Notice of Inquiry into Australian retail electricity prices

Overview

The Competition and Consumer Act 2010 was enacted by the Parliament of Australia to address various issues related to competition and consumer protection within the Australian market. Among its many purposes, the Act provides a framework for ensuring fair competition, protecting consumers from anti-competitive practices, and regulating mergers and acquisitions that may substantially lessen competition. In response to concerns regarding the competitiveness and pricing of retail electricity in the National Electricity Market, the Treasurer issued a notice on 27 March 2017, requiring the Australian Competition and Consumer Commission (ACCC) to conduct an Inquiry into these matters. This Inquiry is aimed at comprehensively examining the key cost components, barriers to market entry and expansion, vertical integration, anti-competitive behaviour, consumer choice impediments, and the impact of diverse customer segments on electricity retail behaviour. The policy objective is to identify any regulatory issues or market participant behaviours that may hinder the development of competitive retail markets, ultimately ensuring that electricity consumers benefit from fair and competitive pricing. The ACCC is mandated to submit a preliminary report within six months and a final report by 30 June 2018.

Scope and Application

The Inquiry into Australian retail electricity prices, mandated by the Treasurer on 27 March 2017, and conducted by the Australian Competition and Consumer Commission (ACCC), is directed at comprehensively examining various facets of the retail electricity market within the National Electricity Market (NEM). This inquiry applies broadly to all market participants involved in the retail supply of electricity, including retailers, wholesalers, and other entities operating within the NEM, without singling out specific individuals or corporations. The scope of the investigation encompasses key cost components of retail electricity pricing, barriers to market entry and expansion, the impact of vertical integration, potential anti-competitive behaviour, impediments to consumer choice, and overall market competitiveness and profitability. The geographic reach of this inquiry is confined to the NEM, which spans multiple states and territories across Australia, thus ensuring a national perspective on the issues under scrutiny. While the Inquiry is broad in its mandate, it is not intended to delve into specific regulatory issues or individual conduct unless they pertain directly to the broader themes outlined above. The ACCC is required to submit a preliminary report within six months and a final report before 30 June 2018, with further details available on the ACCC's website.

Key Provisions

The primary sections of the notice issued by the Treasurer, the Hon Scott Morrison MP, to the Australian Competition and Consumer Commission (ACCC) (sections 1 and 2) require the ACCC to conduct an Inquiry into the supply of retail electricity and the competitiveness of retail electricity prices in the National Electricity Market (NEM) as per subsection 95H(1) of the Competition and Consumer Act 2010. This Inquiry is not focused on any specific individual but rather on the broader market and its dynamics. The ACCC has been mandated to submit an interim report within six months from the commencement of the Inquiry and a final report by 30 June 2018. These timelines are intended to ensure that the Inquiry progresses efficiently while allowing for comprehensive analysis and findings. The obligations imposed on the ACCC by this Inquiry are substantial. They must investigate various aspects of the retail electricity market, including the key cost components of electricity retail pricing and how these have evolved over time (section 3(a)). The ACCC must also examine the presence of barriers to entry, expansion, and exit in the retail electricity markets (section 3(b)), as well as the impact of vertical integration within the NEM (section 3(c)). Additionally, the ACCC is tasked with exploring the possibility of anti-competitive behaviour by market participants and its effects on electricity consumers (section 3(d)). Furthermore, they must identify any impediments to consumer choice, such as transaction costs or a lack of transparent information (section 3(e)), and consider the impact of diverse customer segments and consumer behaviours on retail electricity practices (section 3(f)). The ACCC is also required to identify regulatory issues or market participant behaviours that may hinder the development of competitive retail markets (section 3(g)), assess the profitability of electricity retailers over time and the correlation of these profits with risk (section 3(h)), and investigate all wholesale market price, cost, and conduct issues relevant to the inquiry (section 3(i)). Under the Competition and Consumer Act 2010, there are specific offences and penalties for breaches related to the conduct of the Inquiry. While the primary focus of this notice is on the operational aspects of the Inquiry, it is essential to note that any failure to comply with the requirements of the Act or the notice could result in legal consequences. The exact nature of these consequences would depend on the specific breach and the provisions of the Act that are contravened. However, it is clear that the ACCC's role in this Inquiry is critical, and any shortcomings in fulfilling its obligations could lead to significant repercussions, including potential civil or criminal penalties as stipulated by the relevant sections of the Act. The maximum penalties for such breaches are not explicitly stated in the notice but are outlined in the Competition and Consumer Act 2010, where severe penalties can apply for non-compliance with the Act's provisions.