermal, yes. Has it been widely developed? It is available. I did some work on that a couple of years ago. It is still embryonic.

Senator WATERS: In your view, could that alleviate or help alleviate some of that peak demand and also reduce the need for network gold plating?

Mr McConnell : Anything that can—yes, it can. Where you have storage and guaranteed supply, yes it can.

Senator WATERS: On that point of storage, I understand that there are some amazing things happening in some other jurisdictions. Spain, for one, has a large-scale battery storage for solar thermal. I am interested in whether or not you or your former organisation have given any thought to such storages and the location of them and whether that impacts on either the cost or the efficiency.

Mr McConnell : I am happy to talk a little bit about storage, because there are a lot of things happening in that area in terms of solar storage. For example, the University of Queensland have 1.2 megawatts of solar PV on the roof at St Lucia.

Senator WATERS: Yes, I just went and saw it. It is wonderful.

Mr McConnell : It is wonderful. Professor Paul Meredith and we worked collaboratively together on that at the time. They were looking for some assistance from us, and I was involved with those discussions. I said: 'Paul, thanks very much but no, because solar is not going to impact on peak demand. But, if you then decide to put some battery storage in, yes, we would work with you.' To make a long story short, they did. They have put in, I think, about 400 kilowatts of battery storage. It is prohibitively expensive, and that is the problem. Storage is going to have an impact on networks going forward. That is a fact of life. The problem is that we have to learn about what storage does to the network and what the most cost-effective type of storage to use is, because at this stage it is still very expensive to install. That 400 kilowatts was, I think, about $2½ million or $3 million. So storage is going to make a difference.

Senator WATERS: Sure—hence my interest in solar thermal to alleviate some of that need. On that point of storage, does where the storage happens make any difference as to the cost—whether it is near the generation, near the user or somewhere in between?

Mr McConnell : I am not 100 per cent sure on that. I do not think it would, but engineering experts could better advise you on that one.

Senator WATERS: You talked about how in your previous role you were involved with energy efficiency and demand management, and I was pleased to hear that. We heard earlier today from some consumer bodies who said that basically consumers do not quite understand their bills or what options they have to reduce energy. Can you talk a bit about what outreach strategies you either employed or would advise current operators to use to better advise consumers of those energy efficiency and demand management options?

Mr McConnell : Again, there is no simple answer to that, but I take your point. We have heard this morning that the energy business is incredibly complicated. We have heard before about the acronyms within the energy sector. There are many of them. The problem is this business is technical, it is complicated, and the average punter simply does not understand it fully. What I have pushed for since I started working in the sector is education, education, education. Anything that we can do to improve the education of the consumer, whether they be residential or even the commercial, industrial consumers, will make a difference. We need dashboards, in-house home displays, price signals and whatever else—we need to do all of that. There is no simple answer to it.

Senator WATERS: We used to have in Queensland a ClimateSmart Home program, where you paid $50 and a local electrician would come out and install smart meters and also advise the household individually on ways that they could reduce their energy consumption. That seemed to me to be a very popular program, and I would like to think that it worked. I am eager for your thoughts on that. I believe, and I am happy to be corrected if I am wrong, that that was one of the programs that was cut under the new state government. What is your view on the impact that the reduction in those education programs will have on consumers and on our energy consumption?

Mr McConnell : I know the ClimateSmart Home program. It was very successful program. I know the people who were involved in it. But the in-house display, for example, that was part of that program was only as good as the battery life in the display. Once the batteries ran out it was very difficult to reprogram the unit. Anything like that I believe we should be encouraging. For example, Energex have, as a follow-on to that but completely separately, developed a web portal, Your Power QLD. It is designed to inform the consumer at a residential level about energy consumption, energy efficiency et cetera. It does not advocate any particular brand of appliance; it juts gives the consumer an informed source of information. We simply need to do more of that.

Senator WATERS: Would you like to see the ClimateSmart Home program restored?

Mr McConnell : One of the other problems we have is there are so many different little programs that the consumer gets confused, so we would probably need to take a step back. The program you mention is one program, Your Power QLD is another one and then you might have a federal one. It gets to the stage where it becomes very confusing. So my answer would that we need a bit of both.

Senator EDWARDS: One of my colleagues has raised a very important point. I would like to follow up on Senator Waters's line of questioning. The huge percentage of home dwellers who are renting have no access to any of these renewable schemes at all—there is no incentive for landlords to put panels on the roof to save a tenant money. Was there anything going on on that? Was there any recognition or understanding of the percentage of homes that are rented that were unlikely to receive this kind of attention when you were in your old role?

