Energy market manipulation in Australia

Since the early 1990s, energy supply deregulation and privatisation of some state-owned assets has led to the establishment of increasingly open and transparent trading markets, for the competitive supply of gas and electricity.

Since 1998 the generation, distribution and supply of electricity in eastern and southern Australia has been conducted under the framework of the National Electricity Market (NEM).

Privatisation and disaggregation of the state-owned Gas and Fuel Corporation led to the establishment of a gas spot market in Victoria in March 1999.

The adoption of retail competition also led all jurisdictions in eastern and southern Australia to introduce gas and electricity retail market arrangements in the early 2000s.

From 2010, short-term trading markets for gas were established at hubs in three Australian capital cities – Sydney, Adelaide and Brisbane. Australia became one of the first countries in the world to establish highly competitive and transparent gas and electricity markets, underpinned by a common governance structure across state borders.

A voluntary gas trading hub was established in south-west Queensland in March 2014 at the same time as Australia’s new east-coast LNG export facilities were ramping up production near Gladstone, Queensland. A second trading hub was introduced at Moomba in South Australia, near existing production facilities in June 2016.

Despite having a national electricity market producing around 200 terawatt hours (TWh) per annum and combined gas production of 1,660 petajoules (PJ) per annum servicing three short-term trading markets, a fourth gas trading arrangement in Victoria, two voluntary gas trading hubs and the second-largest LNG export capability in the world, explicit market manipulation provision exists only in the voluntary gas trading hubs. This chapter summarises the arrangements in the Australian energy sectors including monitoring for manipulative behaviour.

The role of the Australian Energy Regulator

The authors are members of the wholesale markets branch of the Australian Energy Regulator (AER).[2] The AER is a Commonwealth agency that regulates energy markets and networks under national energy market legislation and rules across Australia. Its functions, which mostly relate to energy markets in eastern and southern Australia, include:

  • monitoring wholesale electricity and gas markets to ensure energy businesses comply with the legislation and rules, and taking enforcement action where necessary;
  • setting the amount of revenue that network businesses can recover from customers for using networks (electricity poles and wires and gas pipelines) that transport energy;
  • regulating retail energy markets in most states of Australia; and
  • publishing information on energy markets, including operating the Energy Made Easy website, which provides a retail price comparator and other information for energy consumers and publishing its annual report on the state of the energy market.

The AER has regulatory responsibilities across the entire gas and electricity supply chain in eastern Australia. At the wholesale level, this includes monitoring gas spot markets in Adelaide, Sydney, Brisbane and Victoria; gas supply hubs at Wallumbilla (Queensland) and Moomba (South Australia); and activity on the National Gas Market Bulletin Board. In electricity, wholesale electricity in eastern and southern Australia is traded through the single National Electricity Market (NEM). In geographical span, the NEM is one of the world’s longest interconnected power systems, stretching around 4,500km from Port Douglas in Queensland to Port Lincoln in South Australia, and across the Bass Strait to Tasmania. The market covers five regions, based on state boundaries – Queensland, New South Wales (NSW), Victoria, South Australia and Tasmania. The Australian Capital Territory (ACT) falls within the NSW region.

Over 300 registered generators sell electricity into the NEM, a wholesale energy-only spot market in which the balance between supply and demand set a common clearing price that is used to settle all players. The NEM’s transmission grid, with 40,000km of transmission lines and cables, carries the power from electricity generators to large industrial energy users and local electricity distribution networks. Energy retailers act as market intermediaries by buying electricity from the NEM and packaging it with transmission and distribution network services for sale to almost 10 million residential, commercial and industrial energy users.

The AER monitors the markets to ensure participants comply with the legislation and rules, and take enforcement action when necessary. Our monitoring role at the Wallumbilla and Moomba hubs includes an explicit role to detect price manipulation.

The governance and legislative framework

The Council of Australian Governments (COAG) has created a governance structure to oversee the nation’s energy markets in Australia. The Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER) were created in 2005 and the Australian Energy Market Operator (AEMO) in 2009. Separating the functions of broad policy direction, rule-making and market development, economic regulation and compliance and market operations has resulted in independent decision-makers with clear accountabilities and objectives.

