ELECTRICITY CORPORATIONS (RESTRUCTURING AND DISPOSAL) (RATES) AMENDMENT BILL

Wednesday, 1 December 2021                   HOUSE OF ASSEMBLY              Page 8594/8595/8596/8597

Introduction and First Reading

The Hon. G.G. BROCK (Frome) (10:44): Obtained leave and introduced a bill for an act to amend the Electricity Corporations (Restructuring and Disposal) Act 1999. Read a first time.

Second Reading

The Hon. G.G. BROCK (Frome) (10:45): I move:

That this bill be now read a second time.

I rise today to correct a 20-year mistake, and the mechanism for this correction is my fair rates and electricity generators bill. As we will see, this mistake has made a significant impact on the councils and communities in my part of regional South Australia. My bill will deliver a significant boost to regional South Australia, including the opportunity to create up to 43 additional full-time jobs in regional communities—all this, and it will not cost the Treasurer a cent.

My bill amends the Electricity Corporations (Restructuring and Disposal) Act which, for today’s purposes, I will call the ECRD Act. The ECRD Act regulates the calculation of council rates on land used for electricity generation. It currently does two things that need to be addressed: first, when calculating the value of land, it prevents the taking into account of an electricity generating plant. This reduces the capital value of the land and reduces the council rates that are levied for that property.

Secondly, the ECRD Act also enables the Governor to make proclamations to reduce—and only reduce—council rates on land used for electricity generation. Once one of these proclamations has been made to reduce council rates it cannot be revoked, and that is partly why we are here today dealing with this issue in parliament. These provisions are currently set out in schedule 1, section 3 of the ECRD Act.

How did this all come about? Why is it that the electricity generator sector is entitled to discounted council rates that most businesses are not entitled to? To answer those questions we need to turn our minds back to the late 1990s, when the state government was privatising the state’s electricity infrastructure.

The theory was that the more attractive the asset the more it could be sold for. To inflate the potential sale price, prospective buyers were offered a discount on future council rates. What happened then was an attempt to raise more money for the state government by giving away local government money. What is the local government sector getting out of this? Well, nothing, as far as anyone can see.

Whilst electricity generator companies are not paying their fair share of rates, councils are still required to provide the services. Roads, bridges and other infrastructure need to be built and maintained. I am told that in the Regional Council of Goyder a 100-tonne crane used to maintain wind farms travels around from property to property within the council area to service the huge wind turbines. As vehicles of this sort travel around they do enormous damage to country roads, and councils have to fix these roads.

Informing my views on these issues, I have been assisted by research by independent consultants the AEC Group, who are experts in the resources, energy and infrastructure industries. In February 2020, the AEC Group published their report, Rating Equity in SA and the Financial Impacts on Local Government’s Ability to Support Growth. This independent research report found:

• Ignoring financing costs, South Australian council rates account for less than 0.1 per cent of infrastructure life-cycle costs of electricity generators. Council rates are a marginal component of costs.
• The two main factors influencing the location of new energy generation plants are the proximity of sources of power and access to the national electricity grid.
• Council rates have next to no bearing on where energy companies choose to invest. Over the past decade, there has been significant investment in new energy generation in Australia. This investment has taken place in states where electricity generators pay full council rates and in South Australia, where they do not.
• The competitiveness of South Australian regions in attracting renewable energy developments will not be impacted by the introduction of standard levels of council rates, particularly if rates levied are comparable with Victoria.
• If energy generation companies paid their full share of rates, this could create up to 43 additional full-time equivalent jobs in regional South Australia.
• Energy companies sell power into the national grid. Because of the nature of the national energy market, each generator is a price taker. If their costs, such as the cost of council rates, increase, energy generator companies are unable to pass this cost on to local consumers.

What that research means is that council rates have a marginal or negligible impact on the bottom line of energy companies. That means the offer of cheap council rates back in 1999 probably had no impact on the sale price of South Australia’s electricity assets. What that also means is that regional councils have been forced to forgo tens of millions of legitimate revenue based on flawed policy reasoning. What a waste!

Over the past 20 years, when councils have expressed concern about the mandatory rates discount, governments of the day have expressed concern about the impact on investment. The AEC report completely debunks that theory. I support new energy investment in regional South Australia. The independent research demonstrates why my bill will have no impact one way or the other on this investment.

What I am yet to hear is any argument justifying the retention of rating restrictions in the ECRD Act. What policy objectives does this further? Why should other South Australians pay higher rates so that electricity generators can have their discount? By contrast, my bill is based firmly on a number of clear principles, and I want to set these principles out for the record. These principles are, in fact, the state government’s own principles for better regulation which, in turn, are based on COAG’s best practice regulation principles:

1. ‘There should be a clear case for action before addressing a problem.’ As I have outlined today, no-one can articulate the purpose or policy objectives behind the current rating restrictions in the ECRD Act.
2. ‘Government action should be effective and proportional to the issue being addressed.’ Again, there does not appear to be any analysis as to whether the rating restriction is doing anyone any good. When it comes to proportionality, it is very difficult to imagine that giving away $4.8 million each year is a proportionate response to any issue. This looks like a completely disproportionate response to me.
3. ‘Ensuring that regulation remains relevant and effective over time.’ This is another principle that seems to been ignored. The purpose of the restriction may have been to help privatise South Australia’s electricity infrastructure in the 1990s. However, most energy generators operating in South Australia were not even around in 1999. These companies are getting a rates discount that was not even intended to apply to them. That is why my bill will only apply to those companies who obtained their Electricity Act licence after the commencement of the ECRD Act.

