Market Efforts to Lower Energy Bills Made Harder by Price Caps: Industry Suppliers

A power point in Brisbane, Australia, on Sept. 23, 2022. AAP Image/Russell Freeman

Gas suppliers warned that the newly enforced price caps have made it harder for the industry to help bring down Australian energy prices through “immense uncertainty” to investment in domestic supply projects.

Samantha McCulloch, chief executive of the Australian Petroleum Production and Exploration Association (APPEA), said investment in new supply was the key to providing economic relief to Australians.

“But the ongoing uncertainty around permanent regulation of gas prices in Australia under a mandatory code of conduct is making it very difficult for the industry to secure investment in new supply,” she told reporters in Canberra on Jan. 17.

McCulloch warned that the price cap reforms sent a message to international investors that Australia was “no longer a safe and stable destination for investment.”

“What the government has done is sent a signal to all industries that it can intervene without consultation, without notice, and regulate prices in what were functioning markets,” she said.

A hotel owner lights a gas stove to cook for customers in Austria on Jan. 6, 2008. (Joe Klamar/AFP via Getty Images)

But she welcomed the consumer watchdog’s guidelines for the gas industry that outlines how it will enforce and monitor gas producers to comply with new rules.

The Australian Competition and Consumer Commission (ACCC) published its interim guidelines on Jan. 17, a month after the introduction of the temporary measure.

“Our guidelines are intended to support the gas industry with their obligations to comply with the new laws, so the country experiences the intended benefits from these emergency measures,” ACCC Chair Gina Cass-Gottlieb said.

“While our primary objective is to achieve compliance with these laws, we are ready to exercise our enforcement powers in response to any alleged contraventions, particularly if we become aware of conduct that may be intended to circumvent the price cap.”

Companies that fail to comply with the price cap will face a fine of $50 million (US$35 million), three times the value of benefits obtained, or 30 percent of turnover during its period of misconduct.

Treasurer Stands by Gas Caps

It comes after Treasurer Jim Chalmers acknowledged there would be “some issues” in implementing the price cap but said the ACCC guidance should answer some of the questions that the market had put forward.

Standing firm against calls to scrap the cap, he said the pricing regime was an important response to the energy bill pressure that families, businesses, and pensioners were under.

“Now, inevitably, when you’re imposing a price cap on an important part of the economy—these gas companies are doing incredibly well on international markets—they would prefer that there wasn’t a price cap, obviously, but we need to do what’s right by the whole economy, and that’s what we’re doing,” Chalmers told ABC News.

Australian Treasurer Jim Chalmers speaks during a press conference in Brisbane, Australia, on July 22, 2022. Dan Peled/Getty Images

But McCulloch commented that around seven percent of the country’s LNG (liquified natural gas) exports were currently enjoying high international prices, with the rest under long-term supply agreements that had been struck before the boom.

“And many of APPEA members are smaller members that supply the domestic market only. They do not have an LNG portfolio to offset the impacts, I suppose, of these domestic interventions,” she told Sky News Australia.

In response, Industry Minister Ed Husic accused gas companies of “obviously having a bit of a whinge” and were still “doing very well.”

“We tried for ages to get them to see sense and to move. The claim they were surprised by the government’s move is a bit surprising in itself because we’d flagged for ages this was a serious issue they needed to get on top of,” he told Sky News Australia.

But Chalmers said campaigns against the cap in some areas of the economy were inevitable, saying the government was committed to working through any issues that the gas industry had with the new policy.

“It won’t be uncontentious when you make an intervention of this type; we expect that but we will bed it down, and we expect it to work,” he told Sky News Australia.

Erratic Gas Prices

The federal government introduced the price caps on Dec. 23, 2022, which places a limit of $12 per gigajoule on gas sales for 12 months, in response to soaring energy bills. The policy will be reviewed six months after its implementation.

It applies solely to the wholesale gas market, where 2022 spot prices across the National Energy Market more than tripled compared to 2021 (from $58 to $216 megawatts per hour), while also being highly volatile (pdf).

As a result, small energy retailers across Australia stopped taking on new customers, with others even suggesting customers to leave for better deals.

The temporary legislation caused companies to put projects on hold, including a $1 billion expansion of gas developments in Queensland by Senex Energy.

“Until we know the scope of future government actions under the yet-to-be-developed code of conduct, and the potential for retrospective application of measures, including the breaking of agreed contracts, it is prudent to review all investment,” Senex CEO Ian Davies said in a statement in December.