This Bills Digest was formerly published with the title Competition and Consumer Amendment (Gas Market) Bill 2022. It was based on the Exposure Draft materials at https://treasury.gov.au/consultation/c2022-343998 as released on Friday 9 December 2022, and may not reflect the content of the Bill as introduced to Parliament.
The Treasury Laws Amendment (Energy Price Relief Plan) Bill 2022 was officially tabled on 15 December 2022.
Background and purpose of the Bill
In response to extraordinary increases in east coast wholesale gas and electricity prices in 2022, National Cabinet agreed on Friday 9 December 2022 to several measures intended to provide consumer price relief, described as an Energy Price Relief Plan.[1]
The Australian Government’s draft Competition and Consumer Amendment (Gas Market) Bill 2022 (the draft Bill), the final version of which is to be introduced to Parliament and debated on Thursday 15 December 2022, implements gas market measures only.
The background to the 2022 gas and electricity price pressures is analysed in the Australian Energy Regulator’s September State of the energy market 2022 report and the Australian Competition and Consumer Commission’s (ACCC’s) Gas inquiry July 2022 Interim Report, which also outline significant risks for the adequacy of future east coast gas supplies.
What the Bill does
As anticipated, the Bill gives the Australian Government power to impose an emergency domestic gas price order within 12 months of the Bill becoming law, to respond to the ‘current energy crisis’ (as clarified in the Exposure Draft Explanatory Memorandum, page 4). The draft Competition and Consumer (Gas Market Emergency Price) Order 2022 would use this power to impose a 12-month $12/gigajoule domestic price cap for new gas contracts. This level was recommended by the ACCC, according to the Treasury’s consultation paper (page 6). Spot markets are expected to remain excluded (see the consultation paper, page 7). The draft cap would not affect existing contracts.[2]
However, the expressed purpose of the Bill is broader: it aims to ‘create an overarching framework to enable the Government to regulate the gas market.’[3] Stakeholders did not previously anticipate the Bill’s creation and delegation of powers to the Executive (including public servants – see below at page 7) to apparently enable regulation of most aspects of the gas market, for example: wholesale and retail activities[4]; domestic sales and exports[5]; and both prices and the amount, timing and location of gas to be supplied, and other contract terms (see below at pages 6–7).
These powers would be relied upon to introduce a yet-to-be-developed mandatory gas industry code of conduct, to apply on an ongoing basis. The code is intended to include ongoing wholesale price regulation through a ‘reasonable pricing provision’ based on production costs and a regulated margin of profit, according to the consultation paper (see page 10), but would have the power to regulate market activity more generally. The Bill provides that violations of the future code may be punished with the highest available penalties under the Competition and Consumer Act 2010 (CCA). As is the usual situation, a court would take into account all the circumstances in imposing a penalty and the maximum penalty would only be applied where ‘appropriate’ (Exposure Draft Explanatory Memorandum, page 25).
Of the two powers, the power to prescribe an ongoing gas code of conduct (under proposed section 53L of the CCA) will be the Bill’s substantive legacy beyond the next 12 months, after the more limited gas market emergency price order powers sunset.
The Bill also creates broad investigation, information gathering, and enforcement powers relating to ‘gas market conduct’ for the ACCC.
It creates the basis for a substantially more comprehensive regulatory framework and, in practice, harsher penalties than the existing industry code regulatory provisions (of general application) under Part IVB of the https://www.legislation.gov.au/Series/C2004A00109CCA.[6]
What the Bill does not do
The Bill does not provide for or legislate consumer energy subsidies, Australian Government compensation to either companies or state/territory governments, or the $125/tonne black coal price cap negotiated by National Cabinet. These will be implemented by agreement with state/territory governments (in relation to compensation, if any), and through new legislation by New South Wales and the application of existing legislation by Queensland (for the coal price cap).
The Bill does not attempt to control the retail price of gas or provide other direct consumer protection, though it does provide scope for such regulation to be introduced via the future code of conduct.
The Bill does not amend the National Gas Law or National Gas Rules, which are made by a process of intergovernmental legislative cooperation led by South Australia, and are amended by the Australian Energy Market Commission (AEMC) and the SA Minister for Energy and Mining.
