The Morrison government's 'big stick' energy bill explained

How the big stick works

If the ACCC believes an energy company is engaging in "prohibited conduct", it may give the company a draft warning notice.

Prohibited conduct includes: Failing to adjust prices for "small customers" (residential or small business customers) for "sustained and substantial" reductions in underling costs; failing to offer electricity or contracts to small customers on acceptable terms; or acting fraudulently, dishonestly or in bad faith, or for the purpose of distorting the electricity market or manipulating prices.

A company issued with the draft warning then has 21 days to argue its case. If the ACCC remains unconvinced, it has 90 days to make the warning public.

The ACCC may also issue an infringement notice under the general provisions of the Competition and Consumer Act, which carries a penalty of up to $126,000.

Direct evidence of an improper purpose - of substantially lessening competition (already outlawed by the Competition and Consumer Act) or distorting the electricity market or manipulating prices - isn't needed. An inference will suffice.

The ACCC may then up the ante by issuing the company with a prohibited conduct notice and the Treasurer with a prohibited conduct recommendation - which may be for forced contracting, divestment or no action.

Forced contracting, divestment

In the case of recommendations for forced contracting or divestment, all parties - the ACCC, Treasurer and court - must also be satisfied that the recommended remedies are a proportionate deterrent for the prohibited conduct in question and that the public benefits outweigh any detriment.

The company then has 45 days to argue that the ACCC is wrong. If the recommendation is for no action, the Treasurer and the ACCC can sit on it for 45 days before informing the public.

In the case of a recommendation for forced contracting, if the Treasurer isn't convinced by the company's representations, he or she may make an order - within the same 45 day period - forcing the company to supply electricity contracts to small customers on whatever terms and conditions as to price, volume, duration and so on that he or she deems necessary.

This forced contracting obligation can not take effect until after six months from the date of the court order, and can apply for up to three years after the order.

In the case of a recommendation for divestment, if the Treasurer isn't convinced by the company's arguments, he or she may apply - within the same 45 days - to the court for an order compelling the energy company to sell interests or shares in specified assets on any terms and conditions the court considers appropriate.

This includes terms required to preserve the value of the asset, which could include capital and operational expenditure necessary for that purpose. The company must be given at least 12 months to sell the interest.

Expropriation

The government has bowed to backbench concerns and threats of High Court action from energy companies by proposing that the divestment power be exercised by a court on the Treasurer's application rather than by the Treasurer himself.

But the government is still not so confident in the constitutional validity of the bill that it is willing to leave it to chance. It says in several places that notices under the bill are "not a legislative instrument".

The bill contains a clause saying that nothing in the bill has any effect if its operation would result in an acquisition of property under the constitutional section that requires expropriations of private property by the federal government to be on just terms.

Since only the High Court can determine this, this is of little comfort to private energy companies. The Treasurer's powers to compel contracts effectively amount to the government commandeering the private assets required to fulfil the contracts for up to three years arguably amount to expropriation anyway.

Another provision that has energy companies up in arms is one that would give the Australian Energy Regulator the power to legislate, without being subject to parliamentary disallowance or review by the courts except on the narrowest possible - that the decision is "so lacking in reasonable proportionality as not to be a real exercise of the power".

The industry fears this would allow the AER to regulate prices with little scrutiny.

As well, the AER is granted greater powers to compel production of documents and examination of witnesses - subject to two years' jail or a fine of up to $21,000.