On 21 December 2022, the New South Wales Parliament passed the Energy and Utilities Administration Amendment Act 2022 which, among other things, provides the Government with the ability to set maximum prices for coal, direct the supply of coal to particular persons and set conditions with respect to the supply of coal in NSW.
The Amendment Act received assent the following day (22 December), and is now law.
The purpose of the legislation
The object of the legislation is to enable the NSW Government to make directions in relation to the supply of coal to reduce the risk of increased electricity prices.
The legislation is intended to complement the Commonwealth Parliament’s action last week in passing amendments to national gas laws, which seek to give the Commonwealth Government greater power to regulate the gas market, also in response to concerns about rising electricity prices.
The coal market price emergency trigger
To trigger the operation of the Government’s powers under the Amendment Act, the Premier first needs to make a written order declaring a “coal market price emergency” – and the circumstances to declare that emergency are quite broad. The Premier has the power to do so where either of the following “will adversely affect members of the community”:
- increases in coal prices (whether past or projected); or
- insufficient domestic supply of coal.
By way of example, and consistent with its object, the Amendment Act states that an increase in coal prices “may” adversely affect members of the community if the increase contributes, or “may” contribute, to an increase in electricity prices.
The Premier does not need to consult with any person, or comply with any requirement of procedural fairness, before making (or revoking) an order, and an order expires when it is revoked or on the date specified in the order (and if no date is specified, 6 months after the date of the order taking effect).
What directions could then apply?
While an order is in force, the Minister for Energy can give directions that they consider to be “reasonably necessary” to respond to the coal market price emergency for which the Premier’s order was made. Similar to the Premier’s ability to make a an order, the Minister for Energy is not required to consult with any person, or comply with any requirement of procedural fairness, before giving, amending or revoking a direction.
The legislation gives examples of the sorts of wide-ranging directions that could be made, including:
- imposing a cap, or different caps, on the price at which coal may be sold, offered for sale or supplied;
- requiring a person to supply, or offer to supply, coal to a particular person specified in the direction;
- requiring a person to comply with terms and conditions determined by the Minister for the supply of, or offer to supply, coal or in relation to a cap; or
- imposing terms and conditions on purchasers of coal, including terms restricting or prohibiting on-selling the coal at a higher price.
Unless the person the subject of a direction has a “reasonable excuse”, a failure to comply with a direction can result in a minimum penalty for corporations of $10 million. The legislation expressly states that it is not a “reasonable excuse” for a party to argue that complying with a direction would cause them to be in breach of their contractual obligations, if they entered into the relevant contract on or after 9 December 2022.
The Minister is required to appoint a regulator whose role is to ensure compliance with the Amendment Act, including compliance with directions. The regulator will also:
- have the power to appoint inspectors to check on compliance for the purposes of the legislation, including the power to obtain documents or information, and examining premises. Failure to comply with matters relating to inspection may also result in separate penalties applying; and
- have an advisory function, including providing recommendations to the Premier or the Minister on energy markets, and the exercise of the Premier’s or Minister’s functions under the legislation.
It is not clear yet when the NSW Government will make the order and give the directions which are necessary for the Amendment Act to have effect. However, given the urgency of this legislative response (Parliament was recalled specifically for a special sitting to consider this legislation), we can expect these steps to be taken very soon.
Consistent with the NSW Government’s statements that these legislative measures are intended to be temporary, the Amendment Act provides for its own repeal on 30 June 2024.
Coal producers and suppliers, and their counterparties too, should consider the implications of the Amendment Act, including on their existing arrangements and in relation to supply contracts that they enter into in the future.