Will the Australian Energy Regulator sacrifice price or reliability to reduce emissions?

Transcript

Senator Roberts: Thank you all for being here today. The national electricity objectives include price, quality, safety, reliability and security of supply. The government is now intending to add emissions reduction to those objectives. You, the Australian Energy Regulator, have made a submission to the government’s consultation process on the draft National Energy Laws Amendment (Emissions Reduction Objectives) Bill 2022. In that submission you said, ‘The AER supports including an emissions reduction objective.’ This is support for a proposed government policy. Surely the very first value of the Australian Public Service is meant to be impartiality. Why are you commenting one way or another on support for a government policy?

Ms Savage: I guess my objective from that would be that we are there to try and meet Australia’s emission reduction targets in the least-cost way. That’s part of our job, and our decision-making needs to ensure that happens. Our purpose as the Australian Energy Regulator is to ensure Australian consumers are better off now and in the future, so when we assess what tools we need, as the Australian Energy Regulator, to actually do our job effectively and to make sure that we can deliver upon that purpose, our considered view is that change to the legislation, to the objective for which we have to use our decision-making, is required and is important to us being able to deliver upon our purpose. So it speaks fundamentally to our role rather than to the government’s policy.

Senator Roberts: Do you consider that the Australian Public Service Values and Code of Conduct apply to you?

Ms Savage: I absolutely do, Senator.

Senator Roberts: Do you consider that the Australian Public Service value of impartiality applies to you?

Ms Savage: Yes, I do.

Senator Roberts: Why are you stating support for a proposed government policy, rather than impartially commenting on your ability to carry it out?

Ms Savage: I’m not commenting on the policy; I’m commenting on the importance of the change to the work of the Australian Energy Regulator. In that regard, my obligation is to make sure that we have the tools we need to discharge our function such that we can ensure Australian consumers are better off now and in the future.

Senator Roberts: I put it to you that you are breaching the Australian Public Service value of impartiality by advocating support for a government policy. I would like you to take on notice to fully explain how advocating support for government policy in a submission is impartial.

Ms Savage: Senator, as I’ve said, we didn’t advocate support for the policy. We’re advocating support for the changes to the laws that are required to enable us to do our function.

Senator Roberts: ‘The Australian Energy Regulator’—your words—’supports including an emissions reduction objective.’

Ms Savage: That is the change to the legislation required to do our function.

Senator Roberts: You’ve taken a side in this debate even before it’s started. You’re required to be impartial. Why were you not impartial?

Ms Savage: I have—

Senator Roberts: I don’t accept your answer.

Ms Savage: I hear that you don’t accept my answer, but my answer remains that we have asked for changes, and we constantly and repeatedly ask for changes to legislation—and it’s in our strategic plan to do this—when it’s required for us to fulfil our strategic purpose, and that is to ensure that energy consumers are better off now and in the future. Limb 4 of our strategic plan actually says we will inform debate about Australia’s transition, and that’s to ensure that we can do our job to make sure Australian consumers are better off now and in the future.

Senator Roberts: I suggest you read the Australian Public Service Values and Code of Conduct.

Ms Savage: I have, Senator.

Senator Roberts: The current objectives of price, quality, safety, reliability and security are sound objectives. What level of compromise on price or reliability are you willing to accept to achieve the objective of emissions reduction?

Ms Savage: When it comes time for us to consider the new objectives, with all of the limbs in them, including the emissions reduction objective, we’ll need to think about the value of carbon emissions reductions in the context of the target to achieve net zero by 2050, to ensure that the investments that happen in things like transmission or gas networks are consistent with achieving that goal at least cost to consumers, which is where that element of making sure consumers are better off now and in the future arises.

Senator Roberts: So my question—I’ll say it again—is: what level of compromise on price or reliability are you willing to accept to achieve the objective of emissions reduction? You’ve now got a new objective.

Ms Savage: I don’t see it as compromise; I see it as optimising.

Senator Roberts: Can I take note of that?

Ms Savage: Absolutely.

Senator Roberts: It will be interesting in the future. What are you going to do if the objective of emissions reduction conflicts with those existing objectives?

Ms Savage: We will need to optimise against the current list of objectives, and the inclusion of emissions reduction which become another limb. Already, today, we have to make judgements and choices between the existing elements of those objectives. We constantly have to be thinking about trade-offs on behalf of customers in terms of price, quality, safety and reliability, and we will also be considering emissions reduction in that context.

Senator Roberts: I put it to you that there is no way that the objectives of price, reliability and emissions reduction can be achieved at the same time, so which one will you prioritise?

