You may or may not have seen in the media that on 20 September 2019 the Australian Competition and Consumer Commission (ACCC) released a draft determination and interim authorisation giving members of the Large Format Retail Association (LFRA) a green light to begin the initial steps to collectively negotiate to purchase electricity.
Members of the LFRA include some of Australia’s largest retailers such as Bunnings, Costco, Harvey Norman and Officeworks to name a few.
The interim authorisation given by the ACCC has permitted the LFRA and its members to begin the initial stages of collectively negotiating with electricity suppliers for the purchase of electricity while the ACCC completes its review. If the ACCC grants approval, it would permit the LFRA and its members to use their combined buying power to collectively negotiate with electricity retailers for the purchase of cheaper electricity, which would otherwise likely be conduct in breach of Australian competition law.
While the ACCC’s draft determination is a step forward for the LFRA and its members, the bulk purchase of electricity by large format retailers may have some negative flow on consequences for landlords. For example, if authorised by the ACCC, the bulk purchase of cheaper electricity by the LFRA and its members may see some large format retailers having the ability to buy electricity cheaper than their landlords can buy electricity. In cases where landlords on-sell electricity to tenants, some leases will prohibit a landlord from selling electricity to the tenant at a rate higher than what the tenant could buy electricity direct from the electricity supplier. This may well see landlords being forced to sell electricity to tenants at a loss. In jurisdictions where there is power of choice, a tenant may opt out of using the landlord as an electricity supplier, with the risk heightening if the landlord’s rates are not competitive.
Landlords should keep a close watch as the concept of a collective negotiation by retailers with electricity retailers may be expanded.
With margins on electricity reselling reducing and more scrutiny by tenants on costs, landlords should look closely at whether adequate cover is being provided by the terms on which they sell electricity. In addition to retail electricity prices, landlords should also ensure that, where permissible, their supply terms adequately cover the cost of metering and allow for network charges to be recouped.
The ACCC’s final determination is expected in November 2019.
Lui Scipioni, Partner
Adam Walker, Partner
Michael Mercier, Associate