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Monday, 17 March 2014
Page: 1133

Senator XENOPHON (South Australia) (10:01): I am in continuation. I think it is very important to acknowledge that one of the key elements of the RET has been its bipartisan support to date, which has helped to drive investment in the sector. This goes to the importance of certainty in energy policy, so any modifications ought to be bipartisan. We also need to consider whether the National Electricity Market rules should be reformed as part of an overhaul of our energy policies, and they must be.

The political debate over the past few years has been narrow and simplistic. To suggest or imply that the carbon tax is the primary cause of electricity price increases ignores the fact that charges for the use of electricity transmission and distribution account for about half of electricity bills. Currently these charges are paid by retailers, who then pass them on to consumers. The doubling of retail tariffs over the past few years can be directly related to the rise in network tariffs. Network tariffs are regulated by the Australian Energy Regulator, which is part of the ACCC. The rules governing how networks are regulated oblige the AER to provide network businesses with a guaranteed return on their investment regardless of whether the investment was necessary or worthwhile and regardless of whether the investment is later found to be unnecessary or premature. We need to reform that so that we can take into account the fact that these networks have been gold-plating their assets, to the detriment of consumers.

Currently, at subsequent five-year regulatory resets, the code allows the regulator considerable discretion in how it implements economic regulation. We need to reform the system of having these ex post reviews of transmission investments to determine whether all capital expenditure incurred was efficient or ought to be recoverable through regulator charges. That is what used to occur, but in 2003, influenced by strong lobbying from the network businesses, the ACCC, looking for an easier life for itself, moved away from ex post reviews in favour of a 'lock in and roll forward' approach, which has been bad for consumers. That must be reformed.

Last but not least, state governments contributed significantly to rising network costs by raising network reliability standards in the early to mid-2000s without undertaking any cost-benefit analysis of whether such increases were worthwhile. So we need reform. For the government to say it is all about the carbon tax is narrow and superficial. We need to actually look at the way the National Electricity Market operates. That is where the reforms need to take place.

There are some changes to the Australian Energy Regulator in terms of network spending proposals, but these changes do not far enough. The AER, the regulator, needs the ability to conduct detailed optimisation analyses of electricity networks' asset bases to uncover instances of excessive or premature spending. That is what we need as a matter of priority. Networks are currently rewarded handsomely for their investments, despite facing virtually no risk. It is time to make sure that they earn their pay packets. There is no other business model where you can make a lousy decision, gouge consumers and still get a guaranteed return on your investment.

I see direct relevance to reforming these rules under the National Electricity Market, the code and the Australian Energy Regulator. It must be considered at the time that carbon policy is being revisited. This is because any downward pressure on network and transmission charges passed on to consumers will ultimately give greater flexibility to offsetting the direct or indirect costs of emissions reduction policies.

I have been disappointed by the polarised, narrow nature of the debate on carbon policy over the past few years. We now have an opportunity to consider carbon policy in a broader context that has the potential to deliver a robust environmental outcome at a responsible economic cost. I challenge all sides of politics to take this opportunity to engage in a mature debate about energy and environment policies that will deliver meaningful environmental outcomes and more sustainable energy prices rather than continuing to use energy policy as a political football.

Finally, I want to make a point that I think is sometimes left out of this debate, and that relates to public health. Even if people do not believe in climate change—and I am not one of them—they cannot deny the benefits of cleaner air in Australia. The OECD Environmental Outlook found that most ambient pollution in Australia comes from motor vehicle emissions, electricity generation from fossil fuels, heavy industry and home heating using wood and coal. Further, the former government's State of the environment report in 2011 found that there are approximately 3,000 deaths in Australia each year due to urban air pollution. That is more than the annual road toll. These are the sorts of issues we need to consider in the context of this. Here is an opportunity to do something good for the environment and good for our public health, but we also need to have a responsible economic framework. We need to reform the electricity market rules in this country in addition to having a better carbon policy.