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ACCC says energy re-regulation could be considered

ACCC says energy re-regulation could be considered

The re-regulation of electricity prices might have to be considered if competition isn't working to benefit consumers, says a senior commissioner with the competition watchdog.

Speaking after a Victorian panel recommended that retail power prices be brought back under regulation to rein in prices, Roger Featherston said the Australian Competition and Consumer Commission is "very disappointed" that competition doesn't seem to be delivering the benefits it should.

"It is not something that inherently appeals to us [re-regulation]," Mr Featherston said of the recommendation on Sunday from the Thwaites inquiry into retail energy prices in Victoria.

"We'd prefer the market to work properly rather than to be the subject of regulation but obviously if the market is not working and if competition isn't delivering what we would expect it to deliver then re-regulation may be an option," he said ahead of a public ACCC hearing in Sydney on electricity retail prices.

The comments come as RBC Capital Markets estimated that some $75 million could be carved from AGL Energy's gross earnings should Victoria follow through on the recommendation from the Thwaites inquiry.

With AGL's two major rivals having a roughly similar market share, the overall impact could be roughly three times that, split between AGL, Origin Energy and EnergyAustralia.

The Victorian government-appointed panel led by Professor John Thwaites found the promised benefits from competition have not been realised "and consumers are paying more for the same service".

It found the average retail charge for a typical customer in the state using 4000 kilowatt-hours a year is now $423 before GST, about 30 per cent of the household bill. For most customers the retail cost is bigger than the charge for producing of distributing electricity.

The Victorian government is now considering the panel's recommendations and is expected to respond by November.

But RBC analyst Paul Johnston said given the strength of the recommendations and the political focus on energy prices, he expected the government to adopt most of the measures. He suggests such a step could have knock-on impacts across other Labor states, with NSW's Labor opposition already pledging electricity prices would be re-regulated should it win office.

The inquiry panel highlighted the market power of the "Big 3", and noted they are charging customers "towards the top of the price range.".

"The Tier 1 retailers do not appear to have been put under competitive pressure by the smaller retailers to lower their prices," it said.

At the same time, Victoria has the highest level of electricity customer churn - 26 per cent in 2015-16 - of any state, which normally indicates a competitive market.

AGL said it is still reviewing the report's recommendations, but said it viewed the Victorian market as "highly competitive".

Mr Featherston said the ACCC had also received reports during its inquiry of "fairly high" electricity retailing margins in both Victoria and NSW and that consumers "just aren't finding the best offers in the market, even from their existing supplier".

He said the measures agreed at last Wednesday's meeting between Prime Minister Malcolm Turnbull and seven electricity retailing CEOs only went part of the way to addressing the problem.

The ACCC is also examining whether the high concentration of retailers and the high level of vertical integration between generators and retailers are contributing to the problem. In NSW, for example, the "Big 3" still control about 90 per cent of the retail market.

AGL's acquisition of giant NSW generator, Macquarie Generation, for $1.5 billion in 2014 increased the vertical integration in the market and was unsuccessfully opposed by the ACCC.

Mr Featherston said that while the ACCC was still examining to what extent it could show vertical integration is an issue, "certainly our suspicions are it has contributed to the problem".

The ACCC is due to deliver its interim report on electricity retailing to the government by September 27, with a final report due next June.

Financial Review

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