By Alex Silcock, Compliance Quarter
Energy Consumers Australia (ECA) has requested amendments to the National Electricity Rules and National Energy Retail Rules to improve retail market transparency. The proposed rule change would require retailers to report of average prices, costs, revenues and margins to the Australian Energy Market Commission (AEMC).
The rationale for the proposed reporting obligations is to provide the AEMC with a complete picture of the margins of retailers participating in the market and this would assist in the delivery of its annual Retail Energy Competition Review.
ECA cite comments made by the AEMC in its 2019 Retail Energy Competition review, along with recommendation 40 of the Australian Competition and Consumer Commission’s (ACCC) Retail Electricity Price Inquiry (REPI) in support of the rule change request.
The AEMC has previously noted that it would benefit from more information and transparency provided by retailers and recommendation 40 of the REPI was that:
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. This should be done by:
- COAG Energy Council agreeing to streamline price monitoring and reporting to the AER and the
- AER receiving all the necessary powers to obtain information from retailers
- COAG Energy Council agreeing to extend price reporting for retail electricity services to small to medium business customers
state governments agreeing to close their own price reporting and monitoring schemes in favour of an expanded and strengthened NEM-wide regime
A NEM-wide price reporting and monitoring framework be implemented which includes a combination of price monitoring with full EBITDA data (including standardised costs to serve, attract and retain consumers, and margins), and consumer expenditure surveys. This reporting should be done on a regular basis and include customer expenditure data, based on representative customer surveys and retailer billing and offer data, and be reflective of demographic information.
In response to this recommendation, Federal Parliament legislated for the ACCC to undertake the role of Price Monitor for the next seven years. The ACCC has the power to compel information from retailers to assist it in its price monitoring function. However, ECA notes that “The utilization of ad hoc information gathering powers is the costliest way to acquire information.” It prefers the approach of uniform reporting across the industry (excepting some small and new-entrant retailers) bi-annually.
What will be reported?
Broadly, the reporting information will include financial information and customer pricing summaries. Retailers will be required to disclose:
- Retail Revenue;
- Retail Cost of Goods Sold;
- Cost of Fed in electricity;
- Retail Gross Margin;
- Cost to Serve;
- Cost to Maintain;
- Cost to Compete;
- Cost to Acquire;
- Cost to Retain;
- Depreciation, Interest and Tax;
- Net assets.
The ACCC already broad powers to obtain this data, as do some jurisdictional regulators. However, there is a sunset date on those powers and the disclosures set out above are intended to be effective over the long-term. Furthermore, the ECA is also proposing that the AEMC make the data available on request to the AER, AEMO, ACCC, Energy Security Board, as well as ECA itself.
AEMC as the Proposed Information Gatherer
It is interesting that ECA have nominated the AEMC as the body to receive the reporting data given one of its primary functions is the rule-making body. In making a determination on the rule-change request, the AEMC will effectively be deciding whether it should have access to more financial information from retailers.
Aside from minor, or non-material rule changes, the AEMC is not permitted to initiate a rule change request itself. Therefore, despite the AEMC hinting in some of its publications that more information on retailer pricing and margins would be useful, it has not been in a position implement a rule to ensure it gains access to that information.
The AEMC’s rule-making powers are very broad, so given the rule change was requested by ECA, the AEMC is unlikely to be prevented from making the requested change. This is despite the fact that it may have a direct interest in the outcome.