In 2017, the Independent Bipartisan Review of Electricity and Gas Retail Markets (independent review) released its report into the retail energy market in Victoria. The review concluded that the market was not working for consumers. In reaching its conclusion, the review also found that Victorians were paying ‘unusually high’ electricity prices compared to other jurisdictions. The review made 29 recommendations aimed at improving energy market outcomes for consumers.
The government has requested the commission to implement recommendation 8A from the independent review, which requires the commission to monitor and report on the competitiveness and efficiency of the Victorian retail energy market. The commission has also asked to develop a framework to carry out an assessment on the market. The commission is required to complete its review by 31 December 2019. The commission has also since been given an on-going role to monitor and report on the competitiveness and efficiency of the Victorian retail markets for electricity and gas.
We have developed a framework and approach which we believe captures the key reasons why reporting on the energy market is important. We have also consulted widely to ensure we reflect what is important to the community.
What sort of outcomes should Victorian energy consumers receive?
We are looking for competition in the market that delivers positive long-term outcomes for Victorian consumers – a market with effective competition. This recognises that competition is a means to an end rather than an end in itself and measuring the competitiveness and efficiency of the market can indicate what effect the market is having on customer outcomes. This is particularly important given that energy is an essential service where the overwhelming majority of customers cannot exit or find a fully substituted product.
Can a highly competitive and efficient market deliver these outcomes?
Victoria became the first Australian jurisdiction to initiate steps towards full retail competition in 1994. At the time, it was the expected that the introduction of full retail competition in the energy market would deliver positive outcomes for most Victorian consumers. Policy makers believed that full retail competition would deliver positive outcomes for customers because there would be genuine and vigorous rivalry between retailers because customers would exercise their ability to choose the retailer that provides them with the service they want.
The degree to which competition would provide the same benefits to vulnerable customers is less clear. As energy is an essential service, it is imperative that all customers experience positive outcomes. Where there is uncertainty as to whether a highly competitive market can deliver positive outcomes for all customers, other protections need to be put in place.