David Gillespie (Lyne, National Party) Share this | Link to this | Hansard source

I rise to support the Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Bill 2018, which will amend the Competition and Consumer Act 2010 to define what energy market misconduct is. It defines prohibited misconduct by creating prohibitions in three areas: retail pricing, contract liquidity and wholesale bids and conduct.

There is a common thread running through all of Australia, all households and all businesses large and small. They include dairy farmers; primary producers; processing factories in flour, milk and beef; irrigators; timber mills; hotels; restaurants; hairdressers—any small business, you name it—smelters; sugar mills; and flour mills. It is the whole spectrum of Australian industry. They are all crying out for lower electricity costs because we have a high-cost economy; we have high wages; and the prohibitively high cost for electricity is driving people and families out of business.

The ACCC inquiry into retail pricing of electricity has identified that the market is misfiring; it's malfunctioning; it's broken. They identified that retailers are taking advantage of a lot of customers who are confused and disengaged. They have so many complex offers on the table that they don't know which one is best. Competition is also being restricted. Dominant players choose not to offer financial contracts in some instances, which stops new entrants into the retail market. The ACCC say there is conduct that is undermining the operation of the wholesale market as well.

To put things in perspective, the Australian Energy Regulator has identified a massive difference in the lowest market price available in different areas. They are much, much lower than standing offers, which are offers that people are on and which they just roll over and over. For instance, in New South Wales, there could be a difference of $411 per year between the lowest household market offer and the standing offer; for a business, it could be a difference of $2,582 between a standing offer and the best market offer. In South Australia, it's even worse. There could be a difference of up to $832 between a household standing offer and the best market offer, and for businesses it could be $3,500. That's why we need to address this misconduct. There is a crying need to correct the energy market's behaviour.

This bill creates several initiatives. It creates three prohibitions, as I mentioned. In the retail pricing market, there's a prohibition against retailers who fail to reasonably pass through sustained and substantial supply chain cost savings. For instance, if the wholesale price goes down substantially, it should be passed on by the retailer. In the contract liquidity part of the market when entrants are trying to enter new markets, like in South Australia, where 80 per cent of the market is controlled by three operators, they can't get swaps and cap contracts so that they can go in there and be competitive in the retail market. They are denied it by the energy retailers who are also energy producers. This prohibition will make that not possible. There will be systems in place to correct that. In the wholesale market, the ACCC has also identified misbehaviour. In the bidding market, in the short-term market and in the spot market, generators are restricting supply by not bidding or only popping in later in the bidding so that they get a better return overall for other parts of their asset profile.

This bill also introduces a graduated and tailored set of remedies, which are in a structured fashion. It allows the ACCC to get better access to records and pricing so that it can analyse them. Once the ACCC gets access to this information it can see if misconduct or prohibited conduct is happening and then issue notices. If that behaviour is confirmed, the producer of the energy or the retailer in the contracting section has in the first instance 21 days when a notice is issued, and then it steps up to 45 days notice. If there is no response, they can move on to the so-called big stick, which is divestment.

A lot of people on the other side made out that this is a pattern of behaviour that is against the principles of a free market. I reassure the House that that comment is based in ignorance, because other free market economies, like the United States of America, the United Kingdom, the European Union and Canada, have divestiture powers in their legislation. In fact, in Australia there are divestiture powers that the ACCC can enforce, but that is usually in mergers and acquisitions.

In the EU there are definitely divestiture powers in article 7 of the Treaty on the European Union. In the USA we have the Sherman act and the Clayton Antitrust Act, which have been there since 1890 and 1914 respectively. It was these powers that they used to break up the monopoly of AT&T in the 1980s and allow other companies to enter the telecommunications market in the USA. In the UK they have the Competition Act and the Enterprise Act. They were used to split Gatwick Airport from Heathrow Airport, because there was a monopoly in the airport market of the biggest city in Europe. It was a great boon to competition and it made airport fees much more affordable.

So, as I said, there are stepped increases in the process before we arrive at divestiture orders. I will take you through some of that process. Basically, the ACCC has to make a determination and issue a notice. The corporate involved has a chance to analyse. It has 45 days. There is toing and froing for another 45 days and then there's a decision by the ACCC and a recommendation to the minister. Then it goes off to a federal court for judicial review and enforcement. But it can't just be a willy-nilly referral. As I said, they have to meet certain criteria. There has to be more than just high prices; there has to be intent. There has to be quite obvious malfeasance with the intent to restrict competition and to mislead, and it has to be proven. People who are saying that divestiture is anticompetitive and draconian are really out of step with reality. As I said, many of the advanced economies in the rest of the liberal, democratic world have had these powers for years and years. They use them sparingly, but it acts as a big deterrent for anticompetitive behaviour.

We're all familiar with the closure of Hazelwood and Liddell. The situation, for those that understand the market, was that there was a massive shortage of supply, which drove prices up. The wholesale price went up in Victoria dramatically on the closure of Hazelwood. A lot of the big market operators in this country are both generators and retailers. By manipulating the market rules, they can get away with shorting the market. Over the whole market where they have other assets, they will get a better return from them by shorting the market. That's the sort of behaviour that the ACCC and the regulator will be looking at. It's only then that they will be taking that stepwise function.

There are financial penalties as well, well before you get to the major, big-stick option of divestment: the ACCC issues warning notices; there's an infringement notice; and there are then civil penalties that can be up to $10 million, three times the value of the total benefit attributable to the conduct or—a rather large one—10 per cent of the annual turnover of the corporation in the 12 months before the conduct occurred. It will allow the ACCC to issue injunctions. If they see behaviour that is anticompetitive, restricting supply to the detriment of customers downstream or the eventual retail customer, they can issue injunctions. Corporations must contract with other entrants who are trying to get into the market so that the swaps and caps part of the market can't be closed down to new entrants. There has to be evidence of gaming the system for all of these measures to be enacted. It's not based on market share. The divestment big stick is only the last and the most serious way to control bad market behaviour. Some other countries do have divestment based on market share alone. But through this legislation there has to be evidence and that graduated, stepwise process through contract orders, remedial action and fines and then—and only then, if it's more than just a basic prohibition order and it's an aggravated order—you can move on to divestiture.

Here we are, trying to get prices down. We have done this because there is evidence for it; the ACCC inquiry is rock solid in its recommendations. We also want to do what we have said we will do—and we're getting responses already—and that is to get a default price. Regarding market offers and standing offers, there are major discrepancies. But, due to the work of the coalition government, we have pointed out this evidence that the Australian Energy Regulator has identified, and many of the energy companies have already announced a drop in their standing offer prices. We are working on that. It's not a grant; it's an initiative so that people will invest in base-load power.

We can't have targets of 50 per cent renewable energy, as the international energy organisation has pointed out in its publications recently. The head of the organisation in Australia, on the front page of The Australian, is talking about the integration of renewables. Having an energy mix for renewables is all well and good, but you've got to realise you've got to almost reverse-engineer the whole grid and distribution network if you're going to have that much renewable coming in intermittently, and rewiring the grid is going to cost an absolute fortune too. So we have to have this legislation so that we can correct the energy market. If it were working in a truly competitive sense, if it were transparent and there weren't gaming of the system or shorting of supply to the detriment of the whole market, or delayed bidding and then coming in late and trying to work the short-term spot market so that cheaper assets get a better return, none of this would be necessary. But it is necessary because it is dysfunctional.

There are irrigation complexes that are about to shut down because they can't get people to buy the irrigation— (Time expired)

Debate interrupted.