In July this year, Parliament abolished the carbon tax by passing the Clean Energy Legislation (Carbon Tax Repeal) Bill 2014 (repeal legislation). In addition to repealing the carbon tax, it introduced new prohibitions against price exploitation and misrepresentations relating to the carbon tax repeal, and empowered the Australian Competition and Consumer Commission (ACCC) with a range of new powers.
In a speech to the Annual Energy Users’ Association of Australia today, Rod Sims, the Chairman of the ACCC, advised energy users to expect significant cost savings of around 5 – 10% following the repeal, and provided an update on the ACCC’s progress with exercising its new powers. Sims sounded a stern warning to businesses to ensure that they pass through any carbon repeal related cost savings and do not make misleading representations about the impact of the repeal. In doing so, he reiterated the earlier request that any person who considered they have observed instances of price exploitation or false or misleading representations to complain to the ACCC.
We take a look at the new prohibitions and ACCC powers contained in new Part V, introduced by the repeal legislation to the Competition and Consumer Act (CCA), the ACCC’s progress in enforcing the new laws with its new powers to date, and the implications for your business.
NEW PROHIBITIONS AND ACCC POWERS
Prohibition against false or misleading representations about the carbon tax repeal
The repeal legislation amended the CCA, introducing a new provision that prohibits an entity, in connection with the supply or possible supply of goods or services, from making false or misleading representations about the effect of the carbon tax scheme and carbon tax repeal on prices for the supply of those goods or services during the carbon tax repeal transition period, from 1 July 2014 to 30 June 2015 (the Transition Period).
Whilst conduct caught under the new provision would likely have been caught by the existing prohibition against misleading or deceptive conduct under section 18 of the Australian Consumer Law (ACL), the new provision compliments existing specific prohibitions contained in section 29 of the ACL. The real effect of this new provision is that misrepresentations that breach the new provision can now result in significant financial penalties.
Prohibition against price exploitation
The repeal legislation also introduced a new prohibition against price exploitation in relation to the carbon tax repeal. These provisions are designed to ensure that all cost savings attributed to the repeal of the carbon tax are passed on to consumers of regulated goods.
An entity engages in price exploitation if, during the Transition Period:
- it supplies natural gas, electricity, synthetic greenhouse gases or synthetic greenhouse gases equipment (energy supplier); and
- the price for the supply does not pass through all of the energy supplier’s costs and savings relating to the supply that are directly or indirectly attributable to the carbon tax repeal.
It is important to note that the price exploitation provision is not limited to the retail supply of gas and electricity. It follows that any business that makes a supply at some point along the supply chain must be compliant.
Penalties and remedies
Penalties payable for a contravention of the price exploitation and false or misleading representation prohibitions are broadly similar to the penalties payable under the ACL for making false or misleading representations. Bodies corporate may face penalties of up to $1,100,070 and individuals may face penalties of up to $220,150.
Of particular note is the additional penalty that will apply to energy suppliers which fail to pass through all cost savings attributable to the carbon tax repeal. The penalty payable for such conduct may be 250% of those cost savings that were not passed-through to customers by the energy supplier.
The ACCC’s powers
Carbon tax removal substantiation notices
By late August, the ACCC was required to issue to retailers of electricity and natural gas, and entities importing synthetic greenhouse gases a “carbon tax removal substantiation notice”, requiring the retailers to, within 21 days, explain and substantiate:
- how the carbon tax repeal has affected, or is affecting, the entity’s regulated supply input costs; and
- how reductions in the entity’s regulated supply input attributable to the carbon tax repeal are reflected in the prices charged by the entity.
Carbon tax removal substantiation statements
Retailers of electricity and natural gas, and entities importing synthetic greenhouse gases, were also required by late August to provide the ACCC with a ‘carbon tax removal substantiation statement’, providing an estimate of the entity’s costs savings resulting from the carbon tax repeal that are passed on to customers.
Retailers of electricity and natural gas were also required to prepare and communicate to customers a statement by late September, providing an estimate of costs savings directly attributable to the carbon tax and passed on to their customers for the 2014-15 financial year.
The ACCC’s other powers
New Part V of the CCA also endows the ACCC with significant new enforcement powers to ensure compliance with the new prohibitions which are as follows:
- The ACCC now has the power to issue a written notice to an entity if it considers that the entity has engaged in price exploitation. The effect of this written notice is that, in proceedings relating to a contravention of the price exploitation provisions, such a notice can be used by the ACCC as prima face evidence that the price for the supply did not pass through all cost savings attributable to the carbon tax repeal.
