For the last 16 months, the ACCC has been looking into the electricity industry, searching for the root causes of our high energy prices. That review has come up with 56 recommendations on how to “fix” the National Electricity Market. In their view, the reforms they’re proposing could cut power bills down by as much as a quarter, depending on where you live.
The ACCC Chair Rod Sims said “The National Electricity Market is largely broken and needs to be reset. Previous approaches to policy, regulatory design and competition in this sector over at least the past decade have resulted in a serious electricity affordability problem for consumers and businesses”.
If the ACCC’s recommendations are adopted, savings of between 20 and 25 per cent per household or business could be possible. That equates to between $290-$415 per annum.
Exisiting energy policy and practice was largely formed in the 1990s when large, vertically integrated and state-owned power companies were split into separate generation, transmission, distribution and retailing businesses, with each entity operating in either a competitive market, in the case of the generators and retailers, or in regulated monopolies when it comes to the transmission and distribution network operators.
The ACCC’s recommendations cover a number of different areas such as making consumer contracts clearer and easier to compare, with default prices, if no special offers are available, to be set by the Australian Energy Regulator. And comparison websites would be forced to reveal commissions they receive for recommending power companies.
If you’ve looked at your power bill, you’ll have noticed that distribution charges are often the largest component of the bill. That’s because the charges levied by electricity distributors also include depreciation of assets. So, if a distributor adds an expensive new asset to their network, the increased value of their network results in increased charges for consumers. One of the recommendations the ACCC has suggested is a voluntary write downs of network over-investment. They say that measure alone could reduce bills by $100 per year in some states.
Having spent a decade working in the electricity business, I think these changes are significant. The energy network and market, which work hand in hand, were both conceived in the aftermath of the dissolution of the state-run electricity commissions and when energy production was highly centralised and based on a limited number of fuel sources. Those things have changed over the last 20 years since the National Electricity Market was established.
It makes sense to look at what we’ve been doing because the “we’ve always done it this way” argument can no longer be considered reasonable.