Regulators brace for Australia’s energy market volatility

By Melissa Coade

June 15, 2022

Gina Cass-Gottlieb
ACCC chair Gina Cass-Gottlieb.  (AAP Image/Bianca De Marchi)

Australian regulators have reminded energy retailers and generators of their obligations under the national electricity rules, warning against misleading, deceptive and false conduct which may disadvantage customers.

Two letters were issued on Tuesday, one to energy retailers and another to market participants. While flagging the regulators understood it may be a financially difficult time for energy retailers, the main message was to remind them of their responsibility to consumers.

“With the considerable challenges facing the east-coast energy market, it is imperative that all market participants meet their obligations to ensure Australians continue to have access to reliable and affordable energy,” the letter read.

“Retailers are permitted to vary tariffs and charges for market retail contracted as long as the price changes are made in accordance with the terms and conditions in the contract and are not inconsistent with Retail Rules.”

Both letters were signed by Australian Energy Regulator (AER) chair Claire Savage, with ACCC chair Gina Cass-Gottlieb co-signing the letter to retailers. 

The government regulators said they would be working closely to monitor the market and enforce laws to protect consumers and maintain competition. 

Power shortages across Queensland, New South Wales, Victoria, South Australia and Tasmania are expected in the coming days, with experts pointing to higher prices and supply interruptions caused by the war in Ukraine, higher demand during the colder months, and an local arrangement which sees local prices subject to spot gas prices following increase in international traded gas prices.

Griffith University’s Dr Phillip Wild, a senior researcher from the Centre for Applied Energy Economics and Policy Research, explained the general focus on gas export markets has meant that domestic gas users have had difficulty in obtaining longer-term gas supply agreement. He also pointed to an unusually high amount of planned and unplanned coal generator closures and the market’s withdrawal of gas generation capacity in response to the recently introduced administered cap price as a contributing factor. 

“An administered price cap of $300/MWh was implemented by the Australian Energy Market Operator (AEMO) initially in Queensland but then shortly followed in New South Wales, Victoria and South Australia in response to a sustained run of high wholesale electricity prices occurring over the last several days,” Wild said.

“AEMO subsequently used its powers under the National Electricity Law to direct previously withdrawn gas plant to commence generating electricity to balance high morning and evening peak demands as well as covering the possibility of unexpected outage of operational generators or network infrastructure.”

Supporting customers during hardship was an important plank of the work of the ACCC, and the regulator said steps would be considered, similar to those taken during the COVID-19 lockdowns, to consider removing certain competition law prohibitions on an urgent basis.

“We are examining the current challenging circumstances to determine whether there are any situations that could be supported or facilitated by such a process,” the regulators said.

Providers were told they must be sharing critical pricing information relating to standing offers with visible links on their websites to the Energy Made Easy resource and the AER’s pricing regulation guidelines. 

“Retailers must also tell small customers how their offers compare to the reference price by including specific information in their communications. 

“At a time when customers may be searching for a better offer, it is vital they are able to accurately assess the options available. We will be monitoring price representations to ensure they are consistent with the default market offer price and accurately reflect how an offer compares to the reference price,” the letter said.

The University of South Australia’s Dr Stephen Berry, manager of the Research Node for Low Carbon Living, said the power crisis was due to multiple factors. He blamed the previous federal government for its failure to drive grid infrastructure, which was now unsuitable for renewables.

“A move to distributed generation (renewables) over the last 20 years needs a completely different grid network with much larger interconnectors to allow electricity to be moved across state borders (between those that have too much renewable energy and those that don’t),” Berry said.

“Australia has plenty of electricity, much of it from renewables, but not where it’s needed because the grid has significant pinch-points (interconnectors). The wind is still blowing the wind turbines and the sun is still shining on plenty of solar farms, and the dams are full in Tasmania and the Snowy Mountains, but the grid is not designed to move what is needed to those places the power is needed,” he said. 

After a decade of warning the federal government, and no action, Berry said the risk of no power was finally making people pay attention.

“Despite repeated warnings about the outcome, no one was prepared to listen. Until now,” Berry said. 

The ACCC is currently undertaking an inquiry into the prices and profits of Australia’s electricity supply, and has an ongoing role enforcing competition and consumer laws, as well as the Electricity Retail Code.

“The ACCC will investigate any reports of, or concerns about, anti-competitive conduct or conduct that is likely to mislead or deceive consumers or false or misleading claims or statements by retailers in the electricity market,” the regulators said. 

“In current circumstances, we would be particularly concerned by any conduct that attempts to take advantage of the current market conditions to mislead consumers about the need for, or extent of, any energy price increases or to achieve other financial gains.”

The AER also signaled to energy companies it would be in touch to gather more information over the coming weeks to understand the changes facing the market. 

In a separate email to market participants, Savage underscored concerns about generators withdrawing available capacity from the market after administered pricing was applied in the market. In response, the Australian Energy Market Operator had to issue directions to maintain the market’s supply and demand balance. 

“The AER expects market participants to undertake their operations so as to ensure they are not causing or significantly contributing to the circumstances causing a direction to be issued,” Savage said.


READ MORE:

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