The Energy Royal Commission – why, how and what

Despite the uncertainty as to when (if at all) an energy and fuel Royal Commission will proceed, stakeholders should be giving proper consideration to how a Royal Commission would run, what it could mean for them and what they need to do about it.

Trigger of inquiries

In the past decade, there have been significant increases to energy and fuel prices. Electricity prices have increased 56% across Australia from the 2007-2008 to 2017-2018 period[1] and 87% in Queensland from the 2006-2007 to 2015-2016 period.[2] Similarly, petrol prices have risen to a 10-year high in some parts of Australia.[3]

Several inquiries into electricity pricing have been conducted at both State and Federal level. In July this year the Australian Competition and Consumer Commission (ACCC) issued its final report on an inquiry into retail electricity prices. The final report indicated that energy prices are an ‘enormous strain on household budgets and business viability’[4] and made 56 recommendations to address this.

Off the back of the ACCC final report, Peter Dutton called for a Royal Commission into the energy sector and into fuel prices. Malcolm Turnbull did not back the establishment of a Royal Commission, but there appeared to be broad support for a Royal Commission in parliament.

Recently, however, Federal Energy Minister Angus Taylor indicated that a Royal Commission into the energy sector may not be required if everyone can ‘lift our game to deliver a better outcome for customers.’[5]

EnergyAustralia chief executive Catherine Tanna is now proposing a tripartite meeting between government, industry and the ACCC to address pricing, reliability and emission reductions.[6] Whether agreement can be reached however remains to be seen. Meanwhile, Scott Morrison has insisted that ‘the government will always be considering ways that we can put more pressure on petrol companies to do the right thing by customers, just like we are doing with electricity prices.’[7]

Despite the uncertainty as to when (if at all) a Royal Commission will proceed, stakeholders have begun seeking advice in preparation for an energy and fuel Royal Commission.[8] We consider that stakeholders should be giving real thought to how an energy and fuel Royal Commission would run, what it could mean for them and what they need to do about it.

What is a royal commission?

It is key that the relevant stakeholders have a general understanding of what to expect from a Royal Commission to allow them to undertake the necessary preparations.

A Royal Commission is an inquisitorial process, which follows a different sequence to litigation in the Courts. The Commissioner will direct the areas of investigation and has wide discretion as to what to investigate, provided it is within the terms of reference, which will be released once the Royal Commission is formally established.

A Royal Commission has extensive powers, including the power to summon documents and witnesses to give evidence. Evidence given may not be used in criminal or civil proceedings against that witness but is otherwise able to be relied on more broadly (for example against an organisation).

In certain circumstances, legal professional privilege can be asserted as a ‘reasonable excuse’ to refuse the production of documents and evidence in response to a summons however timeframes to claim privilege are tight. It is usual for a Royal Commission to issue a practice note indicating how it will deal with privilege.

At the conclusion of the hearing the Commissioner will make findings, which are delivered to the Government and made public once they are tabled in Parliament.

Scope of an energy royal commission

It is key that the relevant stakeholders have a general understanding of what to expect from a Royal Commission to allow them to undertake the necessary preparations.

The ACCC report and the general political climate regarding electricity pricing gives some indication on what an energy Royal Commission is likely to consider. Specifically with regard to the Queensland Government, the ACCC considers that the generation market has been allowed to become too concentrated and recommended that generation assets should be divided into three separately owned portfolios to increase competition.[9]

Network operators have also been targeted as major contributors to electricity price increases. The ACCC primarily attributes that to over-investment in state-owned networks due to excessive reliability standards and recommends that state governments (including Queensland) write-down the regulatory asset base of those networks.[10]

Privatisation is also likely to be a key feature regarding networks with highly contentious views as to the benefits and pitfalls of deregulation and privatisation.[11]The Queensland model is likely to be reviewed in great detail against the models used by privatised states such as Victoria.

Subsidy schemes for solar and other low emission technologies that were introduced in order to meet the renewable energy target are also likely to be reviewed, along with various other topics such as the behaviours and pricing structures of electricity retailers.

Scope of a fuel royal commission

Calls for a Royal Commission into fuel prices have largely centred around arguments that fuel prices are inflated either because the profit margins of fuel retailers are too high or the retail fuel market is overly concentrated by a small number of large retailers. Accordingly, these issues are likely to be the focus of any Royal Commission into fuel prices.

In the meantime, there have been calls for the government to consider addressing these issues by cutting the fuel excise or for the forced divestiture of petrol companies.[12]

Notably, the ACCC has recently confirmed its position that recent increases in petrol price have been ‘clearly driven by overseas oil prices and the exchange rate’, rather than any other factors.[13]

Timeframe

If it is to proceed, an energy and fuel Royal Commission is unlikely to be established prior to the federal election next year.

Preparatory steps

We expect that the Royal Commission, if established, is likely to proceed with pace and certain preparatory measures should be taken now to ensure that any requirements of the Royal Commission are capable of being performed in a timely manner. Specifically, attention should be given to the following areas:

• Consideration of the issues – stakeholders should begin to turn their minds to the likely subject matter of an energy Royal Commission and what effect it could have on them.
• Document location and retention - once consideration of the likely issues has occurred an entity should consider the categories of potentially relevant documents and their location.

Having these areas under control will allow for the smooth transition into the more substantive preparation required once the terms of reference are announced.

Further, these steps are not overly burdensome and would likely outweigh the cost or business disruption that they might cause.