The AEMC makes and amends the National Electricity Rules, the National Gas Rules and the National Energy Retail Rules that govern the National Electricity Market, elements of natural gas markets and energy retail markets. The AEMC also supports the development of these markets by conducting independent reviews and providing advice to the Standing Council on Energy and Resources.

The AEMO is responsible for the day-to-day management of wholesale and retail energy market operations.

The National Gas and Electricity markets operate in accordance with the rules established under national energy laws. The electricity, gas and retail laws share the common broad objective of promoting efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply of energy.

Elements of the energy sector are subject to two further forms of oversight.


The Australian Competition and Consumer Commission (ACCC) is an independent statutory authority that enforces the Competition and Consumer Act 2010. The Act covers most areas of the economy: the relationships between suppliers, wholesalers, retailers and consumers. Its purpose is to enhance the welfare of Australians by promoting fair trading and competition, and through the provision of consumer protection. Its mandate includes unfair market practice, such as abuse of market power; mergers and acquisitions, including in the energy sector; and cartel conduct.

Financial services

The Australian Securities and Investments Commission (ASIC) is Australia’s corporate, markets and financial services regulator established under the Australian Securities and Investments Commission Act 2001 (ASIC Act). ASIC has, among other things, responsibility for enforcing market conduct rules generally aimed at improving the integrity of financial markets. Market conduct rules prohibit both market manipulation and insider trading, including with respect to energy derivative products. Energy derivatives traded through Australia’s financial markets represent a relatively small component of the broader derivatives market and are within the purview of ASIC. Although the National Energy Market is premised on a healthy, robust and liquid contract market, oversight of electricity and gas derivative products fall outside the National Energy Rules and subsequently the AER’s enforcement powers.

The AER is a constituent part of the ACCC that allows close cooperation between the two agencies with respect to energy and competition law. The link between the energy institutions and ASIC, while cooperative, is less developed at an operational level.

Market conduct provisions

Market conduct rules are generally aimed at improving the integrity of markets so that other market participants can have confidence in market signals, and that prices reflect a fair and competitive interplay between supply and demand. Market conduct rules often prohibit both market manipulation and insider trading. Engaging in any manipulative type of conduct challenges the integrity of the market and harms confidence. This can in turn change broader market behaviour and pricing, leading to misinformed decision-making, and result in other adverse effects on the economy.

These types of regulatory regimes are traditionally applied to conduct in the financial markets. In recent years many overseas jurisdictions have extended regulations originally designed to tackle market abuse in financial markets to physical commodity markets (including energy markets). This move recognises the close interplay between outcomes in commodities and derivatives markets and the need for consistent regulatory regimes.

The gas markets

While in some jurisdictions guidance is given on the types of behaviour that is intended to be caught by market conduct provisions,[3], [4], [5], [6] there has been no judicial interpretation of the market conduct provisions in the National Gas Rules related to the gas supply hubs and there is very little general guidance available in the Australian context.

The Australian manipulation provisions applying to the financial markets refer specifically to ‘artificial prices’. Section 1041A of the Corporations Act provides that a person must not take part in a transaction (or transactions) that have or are likely to have the effect of:

  • creating an artificial price for trading in financial products on a financial market; or
  •  maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on a financial market.

Importantly, it does not matter if there is a profit or loss or the attempt has been successful or not.

The High Court of Australia has provided some guidance as to the meaning of these provisions stating that:

The forces of ‘genuine supply and demand’ are those forces which are created in a market by buyers whose purpose is to acquire at the lowest available price and sellers whose purpose is to sell at the highest realisable price. The references in s 1041A to a transaction which has, or is likely to have, the effect of creating an ‘artificial price’, or maintaining the price at a level which is ‘artificial’, should be construed as including a transaction where the on-market buyer or seller of listed shares undertook it for the sole or dominant purpose of setting or maintaining the price at a particular level…

The price that results from a transaction in which one party has the sole or dominant purpose of setting or maintaining the price at a particular level is not a price which reflects the forces of genuine supply and demand in an open, informed and efficient market. It is, within the meaning of s 1041A, an ‘artificial price’. The offer to supply or acquire of the kind described is made at a price which is determined by the offeror’s purpose of setting or maintaining the price. It is not determined by the offeror’s purpose, if buying, to minimise, or, if selling, to maximise, the price paid, and it is not determined by the competition between other buyers whose purpose is to minimise the price and other sellers whose purpose is to maximise the price.

