IPART release draft report into the performance and competitiveness of the NSW retail electricity market

The Independent Pricing and Regulatory Tribunal (IPART) has today released its draft report Review of the performance and competitiveness of the retail electricity market in NSW for FY2016.

The draft report finds that overall, competition is delivering greater choice, service innovations and prices consistent with a competitive market.  Recent price changes in July 2016 were also found to reflect changes in the underlying market costs of supplying small customers, and are therefore consistent with a competitive market.

The report states:

“Innovation is one of the strongest indicators of a competitive market. Retailers are designing products and services to cater for the needs of different customers. Electricity offers are being designed to make it easier for customers to manage their bills, to get more information and control over energy usage, receive real-time price signals and achieve energy self-sufficiency”.

Examples of new products and services available to customers in the past two years include:

  • Integrated solar PV and battery storage plans
  • Bundled energy, data and telecommunication plans
  • Plan to contribute an agreed fortnightly/monthly fixed amount towards bills
  • Options to pre-purchase electricity at discounted rates, and
  • Subscription fee pricing that departs from the traditional model of charging per kWh.

IPART also found that during FY2016, six new electricity retailers entered the NSW market (in  addition to the five that entered the market the previous year), demonstrating relatively low barriers to entry. Incumbent retailers therefore face the continuing threat of competition from new retailers.

Analysis outlined in the draft report shows that there are substantial discounts off standing offer prices available to customers who shop around for a better deal. In July 2016, typical residential customers could save between $250 and $445 per annum by switching from a major retailer’s standing offer to the same retailer’s best market offer.

IPART also considered other views on the state of competition, including the recent report by Carbon and Energy Markets (CME) which suggested that competition in the deregulated NSW market (and markets in other States) wasn’t effective, that customers were generally dissatisfied, and that relatively high retailer charges may be the reason for this.  In response IPART stated:

“That different conclusions can be drawn about the same market likely reflects different ideas about what a competitive market means. Some take the view that ‘if you pay more because you don’t shop around, the market isn’t working’. We consider that if you can pay a lower price by shopping around, the market is working…The CME report implies that price differentials are a sign that the market isn’t working and that better outcomes arise when prices are regulated. We disagree with this view.

In the two years since prices were deregulated in NSW we have seen substantial innovation and continued price discounting delivering benefits to customers.  The existence of price differentials and concern over lack of customer engagement has led some governments and regulators to intervene in the market. This was the case in the UK energy market, where Ofgem introduced requirements to remove price differentials that were not based on costs and limit the number of tariffs that retailers can offer. While well-meaning, this intervention actually resulted in less innovation, reduced competition and overall made customers worse off.”

AGL’s submission in response to the review’s fact sheet, which considers the methodology used for the review can be found here.

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