States revolt over Anthony Albanese’s plan for coal price caps

Anthony Albanese’s plan to lower energy prices is under threat amid requests for the NSW and Queensland governments to impose their own coal price caps.

Feeling the heat on energy … Anthony Albanese during question time in the House of Representatives on Wednesday. Picture: Martin Ollman

Anthony Albanese’s national plan to lower energy prices is under threat amid an eleventh-hour ­request for the NSW and Queensland governments to impose their own domestic coal price caps, in a move that would avoid the commonwealth having to pay tens of billions of dollars in compensation to producers.

The Albanese government gave the two state governments an ­initial briefing this week on its plan to bring down energy prices, ­requesting they impose their own price caps on coal.

The NSW government is understood to have received legal advice from the crown solicitor that, under the Constitution, the commonwealth could legally set its own national price cap on coal but would need to compensate coal producers.

The legal advice stated that the commonwealth could implement a coal price cap itself on the condition it pay compensation on “just terms”. To lower the price enough for consumers to receive a tangible benefit, it is estimated that tens of billions of dollars in compensation would need to be paid.

Ahead of next Wednesday’s national cabinet meeting, where leaders will discuss the final plan, the Albanese government appears to be seeking to use a loophole in Queensland and NSW laws that doesn’t require compensation to be paid if the states imposed the caps themselves.

The Australian understands the NSW government is unlikely to sign up to any commonwealth deal requiring the states to impose caps without discussions over what compensation the federal government would provide. So far little detail is understood to have been provided.

The pushback from NSW comes after Queensland Premier Annastacia Palaszczuk on Tuesday fired a shot across the bow of the Albanese government, publicly rejecting a price cap on coal.

The NSW Treasury legal ­advice also raised concerns about the sovereign risk to existing free trade agreements if compensation were not paid. Under existing coal ­contracts, the NSW government would be forced to pay compensation to producers under a state-led cap.

The Albanese government’s move to put the onus on NSW and Queensland to impose coal price caps to lower prices comes after it flagged it was prepared to intervene in South Australia and Victoria on a gas price cap at between $11 and $13 a gigajoule.

The coal industry has raised concerns with the NSW government about the consequences of a price cap on contracts already ­entered into if the commonwealth sought to avoid compensation.

A senior NSW government source said if the commonwealth wanted a price cap on coal then it should be willing to pay fair ­compensation for contracts already entered into.

“The commonwealth shouldn’t pick winners and losers; they should intervene equally if that’s their solution,” the NSW source said. “They should pay fair compensation when they override contracts.”

The Australian this week revealed the federal government’s energy plan would not include new taxes or direct payments but would strengthen a mandatory code of conduct to increase ­domestic gas supply and pursue energy price subsidies to help lower electricity bills for struggling manufacturers and households.

Amid calls from unions and welfare groups for urgent action to save jobs and protect families, an Australian Energy Regulator report on Wednesday revealed a 39 per cent spike in households struggling with energy debt above $2500.

Ms Palaszczuk, who has already delivered $175 power rebates to households, on Tuesday warned against coal price caps and told the federal government to keep its “hands off our (state-owned) generators”.

“There is no way that Queensland is going to sacrifice the returns that we are able to provide back to Queenslanders,” Ms Palaszczuk said.

“Queensland is always doing the heavy lifting and we need to make sure that if there are any steps by the commonwealth in this direction, Queenslanders are fully compensated.”

Despite Queensland Energy Minister Mick de Brenni and his NSW counterpart Matt Kean saying earlier this month that they supported coal and gas price caps – the spectre of footing the bill has triggered pushback from both states.

Senior federal ministers were understood to be taken aback by Ms Palaszczuk’s intervention one week out from formal discussions when national cabinet leaders meet next week over two days to discuss the energy plan.

Facing mounting pressure to unveil details of the energy package, Mr Albanese defended the government’s position not to confirm cabinet discussions.

Speaking in question time, Mr Albanese said he encouraged all his cabinet colleagues not to “talk about cabinet processes”.

Industry Minister Ed Husic, who has led the charge to shield manufacturers from crippling electricity shocks and use regulatory levers to lower costs, said the government was “dead serious” about pushing down energy prices.

“We will make a decision as a government about what we need to do particularly to rein in those prices and make sure that manufacturers aren’t saddled with those huge costs that we’ve seen,” Mr Husic said.

He added that “the profits that are being pursued by gas companies no matter what – we’ve got to be able to tackle that”.

Credit Suisse on Wednesday warned a potential price cap of $11-$13 a gigajoule on domestic supplies would boost the risk of an electricity blackout in 2023.

“Any intervention to lower prices closer to this level could see gas demand for the power sector spike, drilling in Queensland reduce and see less flexible Bass Strait supply made available, raising the risk of a blackout next year,” Credit Suisse analyst Saul Kavonic said.

The US investor behind a joint $18.4bn takeover bid for Origin Energy said Labor must honour the sanctity of long-term LNG contracts if the federal government proceeded with a controversial intervention fix to cut domestic gas prices.

MidOcean Energy, an LNG company controlled by Origin bidder EIG, said Australia should never have been in its current crisis position given the nation’s vast gas reserves and warned it was critical the sanctity of multi-decade long-term contracts struck by the Australia Pacific LNG export plant in Queensland were not tinkered with.

ADDITIONAL REPORTING: PERRY WILLIAMS