ACCC: ‘Broken’ electricity market needs to be reset

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The Australian Competition and Consumer Commission (ACCC) has called for major reform of the national electricity market (NEM) in its final Retail Electricity Inquiry report, released today.

The Inquiry, which commenced in March 2017, has identified the root causes of high electricity prices across the entire electricity supply chain, and has made 56 recommendations detailing ways to fix the NEM.

ACCC chair Rod Sims said the NEM 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,” Mr 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 most households are paying far too much for electricity,” Mr Sims said.

“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.”

The ACCC says small to medium businesses could save an average of 24 per cent on their electricity bill, if recommendations are adopted, and commercial and industrial customers, the heaviest users, could see electricity costs decrease on average by 26 per cent.

“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, 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 while important steps had been taken, restoring electricity affordability would 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,” he said.

“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.”

The ACCC’s recommendations include:

  • Abolishing the current retail ‘standing’ offers 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).
  • 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.