ACCC to probe energy prices, profits amid crisis

After receiving a letter from treasurer Jim Chalmers to investigate energy prices, the competition watchdog plans to probe and also assess any need for regulatory change.

The ACCC will investigate the reasons behind soaring power and gas prices.

The competition regulator will probe energy companies’ profits and margins as part of an investigation into soaring electricity and gas bills with power prices trading five times higher than a year ago.

After receiving a letter from Federal Treasurer Jim Chalmers to investigate prices, the Australian Competition and Consumer Commission said on Monday that it would launch the probe and also assess any need for regulatory change to ensure electricity and gas markets are functioning properly.

“Under direction from the Federal Government, we will use our full information gathering powers to provide greater transparency around the factors influencing electricity and gas prices, including profits and margins from a wide range of energy companies,” ACCC chair Gina Cass-Gottlieb said.

“In line with the Treasurer’s request, we will also assess and bring to the government’s attention any need for regulatory change to ensure electricity and gas markets function properly for the benefit of all Australian consumers.”

The ACCC also plans to report back to the nation’s energy ministers by July on the current state of the market which saw wholesale spot power prices rise five-fold in the first two weeks of June from the first quarter of 2021.

“There is no doubt that international factors such as the war in Ukraine have heavily impacted the global gas supply and prices. A cold start to winter and a reliance on ageing coal-fired power stations amplified challenges already facing the Australian energy market,” Ms Cass-Gottlieb said.

“We are acutely aware of the pressures that rapidly rising energy prices are placing on Australian households and businesses. We are working closely with our colleagues at the Australian Energy Regulator to monitor the market and to take action against conduct harming competition or consumers and to preserve the competitiveness of our energy markets.”

The Australian Energy Market Operator has suspended the national electricity market after it was forced to intervene and set caps on both power and gas while blackout risks also threatened the system after some generators refused to supply the market at lower capped prices.

Anthony Albanese accused generators of essentially “gaming the system” on Friday while Australian Energy Regulator chair Clare Savage suggested some generators were withholding supply in order to access higher payments when they were then directed to return to the market by AEMO.

The ACCC found wholesale spot market prices fell by between 46-66 per cent from 2018 to 2021, those reductions have been reversed this year with elevated futures prices in all parts of the national electricity market, putting pressure on household bills.

“These spot market increases do not flow through to retailers’ costs immediately, but they will eventually do so. There will be variation between retailers on the timing lag for any cost increases, depending on their specific hedging strategy. There is initial evidence of wholesale market increases putting upward pressure on customer prices in recent decisions on 2022–23 standing offers,” the ACCC said.

Market bodies are formulating ways to ensure a smooth transition to a renewables-led system as the uneven exit of coal from the power grid piles pressure on both prices and supply.

Coal and gas power stations would receive payments to secure reliable supply and keep Australia’s ailing electricity system operating, as the government faces pressure to avoid blackouts and fix the ­national energy crisis.

A final recommendation on the mechanism is due to be sent to Australia’s energy ministers by the end of 2022 with the reform operational by July 2025 at the latest. The deadline reflects the risk of a forecast supply gap in the NSW market that same year amid the expected closure of Australia’s largest coal plant – Eraring – by mid-2025.