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Report

Retail electricity pricing inquiry: preliminary report

16 Oct 2017
Description

On 27 March 2017 the Treasurer, the Hon Scott Morrison MP, directed the Australian Competition and Consumer Commission (ACCC) to hold an inquiry into the retail supply of electricity and the competitiveness of retail electricity markets in the National Electricity Market (the Inquiry). The ACCC’s terms of reference for the Inquiry (appendix 1) are broad, encompassing all levels of the supply chain.

The National Electricity Market (NEM) is the wholesale electricity market that covers Queensland, New South Wales (NSW), Victoria, South Australia, Tasmania and the Australian Capital Territory (ACT). As both Western Australia and the Northern Territory are not connected to the NEM they are not included in this Inquiry.

Over the past five months we have received information, documents and data from industry participants and a range of other interested parties, including consumers, businesses, representative groups and other government and non-government organisations. We have received over 150 submissions to our Issues Paper released in May and spoken directly with consumers and businesses at public forums in Adelaide, Brisbane, Melbourne, Sydney and Townsville.

One thing is clear from this consultation and information gathering: there is a severe electricity affordability problem across the NEM and the price increases over the past ten years are putting Australian businesses and consumers under unacceptable pressure.

Retail electricity prices have significantly increased in the past decade, and many households cannot absorb these increases. An increasing number of consumers are reporting difficulties meeting their electricity costs, and some consumers have been forced to minimise their spending on other essential services, including food and health services, to afford electricity bills.

Businesses across all sectors have faced even higher increases over the past 12 months, following renegotiation of long term contracts. Many of these businesses cannot pass the increased costs on and are considering reducing staff or relocating overseas. Some businesses have even been forced to close.

We have found that there is insufficient competition in the generation and retail markets, which both raises prices and increases barriers to entry. We have also found that retail price deregulation has benefited some and hurt others. The market is exceptionally complex, and consumers have no ability to exit the market.

This report outlines the ACCC’s preliminary findings from the initial stage of the Inquiry. We have analysed each of the key components of a retail electricity bill to demonstrate what has driven price increases over the past decade. We have also looked closely at the operation of each level of the electricity supply chain, identifying issues around market structure and firm behaviour. A particular focus of our work to date has been to explore the operation of the retail electricity market to identify the key barriers that consumers face in accessing competitively priced electricity, including challenges in engaging with electricity retailers and choosing the electricity service that is best for them. This report concludes by setting out the ACCC’s agenda for the remainder of the Inquiry.

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