Media Releases

06
Mar
2019

ENERGY LEGISLATION AMENDMENT (VICTORIAN DEFAULT OFFER) BILL 2019

It is my pleasure to lead the debate on the Energy Legislation Amendment (Victorian Default Offer) Bill 2019 for the Liberal-National parties in coalition. From the outset can I say that while the minister and I may differ on ideological and policy direction, I appreciate that she always make sure that her staff give good briefings and are available. I give my appreciation to her for that and to her chief of staff, Ian Porter, for facilitating the briefing. I will just start out with a brief precis of the bill. This bill facilitates the introduction of a default offer for Victorian energy users. It ensures that energy contracts are made clearer for consumers. The Essential Services Commission will be given new powers to report on the fairness of pricing, and the bill gives the minister in particular significant powers in relation to directing the Essential Services Commission to set the default offer at a specific level. Why are we here debating this bill? One of the reasons is—and it is the main reason—that energy consumers have been bending under the weight of rising prices in recent times. Energy users are certainly noticing that their power bills have gone up significantly. Indeed not just the Victorian government but indeed the federal government have recognised that there is a need to take some of the pressure off these energy prices and do something for consumers. I am sure—I am almost positive—that we will hear those opposite talk about energy generation and privatisation in the 1990s, how it was all the Liberals’ fault and how Jeff Kennett sold off everything. We have heard the Premier ad nauseam say that if it was not for the privatisation of our generators, we would not be in this position now. That is the line that the government has delivered.

In a press release of 26 October last year the minister said, in words attributable to her: We’re putting power back in the hands of Victorians—who’ve put up for too long with big corporations ripping consumers off ever since the Liberals privatised our electricity. That is the line of the government, and it is nothing but spin, because certainly privatisation has been the issue, but not the privatisation of generation but indeed the privatisation of the retail sector. That is evident if you just take a moment to look at the documents surrounding this particular issue. The discussion paper which marked the beginning of the review into the electricity and gas retail markets in Victoria says very clearly in its introduction, and I quote: Full retail contestability was introduced for Victorian small customers in the electricity and gas markets in January 2002. In January 2009, the Victorian— Labor— Government removed retail price regulation with the intention that consumers could fully benefit from the competitive market. The introduction goes on to say that: … retail competition in electricity and gas markets in Victoria is not delivering benefits to consumers as expected. It was Labor policy to introduce full retail contestability in 2002, and the removal of retail price regulation in 2009 by the Brumby government has not delivered the sorts of outcomes that both the Labor governments at those times said they would deliver. You only have to look through some of the documents, such as the Independent Review into the Electricity and Gas Retail Markets in Victoria by John Thwaites and Terry Mulder. They make the same discoveries. It says here on page 1: The review was prompted by concerns that the deregulation of Victoria’s energy markets is not delivering the anticipated benefits to consumers. Competition was introduced to Victoria’s energy markets in 2002, with full deregulation of retail prices in 2009. It was expected that competition would reduce energy costs for consumers and that retail companies would innovate and improve the products and services they offered. But clearly that has not happened. In the same report it also says: The Jacobs analysis— the Jacobs analysis is the analysis that was done to support this review— showed that fixed charges have increased substantially for Victorian electricity customers since— not the privatisation of generators in the 1990s but since— deregulation in 2009. It was under the Labor government’s watch that we saw those prices spike, and the reason is evident in these documents. It goes on to say: Since prices were deregulated in 2009, the existence of standing offers … may have contributed to some of the issues in the current market. So the deregulation in 2009 certainly contributed to the problems that we are seeing now. We go on to see an article that was in the Australian in February of this year. It states that Tony Wood of the Grattan Institute told the Australian that: … there was no doubt there was a need for action in a retail market which was ‘clearly not delivering’ what had been promised when it was privatised … I make the point again that anyone who has had even a cursory look at this topic will tell you that it was the privatisation of the retail market that has caused the problems. If there is any doubt from those opposite that it is indeed the case, there is an article from 2015 that is headlined ‘Victorians “dudded” on electricity’ that says: John Thwaites, who was deputy to former premier Steve Bracks in 2002 when the government deregulated the retail electricity market, told Fairfax Media the reform had failed to deliver lower prices for households. This is what Mr Thwaites said: Clearly, that part of the policy has not worked … the retail component has increased very substantially. He went on to say that in developing the policy to deregulate energy retailers: … everyone expected that there would be more competition and therefore a reduction in bills.

