ACCC blueprint to reduce energy prices

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The Australian Competition and Consumer Commission (ACCC) has released its final report in relation to Retail Electricity Pricing; Restoring electricity affordability and Australia’s competitive advantage. The main thrust of the ACCC Report is how to reduce energy prices for Australian consumers. The ACCC has made 56 recommendations in the Report which are included in the Executive Summary.

ACCC reduce energy prices - Retail Electricity Pricing Inquiry Final Report

By Anne Wardell, Regulatory Specialist, Compliance Quarter.

Some of the more interesting recommendations 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).
  • Requiring retailers 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.
  • 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.
  • Improving the AER’s powers to investigate and address problems in the market and increasing penalties for serious wrongdoing.

The recommendations cover amendments to the National Energy Law in chapters 4 to 18 inclusive and are grouped under the following headings:

  • Boosting competition in generation and retail markets (Ch 4-6);
  • Lowering supply chain costs (Ch 7-10);
  • Improving consumer experiences and outcomes (Ch 11-17); and
  • The business experience (Ch 18).

Boosting competition in generation and retail markets

The main recommendations in this section are:

  • preventing any acquisition or other arrangements that would result in a market participant owning or controlling dispatch of more than 20 per cent of generation capacity in any NEM region or across the market as a whole;
  • the division of Queensland generation assets into three generation portfolios;
  • increase the powers of the AER to prevent manipulation of the wholesale market;
  • an Australian government program to offer low fixed-price energy offtake agreements for the later years of appropriate new generation projects;
  • support of the development of the National Energy Guarantee;
  • introduce reporting of all over-the-counter trades
  • introduction of market making obligations in South Australia;
  • introduction of loss notification on the actual date of transfer for losing retailers; and
  • increase speed of the customer transfer process.

Lowering supply chain costs

The main recommendations in this section are:

  • removal of limited merit reviews of AER revenue decisions;
  • governments of Qld, NSW and Tasmania to take immediate steps to remedy the past over-investment of their network businesses;
  • AER given power to monitor the effect of the write-downs and rebates on network charges;
  • introduction of a process in the National Electricity Rules for ‘stranding’;
  • governments should introduce mandatory assignment of the network tariff for all customers that have metering capable of supporting cost-reflective tariffs;
  • support the take up of smart meters;
  • responsibility for setting network reliability requirements should be given to the AER or other NEM market body, based on a value of customer reliability (VCR) methodology;
  • AEMC consider ways to reduce the complexity of the network and the rules which operate in the market;
  • allow AER to initiate reviews of its guidelines to ensure they evolve with the market;
  • governments should remove taxes that do not relate to the provision of network services;
  • AER to be given more flexibility in undertaking the process of making regulatory determinations;
  • a mechanism should be developed for third parties to offer demand response directly into the wholesale market;
  • AER, in undertaking the revenue determination process, should include a more explicit focus on assessing the efficient use of non-network expenditure;
  • distribution businesses should apply to the AER for early application of the new DMIS (ahead of their next regulatory determination) to bring forward incentives for greater use of demand response;
  • AEMC should consider in its annual review of the electricity network economic regulatory framework whether network assets are being used efficiently to provide benefits in addition to distribution services (for example, as a substitute for generation in the wholesale, RERT or FCAS markets);
  • immediate work should be undertaken to identify and implement changes to the NEL and NER, and the NERL and NERR, to allow distributors to develop off-grid supply arrangements for existing customers or new connections where efficient;
  • small-scale renewable energy scheme should be wound down and abolished by 2021;
  • Victoria should join the National Energy Customer Framework (NECF);
  • Each NECF jurisdiction should review its derogations from the NECF and unwind any derogations that are not based on jurisdiction-specific characteristics or needs that cannot be met by NECF-wide rules; and
  • future derogations from the NECF should be limited to situations where there are jurisdiction specific needs that cannot be addressed by a NECF-wide rule change.

