Australia: Australia To Prosecute "Unreasonably High" Prices When Carbon Tax Repealed

Earlier this week Australia's Federal Treasurer issued a Direction under the Competition and Consumer Act (2010) to require the Australia Competition and Commission to undertake formal monitoring of the prices, costs and profits of a range of businesses in Australia in anticipation of the passing of the Carbon Tax Repeal package of legislation later this year.

The formal price monitoring direction will apply to all businesses that supply natural gas, electricity or synthetic greenhouse gases, in addition to any corporation listed in the Liable Entities Public Information Database (LEPID) controlled by the Clean Energy Regulator. The ACCC estimates that this Direction will apply to approximately 400 corporations. Its Chairman has welcomed the Direction, stating that "the price monitoring role will leave the ACCC well placed to tackle any price exploitation that may occur post-repeal."

These actions raise a number of important issues for businesses that either supply regulated products (natural gas, electricity or SGGs) or those listed in the LEPID.

Validity of Direction

The legislated objective of the price surveillance powers invoked by the Treasurer is to have prices surveillance applied only in markets where the Minister has reached the view that competitive pressures are not sufficient to achieve efficient prices and protect consumers.

It appears unlikely that the Treasurer has given due consideration to whether such competitive pressures exist, instead stating that the purpose of the Direction was to "assess the general effect of the carbon tax scheme in Australia." In these circumstances there is significant doubt as to whether the Direction and the reasons for the decision to issue the Direction would stand up to judicial scrutiny. Such uncertainty is neither helpful for business confidence nor useful for determining risk.

Pricing information collected for enforcement of price exploitation prohibition

The ACCC appears to intend to use the information collected under this Direction for the purpose of determining where price exploitation cases should be taken once the carbon tax repeal has been implemented. While there is a serious question as to whether information collected under one head of power (the price surveillance power) can be used in the pursuit of another head of power (enforcement of the price exploitation prohibition), those businesses that receive a request from the ACCC should carefully consider the types of information they provide and be prepared to engage in negotiations with the ACCC as to the scope of its request.

It will be important to ensure that the requests issued by the ACCC are limited to the collection of information that is within the scope of the power provided by the Treasurer's Direction. Advice should be sought in relation to the scope of any request received where anything other than publicly available prices are requested to ensure that this is the case.

The importance of strategically analyzing information provided to the ACCC to determine whether there may be a likely exposure created in relation to the proposed price exploitation prohibition cannot be understated. Businesses should be aware that the proposed prohibition considers that businesses are engaging in price exploitation if their prices are "unreasonably high."

This threshold requires the courts to analyze costs, profits and supply and demand conditions to reach a view as to whether the prices charged by a business are in fact unreasonably high. As you would expect, this is likely to be a controversial process. However, if such exposures are possible, there is a range of options available to minimize potential liabilities.

It is also important to be aware that the determination of unit specific costs and profits are highly contentious areas in competition law. Any attempt by the ACCC to demand this type of information must carefully be considered in light of both accepted economic doctrine and previous legal precedent. Provision of information in response to requests that are not carefully considered can be costly and impose a significant burden in terms of management time and distraction from strategic priorities.

Provision of information to the ACCC that exceeds that legally required to be provided under the prices surveillance powers also leaves open the possibility that the business may be exposed to other scrutiny from the regulator that it may otherwise have been able to avoid. These allegations could range from accusations of misleading or deceptive representations right through to cartel conduct.

The Treasurer's Direction may result in yet an additional compliance burden being imposed on those businesses most impacted by the implementation of the Carbon Pricing Mechanism (now referred to as the Carbon Tax) under the previous Labor Government. In the absence of a change of heart from the Treasurer, businesses in the relevant industries should be wary not to fall afoul of the ACCC during the period of uncertainty that will accompany the carbon tax repeal process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Jason A. Beer
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