Draft NEM report - Vinnies · PDF fileas a result of reliance on the information presented....

Observations from the Vinnies’

Tariff-Tracking Project

The NEM -

A hazy retail maze

TheNationalEnergyMarket–Ahazyretailmaze

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DisclaimerTheenergyoffers,tariffsandbillcalculationspresentedinthispaperandassociatedworkbooks shouldbeusedasageneralguideonlyandshouldnotbe reliedupon.The workbooks are not an appropriate substitute for obtaining an offer from anenergyretailer. The informationpresented inthispaperandtheworkbooks isnotprovidedasfinancialadvice.Whilewehavetakengreatcaretoensureaccuracyoftheinformationprovidedinthispaperandtheworkbooks,theyaresuitableforuseonlyasaresearchandadvocacytool.Wedonotacceptanylegalresponsibilityforerrorsorinaccuracies.TheStVincentdePaulSocietyandAlvissConsultingPtyLtddonot accept liability for any action takenbasedon the informationprovided in thispaperortheassociatedworkbooksorforanyloss,economicorotherwise,sufferedas a result of reliance on the information presented. If you would like to obtaininformationaboutenergyoffersavailabletoyouasacustomer,gototherelevantregulator’swebsiteorcontacttheenergyretailersdirectly.TheNationalEnergyMarket–AhazyretailmazeObservationsfromtheVinnies’Tariff-TrackingProjectGavinDufty,StVincentdePaulSociety,VictoriaMayMausethJohnston,AlvissConsultingMelbourne,December2016StVincentdePaulSociety AlvissConsultingPtyLtdwww.vinnies.org.auwww.alvissconsulting.com

©StVincentdePaulSocietyandAlvissConsultingPtyLtdThisworkiscopyright.ApartfromanyusepermittedundertheCopyrightAct1968(Ctw),nopartsmaybeadapted,reproduced,copied,stored,distributed,publishedorputtocommercialusewithoutpriorwrittenpermissionfromtheStVincentdePaulSociety.Coverphoto:KimWalvisch(@sublurbonInstagram)Report reference: St Vincent de Paul Society and Alviss Consulting, The NEM – Ahazyretailmaze,Melbourne,December2016


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AcknowledgementsThisprojectwasfundedbyEnergyConsumersAustralia(www.energyconsumersaustralia.com.au)aspartofitsgrantsprocessforconsumeradvocacyprojectsandresearchprojectsforthebenefitofconsumersofelectricityandnaturalgas.TheviewsexpressedinthisdocumentdonotnecessarilyreflecttheviewsofEnergyConsumersAustralia.Wealsowishtothankandacknowledgetheeffortsofthevariousretailersthatreviewandprovidefeedbackonthesereports.Whileanyerrorsthatmayoccurareourown,weappreciatetheirviews,suggestionsandcooperation.


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TableofContents

Background:TheTariff-TrackingProject............................................................................. 4

Overview ........................................................................................................................... 5

1.Howenergypricesaretracking ...................................................................................... 81.1Electricityprices .......................................................................................................... 81.2Gasprices.................................................................................................................... 92.Electricitybills:Whogetswhat?................................................................................... 11

3.Whotakeswhatpart:fixedvs.variablecharges........................................................... 22

4.Interstatedifferencesandretentionmarkets ............................................................... 33

5.The‘bigthree’–monthbymonth ................................................................................ 36

6.Solaroffers .................................................................................................................. 46

7.Observationsandrecommendations............................................................................ 497.1De-linkcostcomponentstodriveinnovation ............................................................ 497.2Consumerawarenesscandriveconsumerengagement.............................................. 507.3Abetterinformedcommunity.................................................................................... 54


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Background:TheTariff-TrackingProjectThe St Vincent de Paul Society, in conjunction with Alviss Consulting, has beentracking changes to residential energy tariffs and reporting on household impactssince 2010. Initially the Tariff-Tracking project only covered Victoria but has sinceexpandedtoincludeNewSouthWales,Queensland,SouthAustralia,TasmaniaandtheAustralianCapitalTerritory.Therationalefortrackingchangestodomesticenergypriceshasbeentodocumentprice increases, analysemarket developments and inform the broader communityaboutbillimpactsandpotentialsavingstobemade.Inourview,thereisstillalimitedknowledgeandunderstandinginthecommunityofthevariousenergytariffsavailable,howtheyarechanging,andhowtariffchangesimpactonhouseholds’energybillsandenergyaffordabilitymorebroadly.Only by improving this awareness and understanding can we ensure that theregulatoryframework(forexample,inrelationtopriceinformationanddisclosure)isadequate, and promote a competitive retail market. Furthermore, this increasedknowledgewillallowforclosemonitoringoftheimpactpriceandtariffchangeshaveonhouseholds’bills,andtheaffordabilityofthisessentialservice.Inaddition,akeyaimof thisprojecthasbeen todocumentandanalysepriceandproduct developments arising from government policies and industry innovations,includingthederegulationofretailprices,‘greenpolicies’,smartmeterrolloutsandtransitionstowardsothersmartgriddevelopments.To date we have developed four workbooks for each of the National ElectricityMarket (NEM) jurisdictions.1 Theworkbooks allow theuser toenter consumptionlevelsandanalysehouseholdbillsforstandingorregulatedgasandelectricityoffers,aswell as published electricity and gasmarket offers.2 Theworkbooks, aswell asassociated reports, can be accessed at the St Vincent de Paul Society’s website:www.vinnies.org.au/energyThis paper is the result of a comparison of the state by state- based analysesundertakenaspartoftheTariff-Trackingproject,aswellasreflectionsonthepublicdebateonenergymarketdevelopmentsandreasonsforpriceincreasesoverthelastyear.

1AsTasmaniadoesnothaveregulated/standingoffersforgas,onlythreeworkbookshavebeenproducedforthisjurisdiction.2TheVictorianworkbookscontainregulated/standingoffersfromJuly2008toJuly2016andmarketoffersfromJuly2010toJuly2016.TheNSWworkbookscontainregulatedoffersfromJuly2009toJuly2015andmarketoffersfrom2011and2016.TheQueenslandandSouthAustralianworkbookscontainregulated/standingoffersfromJuly2009toJuly2016andmarketoffersfromJuly2012toJuly2016.TheACTworkbookscontainregulated/standingoffersfromJuly2009toJuly2016andmarketoffersfromJuly2013toJuly2016.TheTasmanianworkbookscontainregulatedelectricityoffersfromJuly2009toJuly2016,market(payasyougo)electricityoffersfromJuly2009toJuly2016andgasmarketoffersfromJuly2013toJuly2016.From2016,wehavealsodevelopedworkbookscontainingsolaroffersavailabletonewcustomersinallofthejurisdictions.


