Report urges energy price deregulation


By business editor Peter Ryan
Posted Tue Jun 26, 2007 12:27pm AEST Updated Tue Jun 26, 2007 12:26pm AEST
The cold snap across south-eastern Australia is pushing up demand for energy, and prices are expected to rise too.
But a report out today says state regulation is getting in the way of a national scheme that could deliver cheaper prices for everyone.
The report predicts that improved competition could deliver a $400 million saving to the economy, but consumer groups are warning that there would only be one winner: big business.
The reform of Australia's energy market is all about driving full and open competition for gas and electricity.
But with states and territories maintaining their own agencies to regulate prices, plans for an integrated national regulator remain distant.
Energy producers say the additional state regulation is unhelpful duplication that is getting in the way of a better deal for consumers.
Energy Supply Association of Australia chief executive officer Brad Page says it is old-fashioned over-regulation.
"It presents as the last bastion of regulation that needs to be removed," he said.
He says current caps on retail prices for residential customers and small businesses defy the reality of a fully competitive wholesale energy market.
"The retailers and the generators are constantly dealing in real time; they're setting themselves up to manage the risk effectively," he said.
"What they don't need are governments then adding to that risk by imposing what they think is the right price, when in fact the market could move dramatically and quickly into a territory that puts... at serious risk [their] continued business viability."
Mr Page says according to a new study on the impact of retail price regulation, the cost to the economy is as much as $400 million per year, and consumers are paying the bill in the form of artificially higher prices.
"For every individual retailer that has to go through this regulatory price process, it costs an extra $1 million in costs, and for every regulator that's overseeing this - and there's one in every one of the states - it's $2 million per reset," he said.
"The interesting thing is that those costs are actually passed through to the consumer, so they pay for the privilege of somebody setting a price that probably doesn't give them the best deal that they could possibly get."
Price risk for consumers
But the push to ease the regulatory burden is ringing alarm bells with consumer groups.
Consumer Action Law Centre senior policy officer Gerard Brody says he worries that ordinary consumers will end up paying more and will be at the mercy of the big energy producers who understand the ebbs and flows of the wholesale market.
"It will actually enable energy retailers to pass on price spikes in the wholesale market directly to consumers, therefore passing the risk of those prices to consumers," he said.
Mr Brody says the energy companies should be the ones to bear the risk.
"They're the better participants in the market to bear that risk - they're able to enter into long-term hedge contracts and other financial instruments to really reduce their risk," he said.
"It's an unfair burden being placed on consumers."
Mr Brody says there is a trade-off between long-term and short-term impacts on consumers.
"I think in the short-term the prices would rise severely, and that would be a bad outcome for many consumers, especially when energy prices are already unaffordable for many in our society," he said.
"I think there is a place for pricing regulation to ensure that competition can occur effectively, that it does enable retailers to make a buck in the market, but also ensure that pricing is affordable for consumers."
Greenhouse initiatives
But Mr Page says without national regulatory reform, energy producers will be hamstrung in delivering energy-saving greenhouse gas initiatives that will drive lower costs for consumers who use energy wisely.
"There are a lot of new cost pressures that are going to come through to try to address greenhouse gas emissions," he said.
"We've also got a commitment from governments to progressively roll out interval meters.
"These interval meters then enable retailers the opportunity to provide pricing arrangements that reward people who use less energy at critical times.
"If you don't remove these retail price controls then the interval meters will have extremely limited value."
Victoria is expected to be the first state to remove caps on prices, and other states have signed up in principle but will only deregulate when there is proof that competition works for both energy producers and retail consumers.
Tags: business-economics-and-finance, consumer-protection, industry, electricity-energy-and-utilities, environment, climate-change, australia