Nor does the Bill provide directly for electricity price control. The Bill does not propose amendments to the National Energy Retail Law or National Energy Retail Rules. Nevertheless, it is anticipated that indirect electricity price relief will flow from the temporary gas price cap and coal price cap (to the extent that it is implemented by the states).
Expected short-term consumer impact according to the Australian Government
Announcing the energy market interventions on 9 December 2022, the Prime Minister’s press release stated that the Australian Government’s emergency gas price cap and the states’ coal price cap combined would:
Dampen predicted gas price increases by two percentage points in 2022-23 and 16 percentage points in 2023-24.
Reduce the impact of forecast electricity price increases of 36 per cent in 2023-24 by 13 percentage points, preventing a $230 increase that the average Australian household would have seen if these actions were not taken.
Reduce expected inflation in 2023-24 by around an estimated half percentage point.
Since the measures were announced, media have reported on manufacturers welcoming the steps, but warnings from the gas industry about the possibility of negative impacts on future domestic gas supplies and other potential side-effects. Several commentators have expressed concern about the scope of long-term market interventions that would be possible under the powers created by this Bill, and the risks this may pose for investor confidence.
Structure of the Bill
The Bill has two parts. Part 1 proposes to amend the CCA by inserting Part IVBB – Gas market into the Act. Part 2 makes various consequential changes to other parts of the CCA, mostly to include references to the new Part IVBB in existing relevant provisions. The Bill does not amend any other law. The Bill states that in general it is intended to operate concurrently with state and territory laws.[7]
Proposed Part IVBB creates two new powers for the Executive Government:
- the power to prescribe a mandatory gas market code of conduct, under proposed section 53L
- the power to make one or more gas market emergency price orders within the next 12 months, under proposed section 53M.
Both legislative instruments would be disallowable. Codes of conduct and emergency price orders are gas market instruments (see proposed definition inserted into subsection 4(1) of the CCA by item 1 of the Bill).
Part IVBB is a framework legislative scheme. It contains no substantial rules governing gas market conduct. Rather, it delegates expansive powers to the Executive Government to create such rules by disallowable legislative instrument. Most provisions in proposed Part IVBB concern the scope of these powers, the matters they may deal with, delegation, conferral of powers and functions, and enforcement.
Key issues and provisions
Emergency price order
Under proposed section 53M, the Minister may make a gas market emergency price order that:
- sets the terms and conditions under which gas commodities are supplied or acquired, including price (proposed section 53X)
- regulates the operation of a gas exchange (proposed section 53Y)
- imposes incidental rules related to reporting, records and fees, and so on (proposed Subdivision D of Division 2 of Part IVBB—proposed sections 53Z to 53ZE)
- creates civil penalty provisions (proposed section 53ZJ).
Any gas market emergency price order will automatically sunset 12 months after the commencement of the Bill, after which no further gas market emergency price orders may be made. The exposure draft Explanatory Memorandum clarifies that the intent is to use this power to address one-off price impacts stemming from the war in Ukraine. However, the Bill also creates the power for ongoing regulation, including price regulation, via a new gas market code to be developed in 2023 (see below).
The Treasury has published an exposure draft of the intended price cap instrument: the Exposure Draft Competition and Consumer (Gas Market Emergency Price) Order 2022. Definitions in that order state that ‘price cap means $12 per gigajoule’.
The Minister must consult with the ACCC prior to making a gas market emergency price order (proposed subsection 53M(4)), in addition to the general consultation requirements for rule making imposed by section 17 of the Legislation Act 2003.
Gas market code
The power to prescribe a mandatory gas market code under proposed section 53L is not limited to the 12-month sunset period applying to gas market emergency price orders, and would continue to remain in force indefinitely.
This mandatory code is to supersede the current voluntary gas industry code.[8]
The code of conduct provisions permit everything that may be done under a gas market emergency price order, including imposing price caps (proposed section 53T). However, the code of conduct provisions confer many additional powers, as follows:
- The Government may make rules related to gas market conduct generally (proposed section 53P). ‘Gas market conduct’ is defined broadly under proposed section 53C to be ‘conduct relating to supplying or acquiring a gas commodity or to the potential supply or acquisition of a gas commodity’. The definition of market conduct extends to issuing or receiving an expression of interest, and to offering to supply or acquire a gas commodity (proposed paragraph 53C(1)(b)). The regulations may further prescribe conduct which is ‘gas market conduct’ (proposed subparagraph 53C(1)(b)(ix)).
