Electricity pricing inquiry: One year on
One year ago today the Australian Competition and Consumer Commission (ACCC) released the Retail Electricity Pricing Inquiry (REPI) Final Report. With unprecedented information gathering powers, the ACCC spent 15 months analysing the evolution of the competitive electricity market over the preceding decade.
The ACCC made 56 recommendations based on the gathered evidence that they considered would fundamentally improve the operation and efficiency of all parts of the supply chain, and would deliver lower prices for consumers.
The ACCC advised that if all the recommendations were implemented, residential and small business consumers would be looking at a 20-25 per cent reduction in their electricity bills. Given customers were screaming out for relief, all stakeholders were committed – it was time to analyse the recommendations, consult heavily, and implement a package of structural reforms to deliver the identified benefits.
So how have we done 12 months on? Of the 56 recommendations made, just five have been implemented in their entirety, and it could be said that those weren’t done in the manner the ACCC recommended. There are a few in train, but by and large, the recommendations have not progressed in a year. While bills have not increased, the vast majority of customers are no closer today to cheaper bills than they were on 11 July, 2018. The recommendations went significantly further than ‘removing the loyalty tax’ and the need for ‘big sticks’. We need to start considering the root causes of why energy bills remain high.
The challenges so far
One of the challenges of dealing with the 56 recommendations has been the vast array of bodies the ACCC felt needed to act. Too many parties creates problems of continuity and momentum. This spread of interested parties isn’t a problem of the ACCC’s making – the electricity market has long had difficulties dealing with what are essentially a set of interacting state-based rules. The ‘harmonisation’ of the National Electricity Market (NEM) effectively requires each state to implement identical instruments to deliver a single regulatory framework. Increasingly complicating matters is the role of the Commonwealth. Historically the Commonwealth has acted as a shepherd for the NEM, corralling what are often the divergent views of the states to achieve broader harmony. Unfortunately, over the past 12 months, harmony is probably not the first thing you think of when assessing the electricity market.
So it is perhaps unsurprising that policy makers have had difficulty progressing the recommendations. When we look a little more closely, the clear issue holding us back is vested interests, and non-negotiable agendas.
There were a few recommendations that met the sword remarkably quickly. Nobody in the sector needs to be reminded why Recommendation 5 – that governments commit to developing and implementing the National Energy Guarantee (NEG) – is no longer being progressed. Similarly, a number of the recommendations would have cost state governments considerably, with suggested write-downs, asset restructures, and enhanced concession arrangements having stark impacts on budgets[i]. In its first report of its ongoing inquiry into the supply of electricity in the NEM released in March this year, the ACCC noted the lack of progress in some of these areas and will continue to monitor their impact on costs[ii].
But even without fighting over political ‘hospital passes’, there is plenty still in the recommendations to deliver very significant energy savings to consumers.
Where to from here?
Consultation and coordination couldn’t be more critical at this juncture as we continue to consider and develop the recommendations. While the recommendations were well intentioned, they are far from ‘actionable’. They need significant work to become practical and agreed regulatory reforms. The risk of unintended consequences remains high, and it will take time to properly assess the impacts of each recommendation and identify an optimal implementation approach, if it remains beneficial. It is important as well to consider how each recommendation works in concert with the others, to ensure the benefits continue to be achieved when seen as a package.
The industry wants to be involved in these discussions. The last 12 months have seen sub-optimal outcomes, even on universally supported recommendations like the Reference Price. There has been no coordination, and subsequently effective consultation has been disregarded. The time for Us vs Them is over – our customers expect more. As EnergyAustralia’s Managing Director, Catherine Tanna, said this week, we are all in ‘violent agreement’ on the objectives, but are contesting on how we should get there. Better consultation and understanding between market participants, consumer advocates and governments can only benefit end users.
The challenges ahead
Unfortunately, given the nature of the recommendations and the diverse range of impacted parties, not everything will be easy to solve. But that certainly doesn’t mean we should put our heads in the sand and leave savings on the table. A number of the recommendations remain absolutely critical to the ongoing success of the market. What the ACCC made crystal clear is that it is not just market participants who should be blamed for where we are today.
So where should we start? The ACCC highlighted that there were significant savings to be made from changes to solar incentives and premium feed-in tariffs, genuine harmonisation of retail regulation and compliance across the NEM, tariff reform, and write-downs of the regulatory asset base for monopoly networks. In the retail market more can be done to help customers get the most out of the market, with the introduction of the Consumer Data Right, development of a mandatory code of conduct for third party sales, better funding for support services, and improved information to help consumers to make good choices.
Investigating the value of setting up a broad steering committee comprising department bureaucrats, market bodies, consumer advocates, and industry would seem a worthwhile exercise.
Now is the time to act. The industry – and consumers – cannot afford another 12 months like 2018/19.
[i] For example Recommendations 2, 11, 12, and 37
[ii] Monitoring of supply in the National Electricity Market, March 2019 Report, ACCC