The Australian Competition and Consumer Commission (ACCC) have been directed by the Turnbull Government to review retail electricity prices.
The review will scrutinise electricity retailer behaviour as well as contracts offered to residential and business customers and ensure consumers benefit from competition in the National Electricity Market.
“Electricity prices have nearly doubled on top of inflation in most parts of Australia over the last decade based on a variety of different factors. It will be important to understand and examine these different factors in each state and territory,” ACCC Chairman Rod Sims said.
“The ACCC is also keen to look at the structure of the retail industry, the nature of competition, the representation of prices to consumers and other factors influencing the price paid by Australians for electricity.
“We enter this inquiry with an open mind and look forward to developing recommendations which can make a difference for Australian households and businesses.”
Competition in retail electricity markets should mean lower prices for residential and business consumers. However, the Turnbull Government said retail electricity markets don’t appear to be operating as effectively as they could.
The Turnbull Government wants to ensure Australians get a better deal for their energy.
The ACCC is expected to produce a preliminary report by the end of September 2017, with a final report due in 30 June 2018.
The Turnbull Government said a better deal in electricity is vital to keeping the lights on, delivering cheaper prices to families and businesses and sustaining jobs, particularly the thousands of jobs in our energy intensive industries.
Recent work by a number of organisations – including the Australian Energy Market Commission, Energy Consumers Australia and the Grattan Institute – has highlighted significant concern about the causes of recent electricity price increases on the East Coast.
Energy Networks Australia CEO John Bradley said, “Energy markets are rapidly changing with a blizzard of choices and options, so it is vital to ensure we don’t leave any customers behind.
“We welcome the ability of this review to shine a light on all customer segments, including the disadvantaged and those who can’t shop around.
“Vulnerable customers, who can’t access new technologies such as solar and battery storage, can be helped to shop around to get a better deal but they should not be exploited if they do not.”
The ACCC’s inquiry will identify and report on the key cost components of electricity retail pricing and how they affect the retail offers made to customers. The inquiry will examine whether electricity retailers’ margins and profitability are in line with their costs and risks.
The inquiry will consider any impediments to consumer choice, such as the transparency and clarity of contracts that energy companies offer to consumers.
The inquiry will also consider the competitiveness of offers available to larger business customers and take into account wholesale electricity market conduct, price and cost issues where relevant.
The terms of reference provided to the ACCC will direct them to consider:
- The key cost drivers of retail electricity pricing
- The existence and extent of any entry barriers in retail markets
- The impact of vertical integration
- Whether there is any behaviour preventing or limiting competition or consumer choice
- The profitability of electricity retailers and whether these profits are commensurate with the risk retailers face
- All wholesale market price, cost and conduct issues relevant to the inquiry
The direction will be made under section 95H(1) of the Competition and Consumer Act 2010, which provides the Commission the power to demand information. This will ensure it is easier to find out what is happening in the market and whether there is a case for further intervention or use of the ACCC’s broader enforcement powers.
Given its data-intensive and complex nature, the inquiry will be given until 30 June 2018 to report. The direction would, however, require the ACCC to produce a paper within six months on its preliminary insights into the strategies and pricing behaviours of key electricity retailers.
The ACCC will work with other relevant agencies, such as the Australian Energy Regulator and the Australian Energy Market Commission in undertaking the inquiry.
In responding to the ACCC’s review, the Turnbull Government will consider what further action should be taken by policy makers and regulators to ensure markets are competitive and energy consumers, both residential and business, can have confidence in the reliability, security, pricing and terms and conditions of supply.
This initiative is part of the Turnbull Government’s broader strategy to maintain energy security and affordability. It builds on our other measures including investment in new energy storage infrastructure, securing domestic gas supplies, reigning in gas transportation and electricity network costs and initiating the Independent Review into the reliability and stability of the National Electricity Market being chaired by Australia’s Chief Scientist, Dr Alan Finkel AO.