ACCC releases blueprint to reduce electricity prices

The ACCC’s recommendations to significantly improve electricity affordability for Australian consumers and businesses are outlined in its final Retail Electricity Pricing Inquiry report, released today.

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.

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.

“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.

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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.”

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 per cent of small businesses are on high ‘standing’ offers.

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“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.

See: Final report

See also: Executive summary

Background

On 27 March 2017, the Treasurer issued a notice requiring the ACCC to hold a public inquiry into the supply of retail electricity and the competitiveness of retail electricity prices in the National Electricity Market (NEM). The inquiry formally commenced on this date.

As part of the inquiry:

  • The ACCC issued over 100 notices to retailers and generators which compelled them to provide documents, information and data.
  • Retailers were required to provide information about their revenue and usage, wholesale costs, network costs (transmission and distribution), environmental (green) scheme costs, and retail costs and margins.
  • The ACCC received, examined and analysed 48,000 documents.
  • The ACCC received and reviewed information from three different customer types: residential, small and medium businesses and commercial and industrial customers.
  • The ACCC received and reviewed nearly 200 submissions from industry participants, representative groups, consumer groups and individuals.
  • The ACCC held public forums in all mainland capital cities in the NEM.
  • The ACCC commissioned work from experts and consultants.

The ACCC provided a preliminary report to the Treasurer in September 2017.

See also: Electricity supply prices inquiry

One page fact sheet on the National Energy Market.

Estimated electricity bill savings

Vic

NSW

SE Qld

SA

Tas

Average residential customer

$290

20%

$410

24%

$420

25%

$370

21%

$415

21%

Average residential standing offer customer

$500

30%

$550

30%

$500

25%

$750

35%

*

Average SME customer

$600

20%

$1050

25%

$950

25%

$800

20%

*

Average SME standing offer customer

$2000

35%

$2250

35%

$1450

30%

$1500

30%

*

* As electricity prices are regulated in Tasmania there is no distinction for standing offer customers. Equivalent SME data to other states was not available for this analysis.

  • The National Energy Market

    An overview of the decisions that have led to the current problems and proposed solutions to address them.

    The Final Report

    The full report published on 11 July 2018.