The Australian Energy Market Commission (AEMC) today released draft advice to the Victorian Government and the Ministerial Council on Energy recommending the removal of energy retail price regulation for residential customers in Victoria from 1 January 2009.
The AEMC has also today published its final report on the effectiveness of retail competition for both electricity and gas in Victoria which has confirmed that competition is effective. The final report supports the AEMC's preliminary findings that rivalry between energy retailers and the exercise of choice by customers continues to be effective in delivering efficient energy prices and services to Victorian consumers.
AEMC Chairman, Dr John Tamblyn, said the Commission had concluded that removing retail price regulation in Victoria would further extend the benefits of competition to consumers, enabling them to choose from a wider range of energy price and service options than is currently the case.
"Where the market is effectively competitive, price regulation adds unnecessary administrative and compliance costs and constrains the ability of retailers to develop more cost-effective energy price and service offerings", Dr Tamblyn said, "With such strong competition in Victoria's retail electricity and gas markets, price regulation is unnecessary".
The combination of effective competition and a strong consumer protection regime provides a sound basis for the removal of price regulation Dr Tamblyn said.
The AEMC has recommended that the current safety net for small Victorian energy consumers should be maintained and that a number of improvements to consumer protection should be made in light of the proposed removal of retail price regulation.
In its draft advice the AEMC has recommended:
- Maintaining the obligation for retailers to offer to supply and sell energy to residential customers;
- Requiring retailers subject to this obligation to determine and publish the prices at which they will offer to supply and sell energy;
- Introducing a regime to monitor and report publicly on these published offer prices for at least 3 years after retail price regulation ends; and
- Undertaking a consumer awareness campaign to assist Victorians to understand the changes and to ensure a smooth transition during the deregulation of energy retail prices.
Dr Tamblyn said that introduction of a price monitoring regime, the requirement that all retailers publish their own standing offer prices and other information disclosure requirements the AEMC has proposed, will provide energy consumers and the Government with a high degree of transparency about the performance of the energy retail market. It should also provide the basis for confidence that competition is continuing to serve the interests of Victorian households.
The AEMC's conclusion that competition is effective is based on evidence obtained during its review that:
- The majority of Victorian household and small business customers are exercising choice by entering into market contracts;
- Victoria has the highest switching rate of any energy retail market in the world (about 60 per cent of small energy customers have entered market contracts);
- Retailers are offering significant price discounts below the regulated prices and a range of non-price benefits to customers that enter market contracts;
- There is strong rivalry between retailers facilitated by current market structures and entry conditions.
The AEMC has invited submissions on its draft advice on the removal of retail price regulation, which are due by 1 February 2008. Having considered stakeholder submissions, the AEMC will publish its final advice in late February 2008.
The AEMC's review of the Victorian retail gas and electricity markets was initiated by an agreement of the Council of Australian Governments (COAG) and a direction of the MCE and will be followed by similar reviews in other States and Territories.
For media comment:
John Tamblyn (02) 8296 7800