Government Takes a ‘Big Stick’ to Energy Companies for Misconduct

June 11, 2020 Updated: June 11, 2020

Australian energy companies are now under tight scrutiny after a new law came into effect on June 10 that grants the government and regulators greater powers to enforce punishment on power generators for misconduct.

The new law, known as the government’s “Big Stick” legislation, introduces strict prohibitions against certain market misconduct, aiming to drive down electricity prices and strengthen supply by fostering fair competition.

Treasurer Josh Frydenberg expects the move will address some chronic issues in the electricity sector.

“For too long, electricity companies have, in the words of the Australian Competition and Consumer Commission (ACCC), ‘played a major role in poor outcomes for consumers,’” he said in a joint statement with Minister for Energy Angus Taylor.

“The ‘Big Stick’ legislation, will ensure reductions in wholesale costs are passed on to customers, while penalties will apply for anti-competitive behaviour or moves to manipulate electricity prices,” he said.

The legislation specifies three types of prohibited conduct.

These include retailers failing to pass on savings to consumers when there is a sustained and substantial reduction in the procurement costs; energy companies withholding electricity contracts for anti-competitive purposes; and generators distorting or manipulating wholesale electricity prices.

The ACCC, which is responsible for enforcing the legislation, is equipped with a range of penalties for misconduct, including issuing public warnings (naming and shaming companies), and court-ordered fines that amount to the greater of $10 million, 10 percent of turnover, or 3 times the value of the benefit gained from misconduct.

In a significant move, the legislation also grants the treasurer and the Federal Court additional powers to remedy the most egregious breaches by forcing power companies to sell assets, which in some cases would lead to the break-up of energy firms.

Criticism of the Law

These new powers, controversial as they may be, are understood to be central for the government to wield its “big stick” in delivering on its commitment to lower energy bills for small businesses and consumers.

The legislation was first tabled in the House of Representatives in December 2018 as the Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Bill 2018 (The Bill), in response to recommendations made by the ACCC in its Retail Electricity Pricing Inquiry.

It is reported that The Bill drew strong criticism from the largest electricity firms such as Origin Energy and AGL Energy, especially for the forced divestment powers it proposed, while small business and energy user groups supported the move to rein in the clout of big players.

The critics, including some economists, argued that the bill represents inappropriate intervention by a government into the market, and risks driving up prices by deterring investments in new power plants.

The Bill was reintroduced to Parliament last September with further amendments after the federal election and was finally passed both houses last December.

The “Big Stick” legislation is also part of the government’s bigger plan to deliver a fairer, more affordable and reliable energy system, as well as a stronger economy for all Australians.

Some other measures on the agenda include establishing an ongoing ACCC inquiry into the National Electricity Market to 2025; introducing the government’s Default Market Offer “price safety net”; getting rid of sneaky late payment penalties; and extending the Consumer Data Right to energy, to make it easier for consumers to switch energy providers to get a better deal.