Australia: Carbon tax repeal - it's time to explain your prices!

Clayton Utz Insights
Last Updated: 29 July 2014
Article by Paul Burton and Dan Howard

Key Points:

Businesses have to comply with new disclosure requirements as part of the carbon tax repeal, or face tough penalties. The deadlines for reporting to customers and the ACCC are very tight.

While the main aim of the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 (Cth) is to repeal the Clean Energy Act 2011 (Cth) and related Acts to remove the carbon tax from 1 July 2014, it also seeks to ensure that businesses and consumers benefit from price reductions, particularly in relation to their energy bills, by the removal of the carbon tax impost.

For electricity and gas businesses, there are now two priorities:

  • careful analysis of supply chains to identify where carbon costs have been incurred and passed on; and
  • preparing new disclosure statements in the next two months.

Two new prohibitions in the Competition and Consumer Act

The Government has amended the Competition and Consumer Act 2010 (Cth) (CCA) to prohibit corporations from:

  • engaging in price exploitation in relation to the repeal of the carbon tax; and
  • making false or misleading representations concerning the effect of the carbon tax scheme or its repeal on the price for the supply of goods or services.

Prohibition on price exploitation

The Act creates a new section 60C which provides that a corporation must not engage in price exploitation in relation to the carbon tax repeal. A corporation will engage in price exploitation in relation to the carbon tax repeal if:

  • it makes a regulated supply; and
  • the price for the supply does not pass through all of the entity's cost savings relating to the supply that are directly or indirectly attributable to the carbon tax repeal,

having regard to the entity's costs and any other relevant matter that may reasonably influence the price.

A regulated supply involves a supply of natural gas, electricity, synthetic greenhouse gas or SGG equipment occurring between 1 July 2014 and 30 June 2015.

This means that suppliers of natural gas, electricity, synthetic greenhouse gas and SGG equipment will need to be able to demonstrate that the prices that they charge their customers reflect all of the savings the entity makes from the repeal of the carbon tax.

Importantly the application of section 60C is not limited to the retail supply of gas and electricity. Therefore, each entity making a supply in the supply chain will need to ensure that it does not engage in price exploitation.

Electricity and gas suppliers must substantiate price reductions to the ACCC...

By 16 August 2014, electricity and gas suppliers are required to provide to the ACCC, a "carbon tax removal substantiation statement" (CTRS Statement).

The CTRS Statement must set out, in writing:

  • the supplier's estimate, on an average annual percentage price basis, or an average annual dollar price basis, of the supplier's cost savings that have been, are, or will be, attributable to the repeal of the carbon tax and that have been, are being, or will be, passed on to each class of customer during the financial year that commenced on 1 July 2014; and
  • information that substantiates the estimate or estimates set out in the CTRS Statement.

By 16 August 2014, electricity and gas suppliers (as well as bulk synthetic greenhouse gas importers) should also receive a "carbon tax removal substantiation notice" (CTRS Notice) from the ACCC.

Each CTRS Notice will require electricity and gas suppliers to, within 21 days, explain in writing to the ACCC:

  • how the repeal of the carbon tax has affected, or is affecting, the supplier's supply input costs; and
  • how reductions in the supplier's supply input costs that are attributable to the repeal of the carbon tax are reflected in the prices charged by the supplier.

Electricity and gas suppliers will commit an offence if they are capable of providing a CTRS Statement to the ACCC or complying with a CTRS Notice issued to them but fail to comply with either requirement.

... and to their customers

Electricity and gas suppliers must also prepare a statement that identifies, on an average annual percentage price basis, or an average annual dollar price basis, the estimated cost savings to each class of customer, that have been, are, or will be, attributable to the repeal of the carbon tax and are for the financial year that commenced on 1 July 2014.

By 15 September 2014, electricity and gas suppliers must communicate the contents of the statement it has prepared to each class of its customers.

Again, electricity and gas suppliers will commit an offence if they are capable of complying with this requirement but fail to comply with it.

False or misleading representations about the effect of the carbon tax repeal on prices

The Act also creates a new prohibition in section 60K. Under it, a corporation must not, in trade or commerce, in connection with the supply or promotion of any goods or services, make a false or misleading representation concerning the effect of the carbon tax scheme or its repeal (or any part of it) on the price for the supply of goods or services between 1 July 2014 and 30 June 2015.