Chair: Senator Roberts, I wonder if your questions are getting a bit accusatory. You have asked questions, and Ms Savage is responding to your questions with her perspective.

Senator Roberts: I have constituents that are deeply concerned about electricity prices that have trebled in a couple of decades.

Chair: You are open to ask your questions, but I would ask you to mind your manner.

Senator Roberts: Thank you, Chair. I say it again: I put it to you that there is no way the objective of price reliability and emissions reduction can be achieved at the same time—the facts show that—so which one will you prioritise? You’ve actually supported the government and its policy, so which one will you prioritise?

Ms Savage: An example might help. Currently, we have to think about price, safety, security, reliability.  When we make a judgement, we have to think about price and reliability, and those two things aren’t always the same thing. More reliability can mean higher prices, and higher prices can mean lower reliability. On safety and security, we just gave, in response to Senator Van’s question, an example of abolishing gas connections; there is a safety issue there. We’re always and constantly in our work needing to optimise across those different objectives within the national electricity and gas objectives, and, with the inclusion of emissions, it will be the same type of task. We have to look at it in its whole, and we have to optimise across all of those objectives. We do it today and will be able to it tomorrow.

Senator Roberts: My view is that the people who tell us wind and solar are the cheapest form of electricity are lying. If they are the cheapest form of electricity, why do we need to change the electricity objectives to include emissions reductions, so they are favoured?

Ms Savage: You are thinking about generation technologies. We do a lot of work with the Australian Energy Regulator in electricity and gas networks, and that’s nothing to do with renewable energy necessarily. If I take a gas network, for example, and if you came to me as a gas company and said, ‘I need to invest in an electric compressor instead of a gas compressor because I’m trying to meet my emissions reduction objective,’ then that is something that we could not consider necessarily under the existing obligations. Under a future set of arrangements that’s something we could consider, so it’s not necessarily about wind and solar; it’s about lots of little choices that go along in the system to make sure it all adds up to the least-cost way of meeting our climate goals.

Senator Roberts: If the ministers past and present are not lying and solar and wind are cheap and reliable, it would fit into existing objectives of price and reliability. Why do we need to change the objectives if the climate ministers are not lying?

Ms Savage: As I just said—and I’ll repeat my answer—it’s not always about wind and solar.  Sometimes it will be about networks, and, in fact, most of the changes to the objective for the work of the Australian Energy Regulator will be about transmission, distribution, electricity and gas networks.

Senator Roberts: So it won’t be about price versus emissions, yet everywhere in the world every country that has a substantial proportion of solar and wind has had a dramatic increase in prices—that’s fact.

Ms Savage: Are you asking me a question?

Senator Roberts: Yes, I’m asking you a question. How can you justify the statement that there won’t be a trade-off between emissions and price?

Ms Savage: I have covered that in answering the question before, which is that we’ll be optimising across the new emissions reduction objective with the other elements of the national electricity and gas objectives.

Senator Roberts: What is the Australian Energy Regulator’s position on nuclear energy?

Ms Savage: We don’t have a position on nuclear energy.

Senator Roberts: So now you’re impartial?

Ms Savage: We’re always impartial.

Chair: Last question, Senator Roberts.

Senator Roberts: You say as part of your retail energy market regulation, your other roles include, secondly, reporting on performance of the market and energy businesses, including affordability and disconnection of customers for non-payment of energy bills. What is the latest disconnection rate in each state? Could you take that on notice?

Ms Savage: I can tell you at the macro level and take the state based data on notice. For ’21-22, which is the last full financial year of data we have, the number of disconnections was about 30,000, which is significantly less than what we saw before COVID. At the time before COVID it was 70,000 customers per year.

Senator Roberts: Could you take on notice to give us the five years—actually the three years?

Ms Savage: I have the five years here at the macro level if you’d like it.

Senator Roberts: I would like to know the states as well because I want to see how the different states are behaving.

Ms Savage: Actually, I have got the states here. Would you like me to read them out?

Senator Roberts: If you could put it in writing, that would be good.

Senator McAllister: As you can imagine, it ends up being like 20 numbers.

Chair: I wonder if we could just copy it in the break and circulate it—just for ease. Is that okay with you, Senator Roberts?

Senator Roberts: That’s fine.

Ms Savage: At a cumulative total, in 2017-18 it was 72,000 and in 2018-19 it was 70,000. The Australian Energy Regulator then asked retailers to stop disconnecting customers during COVID and we saw a big drop down: 43,000 in 2019-20; 17,000 and 2020-21; and then it’s back at 29,000 in 2021-22.

Senator Roberts: Thank you.