Quantcast

01 Sep 2014

Price exploitation and passing through the savings: A new Part V for the Competition and Consumer Act

By Peter Sise

The work of Parliament may be over, for now at least, but it is only just beginning for the ACCC and those who must comply with the new price exploitation provisions added to the Competition and Consumer Act 2010 (Cth) (CCA) by the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 (Cth) (Carbon Tax Repeal Act).  The Carbon Tax Repeal Act has introduced a new Part V (ss 60-60R) to the CCA.  Part V contains two key prohibitions, grants new powers to the ACCC and places heavy obligations on certain businesses to demonstrate their compliance with the new Part.  The two new prohibitions are a prohibition on “price exploitation” in relation to the supply of “regulated goods” and a prohibition on false or misleading representations in relation to the repeal of the carbon tax.

The repeal of the carbon tax

The repeal of the carbon tax was a key election promise of the Coalition during the September 2013 Election.  It has been said that the repeal will save an average household around $550 per year, the bulk of which is expected to be from an estimated $200 reduction in electricity bills and a $70 reduction in natural gas bills.[1]  Concern arose that these savings may not be realised by Australians if market forces alone determined whether the cost savings, made by electricity and gas retailers following the repeal, are passed onto consumers.[2]  For this reason, the Palmer United Party proposed that the Bill for the Carbon Tax Repeal Act include provisions that ensure electricity and gas retailers pass on their cost savings and heavily penalise them if they do not. [3]  This is reflected in s 60AA of the CCA which states that the object of Part V is to ensure that all cost savings attributable to the repeal of the carbon tax are passed through the supply chain for electricity and natural gas, and the intention of Parliament is to ensure that all such cost savings are passed on to consumers through lower prices.[4]

Prohibition on price exploitation

The new s 60C of the CCA prohibits an “entity”[5] from engaging in “price exploitation in relation to the carbon tax repeal”.  Price exploitation has two elements: (a) the entity must make a “regulated supply” and (b) the entity does “not pass through all of the entity’s cost savings relating to the supply that are directly or indirectly attributable to the carbon tax repeal.”[6]  A “regulated supply” is the supply of one of the following goods in the 2015 financial year: natural gas, electricity, synthetic greenhouse gas, equipment associated with synthetic greenhouse gas or goods prescribed by legislative instrument.[7]  For the purposes of determining whether all of the entity’s cost savings have been passed through, s 60C(3) requires one to have regard to the entity’s cost savings that are directly or indirectly attributable to the “carbon tax repeal”;[8] how these savings “can reasonably be attributed to the different supplies that the entity makes”; the entity’s costs; and any other matter that may reasonably influence the price of a “regulated supply”. 

If an entity engages in price exploitation it must pay by 1 July 2015 a penalty equal to 250% of the cost savings that were not passed through.[9]  In addition, pecuniary penalties apply under s 76 of the CCA, including for ancillary liability.  The maximum penalty under s 76 for each act or omission that relates to price exploitation is $1,100,070 for a corporation and $220,150 for a person other than a corporation.[10]  An indemnity given by a corporation in favour of one of its officers against such a pecuniary penalty will be void.[11]  The ACCC, but no-one else, may seek an injunction under s 80 in relation to price exploitation.  A person who suffers loss or damage due to price exploitation may seek recovery under s 82.  The remedies under s 87 are also available as well as orders under s 163A save for a declaration regarding the effect or operation of s 60C, which may only be sought by the ACCC.

A new section 80A has been inserted into Part VI of the CCA giving the Court specific power to order an entity that has engaged in price exploitation (a) not to make a supply above a specific price and (b) to provide a refund to specific persons.  Only the ACCC may apply for such orders. 

False or misleading representations regarding the carbon tax repeal

Section 60K of the CCA provides that an entity must not make false or misleading representations during the 2015 financial year concerning the effect of the carbon tax repeal on the price for the supply of any goods or services.  Essentially, s 60K is an even more specific version of the existing prohibition on false or misleading representations regarding price, which is contained in s 29(1)(i) of the Australian Consumer Law.  Section 60K is intended to complement the existing prohibition and “make it very clear that misrepresentations with respect to the carbon tax are prohibited.”[12]

The ACCC has the power to issue an infringement notice under s 60L in relation to an alleged contravention of s 60K with a maximum penalty of $102,000 for a listed corporation, $10,200 for an unlisted corporation and $2,040 for a person other than a body corporate.[13]  These infringement notices are effectively the same as those issued under s 134A in relation to alleged contraventions of the Australian Consumer Law.  Sections 76, 80, 82, 87 and 163A apply in relation to false or misleading representations in the same manner as for price exploitation.

