The Australian Energy Regulator (AER) has issued this compliance statement in relation to retail prices following repeal of the carbon tax. The AER’s approach as outlined in this compliance statement will remove a potential impediment to consumers obtaining lower prices as soon as possible should the repeal occur after 1 July 2014.
The Australian Government is seeking to remove the carbon tax from 1 July 2014. The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 is expected to be reintroduced to the lower house of parliament in the coming months. For the energy sector, a number of factors may prevent prices for some retail customers from immediately reflecting the removal of the carbon tax if repeal occurs after 1 July 2014.
The AER understands that there is concern that the operation of sections 23(5) and 27 of the National Energy Retail Law may delay an energy retailer’s ability to reduce its standing offer prices to pass through savings from the proposed repeal of the carbon tax. To alleviate this concern and provide industry certainty, we have released this statement of our intended approach to the enforcement of the above Retail Law provisions.
In short, we have decided that we will not take action against a retailer for possible breaches of certain provisions of the National Energy Retail Law in circumstances where retailers are introducing lower prices to reflect savings from the repeal of the carbon tax. While we believe that compliance with the Retail Law provides important benefits to market participants and energy consumers, in this instance the interest of consumers is clearly in seeing the repeal of the carbon tax reflected in lower energy prices as soon as possible.
Retail Law compliance statement – standing offer prices and proposed carbon tax repeal
The National Energy Retail Law (Retail Law) regulates the ability of energy retailers to vary their standing offer prices.
In particular, section 23(5) prevents a variation in a standing offer price from taking effect until:
- at least six months after the previous variation; and
- at least 10 business days after a retailer publishes a variation on its website.
Section 27 of the Retail Law obliges a retailer to comply with the obligations imposed on it by the mandated terms and conditions of a standard retail contract made with a small customer. These terms and conditions include the charging of customers in accordance with standing offer prices and rules for variation.
The AER understands that there is concern that the operation of sections 23(5) and 27 may delay an energy retailer’s ability to reduce its standing offer prices to pass through savings from the proposed repeal of the carbon tax. In the event that the repeal legislation has not received Royal Assent by the time retailers next adjust their standing offer prices (typically on or soon after 1 July), then the adjusted prices may continue to reflect an amount for the carbon tax. The concern is that, if the repeal legislation receives Royal Assent within six months of these price adjustments, section 23(5) and 27 may prevent a retailer from immediately passing through savings to customers on standing offers.
The AER is responsible for enforcing compliance with the Retail Law. We have discretion, however, in deciding whether to take enforcement action against a participant for a potential Retail Law breach and the nature of any action.
The AER is communicating its intended approach to the enforcement of the above Retail Law provisions to alleviate this concern and provide certainty around our approach.
The AER has formed a view, on the basis of the information before it, that it would not be appropriate to take enforcement action in relation to retailers charging lower prices than outlined in standing offers to reflect savings from the proposed repeal of the carbon tax. This approach only applies to a single lowering of prices at the time of repeal, and does not apply if a retailer attempts to change the price more than once.
We would expect retailers to publish amended standing offer prices (excluding carbon costs) immediately upon repeal of carbon pricing. Although these amended standing offers would not come into effect for a period of time as set out in section 23(5) of the Retail Law, retailers may immediately begin billing customers on the basis of these carbon exclusive prices prior to the amendments taking effect. The AER would not take action against a retailer for breaches of section 27 of the Retail Law in these circumstances.
The AER has not arrived at the decision to issue this compliance statement lightly. Ongoing compliance with the Retail Law provides important benefits to market participants and energy consumers. However, in this instance the interest of consumers is clearly in seeing the proposed repeal of the carbon tax reflected in lower electricity and gas prices as soon as possible. The AER’s approach will remove an impediment to this occurring.
Industry stakeholders are also considering other ways in which standing offer prices could be amended to avoid issues under sections 23(5) and 27 of the Retail Law. For example, state energy regulators may approve standing offer prices with carbon tax‑contingent tariff structures. If standing offer prices are approved with carbon-contingent tariff structures, it would appear that sections 23 and 27 of the Retail Law may not constrain a retailer from charging carbon exclusive prices immediately upon repeal. In any event, to the extent of any risk, the AER will not pursue non-compliance in these circumstances.