Chapter 1Introduction
Referral of the inquiry
1.1On 8 August 2023, the Senate referred the Competition and Consumer (Gas Market Code) Regulations 2023 (the Regulations) to the Senate Economics Legislation Committee (the committee) for inquiry and report by 6 October 2023.
1.2Section 172 of the Competition and Consumer Act 2010 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act. Section 51AE of the Act provides that regulations may prescribe an industry code, which can be either mandatory or voluntary.
1.3The Regulations provide for the Gas Market Code (the code), a mandatory industry code for the east coast gas market sector.
Overview of the Gas Market Code
1.4Against a background of systemic issues within the wholesale gas market, the government announced its intention to establish a mandatory Gas Market Code in December 2022 to address high energy prices and the supply of gas at reasonable prices and on reasonable terms to domestic users.
1.5According to the accompanying explanatory memorandum for the Treasury Laws Amendment (Energy Price Relief) Bill 2022, the code is intended to:
…improve upon the current Voluntary Code of Conduct by strengthening requirements related to transparency, reporting, pricing and timeframes for negotiating. It is intended that the gas market code will include a reasonable pricing framework and formal dispute resolution process, with binding arbitration, for the resolution of pre-contractual disputes. While the gas market code will place obligations on both suppliers and buyers, greater obligations will be placed on suppliers to address imbalances in bargaining power in current market conditions.
1.6The purpose of the code, alongside of several measures announced in the October 2022–23 Budget, seeks to strengthen the framework available to meet the challenges that arise in energy markets. In particular, its objective is ‘to address bargaining power imbalances and systemic issues which may limit buyers’ ability to negotiate gas supply contracts on reasonable terms’. The application of the code to wholesale level transactions ‘is expected to deliver reasonable prices in new supply agreements which will flow through to retail supply contracts’. In summary, the code is intended to:
improve selling practices and level the negotiating playing field between users and producers to deliver a better functioning and more transparent gas market.
ensure sufficient supply of gas for east coast users at reasonable prices; and
give producers the certainty they need to invest in supply; and ensure Australia remains a reliable trading partner by allowing LNG producers to meet their export commitments.
1.7The following elements are included within the code:
A price cap, initially set at $12/GJ, designed to anchor wholesale contract negotiations between gas producers and buyers.
An exemptions framework to incentivise producers to commit more gas to the east coast gas market in the short term and facilitate new investment to meet ongoing demand in the medium term which supports the ability for east coast gas users to access gas at reasonable prices and on reasonable terms.
Transparency obligations to increase visibility of the amount of uncontracted gas to be produced, and when producers will bring that gas to the domestic market.
Conduct provisions aimed at reducing bargaining power imbalances between producers and gas buyers and establishing minimum conduct and process standards for commercial negotiations.
1.8The code applies to the interconnected east coast gas market which connects Queensland, the Northern Territory, South Australia, New South Wales, the Australian Capital Territory, Victoria and Tasmania. It does not apply to Western Australia which is physically separated from the interconnected east coast gas market.
1.9The code includes provisions that allow the regulation of gas market participants, and any obligations participants may have when dealing, negotiating, or reaching agreements with other participants in a gas market. The obligations are designed to ‘ensure that there is a fair and transparent process for participants entering into commercial arrangements for the supply or acquisition of a gas commodity’.
1.10Covered suppliers in the east coast gas market are subject to the various requirements in the code. A covered supplier is defined as follows:
a regulated gas producer, or
an affiliate of a regulated gas producer who has an agreement in force for the supply of gas from the regulated gas producer or another affiliate of the regulated gas producer (affiliate supply agreement), or
an affiliate of a regulated gas producer with no affiliate supply agreement in force but who has:
- entered into another agreement to supply the gas acquired under an affiliate supply agreement to another person, and that other agreement is in force, or
- intends to enter into another agreement to supply the gas acquired under an affiliate supply agreement to another person.
