Power deregulation moves closer
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."
Frequently Asked Questions about this Article…
A recent report has opened the door to possible electricity price deregulation in NSW after finding a high degree of competition, with more than 60% of households now on unregulated contracts. That means the government is considering removing regulated price controls, but the Australian Energy Markets Commission has recommended ongoing monitoring and the option to reintroduce price caps if competition becomes ineffective. The NSW government says it will wait for the final AEMC report before making changes and will continue offering a regulated price option until competition clearly delivers the best and cheapest prices.
Victoria's Essential Services Commission has flagged concerns that competition may not be working properly there. Its research found retailer profit margins in Victoria (where prices are unregulated) were nearly four times higher than in NSW or Queensland, even though Victoria lagged NSW in capital spending. The commission's chairman questioned whether retailers are extracting economic rent or whether competition is simply ineffective, and a final report may be released soon.
The article specifically names EnergyAustralia, Origin Energy and AGL as the primary energy retailers whose high profit margins in Victoria were questioned by the Essential Services Commission.
The commission warned that smart meters could give retailers greater control over the market because they allow companies to obtain detailed household energy consumption patterns. With that data, retailers could change pricing structures and tailor offers, potentially strengthening their market position. The chairman said it will take time for retailers to gain this advantage, but it will be possible.
The AEMC confirmed the degree of competition in the NSW market but recommended continuing monitoring. It also advised that any move toward deregulation should be accompanied by the ability to reintroduce price caps if competition later proves ineffective.
NSW Energy Minister Chris Hartcher said the government will wait for the final AEMC report later in the year before responding. He also stated the government will continue to provide a regulated price option until it is confident competition is effective and is delivering the best and cheapest prices for NSW customers.
Jim Myatt of Australian Power and Gas is quoted saying that price regulation has not protected customers from price shocks, and that opening NSW to full market competition will ultimately provide better outcomes and innovation for customers. That reflects one industry view supporting deregulation as a path to improved services.
The article highlights several signals investors might monitor: regulator reports and final recommendations from the AEMC and state commissions; any government decisions on keeping or removing regulated price options; scrutiny of retailer profit margins (notably in Victoria); the pace and impact of smart meter roll-outs that could change pricing strategies; and public comments from industry players like Australian Power and Gas. These are all factors discussed in the article that could influence competitive dynamics in the energy sector.
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