Improving consumer experiences and outcomes

The main recommendations in this section are:

  • requirements for notices sent by retailers to customers prior to the end of a contract should be consistent with the new requirements for expired benefit notices;
  • in non-price regulated jurisdictions, the standing offer and standard retail contract should be abolished and replaced with a default market offer at or below the price set by the AER;
  • application of the consumer data right to the electricity sector should be pursued as a priority under the consumer data right framework regulated by the ACCC. Consumers and their authorised representatives should have access to at least historical consumption data, product data, meter data and customer data;
  • if a retailer chooses to advertise using a headline discount claim it must calculate the discount from the reference bill amount published by the AER;
  • conditional discounts should be no higher than the reasonable savings that a retailer expects that it will make if a consumer satisfies the conditions attached to the discount. Retailers should bear the onus of substantiating that the conditional discount is reasonable;
  • introduction of a mandatory code of conduct for third-party intermediaries;
  • allow consumers to provide their consent to third-party intermediaries to give Explicit Informed Consent (EIC) on their behalf;
  • increased funding for government-funded comparator websites;
  • COAG to improve concession schemes across the NEM to ensure a uniform, national approach to electricity concessions;
  • the Australian Government and the relevant state or territory government should fund (to a value of $5 per household in each NEM region, or $43 million NEM-wide, per annum) a grant scheme for consumer and community organisations to provide targeted support to assist vulnerable consumers to improve energy literacy;
  • support for the proposed hardship rule change proposed by the AER;
  • Retail price monitoring should be streamlined, strengthened and appropriately funded to ensure greater transparency in the market, reduced costs, and allow governments to more effectively respond to emerging market issues;
  • AER’s wholesale market monitoring should be expanded and appropriately funded to include monitoring, analysing and reporting on the contract market;
  • COAG Energy Council should:
    • adopt all the suggested increased penalties to all civil penalty provisions listed in the consultation paper as a matter of priority, but instead of increasing the amount to $1 million as proposed, increases should be to the same levels as parliament is currently considering for the ACL ($10 million, three times the benefit gained or 10 per cent of turnover);
    • amend the energy laws in line with the current recommendations before the COAG Energy Council to allow the AER to seek community service orders, probation orders, and adverse publicity orders, as well as enabling the AER to seek that a third party is required to undertake a community service order;
    • provide the AER with the power to require individuals to give evidence before it;
    • amend the energy enforcement regime;
    • develop a set of ministerial principles that inform rule changes and ministerial decisions relating to consumer protection regulation;
    • undertake a review of the effectiveness of the NECF three years after the implementation of the Inquiry recommendations and no later than four years after the release of the report; and
  • rebidding rules that currently attract civil penalties of $1 million should also be increased to the new higher level penalties.

The business experience

The main recommendations in this section are:

  • ACCC’s recommendation to abolish the standing offer and replace it with a ‘default offer’ at or below a price set by the AER (recommendation 30) should be extended to all generally available offers including offers for SME customers;
  • ACCC’s recommendation that all discounts must be calculated from a reference bill amount set by the AER (recommendation 32) should be extended to all generally available offers including offers for SME customers;
  • governments and market bodies should develop specific electricity market awareness campaigns targeted at small business customers;
  • State and territory governments should fund small business organisations to provide tailored retail electricity market advice. The fund should total $10 million over three years and be awarded on a competitive basis to small business representative organisations providing information, tools and advice to small businesses on retail electricity choices;
  • after two years, the COAG Energy Council should review industry efforts to assist small businesses experiencing payment difficulties;
  • ACCC’s recommendation in respect of improved and streamlined price reporting (recommendation 40) should include expanded reporting for small to medium business;
  • State and territory governments should provide resourcing toward promoting energy ombudsman schemes as a part of a broader marketing campaign to build small business engagement with retail electricity markets; and
  • Governments should make available well targeted assistance programs including energy efficiency audits to assist the businesses most adversely impacted by the transition to more cost network reflective tariffs.

The ACCC has provided the following estimate of electricity bill savings if the recommendations are all adopted:

ACCC reduce energy prices estimated electricity bill savings

In releasing the report, ACCC Chair Rod Sims said:

“The National Electricity Market is largely broken and needs to be reset. 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, if adopted, will save the average household between 20 and 25 per cent on their electricity bill, 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. Further, Australia’s 2.2 million small to medium businesses could save an average of 24 per cent on their electricity bill, if the ACCC’s recommendations are adopted. Many small to medium businesses operate on very small margins, and cannot afford the increases to their costs that have occurred over past years.

Commercial and industrial customers, the heaviest users, could see electricity costs decrease on average by 26 per cent. Commercial and industrial customers, like mining and manufacturing companies, have watched what has been a relative competitive advantage to them, affordable electricity, now threatening their viability. 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.

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’ (Source: ACCC Release 124/18).

Further information is available on the ACCC website at ACCC releases blueprint to reduce energy prices.

We will be writing additional articles on the recommendations which examine the changes in more detail. As ever, please contact the team if you wish to discuss this article or ask any questions – click here.

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