Competition in electricity retailing has failed to deliver lower prices for consumers, and governments will need to step in and re-regulate prices if the industry does not lift its game, according to a new Grattan Institute report.
The report, Price shock: Is the retail electricity market failing consumers?, found prices in Sydney, Melbourne, Brisbane and Adelaide have almost doubled over the past decade.
In Victoria, the profit margin for electricity retailers appears to be about 13 per cent – more than double the margin regulators traditionally considered fair when they had responsibility for setting prices.
Victorians would save about $250 million a year – about $100 per household – if the profit margin of their electricity retailers was the same as for other retail businesses.
Grattan Institute energy program director Tony Wood told ABC the Prime Minister need to threaten re-regulation to pull energy companies into line.
“Ultimately the government may have to threaten the use of a big stick in a regulatory intervention of some sort knowing that it almost certainly won’t be the best way to achieve the outcome,” Mr Wood told the ABC’s AM program.
“But if industry doesn’t get on top of things like gas supply, then the government will be forced to intervene.”
The report urged governments to act to ensure customers get lower prices and better service.
Retailers should be required to tell customers, in ways that are easy to compare, how much they will pay under ‘discount’ deals, according to Grattan.
They should provide detailed data on their profit margins to an independent body, such as the Australian Energy Market Commission.
“It is too early to give up on competition,” Mr Wood said.
“We may yet see fairer prices and better service. But if competition still fails to deliver the promised benefits, then government will have no choice but to return to price regulation.”