On 27 March 2017 the Federal Government directed the ACCC to hold an inquiry into the supply of retail electricity in the National Electricity Market. This direction gives the ACCC power to investigate and report on retail electricity prices.
We consider below the likely trajectory of the ACCC inquiry based on our experience with similar inquiries in the past.
Focus of the inquiry
The inquiry is about the competitiveness of retail electricity prices in the National Electricity Market.
"The ACCC is also keen to look at the structure of the retail industry, the nature of competition, the representation of prices to consumers and other factors influencing the price paid by Australians for electricity", ACCC Chairman Rod Sims said.
Although the focus of the inquiry is on retail electricity markets, to properly undertake the inquiry, requires analysing wholesale electricity market conduct, electricity networks and the role played by electricity hedging contracts. For example, the ACCC is likely to investigate whether the wholesale market has become riskier due to price volatility, because if it is riskier then higher returns would be justified. Similarly, any investigation into retail prices cannot be isolated from the role that network prices play in determining those prices.
Terms of reference
The terms of reference direct the ACCC to consider the following matters in its inquiry:
- key cost drivers of retail electricity pricing;
- barriers to entry, expansion and/or exit in retail electricity markets;
- the impact of vertical integration;
- anti-competitive behaviour by market participants and its impact on electricity consumers;
- impediments to consumer choice;
- impact of diverse customer segments and different levels of consumer behaviour on electricity retailer behaviour and practices;
- regulatory issues or market participant behaviour or practices that may not support the development of competitive retail markets;
- profitability of electricity retailers and whether these profits are commensurate with risk; and
- wholesale market price, cost and conduct issues relevant to the inquiry.
We anticipate a key focus of ACCC scrutiny will be the vertical integration and the effects of the 'Gentailer' model where electricity generators are vertically integrated with electricity retailers.
Procedure at inquiries
The inquiry will be held under Part VIIA of the Competition and Consumer Act (2010). This provides the ACCC with the power to demand information and hold hearings to assess the level of competition in the market.
Based on our experience assisting clients with previous inquiries arising from Part VIIA of the Act, we expect this inquiry will involve the following steps:
- The ACCC will distribute an Issues Paper and call for public submissions.
- The issues paper outlines in general terms the issues that the ACCC expects to explore during the inquiry.
- All interested parties will be invited to make submissions on the issues which relate to their business operations or their areas of concerns.
- A party can claim confidentiality where the disclosure of information in its submission would damage its competitive position.
- The ACCC will use its compulsory information gathering powers to obtain relevant information and documents from parties.
- These powers can be used even when this information would usually be protected by confidentiality provisions.
- The ACCC will may conduct both public and private hearings.
- Public hearings enable the ACCC to hear directly from parties in relation to the issues being considered in the inquiry.
- Private hearings are held where the evidence to be given is of a confidential nature.
- All parties providing information at public or private hearings will be required to give evidence under oath or affirmation.
- The ACCC may summon a witness to give evidence and provide documents at hearings.
- The ACCC's preliminary report will be released by the end of September, with a final report due on 30 June 2018.
Implications for electricity retailers and wholesalers
Until now, the ACCC's involvement in the retail electricity sector has largely focused on ensuring compliance with the provisions of the Act which prohibit anti-competitive practices and unfair practices (such as misleading and deceptive conduct) as well as considering various corporate acquisitions in the sector.
Now the ACCC has been given the power to investigate, demand information, and report on electricity supply and prices. The inquiry is likely to provide another opportunity to air many of the issues and concerns raised in relation to the price and reliability of electricity supply, although the focus of the inquiry will be on the retail end of the market, rather than the future of generation and the electricity networks.
Mr Sims indicated that the ACCC is likely to rely on its compulsory information gathering powers. "There has been a number of issues raised on the electricity market which you just can't get to the bottom of without our information gathering powers, so we'll be using them quite a lot", he said.