The debate
YES
Anew form of regulation is 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 years ago poles and wires were the culprit; now it is the retail component. Until 2009 in Victoria and mid-2015 in NSW, the retail component was regulated through a price cap.
The Australian Energy Market Commission regularly reports that competition is working. Yet privatisation, competition and deregulation have not delivered lower prices. And most consumers do not opt to switch suppliers. Why? Comparison complexities and difficulties in determining the price to be paid or how a “discount” works makes choice exceedingly hard.
A return to price cap regulation is not the solution. But a new form of regulation does offer the prospect of delivering where other policies have failed.
The prime minister recently announced an Australian Competition & Consumer Commission review of electricity retailer costs and profit behaviour and how these affect customer offers. This provides an opportunity to require a new level of transparency.
The Australian Energy Regulator could be tasked to regularly review and publicly 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 is presented in offers so that 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. A new form is needed which exerts downward price pressure and empowers consumers to easily make informed choices.
NO
Electricity markets have never been completely deregulated. Over half of the supply cost is the poles and wires that have their prices controlled. The other component is generation and retailing, which were 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 impositions placed on them to include a growing share of 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 and NSW. Within the constraints set by regulatory controls, 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 and have priority in the supply stream. This forces coal generators into uneconomic stop-start operations and they are progressively being forced to 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-regulate would 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.