Similarly, section 60K is not limited to the retail supply of goods or services. Further, the provision is not limited to the supply of gas or electricity. Rather, it applies to the supply of any goods or services.

Penalties and remedies

If a Court finds that sections 60C(1) or 60K of the CCA have been contravened, it may impose a pecuniary penalty of up to $1.1 million on corporations and up to $220,000 on individuals in respect of each contravention.

In addition, if an entity engages in price exploitation in relation to the repeal of the carbon tax, and thereby contravenes section 60C(1), it will be liable to pay to the Commonwealth a penalty equal to 250% of the cost savings that were not passed on (section 60CA).

The existing remedies which are contained in Part VI of the CCA will also be available in respect of contraventions of these new provisions. Therefore, for example, any person who suffers loss or damage by another person's price exploitation conduct or because of a false or misleading representation, they may recover damages under section 82 of the CCA.

If the Court finds that a person has engaged in price exploitation, it will also have the option of making the contravening party:

  • supply electricity or gas at a price that is no higher than a specified price (i.e. a price which includes all of the relevant cost savings attributable to the repeal of the carbon tax); or
  • refund monies paid by a person for the supply of electricity or gas.

ACCC's other powers

The Act also gives the ACCC wide ranging powers to give a corporation written notice where the ACCC considers that the corporation has engaged in price exploitation in relation to the repeal of the carbon tax (section 60D). The ACCC may also give a written notice if it considers that the notice will aid in preventing such exploitation (section 60E).

Additionally, the ACCC may monitor prices to assess the general effect of the carbon tax repeal, including the effect on prices advertised, displayed and offered. These price monitoring activities can occur from the date of the commencement of the enabling section (section 60G).

The ACCC also has broad information gathering powers. A member of the ACCC may require person/s to give information or produce documents relating to prices or the setting of prices where the member believes that the information or documents will be useful to the ACCC's price monitoring activities. The information or documents may relate to prices or the setting of prices before or after the carbon tax repeal or during any situation or period specified in the notice.

Despite being an offence provision, an individual is excused from giving information or producing a document on the ground that the information or document might tend to incriminate the individual or expose the individual to a penalty.

Infringement notices

The ACCC may also issue an infringement notice if the ACCC has reasonable grounds to believe that a person has contravened the price exploitation provision (section 60C) or the misleading and deceptive provision (section 60K). Penalties payable for non-compliance with infringement notices range from $102,000 for a listed corporations to $2,040 for individuals.

If a person fails to make payment pursuant to a valid infringement notice, the person is liable to proceedings under Part VI of the CCA.

Implications for electricity and gas businesses

On its face, the price exploitation provisions seem simple enough. If, as a business you have passed on to your customers an increase in the price of your goods or services because of the impost of the carbon tax, then upon the repeal of the carbon tax, the prices you charge your customers may be expected to decrease by the amount of the impost previously passed on.

However, the repeal of the carbon tax may not result in automatic price reductions. Just as prices for some goods did not increase immediately on the commencement of the carbon tax, it is clear that the effect of the repeal of the carbon tax will take time to filter through and that electricity and gas businesses may still incur carbon-related costs even after 1 July 2014. For example, indirect carbon costs which are carried over post 1 July 2014 will still be incurred by relevant businesses.

In addition, businesses will need to consider the extent to which the costs of supply are from sources of varying intensities (such as coal or gas), and whether they absorbed some of the costs of the carbon price into their cost base rather than passing all of it on to customers in the first place.

Clearly, as a priority relevant businesses will need to carefully review their contractual arrangements to determine how they now respond to the repeal of the carbon tax. If a regulated supply includes a component of carbon related cost, that business will need to be able to justify to the ACCC the reason for including these costs in the price.

At the same time, as there are also new reporting requirements, businesses will need to update their internal compliance systems to ensure the first CTRS Statement is lodged by 16 August 2014, and then communicated to customers by 15 September 2014.

Further, electricity and gas retailers will need to be particularly careful as the ACCC will be watching closely to ensure that the full savings attributable to the repeal of the carbon tax are passed through to customers.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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