- Part 6 of the code sets out record keeping, reporting and publication obligations required of suppliers to support compliance monitoring and enforcement activities. A supplier must publish on its website, as soon as practicable after the end of transition period, the following information:
a statement that the information is published for the purposes of the Code,
each EOI it intends to issue (including volume of gas proposed to be supplied in accordance with the EOI and the period over which it will be supplied), apart from any EOIs subject to the exemption in section 46 for EOIs made to 2 or fewer persons volumes of uncontracted gas it is likely to have available 64 Section 33 of the code,
the volume of that uncontracted gas it is likely to have available for EOIs, initial offers and final offers,
the volume of that uncontracted gas to be supplied under an agreement it intends to enter into,
any other information specified in a determination by the Australian Competition and Consumer Commission.
The information must:
relate to the 24 month period starting on that day (or to subsequent 24 month periods starting on days specified by the ACCC in any determination),
be published in a legible and prominent way.
1.12As outlined above, a dispute resolution framework is encapsulated within the code to address the imbalance in bargaining power between suppliers and purchasers of gas commodities and provide a formal mechanism for the efficient resolution of pre-contractual disputes.
1.13The ACCC, the Australian Energy Regulator (AER) and other market bodies are responsible for monitoring how costs are passed through to retail customers. As well its monitoring role, the ACCC is responsible for enforcing compliance with the code including the conduct provisions, price rules, good faith requirements, record keeping, information and publication, compliance with conditions to conditional Ministerial exemptions, and obligations to provide additional or corrected information.
1.14On 15 August 2023, the ACCC published compliance and enforcement guidelines that set out the key requirements and consequences of non-compliance with the code. Enforcement options available to the ACCC, commencing from mid-September 2023, include financial penalties as well as public warning notices, third-party redress orders, and court enforceable undertakings.
1.15The government is able to initiate a review of the operation of the code to ensure that it remains fit for purpose. This mechanism provides a basis to consider the merits of refining, strengthening, or disabling aspects of the code if they are no longer relevant or not achieving its objectives.
Background to the code
1.16On 9 December 2022, in response to extraordinary increases in Australian east coast wholesale gas and electricity prices caused by a confluence of international and domestic factors, the government implemented several measures intended to provide consumer price relief for east coast gas uses, described as the Energy Price Relief Plan.
1.17On 15 December 2022, the Treasury Laws Amendment (Energy Price Relief Plan) Bill 2022 (the bill) was passed by both houses of Parliament. The bill, through inserting a new Part IVBB, created two new powers for the government as follows:
the power to prescribe a mandatory gas market code of conduct under section 53L; and
the power to make one or more gas market emergency price orders (within 12 months of the bill’s application) under section 53M.
1.18In December 2022, a Temporary Price Order was implemented on supply from existing fields and consultation was launched on the mandatory code with price and conduct provisions.
1.19Six months after the reforms within the bill were introduced, the Regulations were passed and the mandatory code commenced on 11 July 2023 with a two-month transitional period to allow companies to adapt to new conduct provisions, record keeping and reporting requirements.
1.20The illustration below provides a high-level overview of the reforms to the east coast gas market. It does not capture all the exemptions, transitional and other arrangements provided by the price cap and the code.
Figure 1.1Timeline of policy reforms
Source: ACCC, Gas Inquiry 2017–2030 — Interim update on east coast gas market, June 2023, p. 9.
Relevant reviews and inquiries
ACCC inquiry into gas supply
1.21On 19 April 2017, the then Coalition Government directed the ACCC to conduct a wide-ranging inquiry into the supply of and demand for natural gas in Australia, and to publish regular information on the supply and pricing of gas for the next three years.
1.22On 25 July 2019, the inquiry was extended until December 2025. On 25October2022, the current government again extended the ACCC’s inquiry role through to 2030 to monitor and consider matters including:
The pricing and availability of offers to supply gas.
The volumes of gas supplied or available for current or future supply, including natural gas extracted or produced in Australia, or imported into Australia.
The pricing, volume and availability of gas for domestic supply compared to the pricing, volume and availability of gas for export.
The pricing, volume and availability of other goods or services, such as goods or services for drilling, storing or processing gas, that enable, assist or facilitate the supply of gas or gas transportation services in Australia.