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OverviewThisreportiscomprisedofsevensections.Section 1 ‘How energy prices are tracking’ analyses changes to electricity and gasprices acrossAustralia from July 2009 to July 2016 in order to explorewhere andwhenpriceshaveincreasedordecreased.Inrelationtoelectricity,wefindthatregulatedandstandingofferprices(thebase-rate)areup inmost jurisdictions compared to July2015.However, the sizeof theincreasesandkeycausesvarybetween jurisdictions. Inrelationtogas,priceshavedecreased in South Australia and the ACT while they have increased in otherjurisdictions.ThehighestpricesinthecountrycontinuetobeinSouthAustraliaforElectricityandQueenslandforgas.Section2‘Electricitybills:Whogetswhat?’focusesonthevariouscostcomponentsofelectricitybills (thebill-stack)byexploringthecostofeachcomponent foreachjurisdiction,aswellaschangestothesecostcomponentsovertime.Similarlyto lastyear,ourestimatesshowthatbetween37-44%ofthebillspaidbyVictorianhouseholdsgoestotheretailer.Atthesametimetheamountthatgoestopay for the actual electricity used (wholesale), has increased to 14-16%of thebill(compared to 9–11% last year). In all Victorian network areas except Ausnet, theretailcostisevenmorethanthenetworkcharges(NUOS).ItisnotjustVictoriathathas a high retail proportion. All of the NSW network areas also show a retailproportionthatis34-36%ofthetotalbillandinSouthAustraliatheretailproportionisnow36%.TheretailcomponentremainslowestintheACTandTasmania.Section 3 ‘Who takes what part: fixed vs. variable charges’ analyses the samecomponentsbutratherthanlookingatthetotalcostweassessthebill-stackforthefixedsupplychargeandthevariableconsumptionchargeseparately,aswellas fortwo separate scenarios: guaranteed bills and conditional bills. Calculations for theguaranteedbillsincluderatesaswellasanyguaranteeddiscountwhilecalculationsfortheconditionalbillsalsoincludepayontimediscounts.TheanalysiscoversmarketoffersinNSW,SouthAustralia,QueenslandandVictoriaand we argue that the fixed charge component of retail bills is high in alljurisdictions, and especially in Victoria, and explore reasons for why none of theretailers have sought to differentiate themselves by not loading up the retailcomponentinthefixedcharges.Section 4 ‘Interstate differences and retention markets’ takes a closer look atdifferences in retail costs in the four jurisdictions. As all themarket offers in thisinter-state analysis has a limited benefit period of 12 months, it also comparespotentialaverageannual retail component fora twoyearperiodwherecustomersreceiveddiscountsandotherbenefitsinthefirstyearbutnotinthesecond.


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TheanalysisfindsthatVictoria,thejurisdictionwiththemostactiveretailers,isalsowheretheretailproportionofbillsissignificantlygreaterthaninotherjurisdictionsand we speculate whether the incumbent retailers in Victoria are focusing onretainingcurrentcustomersratherthanacquiringnewones.Section5 ‘The ‘big-three’ –monthbymonth’ comparesAGL, EnergyAustralia andOrigins’marketofferstonewcustomersfrommonthtomonth.Onaverage,themaximumdifferencetotheannualbillbetweenthethreeretailers’offers(includingpayontimediscountsandoneoffincentives)fromAugust2015toSeptember2016was$90 inNSW,$95 inQueensland,$155 inSouthAustraliaand$70inVictoria.Consideringthattheaverageannualbill,forhouseholdsusing6,000kWh per annum, for the same periodwas $1,500 in NSW, $1,800 inQueensland,$1,975 in South Australia and $1,430 in Victoria, we argue that the differencebetween thebig retailers’offers is relatively lowandaskwhether there ishealthyrivalryinamarketwherethebigplayersdonotappeartocompete?Section6‘Solaroffers’comparessolaroffersavailabletonewcustomersacrosstheNEM.CollectingsolaroffersandanalysingsolarbillswasanewfeatureoftheTariff-Tracking project in 2016 and the analysis therefore only looks at offers post July2016.It shows thatwhile SouthAustralian customershave thehighest electricitybills ingeneral, South Australian solar customers have, on average, lower annual billscompared to customers inTasmaniaandVictorian customers in thePowercorandAusnetnetworks.ThedifferenceinSouthAustraliaispartlyexplainedbyretailers,onaverage,offeringhigher FIT rates compared to other jurisdictions but also because solar customersavoidkWh(becauseoftheirowngeneration)thatnon-solarcustomersdonot.Thisgeneration/avoidedpurchasebecomesevenmorevaluablewhenthetariffappliedisanincliningblocktariffwherethepriceperkWhincreasessignificantlywithincreasein overall consumption. Currently,many of the retail offers in South Australia areincliningblocktariffswithfairlysteeppriceincreasesforeachconsumptionblock.Section 7 ‘Observations and recommendations’ highlights some of the issuesidentified in this report and proposes recommendations for how they can beaddressed.Specifically,werecommendthat:

• Price and Product Information Statements and bills should clearly separatemarket-based charges (retail and wholesale) from other charges, such asregulatednetworkchargesandpolicycoststhatapplytoallcustomerswithinajurisdiction/network.

• TheAER,aswellastheESCinVictoria,definetheterm‘benefitperiod’and

investigate what actually happens to customers when the benefit periodand/or contract terms finish. Furthermore, they should assesswhether the


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retailers’processesandproceduresarewithintherules,and,iftherulesaredeemedadequate,publishclearguidelinesonwhatshouldhappen.

• That all retailers operating in the NEM, with the ability to bundle all cost

componentsintoasingleprice,shouldberequiredtoexplainwhytheirbaserates(standingoffers)havechanged.


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1.HowenergypricesaretrackingThissectionanalyseschangestoelectricityandgaspricesacrossAustraliafromJuly2009 to July 2016 in order to explore where and when prices have increased ordecreased.1.1ElectricitypricesRegulated and standing offer prices (the base-rate) are up in most jurisdictions compared toJuly2015.However,thesizeoftheincreasesandkey causes vary between jurisdictions. Chart 1shows estimated annual bills for householdsconsuming 6,000kWh per annum (single rate)from July 2009 to July 2016.3 The dotted linesrepresent electricity bills in the NorthernTerritory and Western Australia, the two non-NEM jurisdictions. It shows that prices haveincreased (compared to July 2015) in alljurisdictions except Victoria and the NorthernTerritory.Looking at longer-term changes, chart 1 also shows the increasing differences inelectricitypricesbetweenjurisdictions.WhileSouthAustraliahadthehighestpricesin July 2009 and July 2015, and ACT had the lowest, the difference between theannual bill for SouthAustralian andACT households (with this consumption level)was just $350 in 2009 compared to approximately $1,100 now. Prices in Victoria,NSWandQueensland,ontheotherhand,arebecomingincreasinglysimilar.

3NotethatTasmaniaintroducedcarbonexclusivepricesfrom1July2014(ratherthanbackdatingnewpricesaftertherepeal)andTasmania’sJuly2014priceisthereforecarbonexclusive.

“WhileSouthAustraliahadthehighestpricesinJuly2009andJuly2015,andACThadthe

lowest,thedifferencebetweentheannualbillforSouth

AustralianandACThouseholds(withthisconsumptionlevel)

wasjust$350in2009comparedtoapproximately

$1,100now.PricesinVictoria,NSWandQueensland,ontheotherhand,arebecoming

increasinglysimilar.”


