In Opposition, the Coalition pledged to repeal the Carbon Price Mechanism (CPM) as a matter of priority.1
The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 (Bill) passed the House of Representatives on 21 November 2013. In addition to winding back the CPM, the Bill purports to provide the Australian Consumer and Competition Commission (ACCC) with new powers through amendments to the Competition and Consumer Act 2010 (CCA). However, those new powers cannot come into effect until the Bill is passed.
In the interim, on 24 February 2014, the Government issued a Direction (Direction) in accordance with Part VIIA (Price Monitoring) of the CCA, directing the ACCC to monitor electricity and gas prices in the lead up to the repeal of the CPM. The Direction came into effect on 1 March 2014 and will expire on 30 June 2015.
This article contains a brief summary of the ACCC's role under the Direction and the Bill.
ACCC's price monitoring role
Pursuant to the Direction, the ACCC must monitor the prices, costs and profits relating to the suppliers of 'regulated goods' including natural gas, electricity and synthetic greenhouse gases, as well as corporations considered 'liable entities' under the Clean Energy Act 2011. In total, approximately 400 organisations will fall within the ambit of the Direction.
The monitoring will assist in establishing baseline prices for the supply of regulated goods and in determining the 'carbon tax' component of these prices before and after repeal of the CPM. In turn, this will help to ensure that consumer and business customers are not charged unduly high prices once the CPM is repealed.2
To collect the necessary information, the ACCC will be able to request information on the prices being charged by the relevant organisations – namely suppliers of regulated goods and corporations identified as liable entities under the CPM legislation.
According to ACCC Deputy Chair Michael Schaper, the consumer watchdog will be seeking the following information from businesses:
- how the business established its prices
- the impact of the current CPM on prices
- how the business went about determining its costs.3
The ACCC must also provide quarterly reports to the Government on its monitoring activities for the term of the Direction.4 The first report is due at the end of July 2014 and copies of the report must be available to the public once it has been given to the Treasurer.5
The ACCC has emphasised that its role under the Direction will be confined to information-gathering and will not extend to price setting. Therefore, consumers and businesses should not expect any CPM repeal price decreases prior to the anticipated abolition of the CPM in July of this year.
New ACCC powers under the Bill
Once the Bill is passed, the ACCC will be vested with new powers, including:
- price monitoring – the ACCC will have the power to monitor prices in relation to the CPM repeal in order to assess its effect6
- false or misleading representations – under the draft legislation, organisations must not make false or misleading representations concerning the effect of the CPM repeal on prices for the supply of goods or services. The ACCC will have the power to issue an infringement notice where it believes this has been contravened7
- price exploitation – the ACCC will be able to take action against businesses believed to be engaged in CPM-related price exploitation by issuing written notices that specify the maximum amount that should be charged for the relevant supply. Organisations that breach the price exploitation prohibitions may be subject to pecuniary penalties of up to $220,000 for individuals and approximately $1.1 million for corporations.8
In relation to the CPM repeal, the ACCC has previously indicated that it seeks 'compliance with the law, not to necessarily impose penalties'.9 Nevertheless, it should be noted that the ACCC has already taken action to address misleading conduct in relation to the impact of the CPM. For example, in 2012, the ACCC took action against Brumby's bakery, whose managing director suggested in a newsletter to franchisees that they should raise prices and 'let the carbon tax take the blame'. While Retail Food Group Pty Ltd was not fined for the misleading statement, it made a court enforceable undertaking that neither it nor its subsidiaries, which includes Brumby's, will engage in similar conduct in the future.
Impact of CPM repeal on prices
According to Environment Minister Greg Hunt, electricity prices will drop 'immediately' once the CPM has been repealed.10 The Coalition estimates electricity will decrease by nine percent, while gas prices will go down by seven percent.11
However, electricity and gas companies have indicated that it may take months for the effect of the CPM repeal to flow through to consumers and that price decreases could vary depending on the state or territory.12 Energy retailers have further made it known that any price cuts would also be determined in accordance with network charges for the transmission of the power which represent a significant proportion of retail prices, as well as individual customer contracts.13
Accordingly, despite the powers vested in the ACCC to monitor and scrutinise prices before and following the repeal of the CPM, it is unclear whether and when consumers will see a drop in prices.