Power deregulation moves closer

The door has been opened for the deregulation of electricity prices in NSW after a report found there was a high degree of competition, with more than 60 per cent of households now on unregulated contracts.

Even so, Victoria's Essential Services Commission has warned it is concerned about a lack of competition in that state, which is supposedly one of the most competitive energy markets worldwide.

The commission is finalising a report, which may be released as early as Friday.

It questions the high profit margins of energy retailers - primarily EnergyAustralia, Origin Energy and AGL.

In a speech on Thursday, Ron Ben-David, the Commission's chairman, highlighted the fact that electricity prices in Victoria had moved sharply higher, in tandem with NSW, over the past five years, even though the power industry in Victoria was lagging behind NSW in capital spending.

Research by the commission showed the profit margins of retailers in Victoria, where there is no price regulation, were nearly four times more than in NSW or Queensland, the two other largest states in the national electricity market with price regulation.

"Either competition is not effective or retailers are extracting economic rent," Dr Ben-David said, referring to the possibility the retailers were using their market position to distort prices. "Victoria may have the most competitive market ... but is it efficient?"

The roll-out of smart meters would give retailers the potential for even greater control over the market, he said, since they would be able to obtain detailed information about household energy consumption patterns, and change their pricing structures accordingly.

"It will take time for retailers to gain this advantage, but it will be possible," he warned.

While confirming the degree of competition in the NSW market, the Australian Energy Markets Commission has recommended continuing monitoring, which should be accompanied by the ability to reintroduce price caps if competition becomes ineffective.

NSW Energy Minister Chris Hartcher said his government would wait until it received the final report later in the year from the Australian Energy Markets Commission before responding.

"Until we are confident competition in the market has been found to be effective - that is, giving NSW customers the best and cheapest price available - the government will continue to provide a regulated price option," Mr Hartcher said.

Jim Myatt, of Australian Power and Gas, said following the release of the Energy Markets Commission report, "Price regulation has not protected customers from price shocks and opening up NSW to full market competition will ultimately provide better outcomes and innovation for customers."