Much-needed reforms that are underway will help address the dysfunctional state of energy retailing in Australia, but action in other parts of the electricity market would further reduce prices for consumers, the ACCC’s first electricity monitoring report says.
Progress in retail affordability measures
The report, published today, is the first for the ACCC’s new electricity monitoring inquiry. It sets out how the ACCC will monitor the supply of retail and wholesale electricity in Queensland, NSW, Victoria, South Australia, Tasmania, and the ACT. It also summarises developments since the release of the ACCC’s retail electricity pricing inquiry (REPI) final report in June 2018.
“Under this new inquiry, we will be closely monitoring all parts of the supply chain in the electricity sector for the next seven years, in an effort to improve affordability,” ACCC Chair Rod Sims said.
“We will be looking at the behaviour of suppliers with the objective of helping consumers access affordable electricity. To this end we will also be monitoring the implementation of the 56 recommendations we made in our REPI report, and the impact they have on the market.”
The ACCC will publish reports at least every six months, and will also release information to the market from time to time. Where appropriate, the ACCC will make recommendations to government(s) to take any proportional and targeted action necessary to remedy failures in the market.
The ACCC welcomes progress on several of its REPI recommendations to improve affordability in the retail electricity market.
“We’re pleased our recommendations for a default offer, common reference bill and reforms to conditional discounts have been adopted by the government. We believe this will bring down prices directly for over half a million consumers on excessive standing offers and, in addition, help other customers to identify a better deal.”
“The ACCC will enforce new provisions limiting excessive standing offers and making advertising clearer,” Mr Sims said.
“Competition and transparency from our inquiry will keep pressure on retailers to continue to offer discounts for customers who are already paying less than the new default market offer.”
“The common reference bill will make comparing offers much easier and enable every electricity customer to identify a better deal,” Mr Sims said.
The continuing confusion in the market about what represents a better deal is illustrated by one example in the report. In one part of Victoria, a household that uses a typical amount of electricity in 2019 will pay $181 more over the year if they sign up for an offer with the highest advertised discount in the market (43 per cent) than if they sign up for the cheapest offer with no advertised discount.
Some retailers advertise high ‘headline’ discounts that are conditional on, for example, the customer paying on time. The report gives an example in which an average household in one part of Victoria would have paid an extra $859 in the year on an advertised 34 per cent discount if they paid their bill a few days late, which is $364 more than the most expensive offer with no discount attached.
Wholesale market changing but more generation capacity needed
The report notes that Australia’s wholesale electricity market prices continue to be high, due to a tightening in supply and demand conditions.
The ACCC recommended as part of its REPI report a targeted underwriting scheme for new investment in generation, which would not underwrite equity but would provide certainty for debt financing. The scheme was designed to facilitate new entrants into the wholesale market for projects that have commitments from customers.
“We believe our proposed underwriting scheme is the most effective way of reducing the impact of wholesale prices on consumers and opening the market to new players,” Mr Sims said.
“We also recommended that acquisition of electricity generators should not be allowed if this would result in the acquirer owning more than 20 per cent of capacity in any market.”
“The ACCC will continue to monitor prices and competition in the wholesale market and will call out any conduct, market failures and barriers to entry that result in higher prices,” Mr Sims said.
Network write-downs would provide savings for consumers
An ACCC recommendation for states that over-invested in publicly owned electricity networks to write down the value of these assets has not yet been acted upon.
The charges that network owners can pass on to retailers and consumers under regulatory rules are influenced by network asset values. The higher the network asset value, the higher the charges network owners can impose. If states agree to write down the value of their network assets, then the network charges that are passed on to consumers will be lower.
“Residential consumers in Queensland, NSW and Tasmania continue to pay an average of $100 more a year because our proposal to write down the value of these assets has not been taken up,” Mr Sims said.
“The ACCC accepts that this proposal would involve a potentially large one-off cost to governments, as significant microeconomic reform often does, but we urge them to consider the continuing benefit to consumers and the economy. Reducing the unnecessarily high cost of electricity would result in increased productivity and growth in the economy.”
Solar subsidies no longer needed
Another recommendation yet to be implemented is for the Commonwealth government to abolish the small-scale renewable energy scheme by 2021, which is expected to cost the average residential customer $36 a year by 2020-21.
“The subsidy for small-scale installations is no longer required given the dramatic fall in the cost of rooftop solar since the start of the scheme in 2011,” Mr Sims said.
“It’s become economic for many households to install solar panels, so there’s no reason why other users should subsidise this.”
On 20 August 2018, the then-treasurer, the Hon Scott Morrison MP, directed the ACCC to hold an inquiry into prices, profits and margins in relation to the supply of electricity in the National Electricity Market.
The Inquiry’s first report is to set out the ‘analytical framework for monitoring and provide information about expectations of market outcomes and market participant behaviour’.
The ACCC must report at least every six months until 2025. Future ACCC electricity monitoring reports will continue to examine Australia’s retail electricity market and the implementation of these reforms, monitor the level and spread of retail electricity prices, costs and profits, and examine advertising practices in the industry and consumer take-up of new offers.
The current inquiry follows the ACCC’s Retail Electricity Pricing Inquiry June 2018 report into the supply of retail electricity and the competitiveness of retail electricity prices in the National Electricity Market which contained 56 recommendations.
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