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Chart1ChangestoelectricitypricesinAustraliaJuly2009toJuly2016asestimatedannualbills(nominal,incGST)forelectricityregulated/standingoffers,6,000kWhperannum,singlerate4

The Australian Energy Regulator (AER) regulates the network component ofelectricitybillsintheNEM.NetworkpricesincreasedintheACTandNSWon1July2016, however in Queensland (Energex), South Australia and Tasmania, networkpricesdecreased.Therefore,unlikeACTandNSW,itisnotthenetworkcomponentthat caused price increases in these jurisdictions. In Victoria, new network pricestake effect on 1 January every year and in January 2016 the network pricesdecreasedinallfiveVictoriannetworkareas.1.2GaspricesTypical household gas consumption varies significantly between jurisdictions. InVictoria, forexample, typicalhouseholdconsumption isover60,000Mjperannum.In Queensland, on the other hand, household consumption is typically less than10,000Mj per annum. Chart 2 below compares annual gas bills across Australia(except the Northern Territory) from July 2009 to July 2016 for householdsconsuming30,000Mjperannum.ItshowsthatgaspricesaregreatestinQueenslandand lowest inVictoria.However, ifweassumeamorerepresentativeconsumptionlevelforeachjurisdiction,VictorianswillhavegreatergasbillsthanQueenslanders.Comparedtolastyear(July2015),gaspriceshavedecreasedinSouthAustraliaandtheACTwhiletheyhaveincreasedinotherjurisdictions.

4InVictoriaandNSWthestandingofferpriceisbasedontheaverageretailstandingofferineachnetworkarea.AsthepricesdifferbetweennetworkareasinNSWandVictoria,theestimatedbillsinthesetwostatesarebasedontheaverageacrossnetworkareas.InSouthAustralia,thepriceisbasedontheaverageretailstandingofferinJuly2015and2016,andAGL’sregulated/standingofferpriortothat.InQueensland,thepriceisbasedontheaverageretailstandingofferinJuly2016andtheregulated/standingofferpriortothatTheregulatedratehasbeenusedforACT,Queensland,Tasmania,WesternAustraliaandtheNorthernTerritory.NotethatthetransitionaltariffspreviouslyavailableinSAandNSWarenotincludedinthischart.

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Chart 2 also shows that the price difference between the jurisdictions has notincreased since 2009.Unlike in the case of electricity, the difference between thejurisdictionwiththehighestprices(Queensland)andthejurisdictionwiththelowest(Victoria)hasremainedsteadyonaround55-60%.Chart2ChangestogaspricesinAustraliaJuly2009toJuly2016asestimatedannualbills(nominal,incGST)forgasregulated/standingoffers,30,000Mjperannum5

5InVictoriathestandingofferpriceisbasedontheincumbents’averageretailstandingofferacrosstheeightmaingaszones.InNSWthestandingofferpriceisbasedontheregulatedretailofferacrossthetwelvegaszones.InQueenslanditisbasedontheaverageAGLandOriginstandardretailgasoffersintheNorthBrisbaneandSouthBrisbanegaszones.InSouthAustraliaitisbasedonOrigin’sregulated/standingoffersacrossfivegaszones.IntheACTitisbasedonActewAGL’sstandardgasoffer.InTasmania(datafrom2013to2016only)itisbasedonAuroraandTasGas’averagestandardoffer.InWesternAustraliaitisbasedonthegovernment’spricecapforcustomersinthesouthwestregion.

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2.Electricitybills:Whogetswhat?Electricitybillsaremadeupofseveralcomponents,includinggeneration(wholesalemarket) costs,network costs (distributionand transmission), “green schemes”andcosts associated with other public policy initiatives, and retail costs. In Victoria,SouthAustralia,NSWandQueensland,whereretailpricesarederegulated,effectivecompetitionisrequiredtoensurethathouseholdsdonotpaymorethannecessaryfor both generation (wholesale) and retail services (including retail margins). Thissectionthereforeseekstoexplorethecostofeachcomponentforeachjurisdiction,aswellaschangestothesecostcomponentsovertime.Asshownbychart1above,electricitybillsincreasedsignificantlyfromJuly2009toJuly2014(priortotherepealofthecarbontax)beforedeclining,tovariousextents,posttherepealandwithnewnetworktariffstakingeffectinJuly2015.InJuly2016,however,electricitybillsincreasedinmostjurisdictions.Chart3belowshowsthatNetworkUseofSystem(NUOS)chargesincreasedinalloftheNEMelectricitynetworksbetweenJuly2009andJuly2014,beforedecreasinginmost jurisdictions (NSW,Queensland,SouthAustraliaandtheACT) in July2015. In2016italsodecreasedintheVictoriannetworksandTasmania,andagain(slightly)inSouthAustralia.ItalsoshowsthattheNUOScharges,aswellasthepricechanges,varysignificantlybetweenthenetworks.HouseholdsinTasmania(Aurora’snetwork)continuetopaythehighestNUOSchargesintheNEM.TheNUOSchargesarelowestin Victoria’s Citipower and United Energy networks and the ACT (ActewAGL’snetwork).ExceptforAusnet,alloftheVictorianNUOSchargesarelowercomparedto NSW and Queensland, despite Victorian electricity bills being relatively high(similartothatofQueenslandandNSW)inchart1above.


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Chart3NUOSchargesfromJuly2009toJuly2016asestimatedannualcost(GSTexclusive)forhouseholdsusing6,000kWhperannum,singlerate6

Chart4belowlooksatNUOSchargesasaproportionoftotalbill.ItshowsthattheNUOSproportionofelectricitybillsisstillhighestinTasmania(Aurora)andthatmostnetworkareashaveexperiencedadecreaseinNUOSproportionsincelastyear(July2015).

6TheannualNUOSchargeshavebeencalculatedbyallocating1,500kWhperquarter(againbasedonannualconsumptionof6,000kWh)tothestepchargesstipulatedintheNUOS.TheannualNUOScostalsoincludesfixedcharges.NotethatasUnitedEnergy’sNUOSchargehasbeenaseasonaltariffoverthelastfouryears,theUnitedEnergyconsumptionusedinthesecalculationsisthusbasedonaproportionalallocationofa5monthsummertariffanda7monthnon-summer(off-peak)rate.

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Chart4NUOScharges(exclGST)fromJuly2009toJuly2016asproportion(%)ofannualretailbill(incl.GST)forelectricityregulated/standingoffers,6,000kWhperannum,singlerate7

Chart5 compares theNUOSproportionofbills in July2015 to July2016. It showsthat the biggest decrease occurred in Tasmania, partly due to higher wholesalecosts, and that Victoria’s Jemena network is the only network where the NUOSproportionincreased.

7InVictoriathestandingofferbillisbasedontheaverageincumbent(AGL,OriginandEnergyAustralia)standingofferasofJulyeveryyear.InNSWtheretailbillisbasedontheregulatedratefrom2009to2013andtheincumbentretailer’sstandingofferineachofthenetworkareas(OriginorEnergyAustralia)asofJuly2014andJuly2015.InSouthAustraliatheretailbillsarebasedontheregulatedratesaswellasAGL’sstandingofferpostretailderegulation.InQueenslandtheretailbillsarebasedontheregulatedratesaswellasAGLandOrigin’saveragestandingofferpostretailderegulation(July2016).Inallotherjurisdictiontheretailbillsarebasedontheregulatedrates.NotethatasUnitedEnergy’sNUOSchargehasbeenaseasonaltariffoverthelastthreeyears,theUnitedEnergyconsumptionusedinthesecalculationsisthusbasedonaproportionalallocationofa5monthsummertariffanda7monthnon-summer(off-peak)rate.