If the offer results in a transaction, that is a transaction which can be characterised as at least likely to have the effect of creating or maintaining an artificial price for trading in the shares.[7]

Market conduct in the gas supply hubs

The gas supply hubs (GSHs) at Wallumbilla in Queensland and Moomba in South Australia are voluntary trading hubs administered by the AEMO. Trading commenced at Wallumbilla in March 2014. The second hub at Moomba commenced in June 2016. These hubs provide a trading platform for which gas can be sold and delivered at one of a series of major pipelines connecting to the hubs. Participation in the market is voluntary and is designed to complement existing bilateral gas supply and transportation agreements for that area.

The locations of the two hubs were selected because of close proximity to significant gas supply and demand and are major transit points with the gas markets on Australia’s east coast.

To participate in a GSH an organisation must become a member of the exchange.

Trades are matched anonymously, although there is a facility for participants to register bilateral transactions for delivery and settlement. Trading hours are between 9am and 5pm.

Products traded are for physically delivered gas, specifically for the sale and purchase of gas delivered at one of a number of major pipelines.

Once transacted, the delivery points specified in the trade will be the location for gas delivery. Participants are responsible for arranging the delivery of gas at the hub using existing contractual supply and transportation agreements.

The supply hubs have an exchange agreement that sets out the standardised terms of participation in the supply hub and the terms governing transactions entered into through the exchange. The exchange agreement contains the trading, delivery and settlement obligations common to all products.

Settlement is centralised, with the AEMO facilitating payments from buyers to sellers. The AEMO also administers a procedure to settlement for a variation between the gas delivery obligation and actual delivery.

The AER has responsibility for monitoring the GSHs to ensure compliance with the market conduct provisions in the National Gas Rules.

Relevant law and rules

The market conduct rules in Part 22 Division 5 of the National Gas Rules relate specifically to the GSHs. Broadly, they require that a gas trading exchange member must.

  • in relation to its activities in connection with the gas trading exchange or the products it trades on the gas trading exchange:
  • comply with all applicable laws relevant to the performance of its obligations;
  • not act fraudulently, dishonestly or in bad faith; and
  • not engage in any conduct with the intent of distorting or manipulating prices (including reported prices) or misleading any person.
  • not submit offers to buy or sell products on the gas trading exchange:
  • if the gas trading exchange member knows, or ought to know, that it will not be able to perform its obligations under a resulting transaction;
  • with the intention of defaulting on its performance;
  • with the intention of causing a transaction with itself; or
  •  with the intention of causing a transaction with an associate, in circumstances where the terms of that transaction may be varied on terms that would not reasonably be agreed with a separate unrelated party.
  • not intentionally or recklessly default in the performance of its obligations under any transaction arising on the gas trading exchange;
  • not manipulate or attempt to manipulate the price of products traded on the gas trading exchange;
  • take all reasonable steps to ensure that all data and information given to the AEMO or another participant is correct; and
  • comply with obligations to keep information confidential.

Reported prices include an AEMO-reported daily Wallumbilla benchmark price used as the pricing point in Australian Stock Exchange futures contracts. The definition also appears to capture the prices reported on any existing or future gas price index.

The AER is required to monitor compliance with the market conduct rules. In some circumstances the AER may require the AEMO to suspend or limit the access of a member to a gas trading exchange. The AER can exercise these powers in connection with an investigation if it considers that continued trading may materially and adversely affect the financial position of other gas trading members or the integrity of the exchange.

