Status of ACCC's key recommendations under review

Recommendation #1

Summary

Focused on amending the National Electricity Law (NEL) to prevent acquisitions that allow market participants to own, control or dispatch more than 20% of generation capacity in any National Electricity Market (NEM) region or the NEM as a whole.

Review Body: ESB

Preliminary advice by Review Body

The ESB considered that pursuing this recommendation through a capacity cap does not fully capture the capacity for the potential exercise of market power. If anything is implemented in relation to this recommendation, the ESB suggested that it be implemented through a cap based on actual potential to exercise market power.

Status

• 14 February 2019: ESB published consultation paper
• 8 March 2019: Stakeholder consultation closed
• Next Steps: COAG to consider ESB advice

 Recommendation #6

Summary

Suggested the NEL be amended to require all over-the-counter (OTC) trades be reported to a repository which the AER administered. This recommendation was designed to increase transparency in the OTC market, subsequently overcoming impediments to the transmission of price signals in the market and introducing a higher degree of certainty for participants and policy makers.

Review Body: ESB

Preliminary advice by Review Body

The ESB considered that:

• a trade repository and mandatory reporting of OTC trades is not justified on transparency grounds alone (given the expense of establishing and maintaining the repository and the burden placed on all market participants);
• information reported under this reporting scheme has the potential to be misleading or of little use; and
• if this recommendation is implemented, requiring reporting solely through the NEL may exclude some market participants that operate solely in financial markets.

The ESB suggested that if this recommendation is pursued it would be preferable that such reporting requirements are mandated under the Corporations Act.

Status

• 28 September 2018: ESB published consultation paper
• 19 October 2018: Stakeholder consultation closed
• Next Steps: ESB to report to COAG

Recommendation #7

Summary

Recommended that the Australian Energy Market Commission (AEMC) introduce market-making obligations in South Australia requiring large, vertically integrated retailers to make offers to buy and sell specified hedge contracts each day (boosting hedge market activity).

Review Body: ESB

Preliminary advice by Review Body

Market-making obligations form part of the Retailer Reliability Obligations (RRO) which commenced on 1 July 2019. The COAG Energy Council has indicated that the Council has agreed amendments which allow the South Australian Minister to trigger the RRO's application in South Australia within shorter timeframes than that in which the AER are able to trigger RRO in the other NEM jurisdictions.

In addition, the ASX has introduced a voluntary market-making scheme with two SA participants and five participants in each of NSW, VIC and QLD. It also commenced on 1 July 2019.

ENGIE had further submitted a rule change request regarding the provision of market making services in the NEM. However, on the basis of the introduction of the RRO and ASX scheme, the AEMC has released a draft determination rejecting the request.

In its rejection, the AEMC cited endeavours to implement arrangements in addition to the RRO and ASX scheme would be unlikely to be inefficient. It is similarly expected that the ESB will not pursue Recommendation 7 any further, relying instead on the introduction of the RRO and ASX scheme.

Status

• 28 September 2018: ESB published consultation paper
• 19 October 2018: Stakeholder consultation closed
• Next Steps: ESB may not proceed further with this review given the commencement of the RRO on 1 July 2019

Recommendation #30

Summary

Introduced the notion of a default market offer (DMO) in place of the standing offer and standard retail contract. The ACCC recommended that the AER set the price determination to guide designated retailers in supplying electricity to consumers under a default offer on request, or in circumstances where a consumer otherwise does not take up a market offer. It was recommended that:

• this price determination should allow simple pricing, minimum payment periods, reasonable margins and customer acquisition and retention costs; and
• it should not be the lowest price, but instead a fall-back position.

This recommendation further incorporated the essence of the below listed recommendations:

• Recommendation 32, which targeted headline discount claims by requiring they be advertised against an AER reference bill;
• Recommendation 49, which sought to extend the DMO to SMEs; and
• Recommendation 50, which noted that discounts should be calculated from a reference bill for SMEs and recommended that the AER develop a process for determining a benchmark for representative usage levels for an average SME customer.

Review Body: AER

Preliminary advice by Review Body

The Commonwealth Treasurer and Minister for Energy requested that the AER develop the DMO. The AER set the DMO price for each distribution zone as the mid-point of the range between the median market offer and the median standing offer. This price is intended to ensure that it does not constrain innovation and the potential benefit to customers. The median was selected from generally available offers in October 2018.

The AER set a DMO price for:

• residential customers on a flat rate usage tariff;
• residential customers on a controlled load tariff; and
• small business customers on a flat rate usage tariff.

Retailers cannot charge customers on standing offers more than the applicable DMO price, which is expressed as an annual price based on benchmark consumption levels.

The DMO must be used as the reference bill amount from which retailers must calculate all discounts.

Status

• 23 February 2019: Draft determination released for public consultation
• 15 March 2019: Draft legislative instrument published
• 30 April 2019: Final Determination and legislative instrument published
• 1 July 2019: DMO and reference bill framework commenced

Recommendation #41

Summary

Sought to expand the AER's wholesale market monitoring functions to include monitoring, analysing and reporting on the contract market, including data reported to the OTC repository (building on Recommendation 6 seeking to mandate OTC trade reporting).

Review Body: ESB

Preliminary advice by Review Body

The ESB is concerned that constraints on the AER's information gathering powers render it an ineffective reporting body through which to gain an understanding of the contract market. The reporting suggested by the recommendation has also been identified as placing an administrative burden on participants. Further, the ESB considered that information obtained through the suggested reporting mechanism is likely to be misleading or of limited use.

Instead, it has been suggested that the New Zealand model be followed, which provides a web-based system through which only participants upload OTC contract trades. This may make the process less onerous by excluding obligations for non-participants and provides a useful database to create historic cost curves or forward price curves.

Status

• 14 February 2019: ESB published consultation paper
• 8 March 2019: Stakeholder consultation closed
• Next Steps: COAG to consider ESB advice

Useful links

• Energy Security Board Consultation on ACCC Recommendations 1 and 41 (14 February 2019)
• Energy Security Board Consultation on ACCC Recommendations 6 and 7 (28 September 2018)
• Related to ACCC Recommendation 7: COAG Energy Council Bulletin on RRO (July 2019)
• Related to ACCC Recommendation 7: AEMC Draft Determination on Rule Change Request for Market-Making Obligations (27 June 2019)
• Related to ACCC Recommendation 7: ASX Announcement Regarding Voluntary Market-Making Scheme (27 June 2019)
• AER retail electricity prices review – determination of default market offer prices (2019)