Turning to the operation of my bill, this bill does four things:

1. The current ECRD Bill provides that, when valuing the land for the purposes of assessing council rates, electricity generation plant is not to be taken into account. That assessment process is different from the way almost all other land in South Australia is valued for the purpose of assessing council rates. My bill would enable electricity generation plant to be taken into account in valuing the land.
2. Schedule 1 of the ECRD also empowers the Governor to make proclamations reducing council rates on land used for electricity generation. The Governor did make such proclamations back in 2000. The schedule says that once made these proclamations cannot be rescinded. This is one of the reasons we are dealing with this problem through amendment to the legislation today. My bill will rescind proclamations made by the Governor pursuant to schedule 1 of the ECRD Act.
3. My bill will also prevent the Governor making any more of these ECRD Act

proclamations.

4. My bill also deals with the specific situation where electricity generation plant (for example, a wind turbine) is situated within a larger piece of land (for example, a farm). It is not my intention for the farmer to be out of pocket. What my bill says is that if a parcel of land:

(a) Is occupied by the holder of a licence pursuant to the Electricity Act 1996; and

(b) Is used for the generation of electricity—

then that smaller piece of land will be separately assessed for council rates. The electricity generator will be deemed to be the principal ratepayer. The farmer will remain the principal ratepayer for the balance of the land and the farmer will not face an increase in their rates as a consequence of part of the land being used for electricity generation.

In fact, because in my example parcels of land may be carved out of a farm, the farmer will only be liable for rates in respect of the balance of the land. If the value of the farmer’s assessable land is reduced because someone else is paying for it, then his rates will be reduced.

This arrangement is very similar to the rating arrangement in place for telecommunications towers. Section 154 of the Local Government Act already permits apportionment of rates for certain activities on land. It is common, I am told, for a separate rate to be applied in relation to the communication tower in a manner that does not increase the rates for the owner of the land.

Whilst my bill amends a section of a different act and the mechanism is slightly different, the same principle is involved. Importantly, my bill does not interfere with the commercial arrangements made between landlords and tenants, between licensors and licensees, or indeed any other commercial arrangements in place.

In consulting on my bill, the question has come up: if councils collectively had this extra $4.8 million a year, what would they do? I have had some feedback on that issue. These options include reducing the rates burden on other ratepayers. One of the achievements of this parliament has been to pass local government legislation in an almost bipartisan way that will have the effect ofreducing pressure on council rates. My bill is another such measure. If the energy generator sector pays its fair share, this will reduce the rates burden disproportionately borne by other ratepayers for the past 20 years.

The AEC group report found that if councils retained the extra funds this could create an additional 43 FTE jobs in regional South Australia. Those jobs would enable councils to provide additional services to local communities. Councils could ensure that they had sufficient funds to repair and maintain critical infrastructure, which they do not at the moment. I am also aware that many councils are facing increasing pressure to spend scarce funds on their infrastructure: roads, footpaths, bridges, buildings, stormwater systems and jetties. This local infrastructure is often ageing and in need of major repairs.

Ultimately, if my bill finds support there would be decisions for local councils to make after they have consulted with their local communities, but these would be good problems for a council to have. Councils will have greater capacity, without needing to inconvenience the majority of their ratepayers.

I would like to summarise my bill by setting out what it is not. This bill is not anti electricity generator. This bill merely ends a 20-year rates holiday enjoyed by the energy sector. I am a great supporter of investment in regional South Australia and also a great supporter of new investment by energy generators. What I do not support is one type of business having an unfair tax or rates advantage over others, unless there are compelling reasons.

This bill is not anti renewable energy. This bill applies to all generators who obtained their licence pursuant to the Electricity Act 1996 after the commencement of the ECRD Act. It applies to some renewable generators. It applies to some fossil fuel generators. My bill is neutral as to the source of energy, and that is how it should be. This country needs better laws and policies to meet Australia’s energy needs, but council rates are not the forum for solving these issues.

This bill has no impact on land used for transmission of electricity. Lots of land in South Australia has electricity wires overhead or wires underground. Some land has easements to facilitate transmission of electricity. My bill will only have an impact if the land in question is used for the generation of electricity and the land is occupied by the holder of a licence pursuant to the Electricity Act.

My bill does not act retrospectively. It will apply to rate assessments issued after commencement. Rates notices will continue to be issued in accordance with the Valuer-General’s official valuation of the land at the time of the council’s rates declaration. My bill does not interfere with any commercial arrangements between the owners and users of land. Rather, my bill simply imposes a revised obligation on electricity generators to pay rates to their council.

This bill is not anti or pro privatisation. I have mentioned privatisation merely to give this house some historical context about how the ECRD Act came into being and why we now need a bill to correct this mistake. Finally, I would like to thank the mayors, the elected members and the chief executives of the Legatus Group of councils, who have clearly articulated the issues to me and the impacts on their councils. I am also grateful to the South Australian Regional Organisation of Councils (SAROC) for proposing a legal solution. Thanks also to Simon Millcock, CEO of the Legatus Group, and Andrew Lamb of the Local Government Association for their assistance in this. I commend the bill to the house.

Debate adjourned on motion of Dr Harvey.