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Overview
On 4 December, the Federal Court of Australia dismissed claims brought by Stillwater Pastoral Company (“Stillwater”) against Stanwell and CS Energy (two Queensland government owned electricity generators (the “Respondents”)) for alleged misuse of market power under section 46 of the Australian Competition and Consumer Act 2010 (the “CCA”). AlixPartners economist Derek Holt was engaged to provide independent expert testimony on behalf of CS Energy, instructed by the team at Herbert Smith Freehills Australia (led by Linda Evans and Elizabeth Poulos). Mr Holt participated in a 6-day “hot tub” with Stillwater and Stanwell’s experts, covering economic issues relating to market definition, market power, and the assessment of theories of harm relating to the conduct alleged to breach section 46 of the CCA.
The case centred on allegations that the respondents (both individually and together) possessed substantial market power and leveraged it to engage in "short-notice rebidding". This was said to be undertaken in order to manipulate spot prices, and prevent or deter competition in the National Electricity Market (“NEM”). The alleged practice involved repricing generating capacity to higher levels and timing such rebids “late”, so that competitors could not respond effectively. This behaviour was claimed to create artificial scarcity, spike prices, and deter other market participants from engaging competitively. Stillwater argued this violated the CCA by taking advantage of market power for an anti-competitive purpose.
Central issues and key findings
Market definition: The Court found that the relevant market was the Queensland region of the NEM during the conduct period, including inflows of electricity into Queensland over the interconnectors. The Court rejected a narrower market definition based on short 5-minute trading intervals.
Market power: The Court found that neither Stanwell nor CS Energy had substantial market power in the relevant market (either individually or collectively). The market was sufficiently competitive with the ability to influence price constrained by other participants and regulatory frameworks. There was also no evidence that prices were sustained above the competitive level (i.e. long-run marginal cost).
Short-notice rebidding: The court examined whether the respondents engaged in the alleged short-notice rebidding and ruled that the evidence did not establish that the respondents engaged in the strategy alleged by Stillwater. The Respondents' bidding strategies were consistent with the NEM’s design, which permits pricing adjustments in response to market conditions consistent with the market being an “energy only” market where all costs, including fixed costs and investments in capacity are remunerated through wholesale prices, as opposed to a capacity market (i.e. where generators are separately compensated for making capacity available to the system).
Taking advantage of market power: The Court concluded that even if it had been satisfied that the respondents had a substantial degree of market power, and engaged in the alleged short notice rebidding strategy, that would not have involved the Respondents taking advantage of market power.
Proscribed purpose: The Court went on to find that even if all other elements of the cause of action had been made out, it had not been proved that the Respondents had a proscribed purpose. Rather their conduct aligned with legitimate commercial objectives rather than intent to prevent or deter competition. In other words, the profit-maximising behaviour in this case did not contravene the CCA.
Expert evidence and conclusions
Derek Holt and Stanwell’s expert (Mr Morton) orthodox opinions were generally preferred by the judge, who noted the two experts gave “considered and thoughtful evidence” and whose reports were “thorough and compelling”. The Court also noted that they “were prepared to make concessions where appropriate and to explain the limits of their evidence and of their expertise”. Mr Holt was supported by other AlixPartners economists including Mat Hughes, Ben Forbes, Alexandre Carbonnel, Rebecca Ly, and Paula Marco, as well as colleagues from AlixPartners’ data analytics practice.
The Court dismissed Stillwater’s claims, finding no contravention of section 46 of the CCA. It adjourned the matter to determine costs in a later hearing.
This case underscores the importance of aligning claims of anti-competitive conduct with established economic frameworks and robust evidence, particularly in regulated and complex markets like the NEM.
The full judgement can be found here: https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2024/2024fca1382