The figures show that that hasn’t happened. So that is a former Deputy Premier, who sat around the cabinet table and indeed sat at this table during those years, saying that the Labor policies that were put forward in 2002 and indeed 2009 did not work for the consumer and in fact contributed, as we have seen with the associated documents, to the price rises that we are now experiencing and the price rises that Victorian consumers are now bending under the weight of. It is an interesting thing. I have been here long enough to have heard the Labor Party talk about cost-of-living pressures and the things that they should do to bring down those energy prices. It seems that every time the Labor Party comes up with an idea to supposedly help Victorian consumers things just get worse. I was here when Peter Batchelor talked about the reasons for introducing smart meters, and he guaranteed everyone it would bring prices down. Introducing smart meters cost Victorian consumers $2.5 billion, and I am not sure many of those consumers would say that it has been beneficial for them. Lastly, of course, the government’s policy to close Hazelwood has certainly added to the problems. The Independent Review into the Electricity and Gas Retail Markets in Victoria when talking about the privatisation of generators in the 1990s as an issue actually devotes a page to the closure of Hazelwood where it says: The announcement of the Hazelwood closure has led to significant increases in forward contract prices for wholesale electricity. … The Jacobs analysis demonstrates that large increases in wholesale electricity prices in Victoria could be expected from the closure of Hazelwood. Since its closure, wholesale spot prices have increased significantly as anticipated … It was anticipated by many in the sector, and indeed I think that many of the consumers would also have anticipated those price rises. It is interesting that the government of the day did not anticipate those price rises. It shows you the lack of foresight from this government and the Premier. The following is a report of what the Premier was saying back in November 2016: He acknowledged that a hike in electricity prices would put pressure on family budgets but dismissed estimates of a 25 per cent increase as ‘wild, inaccurate’. Any price rise would be close to 4 per cent, or an average of 85 cents a week, he said. That was from the Premier when Hazelwood shut. The reason for the legislation we have in front of us is that indeed we have seen price rises that are far, far in excess of 4 per cent. Indeed the 25 per cent rise that was put forward at that time, which the Premier so arrogantly dismissed as ‘wild’ and ‘inaccurate’, has actually come to pass. If you are a business, a dairy farmer or a cafe owner you will find that your price increases are in the order of maybe 100 to 200 per cent. The Premier’s comments there were certainly ones that were actually, in his words, ‘wild’ and ‘inaccurate’. It just shows you that when the Labor Party talks about wanting to do something about price rises when we are talking about deregulating the retail sector, removing price regulation, introducing smart meters or closing down a major supplier of energy in the state, all we get in response is that prices just keep rising. As I said earlier even former Deputy Premier John Thwaites acknowledges that the policies put forward by the government that he was a part of were not to the advantage of the Victorian energy consumer. This of course has led to a record number of disconnections, which I spoke about in the media last week and which was reported in the Herald Sun. It is certainly fair to say—and it is certainly not just the opposition saying this; any commentator will tell you—that the policies of the Labor government seem to be front and centre when it comes to rising energy prices. We only saw in the paper today that when moving from electricity to gas, which this bill also covers, the gas crisis is costing jobs.

