The Federal Government’s recent focus on energy markets – and electricity pricing in particular – continued yesterday with the release of a consultation paper detailing changes it is proposing to introduce into the Competition and Consumer Act 2010 (Cth) (CCA) that are aimed specifically at electricity market participants, particularly retailers and generators.

In releasing the consultation paper, the Government has indicated that the proposed changes are intended to establish the “electricity price monitoring and response regime” which the (then) Turnbull Government first announced on 20 August 2018,[1] following the Government’s receipt of the ACCC’s final report for its Retail Electricity Pricing Inquiry in June this year.[2]

The consultation paper sets out a series of proposed laws to be included into the CCA which go well beyond price monitoring, and are aimed at regulating or curtailing particular conduct in relation to electricity generation, financial contracting (i.e. hedging) and retail offerings to electricity consumers. More detail about the specific proposals is set out below.

If enacted, the proposed changes would be significant for many electricity industry market participants.

The consultation paper does not include draft legislation, and notes that the proposals in draft proposals and not yet final Government policy. However, the Government has stated that it is in the process of preparing draft legislation to give effect to the proposed changes.

The Government has invited all interested parties to comment on the consultation paper via written submission, with all submissions due to be provided by 7 November 2018.

The consultation page (and the paper) can be found on the Department of Treasury’s website.

For more information on the consultation paper, please get in touch with us.

More detail - Proposed changes

Prohibited conduct

The consultation paper contains proposals for new prohibitions to target three broad areas of conduct. These can be summarised as follows:

1. Retail pricing 

The two options for the prohibition are as follows:

The consultation paper proposes two alternative measures relating to the pricing of electricity supplied to “small customers” by electricity retail businesses.

Option A – a prohibition on a retailer charging its small customers a price that is higher than the default market offer, unless this is justified by a substantial difference in the terms and conditions of the offer; or

Option B – a requirement that an electricity retailer adjust the prices charged to its small customers to reflect “sustained decreases in wholesale market costs”.

2. Wholesale price manipulation

Secondly, the paper proposes a prohibition on electricity generators acting “fraudulently, dishonestly or in bad faith with the purpose of distorting or manipulating prices” when making a bid or offer to dispatch electricity.

In relation to this prohibition, the paper specifies that conduct being targeted includes conduct in the wholesale spot market in the National Electricity Market (NEM), as well any other form of wholesale electricity market outside the NEM.

In the context of the NEM in particular, we note that the National Electricity Rules already contain obligations on generators not to make false or misleading offers, which replaced the former requirements for bidding and re-bidding to be “in good faith”, following a rule change in 2015 that was prompted (in part) by the decision in Australian Energy Regulator v Stanwell Corporation Limited [2011] FCA 991.

It is likely that the considerations prompting that rule change (including the evidentiary requirements) will be relevant to considering the impact of the new proposed prohibition on ‘market manipulation’.

3. Contract liquidity

Thirdly, the paper proposes the inclusion of a prohibition on electricity generators withholding, limiting or restricting the availability of electricity financial contracts with the purpose of substantially lessening competition in an electricity market.

In relation to this prohibition, the paper notes the objective is to target conduct by electricity generators involving an unreasonable refusal to offer contracts to a rival electricity retail business, for an anti-competitive purpose.

Notably also, the paper acknowledges the types of businesses most likely to be impacted by this prohibition are ‘gentailers’ (i.e. electricity generators who have a vertically-integrated retail business).

Remedies

  • To support enforcement of the above laws, the consultation paper proposes a ‘graduated series of remedies and responses’, which can be summarised as follows:
  • Ordering divestiture of assets or parts of an energy business (as a last resort).
  • Extending market making obligations beyond South Australia which is a form of structural separation; and
  • Fines and other financial penalties;
  • Tightening guidelines for how the AER sets the default market offer to further drive down the default electricity price;
  • Converting the default market offer into a binding cap price;
  • A court enforceable undertaking as currently used by the ACCC in other contexts;
  • A public warning notice issued by the Treasurer or ACCC;

For those remedies requiring the involvement of the Treasurer, the consultation paper notes that the ACCC would be expected to “engage with the corporation and provide an opportunity for the corporation to explain and/or rectify the issue”. The paper also provides flowcharts which depict the process by which remedies (including the Treasurer’s determination) would transpire.

The consultation paper also proposes that merits review and judicial review would be available for the Treasurer’s determinations.