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Chart5NUOScharges(exclGST)fromJuly2015andJuly2016asproportion(%)ofannualretailbill(incl.GST)forelectricityregulated/standingoffers,6,000kWhperannum,singlerate8

In order to examine what households actually pay for the various services (andpolicies)thatarecostedbythesupplychainandpassedontoconsumersintheformofaretailbill,table1belowdeductsestimatedcostcomponentsfromtheaverageannualretailbillforhouseholdsusing6,000kWhperannumasofJuly2016.Aswedonot knowexactlywhat retailerspay forwholesaleenergywehaveusedseveraldatasourcesinordertoarriveatanestimatedwholesalecost.TheAEMC’slast price trend report reported on wholesale and retail costs combined (as the‘competitive market’ price component) because the risk of inherent error anduncertaintycouldleadtomisleadingresults.9However,theAEMCdidcommissionaconsultantreportintowholesalepricesandthisestimatedthattheenergypurchasecostin2016/17(financialyears)wouldbeapproximately:$45/MWhintheACT;$46/MWhinNSW;$69/MWhinQueensland;$69/MWhinSouthAustralia;$45/MWhinTasmania;and$50/MWhinVictoria.108Ibid.9AEMC,2015ResidentialElectricityPriceTrends(December2015),4410FrontierEconomics,2015ResidentialElectricityPriceTrendsReport,AreportpreparedfortheAEMCNovember2015),figures26-29.Notethatthisreportpresentedenergypurchasecostsforeachnetworkareaandwehaveusedtheapproximateamount(NetSystemLoadProfile)foreachjurisdictionasshowninthebasecasescenarioforbothyears.

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TheAustralian EnergyMarketOperator (AEMO)publishes average spot-prices andtheaverageannualspotpricefor2015/16was:$43/MWhinNSWandtheACT;$56/MWhinQueensland;$50/MWhinSouthAustralia;$70/MWhinTasmania;and$38/MWhinVictoria.11Sinceretailersare tovariousdegreesexposedtohighspot-pricesbutalsomanagethis risk through hedging contracts, we believe a starting point for estimatingwholesalecostsaresomewhereinbetweenthespot-priceandtheestimatedcostofpurchasing.ThewholesalecostweapplytobillsasofJuly2016istherefore:Table1Estimatedelectricitywholesalecosts

CostperMWhACT $44NSW $45Queensland $64SouthAustralia $60Tasmania $58Victoria $44AfterdeductingGST,NUOScosts,wholesalecosts,thecostofenvironmentalpolicies(“greenschemes”)andthecostofrollingoutsmartmeters(Victoriaonly),amountsinthefinalcolumnareaslowas$300(inTasmaniaandtheACT)andashighas$795(inVictoria’sPowercornetwork).Chart6belowshows thesamebilldeductionsasthoseincludedintable2.

11https://www.aemo.com.au/Electricity/National-Electricity-Market-NEM/Data-dashboard#average-price-table


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Table2Deductionofbillcomponentsforregulated/standingoffers,averageannualbillbasedonofferstakingeffectpostJuly2016(6,000kWhperannum,singlerate)12 Retailbill

incl.GST^Retailbillexcl.GST

Retailbillexcl.GSTandNUOS*

Retailbillexcl.GST,NUOSandwhole-sale^^

Retailbillexcl.GST,NUOS,wholesaleand“greenscheme”costs**

Retailbillexcl.GST,NUOS,wholesale,“greenscheme”costsandsmartmetercosts***

Citipower 1,838 1,671 1,187 923 796 695Powercor 2,067 1,879 1,287 1,023 896 795Ausnet 2,222 2,020 1,269 1,005 878 748Jemena 2,069 1,881 1,297 1,033 906 772UE 1,946 1,769 1,258 994 867 774ActewAGL 1,390 1,264 715 451 300 Aurora 1,901 1,728 704 356 299 Energex 2,010 1,827 947 563 339 Ausgrid 1,897 1,725 951 681 582 Endeavour 1,847 1,679 978 708 609 Essential 2,133 1,939 1,041 771 671 SAPN 2,442 2,220 1,346 986 810 ^Asperchart1above*Asperchart3above^^Aspertable1above**3.73c/kWhinQld,2.51c/kWhinACT,2.95c/kWhinSA,1.66c/kWhinNSW,2.12c/kWhinVic,and0.96c/kWhinTasmania13***BasedonAERestimatedAMIchargesfor201614Chart6belowcompares the total retailbill and the retail component for2016 (asper table 2 above) to the analysis presented in last year’s report.15 The columnsshowthetotalbill(includingGST)in2015and2016whilethewhiteroundmarkersshowtheretailcomponentin2015andtheblacklinemarkertheretailcomponent

12ThistableisbasedonthesameoffersusedforJuly2016inchart1above.NotethatthecostofthesmartmeterrolloutisnotaccountedforintheNUOSchargesduetotheAMICostRecoveryOrder-In-CouncilthatensuresthatthedistributorsareabletorecoverexpenditureassociatedwiththeAMIprogramfromconsumersonacostpass-throughbasis.13The“greenscheme”costsincludeRenewableEnergyTargets,FeedinTariffsandotherjurisdictionalschemes.TheAEMCreport,2015ResidentialElectricityPriceTrends(December2015)estimatedthecostofenvironmentalpoliciesforeachjurisdictionandcostsusedforthisreportarebasedontheaveragecostofenvironmentalpolicies(c/kWh)in2015/16and2016/17multipliedby6MW.14ToestimatetheimpactoftheVictoriansmartmeterrolloutonthebill-stack,weusedAER’sindicativeaverageannualmeteringbillfor2016.Seetable1-2inAER,AdvancedMeteringInfrastructure,Transitionchargesapplications,DraftDecision(September2016)15Seetable2inStVincentdePaulSocietyandAlvissConsulting,TheNEM–Stillwingingit?September2015


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in2016.ItshowsthattheretailcomponentissignificantlygreaterinSouthAustralia(SAPN) in 2016 compared to 2015, while in the Energex network, the overall billincreased in 2016 but the retail component is somewhat lower. In the ACT andTasmania,where the standingoffer is regulated, theoverall bill has increasedbutthe retail componenthas remained the same. InNSW,bothoverallbillsand retailcomponents have increased, while in Victoria, where the overall bills havedecreased,theretailcomponenthasdecreasedinthreenetworkareasbutremainedthesameinAusnetandincreasedinUnitedEnergy.Chart 6 Total annual bills and retail components in July 2015 and July 2016 (for electricityregulated/standingoffers,6,000kWhperannum,singlerate,excludingGST)16

Chart 7 below is based on the same calculations presented in table 2 above butshowsthevariousbillcomponentsasapercentageofthetotalbill.Whilewestressthatsomeofthecostcomponentsarebasedonestimatesratherthanactualknowncosts,webelievechart7clearlyillustratesthatthecostofretailissignificantinsomenetworkareas.17Similarlyto lastyear,ourestimatesshowthatbetween37-44%ofthebillspaidbyVictorianhouseholdsgoestotheretailer.Atthesametimetheamountthatgoestopay for the actual electricity used (wholesale), has increased to 14-16%of thebill(compared to 9–11% last year). In all Victorian network areas except Ausnet, theretailcostisevenmorethanthenetworkcharges(NUOS).ItisnotjustVictoriathathas a high retail proportion. All of the NSW network areas also show a retailproportionthatis34-36%ofthetotalbillandinSouthAustraliatheretailproportionisnow36%.TheretailcomponentremainslowestintheACTandTasmania.