Mr McConnell : There probably is some information. I am not aware of it.

Senator EDWARDS: Okay; we might ask the next people.

Mr McConnell : Yes. I could not answer that question.

Senator EDWARDS: Given that you have worked in the sector, I am going to give you five minutes of dream time in the inquiry where you can be the emperor for the day. You have worked in this sector and you understand its evolution, its limitations and its impending successes.

What would you do right now as part of the national grid? We have got a problem—not to solve Queensland's problems, but the nation's problems—so what would you start to work on? What would be the first things you would do?

Mr McConnell : There are a couple of answers to that, but are you are looking at the commercial and industrial sector, large energy users, or are you looking at the residential sector?

Senator EDWARDS: The residential sector vote for all of us, but I think it would be naive in the extreme to exclude the people who employ all of those people, which is the business and commercial sector. So profitability is key to the standard of living, a standard of living is very important to people, and those people who can afford to put renewables on their roofs need a job, so start with the commercial side.

Mr McConnell : I have a passion for the commercial and industrial sector because that is where I have spent most of my time. I get very frustrated with the C&I space because there is a lack of urgency in that area in respect of energy efficiency, energy conservation and demand management. About 12 or 18 months ago Ernst & Young did a survey of most industries across Australia. They looked at the percentage that most industries spent of their turnover on energy. Across the board, breaking it down sector by sector, it varied from one to two to three per cent that they were spending on energy. The problem there is that when you walk in and talk to clients like that, the large national companies, about energy efficiency, energy conservation and energy demand management, where you can talk about 20 and 30 per cent savings, they go: 'Twenty or 30 per cent of one or two per cent? Ho hum, I'd rather produce my widgets.' That is one of the problems we have in Australia.

Look at the federal government's Energy Efficiency Opportunities Act. Large energy consumers were mandated to report on energy efficiency, but they were not mandated to implement. We need a bit of carrot and a bit of stick for the large energy—some of the smarter ones are doing it. We are involved with a number of residential developers. Everybody gets on and says, 'Yes, we want to make that residential development energy efficient, we want to make it smart et cetera, et cetera.' Then you get down to the real nitty-gritty that it is going to be X cost to do that: 'Hang on, we've got to sell blocks of land. We've got sell houses.' I have found that is one of the first things that is pulled. There are a couple of organisations at the residential developer level who do not do that, but across the board it is one of the first things that gets pulled because of its cost. I still believe—

Senator EDWARDS: That is a problem. How do you answer it?

Mr McConnell : The answer is: I would like to see, for example, the EEO Act provide a stick or an incentive—

Senator EDWARDS: What is the EEO?

Mr McConnell : The Energy Efficiency Opportunities Act,

Senator EDWARDS: That is right. I was being mischievous.

Mr McConnell : It is a federal government requirement that anybody who uses half a petajoule or more of energy needs to do a report. They do a report on energy efficiency but they are not mandated to implement it, so there needs to be some sort of incentive to get them to want to implement. Let us bring either some regulation or incentive to the table to make it happen.

Senator EDWARDS: So we are actually regulating more cost though?

Mr McConnell : Yes. The EEO reporting structure for the industry is quite high, yes.

Senator EDWARDS: Okay, but I am trying to get costs down here. You are the emperor.

Mr McConnell : I would be looking at some sort of incentive. We have incentives for other issues, why don't we have a bigger incentive, a tax incentive, for companies who actually do that implementation. If you have a payback of three or four years or less, then they would be mandated to do it and then there could be some sort of tax incentive for them to do that.

Senator WATERS: Won't the incentive be a reduction in their power bill because they have implemented the energy efficiency opportunities they have identified in their report?

Mr McConnell : Potentially, yes.

Senator WATERS: Do they need an additional incentive? I would have thought that was incentive enough.

Mr McConnell : Some do, yes. Or they say, as they have said to me in many boardrooms, 'We need a payback of 18 months'.

Senator WATERS: Why?

Mr McConnell : That is what the board wants—18 months. I look at them and say, 'Well, in a large national organisation—

Senator WATERS: That is a very quick payback.

Mr McConnell : I totally agree. So, when you put all that into the bucket, there are unrealistic expectations, and little incentive for them to do it as far as turnover goes.

