Australia’s electricity market needs to be “reset” says ACCC

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Australia’s electricity market is “largely broken” and needs to be “reset” in order for households to make sizeable savings, the consumer watching has said.

In its long-awaited report on electricity pricing, the Australian Competition and Consumer Commission (ACCC) has put forward 56 recommendations designed to improve affordability for both residential and small business customers, including a crackdown on the way energy plans are marketed and the introduction of regulated standard pricing.

“The National Electricity Market is largely broken and needs to be reset,” said ACCC Chair Rod Sims.

“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.

“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 could save the average household between 20 and 25 per cent on their electricity bills, 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 added.

In addition to residential power savings, the ACCC says Australia’s 2.2 million small to medium businesses could save an average of 24 per cent on their bills, if the ACCC’s recommendations are adopted.

Commercial and industrial customers, the heaviest users, could see electricity costs decrease on average by 26 per cent.

“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,” said Mr Sims.

“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.

What is the ACCC recommending?

The ACCC’s recommendations for reducing power prices 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).

In addition, electricity retailers should be required 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.

The ACCC also suggests that 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.

The ACCC also wants to limit power companies with 20 per cent or more market share from acquiring more generation capacity, and to improve 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 residential customers who are still on the range of current standing offers to the new default pricing could result in savings of $500 to $750 per annum (25-35 per cent), the ACCC says.

Small and medium businesses could save $1,450-$2,250 (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.

“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.

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