Commission Questions High Energy Profits in Australia

The door has been opened to full 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 on unregulated contracts.

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

The commission is finalising a report, which may be released as soon as Friday, which questions the high profit margins of the energy retailers – primarily EnergyAustralia, Origin Energy and AGL.

Commission chairman Ron Ben-David, in a speech on Thursday, 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 had not undertaken the heavy capital spending that had occurred in NSW.

The commission has found that the profit margin of retailers in Victoria, where there is no price regulation, are as much as four times larger than in NSW or Queensland – the two largest remaining states in the national electricity market with price regulation.

”Either competition is not effective or retailers are extracting economic rent,” Mr Ben-David said, referring to the possibility the retailers are using their market position to distort prices.

”Victoria may have the most competitive market … but is it efficient?”

The rollout of smart meters will give retailers the potential for even greater control over the market, he said, since they would be able to obtain intimate details of the 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 ongoing monitoring of the market, which should be accompanied by the ability to reintroduce price caps if competition proves to be no longer effective.

NSW Energy Minister Chris Hartcher said the government would wait until it received the final report from the AEMC 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,” he said.

The chief executive of Australian Power & Gas, Jim Myatt, said price regulation had not protected customers from price shocks.

”Opening up NSW to full market competition will ultimately provide better outcomes and innovation for customers,” he said.