16Thischartisbasedonthecalculationusedtable1above17Costofretailincludesbothretailcostsandmargins(profits).

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Chart7Estimatedbill-stackforregulated/standingoffers,averageannualbillbasedontheofferstakingeffectpostJuly2016(6,000kWhperannum,singlerate,excludingGST)18

AlongstandingfeatureofmarketoffersintheNEMretailmarketshasbeentoofferadiscountonthepublishedrates.Thevastmajorityofretailoffersnowincludeaconditionaldiscountthatthecustomerwillreceiveifthebillispaidbytheduedate.

Asthecalculationsforthechartsabovearebasedon standing and/or regulated prices, a bill-stackanalysis for market offers is included below.Table 3 below deducts estimated costcomponents from the average annual retailmarketofferbill(includingpayontimediscounts)for householdsusing6,000kWhper annumpostJuly 2016.19 After deducting GST, NUOS costs,wholesale costs, the cost of environmentalpolicies(“greenschemes”)andthecostofrollingout smart meters (Victoria only), amounts in the final column are as low asapproximately $144 in the ACT and $195 in Queensland, and as high as $410 (inVictoria’s Powercor network).20 By comparing these figures to theregulated/standing offers examined in table 1 above, we can see that the retailcomponentofbillsvariessignificantlybetweenregulated/standingoffersandmarketoffers (including pay on time discounts) in most network areas. We do note,however,thatnotallcustomerswillreceivetheseconditionaldiscountsandthattheretailcomponentwillinrealitybegreaterthanthis.

18Thischartisbasedonthecalculationusedfortable2above19Theseofferswerecollectedbetweenmid-Julyandmid-September2016.20NotethatTasmaniaexperiencedexceptionallyhighwholesalecostsduringthisperiod.

29 3237 31 29

4359

48 45 42 46 39

42 42 37 41 44

24

1719 34 36 35 36

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Greenschemes

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“ItisnotjustVictoriathathasahighretailproportion.AlloftheNSWnetworkareasalsoshowaretailproportionthatis34-36%ofthetotalbillandinSouthAustraliatheretail

proportionisnow36%.TheretailcomponentremainslowestintheACTand

Tasmania.”


19

Table3Deductionofbillcomponentsformarketoffers(includingpayontimediscounts),averageannualbillbasedonofferstakingeffectpostJuly2016(6,000kWhperannum,singlerate)21 Retailbill

incl.GST^Retailbillexcl.GST

Retailbillexcl.GSTandNUOS^^

Retailbillexcl.GST,NUOSandwhole-sale^^^

Retailbillexcl.GST,NUOS,wholesaleand“greenscheme”costs*

Retailbillexcl.GST,NUOS,wholesale,“greenscheme”costsandsmartmetercosts**

Citipower 1,464 1,331 847 583 456 355Powercor 1,644 1,495 902 638 511 410SPAusnet 1,764 1,604 853 589 462 332Jemena 1,634 1,485 902 638 511 377UE 1,539 1,399 888 624 497 404ActewAGL 1,218 1,107 558 294 144 Aurora 1,901 1,728 704 356 299 Energex 1,851 1,683 803 419 195 Ausgrid 1,615 1,468 695 425 325 Endeavour 1,648 1,498 797 527 428 Essential 1,927 1,752 854 584 484 SAPN 2,119 1,926 1,053 693 516 ^BasedonmarketoffersavailablepostJuly2016(includingguaranteedandpayontimediscounts)offeredbythesameretailersincludedintheanalysisofstanding/regulatedoffers(table2),exceptfortheACTwherethestandingofferisregulated.IntheACT,themarketofferbill isbasedontheaverageretailmarketoffer.^^Aspertable1above.**3.73c/kWhinQld,2.51c/kWhinACT,2.95c/kWhinSA,1.66c/kWhinNSW,2.12c/kWhinVic,and0.96c/kWhinTasmania22***BasedonAERestimatedAMIchargesfor201623Chart 8 below is based on the same calculations presented in table 3 above butshowsthevariousbillcomponentsasapercentageofthetotalbill.Againwestressthatsomeofthecostcomponentsarebasedonestimatesratherthanactual,knowncosts.24

21NotethatthecostofthesmartmeterrolloutisnotaccountedforintheNUOSchargesduetotheAMICostRecoveryOrder-In-CouncilthatensuresthatthedistributorsareabletorecoverexpenditureassociatedwiththeAMIprogramfromconsumersonacostpass-throughbasis.22The“greenscheme”costsincludeRenewableEnergyTargets,FeedinTariffsandotherjurisdictionalschemes.TheAEMCreport,2016ResidentialElectricityPriceTrends(December2016)estimatedthecostofenvironmentalpoliciesforeachjurisdictionandcostsusedforthisreportarebasedontheaveragecostofenvironmentalpolicies(c/kWh)in2015/16and2016/17multipliedby6MW.23ToestimatetheimpactoftheVictoriansmartmeterrolloutonthebill-stack,weusedAER’sindicativeaverageannualmeteringbillfor2016.Seetable1-2inAER,AdvancedMeteringInfrastructure,Transitionchargesapplications,DraftDecision(September2016)24Costofretailincludesbothretailcostsandmargins(profits).


20

Chart8Estimatedbill-stackformarketoffers,averageannualbillbasedontheofferstakingeffectpostJuly2016(6,000kWhperannum,singlerate,excludingGST)25

Chart8aboveshowsthattheretailcomponentofbillsissmallerformarketoffers(ifcustomerspayontimeandthusreceiveadiscount)comparedtostanding/regulatedoffersinmostjurisdictions(seechart7).Thatsaid,thesizeoftheretailcomponentofthetotalmarketofferbillisstillconcerninginmanynetworkareas.

Compared to last year’s market offers (July 2015), the retail component hasincreasedinsomenetworkareasanddecreasedinothers.Chart9belowshowstheestimated retail component (%)ofmarketofferbills in2016compared to2015. Itshows that the retail component of market offer bills has increased the most inSouth Australia and Victoria’s United Energy network while it has decreased themostintheACT(ActewAGL)andQueensland(Energex).