Reporting obligations of affected entities in relation to price exploitation

Within 30 days of the Carbon Tax Repeal Act receiving Royal Assent, electricity retailers, natural gas retailers and bulk importers of synthetic greenhouse gas must provide the ACCC with a “carbon tax removal substantiation statement”.[14]  There appears to be no provision for an extension of this period.  The statement must contain an estimate of the entity’s annual average cost savings that are attributable to the carbon tax repeal and will be passed on to each class of customers during the 2015 financial year.  The statement must be substantiated.  The ACCC must make the statement publicly available on its website until 30 June 2015 and report to Parliament within 13 months of Royal Assent regarding compliance.  It is an offence not to provide a statement if the entity required to do so is “capable of complying with the requirement”.[15] 

Within 30 Days of Royal Assent, electricity retailers and natural gas retailers must prepare a statement for each class of customers that identifies the average annual estimated cost savings for that class for the 2015 financial year that is attributable to the carbon tax repeal.[16]  The statement must be “communicated” to each class of customers during a period beginning 30 days after Royal Assent and ending 60 days after Royal Assent.  The term “communicated” does not mandate a particular medium, such as a posted letter.  The Supplementary Explanatory Memorandum notes this flexibility and provides posting a statement on a website as an example of communicating to a class of customers.[17]  The legislation does not state what constitutes a "class" of customers.  The ACCC has indicated that it will provide guidance regarding the Carbon Tax Repeal Act, but it remains to be seen whether this will address what constitutes a "class" of customer.  It is an offence not to provide this statement for customers if the electricity or natural gas retailer is “capable of complying with the requirement”.[18]

Role of the ACCC in relation to price exploitation

Section 60D allows the ACCC to issue a notice to an entity if it considers it has engaged in price exploitation.  Such a notice is prima facie evidence that the entity has engaged in price exploitation during penalty proceedings and proceedings for remedies under Part VI.  Also, s 60E allows the ACCC to issue a notice to aid the prevention of price exploitation.  Such a notice will specify the maximum price that in the ACCC’s opinion may be charged by an entity for a particular supply.

Section 60FA requires the ACCC to issue a substantiation notice to electricity retailers, natural gas retailers and bulk importers of synthetic greenhouse gases within 30 days of the Carbon Tax Repeal Act receiving Royal Assent.  The substantiation notice requires the recipient to provide the ACCC with a substantiated written statement of how the carbon tax repeal affects its input costs and how the reduction in costs is reflected in the prices it charges for electricity, natural gas or synthetic greenhouse gas, as the case may be.  The recipient has 21 days to comply with the notice unless it is granted an extension which may not exceed an additional 28 days.[19]  It is an offence not to comply with a substantiation notice if the recipient is “capable of complying with the requirement”.[20]

The ACCC must provide quarterly reports to the Minister throughout the 2015 financial year regarding its operations under Part V.[21]  The Minister is to make these reports publicly available.  This monitoring role is not entirely new as the ACCC was already required to monitor the prices, costs and profits relating to the supply of electricity, natural gas and synthetic greenhouse gases for the period of 1 March 2014 to 30 June 2015, and report to the Treasurer on a quarterly basis.[22]  This monitoring role applied to the carbon tax scheme rather than the carbon tax repeal, but still “largely mirrored the arrangements” in the Bill that resulted in the Carbon Tax Repeal Act.[23]

In addition to the matters mentioned above, the ACCC will enforce the new Part V as is the case for the CCA in general.  The ACCC has already indicated that it will take enforcement action against businesses that do not pass through the full cost savings of the carbon tax repeal.[24]

Comment

The concept of price exploitation may seem unusual.  One would be forgiven for thinking that it is a form of misuse of market power since the word “exploitation” has echoes of taking advantage of a substantial degree of power, but it is clearly different.  The concept of "price exploitation" is not without precedent.  The new Part V is modelled on provisions added to the Trade Practices Act 1974 (Cth) in 1999-2000 to prevent price exploitation following the introduction of the GST.[25]  Those provisions prohibited a supplier charging an "unreasonably high" price having regard to the supplier's costs, supply and demand conditions, and any other relevant matter.[26] 

More recently, the concept of an "unreasonably high" price  was used in the price exploitation provisions of the Fire Services Levy Monitor Act 2012 (Vic), which dealt with the removal of the fire services levy.  In the past, the Victorian Government required insurers to contribute to the costs of fire brigades.  Insurers passed this cost onto home building insurance policyholders via a levy called the fire services levy.  After the Black Saturday Bushfires, it was decided that the cost of fire brigades should be borne by all property owners and not just those who were insured.  Accordingly, it was decided that the fire services levy would be abolished and replaced with a levy on all property owners, payable to councils in addition to council rates.  To ensure the cost saving to insurers were passed onto policyholders, a prohibition on price exploitation was created and a Fire Services Levy Monitor, Professor Allan Fels AO, was appointed to enforce it.  Section 26 of the Fire Services Levy Monitor Act prohibited an insurer charging an insurance premium that was “unreasonably high” having regard to several factors including the removal of the fire services levy and the costs of providing insurance. 

