When are businesses allowed to collaborate to purchase electricity collectively? The latest ACCC decision

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Last month the Australian Competition and Consumer Commission (ACCC) released its Draft Determination and Interim Authorisation for the Large Format Retail Association (LFRA) to collectively purchase electricity.[1] In this update we look at the mechanism that allows businesses to do this and its implications for the energy sector.

  1. Why is authorisation required?

The Competition and Consumer Act 2010 (the Act) prohibits anti-competitive conduct in a variety of ways. Provisions in the Act which prohibit specific behaviour include:

  • division 1 of Part 4 of the Act which restricts ‘cartel conduct’. This occurs when a corporation makes, or give effect to, a contract, arrangement or understanding that fixes prices, restricts outputs, allocates customers or suppliers, or involves bid-rigging
  • section 45 of the Act which prohibits a proposed contract, arrangement or understanding that has the purpose, or would have or be likely to have the effect, of substantially lessening competition.

Any businesses who are engaging in conduct, or plan to engage in conduct, which risks breaching these provisions can apply to the ACCC under sections 90(7) and 90(8) of the Act for authorisation to engage in that conduct.

The ACCC may grant such an authorisation if it is satisfied, in all the circumstances, that the proposed conduct would result or be likely to result in a benefit to the public, and the benefit would outweigh the detriment to the public that would be likely to result.

  1. Who has been granted interim authorisation and what does this mean?

The LFRA is an association of major Australian commercial retailers. It is seeking authorisation to pool its members’ electricity demand and collectively invite tenders, and negotiate with suppliers, on the basis of that aggregated demand.

The participants constitute an impressive list with 32 major retailers signed up including such big names as Harvey Norman, JB HiFi, Bunnings, Spotlight and IKEA.

The draft determination proposes to grant authorisation for 11 years. The ACCC also granted interim authorisation to enable LFRA and its members to begin initial stages of the tender and negotiation process.

The interim authorisation allows for this list of participants to grow in the future, as long as it does not exceed 1 per cent of the demand in any state or territory.

  1. What impact might this have on energy retailers, suppliers and embedded networks?

Any organisation which owns, operates or controls a private electricity network (i.e. an ‘embedded network), or supplies energy in such a network, needs to consider how this might affect their business. For example, if an organisation plans to convert an existing shopping centre into an embedded network which contains one of these retailers, they may face significant resistance or increased costs in doing so.[2]

On the other hand, individual embedded network operators may want to consider whether there would be benefits in collaborating with other embedded network operators to pool their electricity demand and consider applying to the ACCC for authorisation to do so.

This will present a business opportunity for some energy retailers and a problem for others. Energy retailers with longstanding agreements with some of the retail chains contained in the LFRA stand to lose business. On the other hand, this could present an opportunity for smaller and new entrant retailers to lock in energy contracts for a significant period allowing the opportunity to grow their business.

Overall, the ACCC’s view is that this will increase competition in the energy retail market and incentivise new energy generation (to supply that demand over the period).

A final determination will be made on the LFRA’s application sometime in November.

 

[1] See https://www.accc.gov.au/public-registers/authorisations-and-notifications-registers/authorisations-register/large-format-retail-association-limited-ors.

[2] For example, they may need to consider the possibility of ‘wiring out’ these retailers to allow them to continue with their existing supply agreements.

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