Shock to electricity regulation: changes to competition laws in the energy market

New competition laws will apply to generators and suppliers of electricity as of 10 June 2020.

What you need to know

There will be three new prohibitions in relation to the electricity market.

1. Retail pricing - Corporations which supply electricity to small customers are prohibited from doing so without making reasonable adjustments to the price to reflect sustained and substantial reductions in its underlying cost of procuring electricity.
2. Electricity financial contract liquidity - Corporations which generate electricity are prohibited from restricting access to electricity financial contracts for the purpose of substantially lessening competition in any electricity market.
3. Electricity spot market - Corporations are prohibited from engaging in bidding or offering practices in an electricity spot market if those practices are fraudulent, dishonest or in bad faith, and/or intended to distort or manipulate prices.

These changes come off the back of an extensive inquiry and the final report, released by ACCC in July 2018, into the supply of retail electricity and the competitiveness of retail electricity prices.

What are the penalties for breach?

The available penalties are varied but may be serious, ranging from public warning notices issued by the ACCC to fines of 10% of annual group turnover, orders from the Treasurer to enter into contracts with third parties, and divestiture orders handed down by a court.

What you need to do now

The ACCC has published “Guidelines on Part XICA – Prohibited conduct in the energy market” (Guidelines), to assist generators, suppliers and acquirers in the energy market to understand the scope and application of the new laws and the general approach to enforcement that the ACCC will take.

Market participants should familiarise themselves with the Guidelines to ensure compliance with the new laws, as they contain useful examples of the types of conduct that the ACCC considers are likely or unlikely to contravene the new laws.

In relation to retail pricing, suppliers will need to monitor underlying costs to identify any sustained and substantial decrease for which retail prices may be adjusted. The ACCC indicates that it is more concerned with industry-wide reductions in underlying costs than that of a particular supplier.

It would also be prudent to update any compliance materials and protocols and conduct training of staff about the implications of the new laws.