ACCC to shine a light on retail electricity prices
The ACCC is reportedly preparing to send out compulsory information notices to electricity companies following the Turnbull Government’s direction to the regulator to inquire into retail electricity prices in the national electricity market.
In a joint press conference on 27 March 2017, Prime Minister Malcolm Turnbull, Treasurer Scott Morrison and Minister for Energy Josh Frydenberg announced the inquiry, which is consistent with the Government’s broader strategy for energy security and affordability. The Government’s view is that electricity markets do not seem to be operating as effectively as they could.
Following the announcement, ACCC Chairman Rod Sims stated:
“Electricity prices have nearly doubled on top of inflation in most parts of Australia over the last decade based on a variety of different factors. It will be important to understand and examine these different factors in each state and territory”.
ACCC powers in conducting the inquiry
The Treasurer has directed the ACCC to hold a public inquiry into the supply of retail electricity and the competitiveness of retail electricity prices in the national electricity market pursuant to section 95H(1) of the Competition and Consumer Act 2010 (Cth) (CCA). This section forms part of the price surveillance provisions of Part VIIA of the CCA which grants the ACCC a range of coercive information gathering powers. These include the power to:
- issue summons to compel persons to appear as witnesses at public and private hearings at which they may be required to produce certain information and/or documents; and
- issue written notices to persons requiring them to produce specified information and/or documents.
It is a criminal offence for a person to refuse or fail to comply with requirements under a summons or under notices issued by the ACCC.
Focus areas for the Inquiry
The inquiry will focus on the retail electricity market, namely the supply of retail electricity and the competiveness of retail electricity prices in the National Electricity Market. However, the ACCC will also be looking into the operation of the wholesale electricity market insofar as it is relevant to retail outcomes.
The Treasurer’s terms of reference direct the ACCC to consider a range of matters including:
- the key cost drivers of retail electricity pricing;
- the existence and extent of any entry barriers in retail markets;
- the impact of vertical integration;
- whether there is any behaviour preventing or limiting competition or consumer choice;
- the profitability of electricity retailers and whether these profits are commensurate with the risk retailers face; and
- all wholesale market price, cost and conduct issues relevant to the inquiry.
The direction provides a broad remit for the ACCC, who has had a keen focus on the conduct of electricity retailers in the last few years (for example, the ACCC has taken action against Origin Energy, EnergyAustralia, AGL and Australia Power & Gas in relation to unfair marketing activities). It’s likely to conduct a far reaching examination of retailer profit margins and cost structures (including network, wholesale and renewable energy scheme costs), amongst other things, to see if these are in line with actual costs and risks. The review will also look into transparency and clarity of energy company contracts with consumers, and potential, or actual, anti-competitive behaviour.
The ACCC will work with the Australian Energy Regulator and the Australian Energy Market Commission in undertaking the inquiry.
Key dates and ACCC Reports
The inquiry commenced on 27 March 2017. The ACCC is required to submit to the Treasurer a preliminary report within 6 months and a final report by 30 June 2018. The rationale given for the long timeframe is the complexity and data intensive nature of the electricity market.
It follows that we can expect the ACCC to furnish a paper with its preliminary insights into the strategies and pricing behaviours of key electricity retailers sometime in September this year. With the ACCC likely to require immediate extra resourcing for its new mandate, it’s also expected that the Government will allocate additional funding to the regulator in this year’s budget.
Of particular interest will be whether, as a result of the inquiry, there is a move towards greater intervention in the retail electricity market.
By Ben Wighton and Melissa Monks