AEMO

Senator VAN: Thank you all for appearing. I have some questions about AEMO. Are they best directed to you, Mr Duggan?

Mr Duggan : Yes.

Senator VAN: For the people at home, can you explain AEMO's role in the energy space?

Mr Duggan : I am very happy to. For those who may be joining from home, AEMO is the Australian Energy Market Operator. They do a number of roles but their primary purpose is as the market operator for the electricity system. They ensure that the electricity grid is operating in order to get the generation capacity through to its demand. They operate and have control rooms which essentially direct electricity—

Senator VAN: And gas.

Mr Duggan : and gas. They also play a role consistent with that in providing reports that go to one of the things we have talked about quite a bit today, the integrated system plan. They provide advice on what is the optimal or least-cost pathway through to getting to an electricity system by 2030-2035, what potential pathways there are that are consistent with government policy, what are the technology mixes et cetera. They also do reliability modelling, so they put out an electricity statement of opportunities, which is a signal to investors about where there is opportunity to invest because there is a potential there for a supply opportunity to meet projected demand, simile on the gas side with the gas statement of opportunities.

Senator VAN: But they are not federally owned, are they?

Mr Duggan : No, they are effectively a corporate structure and there is an ownership there, where effectively an arrangement where parts of industry are part owners in AEMO and governments are part owners of AEMO. So in a sense it is a corporate structure of which governments are one part of a broader ownership structure.

Senator VAN: Because of that corporate structure, they are not accountable to any one parliament, are they? There is a real lack of accountability for AEMO, isn't there?

Mr Duggan : I would not say that. Through this committee we have given a lot of evidence over time on AEMO and the role they play given they are not a federal agency but we have a significant stake in AEMO and its work. We have always taken the attitude of always trying to be as helpful to this committee as we can on AEMO.

Senator VAN: Of course you have.

Mr Duggan : My sense is that is replicated in state and territory governments as well. I know my counterparts in the states spend a lot of time talking about AEMO's reports.

Mr Fredericks : I think it is worth noting, and Mr Duggan can add to this, they are also accountable to the energy ministers formally, so there is an accountability that they have to the state energy ministers acting as in council as well.

Mr Duggan : That is a good point. Just to elaborate on that, at each energy and climate ministerial council meeting, the head of AEMO will appear, provide an update and provide quite a bit of detail on AEMO's work program through to energy ministers as stakeholders and shareholders in AEMO. So from all governments, there is, in a sense, an accountability through that forum.

Ms Gowans : If I could add that AEMO is a creature of the national electricity law. In the sense of the governance and the overall accountability of many Corporations Act companies with a board of directors, they have the additional level of scrutiny of having been created by the electricity law and oversighted by the energy and climate ministerial council in terms of the performance of their functions under that law.

Senator VAN: But they are not just a market operator or system operator. They have both those roles, system and market operator, but they also have planning functions, certainly in Victoria. Some of those planning functions which go onto their ISP come up with some pretty staggering numbers in terms of investment needed to help us get to where we want to get to for net zero, or to meet and beat our Paris targets, which we all support. But there are some staggering amounts of investment needed that are going to be borne by both taxpayers and energy users, aren't there?

Senator McAllister: They are not as staggering as the numbers bandied about by Mr Dutton.

Senator VAN: I'm not here to speak on Mr Dutton's behalf.

Senator McAllister: I am quite certain of that.

Senator VAN: I promise you I have no intention of speaking on his behalf and I hope he never does on mine. For the people at home, we're talking about some incredibly large numbers in investment, aren't we?

Mr Duggan : One point to note in this context is, as I mentioned earlier, AEMO has put out its draft integrated system plan. The processes that AEMO go through are very open, very transparent and very contestable. We are putting out a draft plan, so sitting behind the published document is a ream of information on all the assumptions made, including project-by-project inputs that go into their outputs. Everything that AEMO does, I would argue, is contestable. They also go through a rigorous peer review process, so they rely not only on their own expertise but they look to expertise externally as well, and that comes to bear on what they ultimately put into those planning documents, as you say. So there is quite a process that sits behind all those publications.

