Posts filed under Announcements

Not quite a cartel: Applying the new concerted practices prohibition

March 2018

Luke Wainscoat and Caitlin Davies have an article in the most recent issue of the Competition and Consumer Law Journal (volume 25, part 2) looking at how the new concerted practices prohibition should be applied, and how it is likely to be applied, based on overseas experience.

The new law has two limbs - it prohibits:

  1. one or more persons engaging in a concerted practice;
  2. that has the purpose, or has or is likely to have the effect, of substantially lessening competition (SLC).

A concerted practice is likely to include a wide range of conduct if the ACCC’s guidelines and overseas experience is any guide (although Australian courts may not go along with this). This includes every communication of private and competitively sensitive information between firms, including one-off conversations.

This would leave the SLC test to do a lot of work, and there has been little, if any, debate about how that test should be applied to concerted practices in Australia.

Luke and Caitlin argue that examining whether some conduct is likely to have an SLC purpose or effect requires more than a checklist of factors to mechanically assess the state of competition in a market with and without the conduct. What is needed to avoid overreach is a principled approach, based on sound economic theory, supported by facts, to demonstrate how conduct will negatively impact competition.

In particular, Luke and Caitlin suggest that the SLC test be applied as follows:

1) Assess the degree of competition in the factual, i.e. with the information sharing. This should include a coherent theory of harm – that is, an explanation of how the information sharing would cause competition to be substantially lessened relative to the counterfactual. The assessment should be:

  • based on a theory that is economically sound;
  • internally consistent; and
  • consistent with the facts of the case.

2) Assess the degree of competition in the counterfactual, i.e. without the information sharing, consistent with the theory of harm.

3) Assess the difference between the degree of competition in the factual and counterfactual

In the case of concerted practices, the theory of harm will almost always be that there will be an increased risk of collusion, in which case there will only be an SLC if collusion is made more likely by the conduct. Determining that question in any given case will require an examination of whether the market structure, conduct of firms and market outcomes are consistent with collusion or competition.

This is similar to the approach in the United States which uses ‘plus factors’ to determine whether conduct is consistent with self-interested unilateral behaviour, or with collusion. In other words, they can be thought as of evidence that the collusive theory of harm is more likely than an alternative theory that firms were competing unilaterally. We expect that cases in Australia could make use of similar types of evidence as that used in the United States, such as:

  • evidence of market structure identifying the features of the market in question which make it more or less likely that conspiracy will occur – for example, levels of concentration, barriers to entry, and availability of information; and
  • evidence that the market, and the competitors within it, actually behaved in a competitive or non-competitive manner – for example, fixed market shares, exchanges of price information, identical bids, and previous overt price fixing in the industry.
Posted on April 11, 2018 and filed under Announcements.

HoustonKemp economists recognised for their expertise

June 2017

HoustonKemp is proud to announce that some of our colleagues have been recognised as leading economic consultants in publications by Who’s Who Legal. Luke Wainscoat has been listed in Competition: Future Leaders 2017, which includes competition economists aged 45 or under, whilst Carol Osborne and Greg Houston have once again been named in Consulting Experts: Competition Economists 2017, which lists the best consultant expert witnesses and advisers on economics in the world.  

Who’s Who Legal describes Greg as a “talented” expert widely acclaimed for providing “top-drawer, case-winning economic analysis” in court proceedings and regulatory tribunals.

Posted on June 1, 2017 and filed under Announcements.

Federal Court decision on NSW/ACT electricity appeals

May 2017

The Full Federal Court has handed down its decision on the application brought by the Australian Energy Regulator for judicial review of the Australian Competition Tribunal’s review of the AER’s allowed revenue determinations in respect of Ausgrid, Endeavour Energy, Essential Energy and ActewAGL. The court rejected the AER’s appeal in respect of the operating costs and return on debt elements, but upheld its appeal in relation to the Tribunal’s finding on the value of imputation credits.

Operating expenditure – Tribunal decision upheld

The court found that the Tribunal did not err in reaching a conclusion that the data relied upon by the AER for its economic benchmarking was not suitable for the purpose of determining operating expenditure and that there were limitations with the use of overseas data. It also did not accept the AER’s contention that the Tribunal’s directions left the AER with a lack of certainty on how to proceed – finding that a ‘bottom-up’ approach to setting operating expenditure could be justified both in law and by evidence.

A clear implication of the court’s decision is that the AER will need to reduce its reliance on benchmarking in a re-made decision as well as in future decisions, at least until the quality of its data improves. Given that the business’ actual operating expenditures have declined significantly since the AER’s original 2015 decision and their ‘revealed costs’ at the time, the means by which the AER re-makes its decision for the current period will also have important implications for its consideration of operating expenditures in subsequent regulatory periods. The decision that the AER makes on whether to re-instate the efficiency benefits sharing scheme for the current period (which it had set aside for some entities, on the basis of its benchmarking results) will be critical to these future arrangements.

Return on debt – Tribunal decision upheld and further guidance given

 The court stated that the benchmark efficient entity cannot be characterised as either regulated or unregulated, and so the Tribunal did not err in stating that it was not a regulated entity. Further, the court ruled that the Tribunal did not err in finding that the AER’s approach to the transition to a different method for determining the return on debt allowance was unreasonable.