Senator IAN MACDONALD: I wrongly said to you before, 'Do you know about the carbon challenge?' It was the greenhouse challenge I was trying to think of. It was an incentive thing, and the reward was, I think, that you got to shake the Prime Minister's hand if you were the most successful! Perhaps you need some more reward.

Senator EDWARDS: We still have not addressed how we get the commercial industrial sector focused on saving energy, because they are 72 per cent of the energy users in this country—

Mr McConnell : Something of that order, yes.

Senator EDWARDS: and you say they are ambivalent about reducing it.

Mr McConnell : Not across the board, but there is certainly a reluctance to do it, because it is big business—it is all about the bottom line, and driving energy efficiency into buildings is a bit of ho-hum. There is a building right in the city I walked past yesterday: it is right in the centre of Brisbane and it has a sign out the front—it is empty, and it has a zero rating under NABERS. Here is the landlord trying to lease out a zero NABERS rating building. It is just not going to happen, particularly when government departments now want four- or five-star NABERS-rated buildings. You have got to get the commercial sector to want to do it.

Again, in the commercial sector, you have on-selling of power in Queensland. Take shopping centres for example. Large chain shopping centres do not have a lot of incentive because they actually on-sell the power to the tenants. So, as to energy efficiency and demand management, they would say: 'Why? If prices go up, we just pass that on to the tenants.'

Senator EDWARDS: That goes back to the other issue, in the domestic sphere, of people renting, where there is no incentive to engage in renewables or any of those things in their own space because they are not empowered to do it. How do you change all that behaviour? Should this inquiry be looking at those massive industrial and commercial energy users and saying, 'You are the demand users in peak times—

Mr McConnell : You will. You will do something, rather than just identifying it. As I said, I believe that it is education. Also, there needs to be some sort of incentive on the larger users—apart from energy savings.

Senator EDWARDS: Are you one of the many that believe that the networks are the villains in this whole increase in electricity prices around Australia—that it is in their DNA, as I think our previous witness said—in that they have a growth model in their businesses and, by inference, they get their way with regulators and are able to force increased prices on consumers at will?

Mr McConnell : Straight answer: no, I do not.

Senator EDWARDS: You do not?

Mr McConnell : No, I do not. I cannot speak for every other jurisdiction; I can only speak from experience of what I have seen within the company that I have recently left, and I genuinely believe that their morals, their ethics, are in the right place. They have done a particularly good job in the area of network reinforcement. And, no, I do not believe that they are raping and pillaging and gold-plating. But, as I said, you might want to address that to the next three speakers.

Senator EDWARDS: No problem.

CHAIR: On that point, the committee has been given a report that was prepared by McConnell Dowell—I think it was for the Australian Energy Regulator—about gold-plating. They found that there were some instances—I could not specify what; I do not believe it was Energex, but there were instances in New South Wales and other states, including one to the tune of $950 million worth of expenditure that probably could have been avoided. They have cited the fact that there is no means within the rules to question that expenditure ex-post—in other words, once it has been undertaken. We heard evidence yesterday in Western Australia that the Economic Regulation Authority does have that power in Western Australia, but it appears that other bodies do not have that power in any other state. Do they have that power in Queensland? And is that something that the committee should be looking at?

Mr McConnell : I would suggest that you address that to the next three speakers.

CHAIR: Some governments have approached this issue of rising electricity prices by putting a freeze on tariffs. We heard yesterday in WA that they have done that and we have heard views that it has been done here. What is your view on that approach?

Mr McConnell : In 12 months time it is going to change—it has got to change. So is it political: it probably is, but in 12 months time that freeze is going to have to come off and it is going to be an interesting paradigm to have a look at what happens then.

CHAIR: Do you think that there will have to be catch-up—

Mr McConnell : Absolutely. That is my personal opinion. It will be catch-up.

CHAIR: So it is a bit of short-term gain for small-term pain, unfortunately.

Mr McConnell : Yes, and that is a personal opinion.

Senator IAN MACDONALD: When you say that it has 'got to'—and again, I am asking the obvious—what you are saying is that their costs keep going up so you cannot freeze the output price when the input price—

Mr McConnell : Senator, something has got to give at the end, hasn't it? You can put a freeze on anything and something has to give in the end, or changes have to be made. I generally believe that a change will be made in 12 months. It might be capped again, but ultimately there will be catch-up.

CHAIR: Thank you for your evidence, Mr McConnell. It has been an interesting discussion. You are now excused.

Proceedings suspended from 11:11 to 11:29