25Thischartisbasedonthecalculationusedfortable3above

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Chart9Retailproportionofmarketoffers,averageannualbillbasedontheofferstakingeffectpostJuly2015and2016(6,000kWhperannum,singlerate,excludingGST)26

26Thischartisbasedonthecalculationusedfortable3aboveaswellastable13inStVincentdePaulSocietyandAlvissConsulting,TheNEM–Stillwingingit?September2015

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3.Whotakeswhatpart:fixedvs.variablechargesTheaboveanalysisfocusedonthe‘bill-stack’asawhole.Inthissection,weanalysethesamecomponentsbutratherthanlookingatthetotalcostwewillassessthebill-stackforthefixedsupplychargeandthevariableconsumptionchargeseparately,aswellasfortwoseparatescenarios:guaranteedbillsandconditionalbills.Calculationsfor the guaranteed bills include rates as well as any guaranteed discount whilecalculationsfortheconditionalbillsalsoincludepayontimediscounts.Thesupplychargeisafixeddailychargethatispaidinadditiontotheconsumptioncharges for electricity used. High supply charges result in low consumptionhouseholds paying a proportionally higher cost per unit of energy than highconsumptionhouseholds.Thishassignificantequityimplicationsassomecustomerclasses characterised by low and fixed income also use less electricity than theaveragehousehold.Pensionersmakeuponeoftheselowerconsumptiongroups.27Furthermore, as the costof energy increases, consumers, aswell as governments,may want to invest in solutions that can reduce their consumption but if a largeproportion of costs are loaded up in the fixed charges, behavioural changes andenergyefficiencyinitiativeswillhavelessimpactonreducingcosts.ThefollowingexampleanalysesandallocatesthebillcomponentsforcustomersonOriginEnergy’s ‘Saver’product inVictoria’sCitipowernetwork(whereOrigin is theincumbentretailer).Ifacustomerusing6,000kWhperannumsigneduptoOrigin’sofferinFebruary2016,thiscustomerwouldbecharged102.79centsperdayinfixedsupplycharge(excludingGST)and21.77centsforeverykWhconsumed(excludingGST). If thecustomerpaysthebillsontime,Originwouldreducetheconsumptionchargeby26%,bringingitdownto16.1098c/kWh.Ifthecustomersigneduponline,Originwouldalsocreditthecustomer’saccountwith$25.Chart10showsthatthecustomersguaranteedmaximumannualbillwouldbe$375infixedchargesand$1,306inconsumptioncharges(excludingGST).Ifthecustomersignsuponlineandalwayspaysbillsbytheduedate,however,theannualbillwouldstillbe$375infixedchargesbuttheconsumptionchargeswillbereducedto$942(Chart11).

27ABSsurveydatashowsthathouseholdswithgovernmentpensionsandallowancesastheirmainsourceofincomehaveameanweeklyelectricityconsumptionofapproximately122kWhandthathouseholdswithwagesandsalariesastheirmainincomesourceuseapproximately20kWhmoreperweek(142kWh/week).SeeABS,4670.0HouseholdEnergyConsumptionSurvey2012,Table8,September2013.Furthermore,Victorianconsumptionsurveyshavefoundthatconcessioncardholdersingeneral,andhouseholdsontheagedconcessioninparticular,havelowerconsumptionthanthegeneralpopulation.SeeVictorianUtilityConsumptionHouseholdSurvey2007byRoyMorganResearchforDept.ofHumanServices,Finalreport,April2008,p75.Thelowerconsumptionlevelsamongagedconcessioncardholdersrelatestotheaveragesizeofthesehouseholds.Pensioners,asacustomergroup,areonaveragesmallerhouseholds(fewerpeople)comparedtothepopulationonawholeandthishasanimpactontheirconsumptionlevels.


23

Chart10Citipower,OriginEnergy’sSaverofferavailable inFebruary2016,6,000kWhperannum -Guaranteedannualretailbill(exclGST)

Chart11Citipower,OriginEnergy’sSaverofferavailable inFebruary2016,6,000kWhperannum -Conditionalannualretailbill(exclGST)

OriginwouldberequiredtopaytheCitipowernetworkafixeddailysupplychargeaswellasachargeforeachkWhconsumedbythecustomer.AsofFebruary2016theNetworkUseofSystem(NUOS)chargeinCitipower’snetworkwas20.55cents/dayin fixed charges and 6.8195 c/kWh. Charts 12 and 13 below show the totalguaranteed and conditional bills as above but the top section show the NUOScomponent of the bill. After the NUOS component is deducted from the bill, thecustomerstillpaysOrigin$300perannuminfixedsupplycharges.Inrelationtotheconsumptioncharge,$897istheguaranteedamountexcludingNUOS(chart12)andfor the conditional offer theNUOS exclusive consumption charge is now down to$532(chart13).

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Chart12Citipower,OriginEnergy’sSaverofferavailable inFebruary2016,6,000kWhperannum -GuaranteedannualretailbillwithNUOScomponentexcluded(exclGST)

Chart13Citipower,OriginEnergy’sSaverofferavailable inFebruary2016,6,000kWhperannum -ConditionalannualretailbillwithNUOScomponentexcluded(exclGST)

BasedontheestimatedwholesalecostforVictoriaintable1above($44/MWh),theannualwholesalecostwouldbe$264forthisconsumptionlevel(6,000kWh)andasthewholesalemarketdoesnotchargeanyfixedcharges,weallocatethisamounttothe variable charge. Charts 14 and 15 below shows that the cost of the fixedcomponent excludingNUOS andwholesale costs is still $300 for both guaranteedand conditional bills while the variable supply component is now $633 for theguaranteedbilland$268fortheconditionalbill.

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Chart14Citipower,OriginEnergy’sSaverofferavailable inFebruary2016,6,000kWhperannum -GuaranteedannualretailbillwithNUOSandwholesalecomponentsexcluded(exclGST)

Chart15Citipower,OriginEnergy’sSaverofferavailable inFebruary2016,6,000kWhperannum -ConditionalannualretailbillwithNUOSandwholesalecomponentsexcluded(exclGST)

TheAEMChasestimatedthatthecostofenvironmentalpoliciesorso-calledgreenschemeswillbe2.16c/kWhinVictoriain2016/17.28Wethereforededuct$130fromtheretailcomponentandallocatethiscosttothegreenschemecomponent.Charts16 and 17 below show that the cost of the variable supply component excludingNUOS,wholesaleandgreenschemecosts isnow$503 for theguaranteedbill and$139fortheconditionalbillwhilethefixedcomponentisstill$300.

28ThisincludestheLRET,SRES,feedintariffschemesandtheVictorianEnergyEfficiencyTarget(VEET)scheme.AEMC,2015ResidentialElectricityPriceTrends,December2015,62

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Chart16Citipower,OriginEnergy’sSaverofferavailable inFebruary2016,6,000kWhperannum -Guaranteed annual retail bill withNUOS,wholesale and green scheme components excluded (exclGST)

Chart17Citipower,OriginEnergy’sSaverofferavailable inFebruary2016,6,000kWhperannum -Conditional annual retail bill with NUOS, wholesale and green scheme components excluded (exclGST)

While the variable retail supply component for customers that obtain conditionaldiscounts or one off incentives appear quite reasonable, many customers are ofcourse not able to obtain these discounts. Only the retailers know the exactproportionofcustomersthatreceivepayontimediscountsoraccountcreditsfromsigninguponline,but ifweassumethat50%ofcustomersdoandtherestdonot,thevariableretailsupplycomponentwillbe$321perannuminadditiontothefixedretailcomponentof$300perannum.Furthermore,Victoriancustomersstillalsopayfortherolloutofsmartmeters.TheAERhasestimatedthatcustomersintheCitipowernetworkwillpayapproximately

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$100insmartmeterchargesin2016.29Asthiscostisnotrelativetousage,wehaveallocatedthesmartmeterchargetothefixedcomponentinchart18below.Chart18showsthebillstackforthisspecificexample(OriginEnergy’smarketofferin Victoria’s Citipower network with 50% of customers obtaining conditionaldiscounts) and it highlights that the retailer takes just under 30% of the variablechargesaswellasanastonishinglyhigh53%ofthefixedcharges.Chart18Bill-stackforOriginEnergy’s ‘Saver’marketoffer inVictoria’sCitipowernetwork.BasedonannualbillfornewcustomerasofFebruary2016,6,000kWhperannum,singlerate,GSTexcluded

Charts 19 – 21 below show analysis using thesame methodology in South Australia (AGL’sSavers), NSW (Energy Australia’s Flexi Saver inthe Ausgrid network) and Queensland (Origin’sSaver in the Energex network), and while theretailer proportion of the variable charges islower in these jurisdictions, the retail component is 50% or more in both SouthAustraliaandNSW.InQueensland,theretailcomponentofthefixedchargesis57%butitalsohasa$70shortfallinthevariablecharges(seechart21).