1.23In its thirteenth interim report released on 1 August 2022, the ACCC focused on the operations of the east coast gas market where it identified immediate and long-term concerns to the supply of gas in 2023, ‘signifying a substantial risk to Australia’s energy security’.
1.24In its June 2023 interim report, the ACCC pointed to the need for significant volumes of gas in 2024 to avoid a shortfall in southern Australian states due to declining gas reserves and high levels of residential gas demand during winter months. The report showed a significant contrast between northern and southern supply outlooks.
Consultation
Options to ensure the domestic wholesale gas market delivers for Australians
1.25The Treasury, working with the Department of Climate Change, Energy, Environment and Water (DCCEEW), the Department of Industry, Science and Resources (DISR), and the ACCC, sought stakeholder views relating to the design of the code between 9 December 2022 to 7February2023, with over 60 submissions received.
1.26The feedback received informed the design of the draft regulations, which informed the second round of consultation on the code.
Gas Mandatory Code of Conduct
1.27A second round of consultation was undertaken by DCCEEW between 26 April and 12 May 2023 to allow stakeholders to consider an exposure draft of the code. Over 40 submissions were received.
Legislative scrutiny
1.28In its Delegated Legislation Monitor 10 of 2023, the Senate Standing Committee for Scrutiny of Delegated Legislation (Scrutiny Committee) raised concerns in relation to the Gas Market Code, outlined in more detail below.
Significant penalties in delegated legislation
1.29The instrument contains several significant penalty provisions that include penalties of up to 1,200 penalty units (currently $375,600) for individuals and 6,000 (currently $1,878,000) for bodies corporate.
1.30The Scrutiny Committee noted that significant penalties should ordinarily be included in primary rather than delegated legislation, to ensure appropriate parliamentary oversight of the scope of the offence penalty. In addition, it was noted by the committee that the explanatory material should ‘justify why the penalty is appropriate to the relevant offence and why it is necessary and appropriate to include such significant penalties in delegated legislation’.
1.31In light of the above, the Scrutiny Committee requested the Minister’s advice as to:
why the above significant penalties are necessary and appropriate for inclusion in delegated legislation; and
further justification for the inclusion of such significant penalties, with reference to the Attorney-General's Department's Guide to Framing Commonwealth Offences.
Availability of independent merits review, judicial review and no invalidity clause
1.32The Scrutiny Committee highlighted that the instrument contains a number of discretionary decisions. However, the explanatory statement does not confirm whether these decisions are subject to independent merits review. In addition, the explanatory statement also noted that the instrument appears to contain two 'no invalidity clauses' that exclude or limit the availability of judicial review. For example, subsections 61(6) and 76(2) provide that failure to comply with consultation requirements prior to granting a conditional ministerial exemption and undertaking a review of the instrument's operation, respectively, do not affect the validity of the exemption or the review.
1.33The Scrutiny Committee considers that:
limiting judicial review by a no-invalidity clause is a serious matter, because such clauses can restrict an applicant's capacity to seek independent review of relevant acts or decisions. Where an instrument contains a no invalidity clause, the committee expects its explanatory statement to explain the nature and scope of the clause. Further, the explanatory statement should justify why it is necessary and appropriate to potentially restrict a person's access to independent review through the inclusion of the no-invalidity clause.
1.34Accordingly, the Scrutiny Committee sought the Ministers advice as to:
whether independent merits review is available in relation to discretionary decisions under the instrument and, if not, the circumstances of the relevant decisions which justify their exclusion from merits review, by reference to the Administrative Review Council's guide, what decisions should be subject to merits review; and
why the no invalidity clauses are considered necessary and appropriate and whether there are any safeguards in place in relation to decisions under those provisions.
Strict liability offences
1.35The requirement for the prosecution to prove fault on the part of a defendant is an important element of the common law right to be presumed innocent. The application of strict liability undermines this right by removing the requirement to prove fault in relation to one or more elements of an offence.