The Herald Sun today reports: Australian Competition and Consumer Commission chair Rod Sims says the east coast states are in the grip of a gas “crisis” that has been compounded by governments blocking exploration and extraction. Wholesale prices are almost triple the historical average … That, again, is a Labor policy to continue with the moratorium on gas exploration in this state. That is causing—there is no doubt—prices to rise. As I said with Labor’s words, Labor has talked about, over the last 20 years, deregulation of the energy retail market, the deregulation of energy pricing, the pricing framework, smart meters and Hazelwood, but the prices just keep going up and up and up. So having discussed the environment that we now find ourselves in, which is largely due to Labor policies, let us turn to the bill. And I want to just mention, before we continue on to the particulars of the bill, that while the government is introducing its default offer, the federal government is also doing its part to do likewise. I want to acknowledge the work of Angus Taylor, the federal Minister for Energy, who has done a fair bit to make sure that people are paying less than they otherwise could be. I just want to quote a release from the Honourable Angus Taylor which says: On 1 January, energy retailers including Origin, EnergyAustralia and AGL have lowered their standing offer prices following pressure from the Morrison Government to remove the loyalty tax for the almost one million standing offer customers who are paying too much for their electricity. It goes on to say: Other retailers are also offering targeted discounts for their concession customers, with EnergyAustralia and Origin also providing 10–15 per cent off usage charges. We have seen, because of the work of the federal government, that AGL has taken 10 per cent off the whole bill for all standing offer customers, EnergyAustralia has taken 15 per cent and Origin has taken 17 per cent for the whole bill for non-concession customers and 26 per cent for concession customers. So there is work being done at a federal level that has direct flow-through effects for the Victorian consumer, and we should acknowledge that. The bill before us today allows, essentially, for the giving of an order by the minister to the Essential Services Commission to determine the default offer. The minister, in issuing this order, can be quite prescriptive, including—and this is slightly troubling—detailing the methodology that the ESC should use in determining the default price. I have some concerns about that, because while the industry is not entirely comfortable with the ESC being aware of how to set a default price, I think the industry would be even more concerned that the minister would probably not be across the details of how energy pricing is constructed. So there is some concern that the minister can be quite prescriptive in the manner in which she directs the ESC to set these default prices. The bill also allows for the minister to decide that certain costs are not in the best interests of the consumer even if the retailer insists that those costs are essential, and there is no requirement for the minister to actually tell the retailers why she is not allowing certain costs. The bill allows for discounts to be regulated, and the bill also allows the minister to direct the Essential Services Commission to change the default offer at will. This may not happen, but certainly the bill allows that power to the minister to direct the ESC to change that default offer. It could be every third month; that is quite possible and the bill allows for that. One troubling issue is that the order that the minister will issue to the ESC will override existing contracts between the retailer and the customer, and I am still unsure and concerned, despite having the briefing, as to whether the tearing up of contracts between an energy retailer and customers may expose the state to some sort of recompense. Certainly I know that this government does not mind tearing up contracts. I know they do not really care whether that costs.

Clause 5 of the bill gives the ESC the power to use their discretion to decide a whole range of terms and conditions in relation to the conduct of retailers. In particular it allows the ESC to: specify the circumstances in which the licensee may, or must not, offer or give a discount or other benefit to a relevant customer, including— (A) the maximum amount or value of a discount or other benefit that may be offered or given to a relevant customer; and (B) the periods when a discount or other benefit may be offered … This gives, as I said, a whole range of powers to the ESC. And if they exercise those powers we are not too far off re-regulation of the industry. And of course it is true to say that the minister’s order may turn that commission’s discretion into an opportunity to re-regulate the market. That is okay if that is what the government wants to do. If the government want to we regulate the market, they are entitled to do so, but I guess they should be up-front about that. They should be up-front about that particular intention if that is what they want to do, and it seems very clear as we go through the bill that that is what they intend to do.

Clause 7 deals with the ability of the Essential Services Commission to: … monitor and report on the competitiveness and efficiency of the Victorian retail markets for electricity and gas. And there are some concerns from industry as to whether the ESC is in a position to be able to do that credibly. There are some concerns, looking at the Essential Services Commission staff working paper on the Victorian default offer, that the commission is not fully aware of what makes an efficient retailer and what costs should be included. On page 6 of that particular document, in the section entitled, ‘What is an efficient retailer?’, the commission is saying that an efficient retailer is one that, amongst other things, ‘has achieved economies of scale’—that is just not possible for a third-tier retailer at all. It also says that an efficient retailer ‘is a standalone retailer and is not vertically integrated’—again, that just does not apply to first-tier retailers at all. So there are some concerns that the commission may not be aware of what makes an efficient retailer or how costs are determined or, indeed, how the competitiveness or efficiency of the market can be determined. The industry has some concerns about confidentiality when the commission is gathering information. Certainly the different retailers do not want other retailers knowing their business, and they have expressed some concern about confidentiality issues.