- Proposed sections 53Q to 53W provide detailed categories of matters that a gas market code may deal with. These additional grounds for the making of code of conduct provisions exist concurrently with—but separately to—the general grounds provided in proposed section 53P. They include the power to make rules with respect to:
- dealings with other gas market participants (proposed section 53Q)
- negotiations, expressions of interest and offers (proposed section 53R)
- agreements (proposed section 53S), which on its face would include long-term Gas Supply Agreements (GSAs) with overseas customers, including the terms, timing, location and other conditions of supply
- terms on which gas commodities are supplied or acquired, including the substantially unrestricted discretion to regulate prices (proposed section 53T), including but not limited to setting a maximum or minimum price, or requiring a price to be ‘reasonable’ (proposed subsection 53T(2))[9]
- the operation of gas exchanges (proposed section 53U)
- requirements to supply or not to supply gas commodities (proposed section 53V), including the terms, timing, location and other conditions of supply[10]
- dispute and complaint resolution (proposed section 53W).[11]
Definition of gas market participants and activity
The definition of ‘gas market participant’ (under proposed section 53D) for the purposes of the application of the above instruments includes former gas market participants, persons capable of engaging in gas market conduct, a body corporate related to a body corporate that is a gas market participant, joint ventures, and any person or body prescribed by the regulations.
‘Gas market matters’ are defined at proposed section 53B to include gas market conduct and compliance with a gas market instrument. As with other key definitions in this Bill, they may be extended to any matter prescribed by the regulations. (The regulations may also prescribe that certain matters are not gas market matters.)
The ability to prescribe both the persons and conduct to which rules apply under the regulations amounts to a very broad regulation-making power.
Delegation to officials
Under proposed section 53ZI, gas market instruments may confer a power to make legislative instruments on a Minister, the ACCC, an ACCC employee or another APS employee, or a Commonwealth Government entity (as set out at proposed subsection 53K(3)).
Given the broad scope permitted for gas market instruments—particularly a gas market code—these provisions could be used to delegate substantive decisions about market regulation to officials long term.
It does not appear that legislative instruments made by officials under this section are themselves gas market instruments. The definition of ‘gas market instruments’ in Item 1 of the Bill provides:
gas market instrument means:
- a gas market code; or
- a gas market emergency price order.
This definition does not appear to extend to legislative instruments made under a gas market code or a gas market emergency price order. The Exposure Draft Explanatory Memorandum does not provide further clarity on this point. This may have consequences for the ability of legislative instruments made under proposed section 53ZI delegation to rely on the various powers and capabilities that proposed Part IVBB extends to gas market price instruments, such as the enhanced infringement notice scheme discussed below, as proposed paragraph 53ZK(2)(f) only extends such penalty notices to the civil penalty provisions of gas market instruments.
Parliamentary oversight and disallowance
Both types of gas market instruments (price orders and codes of conduct) are legislative instruments. Both are disallowable, in whole or in part, by either chamber of Parliament.[12]
The scope of the gas market code of conduct powers under the Bill would allow the Government to develop a comprehensive regulatory framework for the gas industry. This comprehensive framework, as a legislative instrument, will not require further legislation by Parliament. It will be disallowable, however:
- Disallowance motions may only disallow instruments or parts of instruments. They may not amend them.[13]
- The Constitution provides that when questions arising in the Senate result in a tied vote, they are resolved in the negative (they fail to pass).[14] This practically means that the number of votes that the Government needs to prevent disallowance of a legislative instrument in the Senate is one less than the number of votes it needs to pass a Bill.[15]
- The Legislation Act 2003 contains a prohibition against remaking disallowed legislative instruments that are the ‘same in substance’ as previously disallowed provisions (section 48). However, previous Parliaments have had some difficulty enforcing this restriction.[16]
Penalties and compliance
Division 3 of proposed Part IVBB of the CCA provides for compliance with gas market instruments and associated penalties. Items 8 to 44 of Part 2 of Schedule 1 to the Bill make corresponding amendments to Part VI of the CCA (‘Enforcement’) and Items 45 to 47 of Part 2 make corresponding amendments to Part XID of the CCA (‘Search and seizure’).
