Would re-regulating energy markets mean lower power bills?


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There are two types of deals, or energy offers, that are available to consumers: standing offers and market offers.

If you're on a standing offer, you're on a legacy tariff that existed before the market was deregulated. So if you've never changed your electricity deal, or haven't changed for a couple of years, you're probably paying more than you should.

So should the NSW and Vic energy markets be re-regulated?

should nsw and victoria energy markets be re-regulated power bills utilities gas bills expenses cost of living heating


Lynne Chester, Associate professor, University of Sydney

A new form of regulation is needed to exert downward pressure on electricity retail charges and assist consumers choose the best-priced offer to meet their needs.

Electricity prices have escalated since 2007. A few years ago the poles and wires component was 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 competition, privatisation and deregulation have not delivered lower electricity prices. And most consumers do not opt to switch suppliers. Why? Comparison complexities between the different offers from electricity retailers, 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 and Consumer Commission review of electricity retailer costs and profit behaviour and how these affect customer offers. This review provides an opportunity to require a new level of transparency from electricity retailers.

The Australian Energy Regulator could be tasked to regularly review and publicly report on the currently hard-to-identify costs and profit margins of these retailers.

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 actively empowers consumers to easily make informed choices about the electricity prices they pay.


Alan Moran, principal, Regulation Economics

Electricity markets have never been completely deregulated. Over half of the supply cost is the poles and wires that have their prices and controlled.

The other component is generation and retailing, which were deregulated and privatised in the years from the mid-1990s. The outcome was a massive increase in productivity and a sharp drop in prices. As a result, Victoria and to a lesser degree NSW at the turn of the century had the cheapest electricity supply in the world.

It has all been downhill since then.

Retailers have had impositions placed on them to include a growing share of high-cost renewable energy within their supply mix. They have also been obligated to carry out social policies on behalf of governments covering such matters as mandatorily providing low-energy lighting, onerous disconnection restraints for customers who will not pay their bills and an expensive "smart" meter rollout.

Even so, we have 30 different 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 regulated systems under clunky bureaucratic and nakedly political control 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 system.

The latest forced closure, that of Hazelwood power station, has brought about a doubling of the wholesale electricity price and pressed the system closer to the edge of unreliability.

To re-regulate would compound these disastrous outcomes. Independently operated and competing power stations are forced to constantly assess and reduce their costs.

Under government ownership and regulation, the Victorian supply industry used five times as many workers to produce a far less reliable system than that which emerged after the mid 1990s.

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