29AER,DraftDecision:AMITransitionChargesApplications,September2016,7

200321

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“[T]heretailertakesjustunder30%ofthevariablechargesaswellasanastonishinglyhigh53%ofthefixed

charges.”


28

Chart19Bill-stackforAGL’s‘Savers’marketofferinSouthAustralia’sSAPNnetwork.BasedonannualbillfornewcustomerasofFebruary2016,6,000kWhperannum,singlerate,GSTexcluded30

Chart20Bill-stackforEnergyAustralia’s ‘FlexiSaver’marketoffer inNSW’sAusgridnetwork.Basedon annual bill for new customer as of February 2016, 6,000 kWh per annum, single rate, GSTexcluded31

30SamedatasourcesasusedforOrigin/Citipowerbill-stackabove.Averagewholesalecost:$60/MWhandgreenschemecostsof2.9c/kWh.NotethatNUOSisbasedonpricesthattookeffect1July2016.31Samedatasourcesasusedabove.Averagewholesalecost:$45/MWhandgreenschemecostsof1.73c/kWh.NotethatNUOSisbasedonpricesthattookeffect1July2016.

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29

Chart21Bill-stackforOriginEnergy’s‘Saver’marketofferinQueensland’sEnergexnetwork.BasedonannualbillfornewcustomerasofFebruary2016,6,000kWhperannum,singlerate,GSTexcluded32

Charts 18 – 21 above show there are significant differences between thejurisdictions.AsOrigin,AGLandEnergyAustraliaarenationalretailers it ispossiblethatVictoriancustomerscontributemoretotheiroverallearningscomparedto,forexample,Queenslandcustomers.Chart 22 below shows the estimated annual retail component of the variableconsumption charges (based on annual consumption of 6,000 kWh) in eachjurisdiction. The blue column to the left shows the retail component of annualconsumption charge when the customer receives the conditional pay on timediscountaswellasaone-offincentive.Theredcolumnshowstheretailcomponentifhalfofthecustomersreceiveconditionalpayontimediscountsaswellasoneoffincentiveswhilehalfofthemdonot.Thegreencolumntotherightshowstheretailcomponentoftheannualconsumptionchargewhenthecustomerdoesnotreceiveconditionaldiscountsorone-offincentives.

32Samedatasourcesasusedabove.Averagewholesalecost:$64/MWhandgreenschemecostsof3.67c/kWh.NotethatNUOSisbasedonpricesthattookeffect1July2016.

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Chart22Retailcomponentofannualconsumptioncharges.BasedonannualbillfornewcustomerasofFebruary2016,6,000kWhperannum,singlerate,GSTexcluded33

Retailersalsocollectaproportionofthefixeddailysupplycharge.Asnoneoftheseretailers apply discounts to the supply charge, however, there is no differencebetween the retail componentsof the fixed supply charges that customerson thesame retail offer pay. Chart 23 shows the retail component of the annual fixedsupplycharge.Chart23Retailcomponentofannualfixedsupplycharges.BasedonannualbillfornewcustomerasofFebruary2016,6,000kWhperannum,singlerate,GSTexcluded34

33Basedonthesameretailoffersandassumptionsusedfortheaboveanalysis.34Ibid.

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31

TheChairoftheEssentialServicesCommission(ESC)Victoriadiscussedtheissueofretailers applying fixed as well as variable charges in a paper written in August2016.35DrRonBen-Davidpoignantlyasked:

“We have become so accustomed to energy retailers charging fixed andvariable charges we don’t bother ourselves with the simplest and mostobviousquestion:Why?”36

Onepossibleexplanationisthatthefixedretailchargecomponentissimplyahang-overfromthedayswhenretailpriceswereregulatedandthatfixedchargesaretooattractive to retailers to move away from the ‘old style’ pricing structure.Accompanyingthis,wehaveenergycustomersthatwerealreadyaccustomedtopayafixedandavariablecharge,andthusdonotquestionwhyitischargedorits’size.Whileitisbeyondthescopeofthispapertoinvestigateretailpricingstructuresandpricinglegacyissuesinothercountries,weareawareofonecountrywhereretailershaveofferscontainingvariablechargesonly (priceperkWhconsumed). InNorwaysome retailers have a fixed charge (typically around $6 per month) while otherschargeforenergyconsumedonly(albeittypicallyatahigherpriceperkWh).Whenfull retail competition was introduced in Norway, the network charge (whichcontainsboth fixed and variable charges) continued tobebilled separately by thedistribution businesses.37 It is therefore possible that this influenced consumersperceptionofretailservices,i.e.thattheretailerisregardedasnothingmorethanaretailer–abusinessthatshouldmakeafewcentsperkWhforrunningtheshop.38In theUK electricitymarket,which theNEMwas verymuchmodelled on, a dailystanding charge is still standard although there have been examples of retailersofferingvariablechargesonly.39As discussed above, there may be legacy issues impacting on retailers’ tariffstructuresandcustomers’acceptanceoftheseoffers,butthisdoesnotexplainwhynoretailerhasattemptedtoofferavariablechargeonlyoratleastasupplychargethatisbasedonastandingnetworkchargepass-throughonly.40Fixedannualretail35DrRonBen-David,ShockTherapy.Revivingretailcompetitionintheenergymarket,DraftPaper,22August201636Ibid.1237Norwayiscurrentlymovingtowardsasinglebillersystem.38AnimportantdifferencetonotebetweentheNorwegianandAustralianmarketarrangementsisthatretailersarenotobligedtodelivercommunityserviceobligationsandoperateunderstandardconsumerlaw.Thenetworks,ontheotherhand,aretheresponsiblepartiesintermsofconsumerprotectionsandonlynetworkscaninitiatedisconnectionfornon-payment.39InregardstotheNEMbeingmodelledontheUKmarketseeforexample:AEMCandKPMG,NationalElectricityMarket,AcasestudyinsuccessfulmicroeconomicreformandJohnPierce,ChairmanAEMC,The(Energy)Restaurantatthe(Other)EndoftheUniverse,SpeechpresentedatOxfordUniversitySeptember201640Notingthatretailersaremorethancapableofannouncingnetworkchargepass-throughinrelationtoconnectionandreconnectionfees.