Clause 8 is an interesting one. This has the effect of removing the opportunity for retailers to have a merits review as a result of the commission setting a default price. The retailers will be able to have a judicial review if the facts are wrong, but again if we look to the Essential Services Commission Act 2001, there is a whole group of sections about the right of appeal for people who are aggrieved by a requirement made by the commission, a decision made by the commission or indeed a determination made by the commission, and those rights of appeal are being denied to the retailers under this particular act, which is of some concern to the retailers. They have raised those concerns with the government, but I am told they have apparently fallen on deaf ears. I just want to turn to what the sector and those connected to the sector are actually saying. Overwhelmingly, if you look at what the market is saying and what those connected to the market are saying, they are against the introduction of a default offer. The main reason that keeps coming back is that there is a fear that the default offer will in fact squeeze smaller retailers out of the market. That will of course in effect reduce competition and will see many of the discounted offers that are currently in the market removed. That is of some concern because there are many who are on these deeply discounted offers who may find that they are no longer able to take advantage of those offers. The fact that these concerns have been raised should really ring some alarm bells for the government and should raise a red flag. We do not want to see a situation where people are paying more for electricity than they otherwise would be. That is a concern, because out of a pool of around 2.3 million to 2.5 million electricity customers in this state, only about 166 000 are on these standing offers. Many of them are also on hardship packages. If this legislation is going to help those 166 000 customers get a better deal, that is all fine—remembering that the trend for those on standing offers is actually declining—but if we are going to help those 166 000 customers pay less, it should not be at the expense of the many other customers who are paying those deeply discounted rates at the moment. If the third-tier retailers cannot afford to operate by having their highest rates capped, then they will exit the market. That has been made clear by everyone in the industry. It will limit the incentive for other retailers to have these discounted rates. Some third-tier retailers have been known to offer discounted rates of up to $400 per customer—$400 below the average discounted rates. Those rates are being offered, and some in the chamber would probably be the beneficiaries of those deeply discounted offers from third-tier retailers. It is fairly certain, if you listen to the industry, that those offers will eventually go. It is not just the opposition saying that; there have been numerous reports on it. The Australian Energy Council did a review into the Thwaites report and raised many concerns as a result of that review. The report says, and I am quoting: The Basic Service Offer— the default offer, as the legislation terms it— will likely result in a significant reduction in retail competition … It then says: … the regulated price will put the most pressure on Tier 2 and particularly Tier 3 retailers—the very retailers that, to date have offered the lowest prices and a great deal of the innovation in the market … It goes on to say: … almost all of the Tier 2 and Tier 3 retailers have a significant proportion of their customer base in Victoria, and losses in this market are likely to reduce their overall scale in ways that could seriously jeopardise the viability of their operations … That is of some concern. The same report goes on to say with regard to the Thwaites report: … its primary recommendation—implementation of a regulated Basic Service Offer—will likely reduce competition and innovation, and particularly impact the smaller and new entrant retailers that, to date, have offered the lowest prices and a great deal of the innovation in the market. It will also likely undercut the effectiveness of a number of the other recommendations in the report and other initiatives that are already underway in the market. That is the report from the Australian Energy Council.

There are other reports. This one is from the Australian Energy Market Commission giving advice to the Council of Australian Governments energy council—so the minister has seen this report. This report details the impacts of a default offer in response to the federal government’s move to introduce a scheme similar to that which the Victorian government is putting through. I will just quote some of the concerns raised in this particular report: Noting that there is a reasonably wide variation in retailers standing offer, it could be expected that where a default offer is set below a retailer’s standing offer, the retailer would attempt to recover lost revenue by raising market offer prices. It goes on to say: Based on the ACCC’s analysis of retailer profitability and pricing behaviour, international examples of the re-introducing price regulation and observations of outcomes in regulated and deregulated markets it is likely that retailers will respond to the introduction of the default offer by attempting to increase market offers. It further states: Based on the declining proportion of customers on standing offers and the short and long term risks associated with the default offer, the Commission considers that caution should be exercised in introducing the default offer as a regulated price cap. It also says: The outcomes of this is a risk that a large portion of customers could be worse off under the default offer. That is certainly not something that should be foisted on the Victorian energy consumer. That they would be even worse off would pose some difficulty. The Australian Energy Market Commission also looked at the effects of a default price in other jurisdictions. In the UK they found that two years after a default price was introduced the average price for the cheapest market tariffs had increased by 40 per cent. The commission also did some forecasting or modelling work on the effect of a default price in New South Wales, south-east Queensland and South Australia and found that a default offer being introduced in New South Wales would raise the lowest average standing offer by 23.6 per cent. In South Australia it would raise it by 25.8 per cent and in south-east Queensland by a whopping 30.8 per cent, which are huge increases to those lower offers. We want to make sure that the government is very aware that this legislation could indeed make people worse off than they are now. Just last week the Essential Services Commission released the Victorian Energy Market Report 2017–18. With a profile of the energy retailers towards the back of the report, that showed us that many of these smaller retailers currently offer discounts that are $100 or $200 and up to $400 below the average discounted rate. All the advice that you read and all the reports that you read will show that these discounted rates will likely go. With just 166 000 people on standing offers, with many of these already getting rebates as part of hardship plans and with declining numbers on standing offers, it is worth posing the question: how many customers will actually see a benefit from this legislation? The sector has asked for a regulatory impact statement.

