Origin Energy chief executive officer Frank Calabria's opening statement to the Senate economics committee on the Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Bill 2018.
I thank the Committee for the opportunity to appear before it today.
Origin Energy is a proud Australian company, with close to 5,500 Australian employees, and 4.1 million electricity and gas customers. We represent billions of dollars of value in the superannuation accounts of older Australians. We are one of the biggest investors in Australia in electricity generation, across a range of technologies. We are also a significant producer and developer of natural gas.
Australian, and world, energy markets are going through unprecedented change, as we transition to a more decentralised, digital, renewables-based system. This transition is driven by technology and customers and is not a change that industry or government should or can stop. However sound policy settings are critical to encourage investment and make the transition a smooth one that delivers affordable and secure energy markets for customers.
We agree with the Government on the need to get electricity prices down for households and businesses. We have demonstrated this by absorbing network and green price increases in the recent July 2018 price changes to ensure prices remained flat or reduced, and further reduced prices for concession customers from 1 January this year. There have also been no price increases for customers on our hardship program since 2016.
While we recognise that there is more to be done, Origin is opposed to this legislation. We do not believe it will help with the transition and could result in worse outcomes for customers.
This legislation is an unprecedented over-reach into the market by a government seeking to address more than a decade of energy and climate policy inertia. The consultation process has been inadequate and rushed. Punitive penalties, such as contracting orders from the Treasurer and forced divestiture are disproportionate responses to any contravention.
We are opposed to this legislation because it is discriminatory. It will distort the efficient functioning of the electricity market, may reduce investment in the sector, will not necessarily lower prices and introduces sovereign risk into the economy.
It is Origin’s view that this legislation is unworkable and that it will not achieve the Government’s stated objectives. This legislation reduces the incentive for companies like Origin to improve its generation operations by mandating that any cost efficiencies be passed through as price reductions – without any recognition of the role of shareholders who have funded the initiative and taken the risk.
Further, the prohibitions relating to the wholesale spot and contract markets duplicate existing rules and create uncertainty for the energy sector.
The conferral on the AER of additional powers to regulate retail prices without the right to appeal or without independent oversight is concerning.
Government underwriting of new generation will also be a consideration as to whether we proceed with expansion plans for our Shoalhaven hydro and Quarantine gas generation facilities, which are currently under consideration.
Ultimately, this uncertain regulatory environment impacts the economy and employment. Current government policy increases the risk in the energy sector and then transfers that heightened risk to the Australian taxpayer.
This industry has been the subject of recent extensive reviews, including by the ACCC. We believe moving forward with industry consultation on the ACCC’s 56 recommendations would be more effective than the legislation under debate. Ultimately, what we need is credible and enduring energy policy that encourages investment, puts downward pressure on electricity prices and builds system reliability.