A submission to the Australian Competition and Consumer Commission by energy consultant Key Energy & Resources and Macpherson & Kelley Lawyers, on behalf of several large (and undisclosed) electricity users, tears shreds off retailers' current practice.

Most retailers, it says, intend to multiply the $23 per megawatt hour fixed carbon price against the NEM average carbon intensity (0.94) to generate a charge of $21.60/MWh.

Given about 200 terawatt hours of electricity is consumed across Australia each year, the CPM premium comes to about $4.3 billion.

The mechanism is fine for direct over-the-counter contracts but not for retail electricity supply contracts.

Many of those are hedged on the Australian Securities Exchange futures exchange, typically in two or three-year deals, so they are, in effect, carbon clean.

Key Energy principle consultant Mark Searle said industry figures suggested around one third of electricity in the NEM was hedged this way and should not face any CPM charge.

That's almost $1.4 billion that should not be added to customer bills in 2011-12 – or $7/MWh.

It gets worse, according to Searle, an energy sector veteran who has negotiated many a contract and among other things, is an advisor to the Australian Industry Group's energy help desk.

He laments the lack of transparency from retailers as to how the CPM will be managed.

"The retailers are only now beginning to tell customers what they are going to do," Searle told BEN Business.

“And even still we are getting retailers that are saying, 'We're not sure, we don't know what the cost will be, you can trust us on this'. Well, they have known since September last year that the CPM was coming.

"So we're in a situation where the best information we have got is most of the retailers have positioned themselves to make a windfall profit. Secondly the information we are getting is cloudy because they are not being 100% up front with what they are telling the market.

"The third thing is a lot of retailers are saying if you do a contract today it will be carbon inclusive and the cost will not be removed if the CPM is wound down."

If companies opt for a "CPM exclusive" contract, with carbon as an explicit add-on cost that can be removed, Searle has found $21/MWh is the going price rather than the $14 he argues it should be.

Opt for a "CPM inclusive" contract, as most customers do and he has got it down to $15/MWh.

But he says most of these contracts are being written in a manner that will not allow the scrapping of the CPM regime to initiate their “change in law” clauses and remove the cost from the contract.

One tactic in play is constant referral to the CPM as a "carbon tax", implying it is a fixed charge and retailers have limited ability to negotiate the cost with generators and even, eventually, through international credit purchases.

Another retailer line is they don't believe the CPM will be repealed.

"That is a huge call," insists Searle.

Lawyers Macpherson & Kelley advised it would be two years before the scheme could be practically repealed, including aligning the politics and getting new regulations in place.

Assuming the government goes full term, it is at least three years of the CPM.

"Retailers do have to make sure they don't go broke," Searle said.

“But they should be in a position where their traders can take options on overseas carbon reduction mechanisms and offer us a firm price.

"They have to be a bit more transparent, their account managers need to be a bit more informed and they have to be able to engage in serious discussion with the customer so at least the customer can make a decision based on fact and the full spectrum of opinion."

Searle met ACCC representatives in mid-April. He has not heard back as yet.

This article first appeared in BEN Global.