Josh Frydenberg (Kooyong, Liberal Party, Treasurer) Share this | Hansard source

I'm just going to continue where I left off earlier today.

The government will also underwrite new firm, low-cost generation, which is particularly important for Australia's commercial and industrial users, who the ACCC found were struggling to get medium- to long-term contracts. This program will be technology neutral, as recommended by the ACCC.

The bill we introduce today is an essential part of this package and will address energy market misconduct, improve competition and bring down energy prices for Australian consumers.

The government has directed the ACCC to monitor retail prices, wholesale bids and contract market liquidity in the National Electricity Market between 2018 and 2025 and announced that this will be backed up by a series of remedies where the ACCC identifies misconduct by electricity market participants.

This bill will establish the misconduct to be prohibited and the targeted, proportionate remedies to apply in respect of misconduct in three key areas.

First, the retail market: in the event of a 'sustained and substantial' reduction in supply chain costs, retailers will be required to 'make reasonable adjustments' to their retail price offers, including to households and small businesses.

The explanatory memorandum makes clear that retailers will not be required to pass on small or short-term cost variations that might last a week or a month. Rather, if they enjoyed a sustained and substantial cost reduction, they need to pass it on.

Second, the wholesale market: generators will be prohibited from gaming the spot market. This can occur in a number of ways—for example, by scheduling discretionary maintenance at high summer demand periods with the specific purpose of causing a spike in prices for their other generators or by making low bids that were designed to discourage other companies from bidding into the market and only then, at the last minute, increasing the price of their bids.

The ACCC has specifically recommended that rules around false and misleading bids be strengthened, and our legislation does exactly this by prohibiting bids that are fraudulent, dishonest or in bad faith for the purposes of distorting or manipulating prices.

Third, the contract market: energy companies will be prevented from withholding hedge contracts for the purpose of substantially lessening competition, which draws on existing concepts of section 46 of the Competition and Consumer Act.

Unlike gentailers, smaller retailers are unable to manage the risk of volatile spot prices without a hedge contract.

The measures in this legislation are designed to ensure financial market liquidity and facilitate competition in the energy market. The ACCC has already recommended a liquidity measure for South Australia. This will complement it and apply nationally.

In each of these markets—retail, wholesale and contract—the ACCC will be actively monitoring behaviour. Where companies are in breach, they will act.

The legislation sets out a graduated set of penalties that can apply in the event of misconduct. The ACCC will be able to issue a warning notice, accept an enforceable undertaking or seek a financial penalty of up to the greatest of $10 million; three times the value of the total benefit attributable to the conduct; or 10 per cent of the annual turnover of the corporation in the 12 months before the conduct occurred.

For the most egregious conduct, the ACCC will be able to recommend that the Treasurer either issue a contracting order or pursue a divestiture order in the courts.

A contracting order will be able to be made only following a breach of either the contract liquidity or wholesale conduct prohibitions.

A divestiture order will be able to be made only following a breach of the wholesale conduct prohibition.

Both are sanctions of last resort.

In respect of these orders, companies will be given a chance to explain their conduct before such an order is made. A contracting order would require generators to make reasonable offers in the contract market, and the divestiture order could see companies required to sell an asset, allowing them at least 12 months to do so.

The Treasurer may apply to the Federal Court for a divestiture order only when the ACCC and the Treasurer are satisfied that the order has a net public benefit and that it is proportionate to the breach, namely that it is necessary to prevent such conduct occurring in the future and that no other remedy would achieve the same outcome.

These laws apply to government owned and privately owned corporations. In the case of a government owned corporation, a divestiture order would not prevent the relevant asset from being divested to another government owned corporation, provided that the two were in genuine competition with each other. This would allow the relevant asset to remain in government ownership while still addressing the misconduct in question and promoting competition.

Finally, this bill will also provide additional information-gathering powers to the Australian Energy Regulator, bringing the AER's powers in line with comparable regulators, including the ACCC.

The government will implement the default market offer and reference bill, to be set by the AER each year, through separate legislation. The legislation will also provide for the AER to make the necessary instruments as a part of the price determination process. The AER will be able to share this information with Commonwealth agencies.

Full details of the measure are contained in the explanatory memorandum.

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