I have seen the emails and the letters to the government with regard to asking for a RIS or a legislative impact assessment, and indeed the Treasurer put out the Victorian Guide to Regulation. He says that providing these legislative impact assessments is part of achieving best practice and goes on to say in this particular document: Impact assessment is fundamentally good policy‑making. I think we all agree with that. To understand the impact that legislation is going to have on a particular sector or those who are stakeholders in the issues that legislation will affect, you should have an impact assessment. This document says: To get the most value from impact assessment, build it into policy development from the outset, rather than treat it as an additional compliance exercise at the end. The government itself says that an impact assessment is necessary and is good policymaking. It begs the question as to why the government has refused in this case to allow the industry to have one, to actually have a full understanding of the impacts that this particular legislation will have not just on the sector, not just on the retailers, but indeed on the Victorian consumer. Again the submissions to the ESC from the various energy retailers will also highlight these concerns. The submission from Sumo Power said: Attempting to set a— Victorian default offer— that reflects the efficient costs of all retailers is an impossible task. EnergyAustralia said: … the benefits may be small Victoria has lowest proportion of customers on standing offers that would directly benefit … and this proportion is declining. Simply Energy said: … the cost to serve for the Big 3 retailers— as detailed in the Thwaites report— does not reflect the experiences of other market participants. So there are some concerns and they are concerns that should be noted by the government. It is interesting that this legislation actually does bestow particular powers on the minister to potentially—and I would say probably—effectively re-regulate the market. We certainly agree that we should be supporting those who are spending too much on energy bills, but it is a relatively small group of people who will benefit. I wholeheartedly agree that those who need the benefit should be allowed to have the benefit. There are certainly many people who are struggling under the weight of household pressures at the moment, household costs, but it seems to me and leads me to believe that this legislation is more about the intention to re‑regulate the market than it is about having a Victorian default offer in place. The opposition is not opposing this particular piece of legislation. We agree that cost-of-living pressures need to be addressed. But I ask speakers on the other side—just one, just one speaker from the opposite side—to guarantee that no electricity user will be worse off under this legislation. I do not think that is something that any speaker is able to do. I do not think any speaker opposite will acknowledge the failures of the 2002 and 2009 policies.

As I have said, anyone connected to the industry, anyone who has done a report into the industry, anyone who has looked at the industry—indeed the former Deputy Premier John Thwaites himself—agrees that the failed policies of the 2002 Bracks government and the 2009 Brumby government have led to these price increases. You can talk about privatisation of generators as much as you want, but it is simply not true. It is just political rhetoric to say so. It is indeed the policies of the Labor government between 2002 and 2009 that have been directly responsible for the price rises we have seen. As I said before, it does not matter what the Labor Party says about trying to reduce the cost of living, whether it is the closure of Hazelwood, whether it is smart meters, whether it is the re-regulation of the market— Ms Thomas interjected. Mr R SMITH: Well, the member for Macedon may laugh, but I was in this chamber when Peter Batchelor told us how much prices would come down as smart meters came in—$2.5 billion from the electricity consumer, from the Victorian energy consumer, and that cost has been one that has been borne by the Victorian energy consumer. Isn’t it just typical that when we are talking about the hardships imposed by Labor policies on consumers in Victoria the response from the Labor Party is to laugh at them. That just sums it all up. You have done a very, very good job in summing up the complete lack of care and responsibility that this government has. As I said, if not one speaker from the other side can even acknowledge the failures of the 2002 and 2009 policies, then they stand condemned for that. In fact by introducing legislation that effectively gives the minister power to re‑regulate the market, the minister is in fact acknowledging the failures of the Brumby and Bracks governments. They are actually acknowledging the failures of the policies in the same way that the former Deputy Premier, John Thwaites, condemned those policies. Mr Richardson interjected. Mr R SMITH: Just to clarify for the member for Mordialloc, who speaks a lot more than he listens, the opposition will not be opposing this bill. As I said, I certainly think that the government, those opposite, if they truly think that this is good legislation should guarantee that no electricity consumer in this state will be worse off under this piece of legislation.

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