- The ACCC has the power to issue another type of written notice which indicates to an entity that certain of its supplies should not be made above a maximum price. The effect of such a notice is to put the entity on notice that the ACCC’s view is that pricing above that maximum price would constitute price exploitation. Receiving such a notice would be a good indication that if the entity did not implement the ACCC’s recommendation, it would likely be subject to further investigation and potential litigation.
- In addition to the ACCC’s existing powers to compel businesses and individuals to provide information and documents under section 155 of the CCA, the ACCC now has the further information gathering powers to monitor the prices of certain goods to assess the general effect of the carbon tax scheme and its repeal on prices charged by entities (without the need for a direction from the Treasurer), for the ultimate purpose of determining whether a corporation has engaged, is or may engage in price exploitation. This new monitoring power of the ACCC allows the ACCC to request information or documents relating to periods before and after the carbon tax repeal, for the purposes of comparing the prices charged by businesses. Until the commencement of Part V, the ACCC was only empowered to carry on a price monitoring function pursuant to the Treasurer’s Direction. The ACCC did so from February this year until the commencement of Part V to assess the general impact of the carbon tax scheme, formally monitoring prices, costs and profits relating to: electricity, gas and synthetic greenhouse gas; and certain entities in the manufacturing, transport, waste, energy and domestic passenger air transport services industries. The ACCC released its latest report on its findings in July this year.
- The ACCC may also issue an infringement notice if it merely has reasonable grounds to believe that a person has contravened either the price exploitation or misleading and deceptive provisions. An infringement notice is effectively a “speeding ticket” which bodies corporate or individuals are required to pay without any finding of contravention, or else become liable to proceedings for the alleged contravention. Listed bodies may potentially face penalties of up to $102,000 if they receive an infringement notice. Whilst a person may apply to the ACCC for the infringement notice to be withdrawn, its withdrawal is ultimately left to the discretion of the ACCC.
The ACCC’s progress to date
Since the carbon tax was repealed in July, the ACCC has:
- in August, issued 250 carbon tax removal substantiation notices to certain electricity, natural gas and synthetic greenhouse gas businesses and received responses from these businesses explaining how the carbon tax repeal affects input costs and prices for goods;
- noted that these businesses have been compliant in providing their carbon tax removal substantiation statements to the ACCC and separate statements to customers, identifying their cost savings from the repeal; and
- forecast from the data it has received from the major energy retailers the expected annual “significant” cost savings for small to medium enterprises by state. The ACCC expects that businesses should save around 5-10% a year, depending on the state and the level of consumption of the business.
Going forward, the ACCC continues to:
- reiterate the existence of the misrepresentation and price exploitation prohibitions, heralding the heavy penalties applicable to such conduct;
- analyse the information it has been provided to date to ensure the industry’s compliance with the CCA, particularly to ensure that if any business has passed through a carbon component in its prices during the carbon tax period, that it now passes back the cost saving from the repeal. To the extent that the ACCC finds that businesses have not passed through their cost savings, the ACCC will ask why not; and
- strongly encourage anyone that has observed non-compliance, including instances of having been misled into a carbon inclusive contract, to complain to the ACCC.
Implications for businesses
The new provisions have clearly, and will continue to have, a direct impact on energy suppliers, which will continue to be monitored by the ACCC and be required to ensure that it passes on any cost savings it experiences as a result of the repeal, and suppliers of electricity and gas more broadly.
However, all businesses need to take care when making any sort of claim about the effect of the carbon tax repeal in relation to their goods or services. This is especially in light of the ACCC’s new wide ranging powers, its $10 million funding boost in the last budget to enforce compliance, and its most recent invitation to the industry to “dob in” non-compliant businesses.
Care needs to be taken in any external communication, including when placing new content on their websites, negotiating contracts, publishing advertising collateral, or in oral conversations.
Should a business seek to make a claim about the repeal in connection with its goods or services, it must:
- carefully check the claim to ensure that its overall impression does not inadvertently mislead the public; and
- ensure that it is capable of substantiating that claim.
To that end, businesses should ensure that their compliance systems are capable of dealing with these carbon tax repeal issues, which may involve training marketing and sales teams and customer facing staff, ensuring policy documents instruct employees to behave in a compliant way, and a collateral clearance process to ensure that the business does not become the subject of the ACCC’s wide-ranging enforcement powers for just making an inadvertent claim that falls foul of the new prohibitions.