CTH Bill To Prohibit Energy Market Misconduct Passed and Awaiting Assent

On 18 September 2019, the Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Bill 2019 (Cth) (“the Bill”) was introduced to the House of Representatives by Treasurer Josh Frydenberg. The Bill passed both houses of parliament on 25 November 2019 and is currently awaiting assent.

The Bill was introduced following the March 2017 inquiry into electricity supply and prices (“the Inquiry”) conducted by the Australian Competition and Consumer Commission (“the ACCC”). The Inquiry found that in each market there were key failures which led to poorer outcomes for consumers. In the retail market, the ACCC found that retailers used complex strategies to confuse customers. In the wholesale market, lack of competition resulted in higher prices. In the contract market, high barriers of entry led to lower competition. The preliminary report of the Inquiry was discussed in an earlier Timebase article.

Following the Inquiry’s findings, the Bill seeks to address energy market misconduct and strengthen competition in the electricity markets, hopefully resulting in lower electricity prices.

An earlier version of the Bill, the Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Bill 2018 (Cth)(“the 2018 Bill”)  was introduced in the previous session of Parliament, but lapsed when the Parliament was dissolved. The current Bill and the 2018 Bill are largely similar, with some minor differences.

The Bill

The Bill amends the Competition and Consumer Act 2010 (Cth) (“the Act”) and introduces a new legislative framework which imposes new prohibitions and remedies relating to conduct in the electricity markets. In the retail market, retailers that have sustained and substantial reductions in their supply chain costs will be required to make reasonable adjustments to their retail prices under the new amendments.

In the wholesale market, generators will be prohibited from spiking prices in the spot market. Under the new amendments, fraudulent, dishonest, or bids made in bad faith for the purposes of distortion or manipulation of prices are prohibited. These changes follow the ACCC’s Inquiry recommendations to strengthen laws around false and misleading bids.

In the contract market, energy companies will be prevented from withholding hedge contracts for the purpose of reducing competition. As smaller retailers require hedge contracts in order to manage spot prices, these measures aim to ensure financial market liquidity and facilitate competition in the market against larger energy corporations.

The Bill additionally introduces graduated penalties in the event of misconduct. With the new penalties to be monitored and enforced by the ACCC. Under the new amendments, the ACCC will have power to issue a warning notice, an enforceable undertaking, or a financial penalty amount to the greater of:

• $10 million,
• three times the value of the benefit resulting from the conduct, or
• 10% of the annual turnover of the corporation (in the 12 months before the conduct started).

The ACCC will also be able to recommend to the Treasurer to issue a contracting or divestiture order in the courts. A contracting order will allow the Treasurer to order a body corporate to make offers to enter into electricity financial contracts. These orders can also have additional conditions that must be satisfied, to be set by the Treasurer's discretion. Divestiture orders allow the Treasurer to order the body corporate to dispose of its interests in securities or assets to an unassociated corporation after 12 months of the order being made.

The Bill also makes amendments to the Act by giving the Australian Energy Regulation (“the AER”) additional information gathering powers and additional functions to in relation to the regulation of retail electricity prices. Under these additional powers, in exercising its functions of powers, the AER will be able to:

• Require a person to produce or provide written or oral evidence
• Disclose information to an agency
• Make disallowable or non-disallowable legislative instruments

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Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Bill 2019 (Cth) and supporting documents available from TimeBase LawOne Service