On 25 May 2007, the MCE formally requested the AEMC to undertake a review of the effectiveness of competition in the gas and electricity retail markets of Victoria (the Victorian Review).

On 1 June 2007, the AEMC published notice of the commencement of the Victorian Review on its website. This notice was published in The Australian and The Age newspapers on 2 June 2007.

On 1 June 2007, the AEMC published an Issues Paper inviting submissions from interested parties on issues relevant to the Victorian Review, including the effectiveness of competition.

The AEMC commissioned NERA Economic Consulting to prepare two reports for the purpose of the Victorian Review. The first report outlines the structure of the upstream gas market in Eastern Australia, its competitive environment and potential implications for competition at the retail level. The second report outlines these issues in relation to the Australian wholesale electricity market. Interested parties were invited to review these reports and to provide any relevant observations in relation to their contents to the AEMC. The AEMC also commissioned Wallis Consulting Group to conduct surveys of Victorian electricity and gas retailers (Retailer Study Research Report) and domestic and small business customers (Consumer Study Research Report).

On 4 and 5 September 2007, the AEMC held public consultation forums in Melbourne and Bendigo. The purpose of these forums was to provide information to consumers about the review and to hear from domestic and small business customers about their experiences of the energy retail markets in Victoria. The AEMC delivered a PowerPoint presentation at each forum.

On 4 October 2007, the AEMC published the First Draft Report of its review of the effectiveness of competition of gas and electricity retailing in Victoria. The First Draft Report contains the AEMC’s preliminary assessment that competition in both electricity and gas retailing in Victoria is effective. Consultation on the report closed on 9 November 2007.

The AEMC published the First Final Report of its review of competition of the gas and electricity retail markets in Victoria on 19 December 2007. The First Final Report confirmed the AEMC’s preliminary finding that competition in both electricity and gas retailing in Victoria is effective. This finding is supported by evidence of active participation in the competitive market by Victorian consumers and strong rivalry between energy retailers facilitated by current market structures and entry conditions. Future of retail price regulation having found in its First Final Report that competition in both electricity and gas retailing in Victoria is effective, the AEMC was required to provide advice to the Victorian Government and the MCE on ways to phase out retail price regulation.

The Second Draft Report sets out the AEMC’s draft advice to this effect. The Second Draft Report was published on 19 December 2007, simultaneously with the First Final Report. Consultation on the Second Draft Report closed on 1 February 2008. The AEMC published a paper prepared by NERA Economic Consulting which sets out how price monitoring is applied in other industries in Australia and internationally. This paper was commissioned to inform the AEMC’s thinking as to how a price monitoring regime for energy retailing in Victoria could be structured. Prior to the close of consultation, the AEMC published a report prepared by Professor George Yarrow of the Regulatory Policy Institute in the UK. This report outlines the theoretical implications and practical experience in relevant countries of deregulated, competitive markets that have moved from a regulated or standard offer price to a situation where price is unregulated. Professor Yarrow’s research and findings were considered by the AEMC in preparing its final advice.

On 31 January and 1 February 2008, the AEMC held two public consultation forums in Melbourne and Bendigo. The purpose of these forums was to provide information about the AEMC's Second Draft Report and to give domestic and small business customers the opportunity to provide feedback on the Second Draft Report. The AEMC delivered a PowerPoint presentation at each forum.

The AEMC published its Second Final Report on 29 February 2008. The AEMC recommended that the regulation of standing offer retail prices for residential customers cease from 1 January 2009, and made a number of recommendations to facilitate this whilst maintaining and enhancing the existing customer protection framework by: 

• Retaining the obligation to offer to supply and sell energy to residential customers;
• Allowing each retailer subject to this obligation to determine and publish the price at which it will offer to supply and sell energy;
• Introducing a regime to monitor these prices for at least 3 years after retail price regulation ends; and o Undertaking a consumer awareness campaign to help Victorians understand the changes and ensure a smooth transition away from regulated retail energy prices.

The AEMC also recommended that the Victorian Government’s reserve power not be extended in its current form beyond its expiry on 31 December 2008. The AEMC instead recommended that the Victorian Government have a conditional statutory power to reinstate price regulation under specific conditions. These conditions include a finding by the AEMC that retail energy competition is no longer effective, following a review of competition by the AEMC. A formal notice advising of the publication of the Second Final Report was published in the Australian on 29 February 2008.