Energy Consumers Australia responded to the Preliminary Report of the Australian Competition and Consumer Commission’s Electricity Supply and Pricing Inquiry.
The Preliminary Report provides a comprehensive review of the drivers of increasing electricity prices and household bills. In our submission we note that the Commonwealth Government has recently taken some actions to put downward pressure on prices, including the abolition of Limited Merits Review and agreements reached with major retailers about their marketing conduct. The analysis in the Preliminary Report establishes a solid foundation for the development of further steps to reduce prices.
We base our submission on the observation that efficient retailers in an effectively competitive market would be seeking ways in which they could reduce the cost of what they supply to customers in a way that they could share the benefits of the cost reduction with customers. This is the model of innovation that is expected to occur in markets; the innovative business passes on some of the benefits to customers at first and retains the rest as extra profit and then over time other businesses respond and compete away these profits.
This is not what we are seeing in the market for grid-delivered electricity. Rather than retailers driving the introduction of cost reflective network tariffs they are reluctant to embrace them; rather than offering customers the ability to manage high spot prices by curtailing usage they use financial (or structural) hedges; rather than being at the forefront of innovating to help customers be energy efficient they rely on energy saving tips on their websites.
The competitiveness of the retail market is being limited by two factors. The first is the opaque nature of offers, the conscious construction of information asymmetry – that stands in the way of consumers making choices. The second is a market structure that imposes barriers to entry and expansion through vertical integration and diversity of market regulation between the states.
We understand from discussions with Commission staff that the Commission will be conducting further structured engagements in developing the Final Report. In our submission we expand on the matters above and others to advance eight propositions that we believe should form the structure for this further work and recommendations in the Final Report.
- The ongoing monitoring of prices, average bills and elements of the cost stack to determine the effectiveness of policy.
- The impact of the operation of the retail market on upstream markets.
- The retail market design requirements to facilitate consumer choice and control.
- Reforms to facilitate retail market entry and expansion.
- The accurate reporting of environmental costs directly added to retail prices and more effective regulatory impact assessment of new proposals.
- A comparison of different approaches to revaluing network assets including the consideration of whether reviewing the basis for determining the regulatory rate of return is a more appropriate approach.
- Analysis of how cost reflective tariffs and prices can be implemented to deliver lower future prices for consumers.
- In considering responses to vertical integration analyse the benefits of introducing weak operational separation of ‘gentailers.’
The full submission can be read here.
Contact: Chris Alexander, firstname.lastname@example.org