Softer notes on power competition

The state government appears to be continuing to back away from plans to introduce increased competition in electricity retailing, with Economics and Industry Committee chair Jessica Shaw saying she’d like to see more evidence it would reduce prices.

Last year, Energy Minister Ben Wyatt announced an intention to introduce full retail contestability in electricity markets, enabling households to buy power from businesses other than Synergy, similar to the rules for larger businesses and in the gas market.

Part of that package was the abolition of Synergy’s subsidy, and a corresponding rise in power prices.

As recently as March, Mr Wyatt maintained he was committed to the policy, despite media reports otherwise.

But Ms Shaw’s comments to a lunch organised by the Committee for Economic Development of Australia today indicate a reluctance within government to push ahead, as her parliamentary committee continues a review of electricity markets focussed on microgrids and their role in power markets.

She said increased competition in the gas market, from new entrants such as Origin Energy and AGL, was not the key driver of lower retail gas prices in recent years.

“One of the major drivers of the benefits seen in the retail gas market is low cost gas… (through) the domestic gas reservation policy,” Ms Shaw said.

“It doesn't necessarily follow that the prime driver is full retail contestability.

“On full retail contestability in electricity, over the last 18 months there have been a succession of reports that have been released (ACCC, Grattan Institute, Thwaites review)… that have all demonstrated that on the east coast, all FRC has done is led to confusion in the market.

“And artificially high retail margins.

“And that is a major issue.

“... in the jurisdiction that has the longest experience with retail contestability, and the longest experience with price deregulation, I’m yet to see the proof that consumers are seeing the benefit of that.”

There will be strong pressure on the government to proceed with the policy, however.

Speaking to Business News in August 2017, Tony Wood, who authored the aforementioned Grattan Institute report, said the government should proceed, cautiously, to full contestability.

The state’s Economic Regulation Authority similarly called for contestability in the 2014 Microeconomic Reform review, while local independent power providers have argued they could reduce prices as much as 40 per cent.

The Australian Competition and Consumer Commission’s review of the east coast electricity market earlier this year found that about 16 per cent of the increase in power bills in that market, across the past decade, were higher retail margins.

Retail costs, separate from margins, were 7 per cent of the price rise.

Network cost increases were 35 per cent of the total impact, environmental policy 20 per cent, and wholesale markets 22 per cent.

Nonetheless, the ACCC had some criticism of retailers.

“While there have been some positive signs, the results of opening retail electricity markets up to competition have largely fallen short of expectations,” the report said.

“Most significantly, retailer costs have increased, particularly the costs dedicated to acquiring customers.

“These costs are passed on to consumers through higher prices.”

Alinta Energy general manager of WA Chris Campbell said he believed full contestability would work with an appropriate regulatory framework.

“Consumer choice, competition, should lead to better outcomes for consumers,” Mr Campbell said.

“On the east coast we’ve seen some things that haven't worked and it’s mostly around transparency.

“That's why we support benchmark prices so people know what they're comparing to when they look at different retailers.

“What we've seen in the gas market (in WA) is very clear signals about offerings, and consumers have benefitted from it.”

Data from the US shows promising results from competition in electricity markets in the eight years to 2016, according to the ‘Restructuring Recharged’ report by the Retail Energy Suppliers Association.

Residential prices in the 35 states with retail monopolies increased 18.2 per cent in the period, while in states with competitive markets, prices rose only 0.84 per cent.

For industrial users, prices fell 21.7 per cent in competitive states, and were up 8.6 per cent in monopoly states.