Senator VAN: It is a process, but I put these questions to the Australian Energy Regulator at the last estimates and I believe they have been released this evening. Is that correct, Chair? I would have followed up with them on these, but sadly you get to get them now. In the last estimates I put they consult on the inputs and assumptions, which I accept, but they are the inputs. The ISP is the output. It is what says what projects will be actioned. As you rightly pointed out before, part of AEMO's ownership structure is with energy companies, including the transmission companies that are going to benefit from having their projects put forward as part of the ISP. Am I the only person that sees that there is something a little bit off about that? We're talking about tens of billions, dozens of billions, if not over $100 billion of investment needed. Is that correct?

Mr Duggan : As you know, there is a very sophisticated regulatory framework that goes around the selection of energy projects, transmission projects, including in the context of the ISP. Then there is a rigorous and robust process. I know this was the line of questioning last time when they were here. A project proponent needs to go through from identification in the integrated system plan all the way through the RIT-T process, through the feedback loop and all the way to the final financial agreement that is reached. All of that is designed to ensure the best economic projects and also the lowest cost for consumers. So I would argue there's a rigorous regulatory framework that protects against the sort of risk that you're alluding to.

Senator VAN: I agree that's exactly how it should happen. But it doesn't always happen that way, does it? There are some projects that are deemed by state governments—and they just leapfrog some of those accountability measures that you mentioned. Am I right in that?

Ms Gowans : I wouldn't say that they leapfrog the accountability measures—

Senator VAN: 'Escape them altogether' then might be another way.

Ms Gowans : but you are right that the Integrated System Plan takes account of government policies. It's a real-world plan. If something reaches a sufficient level of commitment, where somebody is actually going to do it, then it becomes something that AEMO has regard to in the plan. I think what I was saying before is that there is a regulatory oversight of AEMO, and even the Integrated System Plan itself—the draft Integrated System Plan, which was released in December—is actually out for consultation now. So it isn't just the inputs of the—

Senator VAN: It closed in February, didn't it?

Ms Gowans : It may have just closed. But what I'm trying to say is that it's not just the assumptions and the inputs that go to consultation; it's also the actual output, which is the plan itself. We could expect to see a response to the consultation feedback in the final Integrated System Plan when it comes out in June. So there is quite a process in terms of testing with industry, testing with the public and testing with governments and whether those assumptions are right. They do have a consumer panel and a social licence panel also inputting into that design. So it's not just industry or just government; it's a very wide range of stakeholders inputting into the plan and a fairly high level of transparency. In addition to that, there is regulatory oversight of them in the performance of their functions.

Senator VAN: But they're under no obligation to listen to any of that consultation, are they?

Mr Duggan : At the end of the day, again, through that transparency, there's contestability. Were other experts to come to a different conclusion, I think that gets to AEMO's professional reputation over time. So I do think that that transparency is a really important part of the accountability.

Senator VAN: I guess you're getting to the nub of what I'm trying to get to. I can table this, Chair, and I can show it to you first if you like: it's called No longer lost in transmission. It's a paper written by Professors Mountain, Bartlett and Edwards.

CHAIR: Is it publicly available?

Senator VAN: Yes. It's from Professor Mountain from the Victoria University Energy Policy Centre.

CHAIR: Do you want to just reference it, or do you want to actually table it?

Senator VAN: It depends on whether or not our guests need to refer to it or not. I'm in their hands.

Mr Duggan : We're aware of it. We can access it. We're aware particularly of Professor Mountain's work.

Senator VAN: You would agree with me that he is probably one of our greatest experts on energy operation and markets?

Mr Duggan : One thing I've discovered in this job over two years is that there are a lot of experts in energy. I would hate to put a ranking on them.

