On Tuesday 5 September 2017, Maddocks hosted a presentation and panel discussion by the Grattan Institute focusing on the topical issue of energy prices – particularly, the fact that prices are rising and mechanisms that can be employed to reduce them. The backdrop for the discussion are the Finkel Review as well as recent reviews of both gas and electricity prices in Victoria and Australia-wide, including recent reviews and studies by each of our panel members – Tony Wood (Energy Program Director, Grattan Institute), Professor John Thwaites (Member of the bipartisan Independent Panel’s review into Electricity and Gas retail markets in Victoria and former Deputy Premier of Victoria) and Rosemary Sinclair (CEO, Energy Consumers Australia). The panel discussion was facilitated by Robert Gregory (Partner, Maddocks Lawyers).
Some of the key points emerging from the discussion were:
- Trends in electricity prices: Despite the introduction of competitive retail electricity markets and a downward trend in electricity demand, retail electricity prices are rising. They are outstripping network and wholesale costs and are much higher than retail electricity prices around the world.
- Accessibility of cheaper electricity: Lower cost energy options may be available to consumers but these options are difficult to access, particularly for vulnerable households, due to information complexity, asymmetries and lack of transparency.
- Impact of competition: Competition in electricity retail markets has not delivered lower prices for consumers, nor innovative solutions. Competition has forced retailers to invest heavily in marketing to compete and these costs have been passed on to consumers. Consumers would prefer to have more control over energy consumption and costs but their ability to do so is compromised by low confidence in the market driven, at least in part, by information barriers.
- “Essential” nature of energy: The supply of energy is an essential service, which places consumers in a vulnerable position compared to the supply of other non-essential services.
- Regulatory response: In some jurisdictions around the world, governments have “re-regulated” retail markets to address the failure of competition to deliver real benefits for consumers but it is important to be wary of unintended consequences associated with regulation. The risk of unintended consequences is a particular concern in Australia given the broad range of regulatory changes to the gas and electricity markets that have recently been made or are in the pipeline.
- Role for retailers: Retailers could potentially assume a greater role as customer agents to demand and drive cost reductions in the supply chain and deliver the benefits of competition through lower prices and innovative offers that are valued by customers.
The focus for the discussion was the interest of energy consumers and users – both large and small, in the short and long terms. How this should be achieved is a live issue given the complexity surrounding the regulation and operation of our energy markets and the diversity of retail sector participants and their consumers. The presentations and panel discussion resulted in a number of insights, including that if the industry at all levels, and in particular retailers, don’t start limiting cost increases and driving cost reductions, government is likely to act to impose further regulation.