1.36The Scrutiny Committee noted that it is unclear whether the offence provisions in the instrument are strict liability offences, as they do not appear to include a fault element. Furthermore, contrary to expectations that a justification is provided, the committee stated that the explanatory statement does not confirm whether these offences are strict liability and, if so, whether they are necessary and appropriate.
1.37In light of the above the Scrutiny committee requested the minister's advice as to:
whether the offence provisions in the instrument are intended to be offences of strict liability; and
if so, why the strict liability offences are necessary and appropriate with reference to the principles set out in part 2.2.6 of the Attorney-General's Department's Guide to Framing Commonwealth Offences.
Privacy; conferral of discretionary powers; adequacy of explanatory materials
1.38The Scrutiny Committee's view is that provisions which enable the collection, use and disclosure of personal information may trespass on an individual's right to privacy should generally be included in primary rather than delegated legislation. Where such provisions are contained in delegated legislation, the Scrutiny Committee expects the explanatory materials to provide an explanation of the nature and scope of the provisions, as well as addressing the nature and extent of the information that may be disclosed, and the persons or entities to whom disclosure is permitted.
1.39Part 6 of the instrument contains several provisions which provide for the collection, use and/or disclosure of information. In relation to such provisions, the Scrutiny Committee were concerned that it is unclear whether this includes personal information and, if so, whether any safeguards apply to this collection, use and/or disclosure. In particular, the committee pointed to sections 37 and 38 which create an offence where a covered supplier fails to provide the ACCC with certain details regarding a gas offer or agreement to supply regulated gas, as well as to provide the offers or agreements themselves. In addition, it was noted that section 75 empowers the energy Minister to request the provision of certain information relating to a conditional ministerial exemption. However, it appears unclear from both the instrument and explanatory statements whether a person is required to comply with such a request.
1.40Further, the committee explained that section 43 requires the ACCC to publish certain information specified in subsection (2) 'in a manner that the Commission considers appropriate' which may include the supplier's name, and details regarding any conditional ministerial exemptions that have been granted. The Scrutiny Committee were concerned that the only limitation on the face of the instrument is whether doing so would prejudice the supplier's commercial interests or be 'contrary to the public interest'.
1.41Regarding the above concerns, the Scrutiny Committee outlined its expectation that the explanatory materials justify why the provisions are necessary and appropriate, and what safeguards are in place to protect this personal information, and whether these safeguards are in law or policy.
1.42In addition, the Scrutiny Committee were concerned that neither the instrument nor the explanatory materials define or specify the factors to be considered in determining what the ACCC ‘considers appropriate’ or is ‘in the public interest’ under section 43. Accordingly, advice from the Minister was sought from the committee in relation to the following:
whether the information that may be collected, used and/or disclosed under the instrument includes personal information; and
whether any statutory safeguards apply to protect personal information that may be collected under Part 6, including whether the Privacy Act 1988 applies; and
whether a person is required to comply with a request from the Energy Minister under section 75; and
what factors are required to be considered in determining what is 'contrary to the public interest' under subsection 43(3).
Matters more appropriate for parliamentary enactment
1.43The instrument establishes a mandatory code of conduct for the domestic wholesale gas market and, as noted above, establishes offence provisions with significant penalties.
1.44The explanatory statement indicates that the purpose of the instrument is to facilitate a 'well-functioning domestic wholesale gas market with adequate gas supply at reasonable prices and on reasonable terms'. While the Scrutiny Committee acknowledged the inclusion of such matters in the instrument is authorised by the enabling Act, it generally considers such significant matters to be more appropriate for inclusion in primary legislation.
1.45Accordingly, the Scrutiny Committee drew this issue to the attention of the Senate under Standing Order 23(4) on the basis that it considers the instrument contains matters ordinarily more appropriate for parliamentary enactment.
Conduct of the inquiry
1.46The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 25August2023.
1.47The committee received 8 submissions as well as additional information and answers to questions on notice, which are listed at Appendix 1.
1.48The committee held one public hearing for the inquiry on 21 September 2023. The names of witnesses who appeared at the hearing can be found at Appendix2.
Acknowledgments
1.49The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and participated in the public hearing.