Failures to comply with the market conduct rules set out in the National Gas Rules can attract civil penalties of up to a maximum of A$100,000 under the National Gas Law. In particular clauses 542–545 of the National Gas Law are listed as civil penalty provisions under the National Gas (South Australia) Regulations. This is a relatively low penalty in the context of market manipulation provisions both locally and internationally. Equivalent conduct captured under the Australian Corporations Act has the potential to attract criminal prosecution including 10 years’ imprisonment or a fine of the greater of A$45,000 (penalty units), three times the value of the benefit reasonably attributable to the offence or 10 per cent of the corporate’s annual turnover.

Conduct to date

The GSHs in Australia’s gas market are still in their infancy, with significant reform to the gas sector still under way.

Relatively illiquid markets that do not have significant market depth may present increased opportunities for participants to engage in market manipulation. This is because any one transaction is likely to have a much greater effect on price. Market participants can more readily become price makers and intentionally influence (or manipulate) outcomes on the market.

To date the GSHs have had relatively low levels of trading among a small number of participants. On the one hand this may indicate that the risk of an attempted manipulation may be quite high. On the other, given the apparent lack of products or markets that are currently referencing outcomes in the GSHs, it appears that there are limited opportunities for participants to make a gain from cross-market positions linked to the GSHs (for example, in financial markets). Given this, there is presently very little incentive to manipulate outcomes in the GSHs to benefit a cross-market position (for example, on the ASX).

The current risk of manipulation is relatively low, but could increase over time as the GSHs play an increasingly important role in the operation of the east-coast gas markets, and potentially gas trading internationally.

As the markets mature and trading of financial products becomes more prevalent the likelihood of a breach may also increase as the potential gains from a manipulation become more lucrative.

Monitoring challenges

One of the key challenges likely to face the regulator is access to all data associated with trading. While access to GSH trading data is well established, visibility of ‘off-market trades’ could become an issue. Limited information on confidential contractual arrangements between relevant parties could also present challenges. It is possible in the future as trading at the hubs matures and prices referencing the hubs are more readily used to settle other off-market physical or financial positions, lack of access to these transaction could become an issue and new powers would be required to gather a broader range of information beyond the scope of the rules to effectively enable monitor conduct.

The AER has a range of powers to compel parties to divulge information and documents but, unlike other agencies with similar market surveillance responsibilities (such as the ACCC or ASIC), these powers do not currently extend to compulsory interview powers. The AER is instead reliant on obtaining documentary evidence (under compulsion) or on admissions given in voluntary interviews.

It is not unusual for serious concerns of misconduct to escalate rapidly into an investigation. Agencies charged with such roles generally rely on both moving swiftly and maintaining an element of surprise during an investigation, to reduce the risk that, for example, a suspect will construct a plausible explanation for their conduct after the fact, or destroy or tamper with evidence.

While this issue is not new for the AER, the challenges associated with more limited powers may be starker when investigating more serious forms of market misconduct. In cases of cross-market manipulation, participants could be very hesitant to provide interviews voluntarily, particularly if there is a risk of prosecution under criminal proceeding by other agencies.

The electricity sector – an alternative approach

While there are some common themes that arise between the market conduct rules in the gas sector and aspects of the rules in the electricity sector, there are no specific market conduct rules.

Between 2003 and 2016 the wholesale electricity market operated with only one behavioural rule related to the way in which participants placed bids and offers in the wholesale electricity market – the good faith rebidding rule.[8]

The NER required that generators make all bids and rebids in good faith such that, at the time of making the bid, the generators must have a genuine intention to honour that bid if the material conditions and circumstances upon which the bid is based remain unchanged. The good faith provisions were introduced to address aspects of generator’s bidding and rebidding strategies that were of concern to jurisdictional ministers and that were seen as manipulating wholesale price outcomes in the NEM. The good faith provisions were based on the premise that participants that rely on forecasts of supply and demand should be provided with some level of assurance that participants intend to honour their bids.

Accurate and reliable forecasts in an energy-only gross pool market provide a basis for market participants to make efficient operational and investment decisions, which leads to efficient wholesale price outcomes in the interests of consumers.

