Australian Power Firms Face Breakup Threat Under ‘Big Stick’ Law

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(Bloomberg) -- Australia’s government is making its second attempt to pass legislation that could force energy companies to break up if they engage in anti-competitive conduct.

Prime Minister Scott Morrison has labeled the proposed law a “big stick” against firms that use market concentration to hike up electricity prices. Under the proposal, the Federal Court could order power companies to sell off assets on the recommendation of the competition watchdog.

“The government has long warned that energy companies must put their customers first,” Treasurer Josh Frydenberg said in a statement earlier this week. “That is why the government is committed to passing our ‘big stick’ legislation.”

Australia has struggled in recent years with spiraling power prices and regional grid instability as aging coal plants close and successive governments have fumbled a transition to renewable energy.

A previous attempt to pass similar legislation failed amid opposition from business and energy groups, though the government is claiming a mandate after promoting it as policy during its successful re-election campaign in May. It’s unclear whether the bill, which was reintroduced Wednesday, has enough support from rival lawmakers to pass parliament.

Under the proposals, the Australian Competition and Consumer Commission could recommend that the treasurer pursue a divestiture order in the courts as a measure of last resort for “the most egregious conduct,” Frydenberg told parliament on Wednesday.

The bill, which wouldn’t be enforced until six months after becoming law, would also:

  • Require energy companies to pass on sustained and substantial electricity supply-chain cost savings to consumers
  • Ban generators from manipulating the spot market, such as through withholding supply
  • Include civil fines of as much as A$10 million, or 10% of the firm’s annual revenue
  • Allow the government to specify the kind of electricity contracts companies should offer including their price range and the minimum number of megawatt hours

Business groups have spoken out against the move saying it could deter investment and say the legislation is at odds with the conservative government’s traditional reputation as a supporter of big business.

“We need investment in new parts of the energy market,” Jennifer Westacott, chief executive of the Business Council of Australia, said in a radio interview on Tuesday. “We think it will deter it. We think it is a highly risky piece of legislation and we think it’s unnecessary.”

It’s not the first time the Liberal-National coalition has sought to intervene in the power market to drive down prices. Under rules in place since July 2017, the government can force producers to divert gas to the domestic market if there is a shortfall.

©2019 Bloomberg L.P.

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