Senator VAN: That I'll agree with you on. But certainly I would count Professor Mountain and Professor Bartlett as two of our greatest treasures on that. Just for the people at home, they call this plan for transmission 'Plan B'. It affects Victoria, my home state, so I've taken great interest. They've proposed a different transmission model to VNI-West, which is incredibly expensive when you take in all the extra bits that it needs, not just the line itself. They refer to it as VNI-West Extended, which comes to about $11 billion worth of investment to enable one transmission line, which they refer to as a point of failure. They put forward a separate transmission plan, which I think they costed at $6 billion. It provides a lot more resilience and does the same thing in terms of connecting up the rhombus of regret to those foreign-owned solar and wind farms up in north-west Victoria. You see where I get to when such experts are putting forward more economical methods—that it's hard to see AEMO's optimal development plan as anything except optimal. It's not optimal in any way, shape or form. How do we get to a position where projects like VNI West are almost a baked-in done deal, no social licence? I'll leave that to others. Do you see where I get to? I just can't come at the fact that there is any accountability or transparency at AEMO. There really needs to be another layer, or they need to be divested of some of their powers such that they're not king and god maker. Do you see where people at home might be worried about the costs that they're going to bear on their electricity bill and in their taxes, when we're not seeing a lot of accountability or optimality out of AEMO?

Mr Duggan : I'm not sure what I can add to my previous evidence around the transparency and the contestability around the inputs and outputs for AEMO. I am aware of Professor Mountain's work in this regard. A point that he does make which I think is worth drawing out here is—I absolutely accept there's not one transmission pathway; there's not one transition pathway broadly for energy. AEMO recognise that, as you know, through the different scenarios that they put into the Integrated System Plan. So it's not as if there is just one pathway that is published through that; they do different scenarios around that. One point that Professor Mountain makes, which I think is compelling, is that, at the same time as we're building a new transmission, we should absolutely be optimising the existing transmission and distribution as well. This shouldn't just be thought of as new build; it should be about making sure the incentives are in place to absolutely maximise the existing infrastructure, for all the reasons that you're going to. You want to be sure that you're only building what you need. In terms of what's optimal for consumers, that is absolutely the case. I subscribe to that element—

Senator VAN: You actually believe that's the case? That the pathway that we're on and the draft ISP is optimal?

Mr Duggan : I believe that AEMO takes into consideration the best expert advice. I know that they're aware of the work that Professor Mountain has done. I know that within the Integrated System Plan they do look at how to optimise the existing grid. So, yes, I'm confident that when they determine their various scenarios for what would be an optimal transition pathway, they are taking into account all the best available information.

Ms Gowans : Can I just add one thing?

Senator VAN: Sorry, just before we move on, so I get it on record, on notice can you point to me where in the draft ISP they talk about optimising current transmission?

Mr Duggan : I can take that on notice.

Senator VAN: Thank you. Sorry, Ms Gowans.

Ms Gowans : I was just going to also say that, in relation to specific projects, the regulatory investment test for transmission is applied by the Australian Energy Regulator; it's not applied by AEMO. So, while AEMO might project in its plan that a particular transmission project is on the optimal development path, no TNSP can charge any consumer or pass through any costs until they've passed the RIT-T. That requires them to show that, of all of the available alternative projects that could deliver the same benefit, this one is the one that has the most net benefit. That's actually a test that's applied by the Australian Energy Regulator; it's not applied by AEMO.

Senator VAN: I understand.

Ms Gowans : It's not the role of AEMO in the Integrated System Plan to actually test all the configurations of a project and say which one is in fact the one that is the most beneficial for consumers or for the market as a whole. I just wanted to draw that distinction because the fact that a project is actionable in the Integrated System Plan does not mean that that is the only option, and all non-network options are part of the consideration of the RIT-T.

Senator VAN: I would have liked to have put these questions to AER tonight. It's not often that the RIT-Ts get knocked back, is it, if they're an actionable project on the ISP?

Ms Gowans : I don't have those figures here, sorry. I can't answer that.

Senator VAN: We'll put them on notice to AER.

CHAIR: You've got a minute.

Senator VAN: Thank you, Chair.

CHAIR: Oh, you're done? Excellent.

Senator VAN: I can come back and do more.

CHAIR: No, please do not feel in anyway obliged to return. Thank you. We will break now and return with outcome 1.2.