The good faith rebidding provisions were aimed at detecting conduct that could be described as fraudulent, albeit under very limited and predefined conditions and was the only provision in the rules that carried a civil penalty of A$1 million.[9]

In July 2016, the provision was modified from a concept of bidding in good faith to requiring bids and offers submitted by market participants not to be false or misleading with additional obligations related to rebids submitted very close to dispatch. The change followed a Federal Court’s decision in a matter related to good faith rebidding that policy makers thought was inconsistent with the original policy intent.

The focus of this provision relate to the accuracy of information to ensure participants can rely, to a reasonable extent, on the quality of forecasts information that supports commercial decisions. The provision does not address behavioural conduct related to manipulation.


The development of energy markets in Australia over the last 20 years has seen electricity and gas markets develop based on concepts of competition, transparency and risk allocation.

The original market designs centred on establishing the appropriate structural separation to ensure competitive forces could deliver efficient market outcomes in the long-term interests of consumers. Like most energy markets, market power and mechanisms to address abuse of that power were considered paramount. In the Australian context, competitive principles such as lowering barriers to entry, scarcity pricing to drive new investment and allocating risk to those best suited to manage that risk were considered key components of the design. In comparison to other jurisdictions, the Australian design relied more on competitive forces and less on regulatory intervention and mitigation arrangements.

There are a number of observations that can be made regarding the Australian energy markets and concepts of market manipulation.

Market manipulation is only a relatively recent phenomenon in the Australian energy context with specific conduct provision currently relating to only the two gas supply hubs. There are no specific provisions in the other gas markets or trading of physical electricity in the National Electricity Market.

The boundary of responsibility between the oversight of energy derivative products in the financial markets and physical products in the energy markets can be unclear. To be effective, the arrangement requires significant cooperation between the energy and financial regulators – an issue that a number of other jurisdictions have struggled with. In the Australian context, cooperative arrangements are in place between financial, energy and competition regulators – however, there is always scope for greater cooperation and understanding particularly in terms of energy markets.

The legislative framework for the Australian energy markets tends to be crafted around very detailed and specific requirements but lacks general conduct principles that guide regulators and market participants around acceptable market conduct. At the same time the current thresholds to address market conduct issues in both Australian competition and financial services laws may be too broad to capture the intricacy of energy market design. A number of other jurisdictions have demonstrated the effectiveness of including high-level conduct principles in energy-specific legislation – there may be value in exploring high-level conduct principles in both the electricity and gas legislation in the Australian context.

Access by the energy regulator to information necessary to monitor and detect manipulative conduct is limited. Specifically the lack of compulsory interview powers or access to information around the financial drivers underpinned by contractual arrangements that sit outside the energy legislation could be a restriction, particularly as matters relating to manipulative conduct can move very quickly.

More generally, recent amendments to the law introduce an explicit wholesale market performance monitoring and reporting function for the AER.

The AER is now required to monitor the wholesale electricity markets on a regular and systematic basis and report at least every two years on their performance. The performance report is to include whether there is effective competition in the market and if features exist that may be detrimental to efficiency or competition.

As this function develops there may be scope to better understand particular behaviours that might be considered in some jurisdictions as manipulative, and impact negatively on the effectiveness of Australia’s energy markets.


[1]     Peter Adams is a general manager, and Kate Murphy and Jeremy Llewellyn are directors at the Australian Energy Regulator.

[2]     The authors have contributed to this article in a personal capacity. The views expressed are those of the authors alone and do not necessarily represent the views of the AER.

[3]     Article 2, Regulation (EU) No. 1227/2011 of the European Parliament and of the Council, 25 October 2011, on wholesale energy market integrity and transparency.

[4]     ACER, Guidance on the application of Regulation (EU) No. 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency – third edition, June 2015.

[5]     Section 2, Alberta Regulation 159/2009, Fair, Efficient and open competition regulation

[6]     Federal Energy Regulatory Commission, Anti-Manipulation Rule, 18 C.F.R. Section 1c.

[7]     Director of Public Prosecutions (Cth) v. JM (2013) 298 ALR 615 at Paragraph 71 to 73.

[8]     Clause 3.8.22A of the National Electricity Rules.

[9]     The maximum civil penalty for all other provisions in the rules is A$100,000.

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