An independent review into the electricity and gas retail markets in Victoria has recommended retailers offer a ‘no frills’ price to customers.
The final report of the bi-partisan review – undertaken by John Thwaites, Terry Mulder and Patricia Faulkner – was handed down on Sunday and revealed Victorian consumers are not gaining the benefits of a competitive retail market.
In 2009, all retail pricing regulation was removed in the state so retailers were free to set the prices of standing offers and market offers.
Since then, the residential market has expanded to include 25 energy retailers selling electricity and 13 retailers selling gas to residential and small business customers in Victoria servicing 2.4 million households and 274,000 small businesses, according to the report.
“Retailers increasingly used discounts to promote their offers, starting at around a low 5 per cent and rising to over 40 per cent for some retailers in the current market,” the report said.
“Customers transferred off standing offers and switching rates increased, which gave the appearance that the market was functioning well.”
However, since 2000, prior to competition, Victoria’s power prices have increased by 200 per cent.
According to the review, traditional reviews into retail energy prices have focused on using either standing offers, current market offers, or a combination of the two in reaching conclusions, and not what consumers are actually paying.
To address this, the review panel commissioned new research to collect and analyse data on what Victorian energy consumers are paying, sourced from their actual energy bills.
“The research results found that Victorian households are paying much higher prices than official estimates; on average around 21 per cent per year more for their electricity than the cheapest offer available in the market,” the report said.
“Nearly one quarter of the customers whose bills were analysed for the review were paying at least $500 more than the cheapest available offer.”
The review panel made 11 recommendations to “place Victoria’s retail energy market back on a level playing field for the benefit of consumers”.
The key recommendation handed down included the implementation of a Basic Service Offer, which would require each retailer to provide a “no frills” offer that does not exceed a regulated price.
“Consumers only interested in a basic ‘no frills’ service would have the option to select the Basic Service Offer and remain protected from the existing failures of the market,” the report said.
“Retailers would be free to continue to offer additional offers at different prices which, may be lower than the ‘no frills’ option, or higher, to give consumers the choice to pay for any additional value offered by retailers.
“However, this Basic Service Offer would be available to all consumers and would represent a reasonable price of energy in the market.
“It would provide an option for consumers who just want affordable energy without the fuss.”
Victorian Minister for Energy, Environment and Climate Change Lily D’Ambrosio welcomed the release of the review.
“We will carefully consider all recommendations that put people first and help drive down power prices,” she said.
“This review gives us a plan of action that will see a better deal for Victorians.”
Energy Consumers Australia CEO Rosemary Sinclair said consumers had made it clear they were not seeing good value for money outcomes for electricity.
“What we are seeing is governments responding to the fact that electricity costs are becoming unmanageable and choosing the right offer is too complicated,” Ms Sinclair said.
“The independent panel has identified shortcomings in the way the Victorian market is working and we will be closely considering the proposed measures to improve affordability, to make choices simpler and better support low income and vulnerable consumers in Victoria.”
A government response will be made public by November 2017 following further consultation with stakeholders.