Money Australia — May 2017

A

newformofregulationis
needed to exert downward
pressure on electricity retail
charges and assist consumers
to choose the best-priced offer
to meet their needs.
Electricity prices have
escalated since 2007. A few
yearsagopolesandwires
weretheculprit;nowitisthe
retail component. Until 2009
in Victoria and mid-2015 in
NSW,theretailcomponentwas
regulatedthroughapricecap.
The Australian Energy Market
Commission regularly reports
that competition is working.
Yet privatisation, competition
andderegulationhavenot
deliveredlowerprices.Andmost
consumersdonotopttoswitch
suppliers. Why? Comparison
complexities and difficulties
in determining the price to be
paid or how a “discount” works
makeschoiceexceedinglyhard.
Areturntopricecapregulation
isnotthesolution.Butanew
form of regulation does offer the
prospectofdeliveringwhere
otherpolicieshavefailed.
The prime minister recently
announcedanAustralian
Competition & Consumer

Commission review of electricity

retailer costs and profit

behaviour and how these affect

customer offers. This provides

anopportunitytorequireanew

level of transparency.

The Australian Energy

Regulator could be tasked to

regularlyreviewandpublicly

report on costs and profit

margins. The pressure of public

knowledge will “encourage”

retailers not to gouge excessive

profits and be very cost vigilant.

Regulation could also

mandate the way information

ispresentedinofferssothat

consumers can readily compare,

understand the actual price

to be paid and be aware of

potential costs upon

a contract’s expiry.

A return to past

regulation is not

the answer.

Anewform

is needed

which exerts

downward

price pressure

and empowers

consumers

to easily make

informed choices.

LY N N E

CHESTER

Associate professor,

University of Sydney

E

lectricity markets have

never been completely

deregulated. Over half of

thesupplycostisthepoles

and wires that have their

prices controlled. The other

component is generation

andretailing,whichwere

deregulated and privatised from

the mid-90s. The outcome was

a big increase in productivity

and a sharp drop in prices.

It has all been downhill

since then. Retailers have had

impositionsplacedonthem

toincludeagrowingshareof

high-cost renewable energy

in their supply mix. They have

also been obligated to carry

out social policies on behalf of

governments such as

providing low-energy

lighting, onerous

disconnection

restraints for

customers

who won’t

pay and an

expensive

“smart”

meter rollout.

Even so, we

have 30 electricity

retailers vying for

consumers’ business in Victoria

andNSW.Withintheconstraints

setbyregulatorycontrols,this

forces costs and prices down

in a way that clunky regulated

systems can never achieve.

Fossil fuel generators, which

provide 90% of supply, have

been disadvantaged by wind

and solar, which get two-thirds

of their revenue from subsidies

andhavepriorityinthesupply

stream. This forces coal

generators into uneconomic

stop-start operations and they

areprogressivelybeingforcedto

close down. In South Australia

this has severely impacted the

reliability of the energy system.

The latest forced closure, that of

Hazelwood power station, has

brought about a doubling of the

wholesale electricity price.

To re - re g u la te wo u l d

compound these disastrous

outcomes. Independent,

competing power stations are

forced to constantly reduce

costs. Under government

ownership, the Victorian

industry used five times as many

workers to produce a far less

reliable system than that which

emerged after the mid-1990s.

ALAN

MORAN

Principal,

Regulation Economics

YES NO

THE DEBATE

WHAT

YOU NEED

TO KNOW

There are two types of energy

offers available to consumers:

standing and market. If you’re on a

standingoffer,you’reonalegacy

tariff that existed before the

market was deregulated so

you’reprobablypaying

too much.

Should the NSW and

Vicenergymarkets

be re-regulated?