Significantly, the court noted that that the NSW businesses already raised debt with effect similar to that of a trailing average, and that adoption of the trailing average would therefore impose no impacts on the service provider of the type that the AER needed to consider under the NER. The court stated that:

[572] Given that there were no such impacts, there was no need for the AER to take a step which, in the circumstances, r 6.5.2(k)(4) did not require for those service providers, namely a transition to the trailing approach of estimating the return on debt by adopting a mechanism to unwind hedging contracts…

These directions point strongly towards the immediate adoption of the trailing average for the NSW businesses and ActewAGL. However, it remains unclear exactly how they may be reflected in a re-made decision by the AER.

Value of imputation credits (gamma) – AER application for review successful

 The court upheld the AER’s contention that the Tribunal erred in its construction of the expression ‘the value of imputation credits’, which led the Tribunal to reject the AER’s preferred estimation methods. The court stated that:

[752] …it was not therefore a reviewable error for the AER to prefer one theoretical approach to considering the determination of gamma over another. This means that it is not an error of construction for the AER to focus on utilisation rather than on implied market value.

 The court’s observations and decision affirm the AER’s approach to placing substantial weight on the ‘equity ownership’ and ‘tax statistics’ approaches to estimating the value of distributed imputation credits. 

Where to from here?

It is now over two years since the AER made its decision on allowed revenues for these network services providers, while the charging period covered by the decision extends back to 2014. Notwithstanding the lengthy process to date, it will most likely take many months or longer for the guidance provided by the court to be turned into adjusted revenue allowances, and to be reflected in network charges. In the meantime, the AER has a 60 day window in which to decide whether any aspects of the full court decision warrant an application for special leave and so review by the High Court.  

Posted on May 25, 2017 and filed under Announcements.

National Disability Insurance Agency price review

March 2017

We are very pleased to be helping the National Disability Insurance Agency (NDIA) with the review of its price controls. Sam Forrest, Luke Wainscoat, Adrian Kemp and Greg Houston will design an impact assessment framework to assess potential changes to the NDIA’s price controls. They will draft a consultation paper on the options being considered and apply the impact assessment to prepare recommendations to the NDIA on the changes it should make to its price controls in 2017/18. For more information on the review please click here.

Posted on March 9, 2017 and filed under Announcements.

New Singaporean office

November 2016

We are pleased to announce the relocation of our Singaporean office to Asia Square Tower 1. The move to a new, permanent location reflects our ongoing commitment to expanding our presence in Singapore and the wider southeast Asian region. We hope to welcome you to our offices in the near future.

Posted on November 1, 2016 and filed under Announcements.

Community Ambassador for World Smart City online forum

April 2016

Virginia Wheway has been invited to participate as a community ambassador in the World Smart City’s online platform. The International Electrotechnical Commission has convened a core group of participants of varying backgrounds to discuss the ‘pain points’ that hinder smart city developments as well as the tools that can help accelerate progress toward smart cities goals.  The online discussion will culminate at the World Smart City Forum in Singapore on 13 July 2016. Further information on the online discussion and details of the event can be found here and here.

Posted on April 14, 2016 and filed under Announcements.

Adrian Kemp appointed to the Economic Society of Singapore’s 60th Council

April 2016

Adrian Kemp is pleased to announce his appointment as a council member to the Economic Society of Singapore’s 60th Council. The ESS was established in 1956 as a non-profit organisation, aimed at encouraging like-minded parties to collaborate on economic issues. Since its inception, it has grown to host annual events such as the Singapore Economic Policy Forum, publish the quarterly Singapore Economic Review and develops the interest and understanding of economics students through an annual seminar series and essay competition. Adrian looks forward to collaborating and contributing on this year’s council. More information about the ESS can be found here.

Posted on April 12, 2016 and filed under Announcements.

Compensation for extinguishment of native title

March 2016

Greg Houston testified in late February 2016 Federal Court proceedings seeking to determine the appropriate compensation for various Northern Territory government acts that extinguished native held by the Ngaliwurru and Nungali peoples. The acts took place in the 1980s and 1990s, in the process of forming what is now the NT town of Timber Creek (2015 population: 231), and form a 'test case' that will establish legal and economic principles to be applied in many other such native title compensation claims. More information can be found here.

Posted on March 24, 2016 and filed under Announcements.

Ann Whitfield to speak at Electricity Networks 2016 – Energy in Transition, Adelaide

March 2016

Ann Whitfield will be part of a session on Innovating Regulatory Frameworks at Energy Networks 2016.  Ann will be speaking on the topic ‘Electricity Micro-grids – into the Void?’.  The conference, organised by the Energy Networks Association, is being held in Adelaide 18-20 May 2016.  More information on the session and the conference can be found here.

Posted on March 9, 2016 and filed under Announcements.

Graduate and Intern Recruitment Open

February 2016

We are pleased to announce the launch of our 2017 Graduate Programme and Summer Internship recruitment drives. Our Sydney-based team is seeking candidates with a strong academic record, excellent written and quantitative skills, the right to work in Australia and a passion for using economics to solve problems. Further details can be found on our careers page here.

Posted on February 4, 2016 and filed under Announcements.