First ever national collective to negotiate electricity deal after ACCC gives green light

In an Australian first, the ACCC today provided final authorisation for competing Large Format Retail businesses to form a national collective buying group to negotiate a better electricity deal than they could individually.

The group comprises 41 of the largest and best-known companies in the industry including Harvey Norman, Beacon Lighting, Bunnings and IKEA. Members of the group span 4,096 individual sites across every state and territory.

In 2018 the Large Format Retail sector consumed over 1 TWh, with approximately 942 GWh in the NEM, 86 GWh in the WEM and almost 10 GWh in the Northern Territory.

The Buyers Group will conduct a tender process for the supply of their aggregated electricity demand.

“Electricity is usually the third biggest cost for most of the businesses in this buyers group. Today’s authorisation means these businesses will have access to competitively priced and reliable electricity supply which will further secure their ongoing business operations,” said Philippa Kelly, CEO of the LFRA.

“Members of the Buyers Group could potentially pass on the electricity cost reduction in the form of lower prices, invest in improved product offerings, expanding their product range or employ additional customer service staff with the expected savings.”

“We are expecting a very competitive response from the market when we go to tender to deliver significant savings to our buyers’ group.

“As part of the tender response we are hoping to have strong representation from the renewable sector.

“With an 11-year horizon, and the size of the supply deal, we think it’s big enough for some respondents to consider investment in new sources of generation.

“I thank the ACCC for the professional and streamlined process in assessing our application and providing this authorisation,” concluded Mrs Kelly.

In 2018 the combined annual cost of electricity between the 41 participating members was more than $200 million.

The ACCC authorisation runs for a period of 11 years. In that period electricity supply under this agreement must not surpass 1% of total consumption in each State or Territory.

BACKGROUNDER

 

  • This is the first authorisation for an Australia-wide collective power purchase agreement.
  • The Large Format Retail Association (LFRA) proposed a Buyers Group made up of 41 members that spans 4,096 individual sites across every State and Territory.
  • The group includes the following retailers: Harvey Norman, Bunnings, Beacon Lighting, Chemist Warehouse, Adairs, IKEA, JB Hi-Fi, Lincraft, Officeworks and Spotlight.
  • Energy is considered the third largest expense for Australian businesses.
  • In 2018 the Large Format Retail sector consumed over 1 TWh, with approximately 942 GWh in the NEM, 86 GWh in the WEM and almost 10 GWh in the Northern Territory.
  • Participating Members’ combined load of approximately 1,032,511 MWh may incentivise new generation.
  • In 2018, the combined annual electricity cost of the 41 Participating Members was more than $200 million.
  • The Buyers Group will conduct a tender process for the supply of their aggregated electricity demand.
  • The LFRA-led application has been authorised for a total period of 11 years.
  • LFRA’s application needed to satisfy “The Public Benefit Test” as outlined in the Trade Practices Act 1974 and a public consultation process.
  • Additional participating members may request to join the Buyers Group, provided that the combined electricity consumption of the Buyers Group does not exceed 1% of electricity consumption in each State or Territory.

Authorisation request:

In particular, the Participating Members sought authorisation to:

    • Collectively consider potential electricity supply options for the pooled electricity load of the Participating Members;
    • Collectively conduct a tender process for the supply of the pooled electricity loads in order to select an electricity supplier(s) to supply their pooled electricity loads;
    • Collectively negotiate an electricity supply contract with preferred electricity supplier(s);
    • Enter into individual electricity supply agreements with the preferred electricity supplier(s) on the same (or substantially similar) terms and conditions; and
    • Following entry into individual supply agreements, participate in joint activities and decisions regarding the operation and administration of the agreement(s), including performance and/or pricing reviews, events which materially impact the performance of the agreement, the exercise of contract options, or any changes to terms and conditions. Tender Process:

The tender process is expected to be broadly conducted as follows:

  • The tender will invite proposals from electricity suppliers to supply electricity to each of the participating members to meet their collective electricity requirements;
  • The tender process will operate as an open tender, where any suitably qualified electricity supplier may respond to the tender;
  • An electricity supplier may choose to respond to the entire tender or respond to part of the tender (for example, to the supply of electricity in a limited number of states and territories only);
  • The responses to the tender will be reviewed and the successful electricity supplier(s) chosen based on price and terms;
  • There may be more than one successful electricity supplier chosen;
  • Terms and conditions (including price) of the proposed electricity supply agreement will be negotiated with the successful electricity supplier(s); Each Participating Member will have the right, but not the obligation, to enter into a separate electricity supply agreement with a successful electricity supplier; and
  • Each Participating Member may, in its absolute discretion and subject to its internal governance and approval processes, accept the terms and conditions of the electricity supply agreement negotiated as part of the tender process or to seek to negotiate such terms further.

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