Unlike the price exploitation provisions accompanying the removal of the fires services levy and the introduction of the GST, the concept of an “unreasonably high” price has not been used for the carbon tax repeal.  Instead, the concept of passing on costs savings has been adopted.  This is perhaps preferable since it is more readily quantified and does not require a Court or regulator to decide what is an “unreasonably high” price.  In relation to the latter, one may wonder how a firm operating in a competitive market could conceivably charge an “unreasonably high” price.[27]

Part V may lead to group proceedings by electricity and gas customers who claim that the cost savings of the carbon tax repeal have not been passed on.  The prohibition on price exploitation extends to supplies to all customers whether they are individuals or large businesses.  The reporting obligations of Part V may provide useful evidence for any consumer who wishes to make a claim.  The need for group proceedings may be obviated in part by a s 87B undertaking requiring a supplier to provide refunds and discounts to customers[28] or the ACCC seeking an order under the new s 80A.  It is important to note that s 80A only allows refunds and hence does not extend to other loss or damage resulting from price exploitation.  Such loss or damage may have to be sought under s 82 through a group proceeding, if customers do not feel they have been adequately compensated by other means. 

This article was originally published in (2014) 30(7) Competition and Consumer Law News 82.



[1] Commonwealth, Parliamentary Debates, House of Representatives, 14 July 2014, 30 (Hon Greg Hunt, Minister for the Environment); Commonwealth, Parliamentary Debates, Senate, 15 July 2014, 61 (Hon Mitch Fifield).Back to article

[2] See the Supplementary Explanatory Memorandum, Clean Energy Legislation (Carbon Tax Repeal) Bill Amendment 2014 (Cth) (Supplementary Explanatory Memorandum), [4.3].Back to article

[3] Commonwealth, Parliamentary Debates, House of Representatives, 14 July 2014, 59 (Hon Clive Palmer).Back to article

[4] See also Commonwealth, Parliamentary Debates, Senate, 15 July 2014, 72 (Hon Glenn Lazarus) and the Supplementary Explanatory Memorandum, [4.20].Back to article

[5] An “entity” is defined as including an individual and a corporation, amongst others: s 60A.  Back to article

[6] The “carbon tax repeal” is defined as the repeal of six acts, the amendment of two acts and the amendments made by a further four acts: s 60A.Back to article

[7] At the time of writing, there were no goods prescribed by legislative instrument.  “Synthetic greenhouse gas” and “synthetic greenhouse gas equipment” are both defined by the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth).Back to article

[8] See note 6 above for the definition of “carbon tax repeal”.Back to article

[9] Section 60CA.Back to article

[10] 6,471 penalty units and 1,295 penalty units, respectively.  At the time of writing, a penalty unit was $170.Back to article

[11] Sections 77A and 77B.Back to article

[12] Supplementary Explanatory Memorandum, [4.104].Back to article

[13] 600 penalty units, 60 penalty units and 12 penalty units, respectively.  At the time of writing, a penalty unit was $170.Back to article

[14] Section 60FD.  Royal Assent was given on 17 July 2014, so the statement must be given by 16 August 2014.Back to article

[15] Section 60FD(5)(b).Back to article

[16] Section 60FE.Back to article

[17] Supplementary Explanatory Memorandum, [4.81].Back to article

[18] Section 60FE(4)(b).Back to article

[19] Sections 60FA(4), 60FB and 60FC(2).Back to article

[20] Section 60FC(3)(b).Back to article

[21] Section 60J.  Back to article

[22] See the direction dated 18 February 2014 of the Hon Joe Hockey given under s 95ZE of the CCA.Back to article

[23] See the explanatory statement for the direction referred to in note 22 above.Back to article

[24] See ACCC media release of 17 July 2014, ACCC puts businesses on notice about Carbon Tax Price Reduction ObligationBack to article

[25] Supplementary Explanatory Memorandum, [4.4].  See also A New Tax System (Trade Practices Amendment) Act 1999 (Cth) and A New Tax System (Trade Practices Amendment) Act 2000 (Cth).Back to article

[26] Section 75AU of the Trade Practices Act 1974 (Cth) (now repealed).  Back to article

[27] There are no reported cases regarding price exploitation under the Fire Services Levy Monitor Act or s 75AU of the Trade Practices Act.  For guidance on what may be an "unreasonably high" price, see Guidelines on price exploitation in relation to the fire services levy reform (Fire Services Levy monitor, May 2013) and the ACCC's guidelines regarding price exploitation in relation to the GST published on 14 July 1999 and 9 March 2000.  Back to article

[28] For a summary of s 87B undertakings concerning the introduction of the GST, see GST final report:  ACCC oversight of pricing response to the introduction of the new tax system (January 2003).Back to article

Related Knowledge

Get in Touch

Get in touch information is loading

Disclaimer

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.