By Anne RinaudoWednesday 18 Jul 2018Open House InterviewsFinance and BusinessReading Time: 4 minutes
Listen: Hugh Saddler in conversation with Stephen O’Doherty.
A major report by the ACCC has found we pay too much for our electricity. The extensive study says the system could be made simpler for consumers to understand.
The ACCC’s recommendations to significantly improve electricity affordability for Australian consumers and businesses are outlined in its final Retail Electricity Pricing Inquiry report.
National Electricity Market broken
The Inquiry, which commenced in March 2017, began by identifying the root causes of high electricity prices across the entire electricity supply chain, and has now made 56 recommendations detailing ways to fix the National Electricity Market.
“The National Electricity Market is largely broken and needs to be reset. Previous approaches to policy, regulatory design and competition in this sector over at least the past decade have resulted in a serious electricity affordability problem for consumers and businesses,” ACCC Chair Rod Sims said.
“There are many reasons Australia has the electricity affordability issues we are now facing. Wholesale and retail markets are too concentrated. Regulation and poorly designed policy have added significant costs to electricity bills. Retailers’ marketing of discounts are inconsistent and confusing to consumers and have left many consumers on excessively high ‘standing’ offers.”
The ACCC estimates its recommendations, if adopted, will save the average household between 20 and 25 per cent on their electricity bill, or around $290-$415 per annum.
“It is clear that most households are paying far too much for electricity. In addition, some of the most vulnerable in our community are forced to struggle through freezing winters and scorching summers, with many others also having difficulty paying their bills,” Mr Sims said.
Benefits to large and small business
Further, Australia’s 2.2 million small to medium businesses could save an average of 24 per cent on their electricity bill, if the ACCC’s recommendations are adopted.
“Many small to medium businesses operate on very small margins, and cannot afford the increases to their costs that have occurred over past years,” Mr Sims said.
Commercial and industrial customers, the heaviest users, could see electricity costs decrease on average by 26 per cent.
“Commercial and industrial customers, like mining and manufacturing companies, have watched what has been a relative competitive advantage to them, affordable electricity, now threatening their viability,” Mr Sims said.
Big changes needed
“While important steps have been taken recently, restoring electricity affordability will require wide ranging and comprehensive action. We believe our changes can and will, if adopted, have a powerful and tangible impact on electricity affordability for all Australians; this will reduce economic inequality and enhance our national welfare.”
“Three further points need to be made. First, our recommendations require some difficult decisions as sound economic reform usually does. Second, despite poor decisions over at least the past decade creating the current electricity affordability problem, it now falls to current Commonwealth and state governments to make the difficult decisions to fix it. Third, we must move away from narrowly focussed debates; addressing affordability requires change across a broad front,” Mr Sims said.
The ACCC’s recommendations include:
- Abolishing the current retail ‘standing’ offers (which are not the same between retailers), and replacing them with a new ‘default’ offer consistent across all retailers, set at a price determined by the Australian Energy Regulator (AER).
- Requiring retailers to reference any discounts to the new ‘default’ offer pricing determined by the AER, making it easier for consumers to genuinely compare offers. Conditional discounts, such as pay-on-time discounts, must not be included in any headline discount claim.
- A mandatory code for comparator websites be introduced so that offers are recommended based on customer benefit, not commissions paid.
- Voluntary write downs of network overinvestment, including by the NSW, Queensland and Tasmanian governments (or equivalent rebates). This could save consumers in NSW, Queensland and Tasmania at least $100 per year.
- Premium solar feed-in-tariff schemes should be funded by state governments and the small scale renewable energy scheme should be phased out, saving non-solar consumers $20-$90 per year.
- Government support to make bankable new investment by new players in generation capacity to help commercial and industrial customers and drive competition.
- Restructuring of Queensland generators into three separately owned portfolios to improve competition.
- Limiting companies with 20 per cent or more market share from acquiring more generation capacity.
- Improving the transparency of over-the-counter contract trading by requiring reporting of these trades to a central registry.
- Improving the AER’s powers to investigate and address problems in the market and increasing penalties for serious wrongdoing.
“The ACCC’s affordability measures for consumers also include improvements to state and territory concession schemes, and funding for organisations to assist vulnerable consumers to choose a low-priced electricity offer that suits their circumstances,” Mr Sims said.
“One of the most important recommendations is to move customers off excessively high ‘standing’ offers to a new standard ‘default’ offer to be independently set by the Australian Energy Regulator.”
Homes and small business can save
Moving average residential customers who are still on the range of current ‘standing’ offers to the new ‘default’ offer could result in savings of $500 to $750 per annum (25-35 per cent). Similarly, small and medium businesses could save $1450-$2250 (30-35 per cent) per year by moving to a standard ‘default’ offer. Currently over 20 percent of small businesses are on high ‘standing’ offers.
“Too many consumers and small business customers have given up trying to understand offers and switch in a confusing retail electricity market. Big changes are required to make it easier for consumers and businesses to understand market offers and improve competition,” Mr Sims said.
Energy consultant and Honorary Associate Professor at the Crawford School of Public Policy ANU, Hugh Saddler, spoke to Stephen O’Doherty on Open House about our energy supply issues.
To listen to the podcast of this conversation click the red play button at the top of the page, or you can subscribe to Open House podcasts in iTunes and they will appear in your feed.