Civil penalties
Proposed section 53ZJ of the CCA provides that a gas market instrument may create civil penalties. These civil penalties are enforceable under the Regulatory Powers (Standard Provisions) Act 2014.
The maximum civil penalty that may be imposed by a gas instrument is provided by section 76(1B) of the CCA, and is whichever is the greater of the following penalties:
- $50,000,000
- if the Court can determine the value of the benefit that the body corporate that breached the civil penalty provision (and any related body corporate) obtained that is reasonably attributable to the commission of the offence—three times that benefit
- if the Court cannot determine the benefit—30% of adjusted annual turnover for the 12 months prior to when the body corporate ceased breaching the civil penalty provision, or proceedings in relation to the contravention were instituted (whichever is earlier). If the contravention continued for longer than a year, the period from the beginning of the month when the breach commenced through to when it ceased.
This is the same penalty as the existing highest tier of major penalty provisions of the CCA. Other contraventions subject to this penalty (such as for certain contraventions of the News Media Bargaining Code and general cartel conduct) are set out in the Act itself, not under delegated legislation. The Exposure Draft Explanatory Memorandum states that ‘The maximum penalty has been designed to provide an effective deterrent to breaches of the law’.[17]
The Bill also includes anti-avoidance provisions. Proposed section 53ZQ provides that a person also becomes liable to a civil penalty if they enter into a scheme where it ‘would be reasonable to conclude that the purpose of the person engaging in that conduct was to avoid the application of a civil penalty provision of a gas market instrument.’ The potential civil penalties for such conduct would be the same as the subsection 76(1B) penalties described above.
Infringement notices
Proposed section 53ZK extends the infringement notice regime in Division 5 of Part XI of the CCA (which exists in relation to certain breaches of the Australian Consumer Law) to most civil penalty contraventions under a gas market instrument (other than a provision requiring a participant to deal with another participant in good faith).
A maximum penalty of 600 penalty units may be applied for a body corporate. This is 10 times the standard maximum of 60 penalty units able to be imposed on a body corporate through an infringement notice under subsection 104(2) of the Regulatory Powers (Standard Provisions) Act 2014, and 10 times the maximum amount recommended to be payable by a body corporate under an infringement notice, according to A Guide to Framing Commonwealth Offences, Infringement Notices, and Enforcement Powers (page 59). The Exposure Draft Explanatory Memorandum states that this is necessary and appropriate ‘given the significant possible financial benefit that corporations stand to gain from potential breaches’.[18]
Public warning notices and orders to redress loss or damage
The Bill also contains provisions for the ACCC to issue public warning notices (proposed sections 53ZL to 53ZN), and to apply to courts for orders to redress loss or damages suffered by certain people[19] due to a contravention of a gas market instrument civil penalty provision (proposed sections 53ZO and 52ZP).
These provisions are similar to existing powers in the CCA in relation to Part IVB—Industry codes. Section 51ADA of the CCA provides for public warning notices, and sections 51ADB and 51ADC provide for orders to redress loss or damage under that Part.
There are differences—the public warning notices scheme in this Bill provides for the issuing of draft notices generally to the person before a public notice, and proposed section 53ZN provides that the Australian Government, ACCC or ACCC employees cannot be sued for defamation in relation to a public warning notice.
Transparency, reporting and oversight
Proposed Part IVBB, Division 2, Subdivision D (proposed sections 53Z to 53ZE) allows gas market instruments (either price orders or the code of conduct) to impose various transparency, auditing and reporting requirements.
Proposed section 53ZB provides that a gas market instrument may confer on a person or body wide powers to monitor compliance with the instrument, and to conduct investigations in relation to gas market matters. Proposed section 53ZC provides that a gas market instrument may provide for the charging of a fee, but such fees must not amount to taxation (proposed section 53ZH).
Proposed section 53ZT gives the ACCC the power to compel persons to provide information.
Further reading
- ACCC, Gas inquiry 2017-25 (ongoing), Interim Report, July 2022
- Australian Energy Regulator, State of the energy market 2022, 6 September 2022
- Parliamentary Library, ‘Energy’, Budget Review October 2022-23, October 2022
- Parliamentary Library, ‘The Australian Government’s ability to restrict gas exports: a quick guide’, June 2022
- Parliamentary Library, ‘Coal, gas and decarbonisation – challenges and policy choices’, Briefing Book for the 47th Parliament, June 2022