32

componentsof$200ormorecertainlydonotcomeacrossashighlyefficientpricingtous,butasBen-Davishasstated:

“[W]hilemucheffortgoesintotryingto‘prove’theretailenergymarketiscompetitive,verylittleeffortgoesintotestingwhetheritisefficient.”41

In our view, findings like this should encourage the AEMC to investigate morespecific components of the retail market to ascertain whether it actually deliversefficient outcomes to consumers. There may be 20 retailers offering electricityproductstoVictorianhouseholdsbutifalloftheminsistonchargingeverycustomer,say,$180-$200infixedsupplycharges,thequestionoughttobewhynotasingleoneofthemattemptstoofferapricingstructurebasedonlow,orno,fixedsupplycharge.Inlieuofsuchinvestigationsandmarketefficientoutcomes, regulatory instruments may be usedto trigger more efficient outcomes. As wehighlightedlastyear,customersactuallyexercisechoiceinrelationto(whatshouldbe)arelativelysmall component of their electricity bills.42Nonetheless,customersarerequiredtocompareoffers amounting to significant annual bills. Inreality, a retail offer could be as simple as 10c/kWh and a list of pass-through costs such asnetwork and wholesale prices that actually donot vary greatly from retailer to retailer (withinthesamearea).41DrRonBen-David,ShockTherapy.Revivingretailcompetitionintheenergymarket,DraftPaper,22August2016,1042REF

“Theremaybe20retailersofferingelectricityproductstoVictorianhouseholdsbutifalloftheminsistonchargingeverycustomer,say,$180-$200infixedsupplycharges,thequestionoughttobewhy

notasingleoneofthemattemptstoofferapricing

structurebasedonlow,orno,fixedsupplycharge.”


33

4.InterstatedifferencesandretentionmarketsIf we combine the retail component of the fixed supply charge and the variableconsumptioncharges,wegetpositiveretailcomponentnumbers inall jurisdictionsbut,asshowninsection2above,retailcostsvarysignificantlybetweenjurisdictionsaswellasbetweencustomersthatobtainconditionalpayontimediscountsversusthosewhodonot.Againthebluecolumntotheleftshowstheretailcomponentofannual billswhere the customer receives the conditional pay on time discount aswellasaone-offincentive.Theredcolumnshowstheretailcomponentifhalfofthecustomers receive conditional pay on time discounts aswell as one off incentiveswhilehalfofthemdonot.Thegreencolumntotherightshowstheretailcomponentoftheannualbillwhenthecustomerdoesnotreceiveconditionaldiscountsorone-offincentives.Chart24Retailcomponentofannualbills.BasedonannualbillfornewcustomerasofFebruary2016,6,000kWhperannum,singlerate,GSTexcluded43

Furthermore,asallof theoffers included in this charthaveabenefitperiodof12months only, the blue column can also be seen as the minimum annual retailproportion the first year after the customer signed up and the green column thepotentialretailproportionforthesecondyear.44Chart25belowshowstheaverageannual retail component (over two years) for customers that do not switch, ornegotiateasimilardiscount,after12months.

43Ibid.44Weacknowledgethatretailersmaystilloffercustomerssomediscountsafter12monthsbuttheyalsohavetheabilitytoincreasetheirratesatanytimeasthesearenotfixedpriceproducts.

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Chart 25 Estimated average annual retail component for customers that stay with retailer for 24months.Basedonannualbill fornewcustomerasofFebruary2016,6,000kWhperannum, singlerate,GSTexcluded45

InVictoria,thejurisdictionwiththemostactiveretailers,theretailproportionofbillsis significantly greater than in other jurisdictions. While all markets with rivallingsuppliers may be called competitive, these charts alone clearly warrant somequestionsaboutwhatisgoingoninVictoria.As the analysis in section 3 was limited to single (incumbent) retailers in eachjurisdiction, we have also compared retail components for all retailers competingwithOrigin’s‘Saver’offerinVictoria’sCitipowernetwork.Chart 26 shows the retail component of the annual bill for 19 retailers in theCitipowernetwork.Theretailcomponentisassumingthat50%ofcustomersreceiveconditionalpayon timediscountsand that50%donot (asper the redcolumns inabovecharts).Thebluemarkersshowthethreebigretailerswhiletheredmarkersare2ndtierretailers.Firstlywenotethatoverhalf(11)oftheretailershavearetailcomponent of more than $500, including two of the three ‘big three’ retailers.Secondly, only two retailers have a retail component of $300 or less per annum.Third, and finally, we note that only a few of the Victorian retailers have retailcomponents similar to those shown for Queensland, South Australia and NSW inchart24above.

45Ibid.

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35

Chart 26 Retail component of annual bills inVictoria’s Citipowernetwork. Basedon annual bill fornewcustomerasofFebruary2016,6,000kWhperannum,singlerate,GSTexcluded46

ThequestionofwhyretailinginVictoriaismoreexpensivethaninotherjurisdictionsthereforeremainsunexplained.Adifferentapproachtotheissueistofocusontheseoffers being their published offers to new customers only. It is possible that thelargerretailersarefocusingonretainingtheircurrentcustomersandtheincentivesoffered (e.g. discounts) to customers “threatening” to leave the company aresignificantly better than the incentives offered to new customers. Energy retailersalso have a major advantage compared to retailers of many other products andservices as they can easily contact customers that have left and propose a betterofferiftheyarewillingtoreturn(socalled“win-backcalls”).We realise that “win-back calls” can be a good outcome for individual customers(especiallyintheshortterm)butweareconcernedabouttheimpactitmayhaveoncompetitioninthelongterm.Retention markets and “win-back calls” dononethelessnotexplainwhynoneof the2ndtier retailers are able to offer lower pricesthan they do and why the cost of retailingappears tobegenerallymuchhigher than inother states. While competitive marketsshould deliver efficient price, in theory, theon-goinghighcosttoconsumersmaywarrantan investigation into structural, as well asstrategic, barriers to achieving marketefficiencies in otherwise competitive retailmarkets.

46Ibid.Notethatwholesalecostsarebasedonaveragespotmarketpriceandthereforeassumesthatallretailersfacethesamewholesalecosts.

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“Whilecompetitivemarketsshoulddeliverefficientprice,intheory,theon-goinghighcosttoconsumersmaywarrantaninvestigationintostructural,aswellasstrategic,barrierstoachievingmarketefficienciesinotherwise

competitiveretailmarkets.”


36

5.The‘bigthree’–monthbymonthThis section analyses monthly changes to the ‘three big’ retailers’ (AGL, EnergyAustraliaandOrigin)electricitymarketoffersfromAugust2015toSeptember2016in NSW, Queensland, South Australia and Victoria.47 It compares differences toannualbillsincludingpayontimediscountsaswellasoneoffinducementssuchasaccount credits andwaivers. It also compares changes tomarket retailofferswithchanges to thewholesale spot-marketprice. It shows that thedifferencebetweenthebigthreeretailers’offersisremarkablylowinsomejurisdictionsand/ormonths.Increases inwholesalecostsalsoappear to result in lowerdiscountsbeingofferedwhileadropinwholesalepricesdoesnotappeartohaveanimmediateeffectonthediscountsoffered.The maximum difference between the annual bills produced by the big three istypically $100 - $200, depending on jurisdiction and time of year. Charts 27 - 30below show the retail offers as annual bills for customers using 6,000 kWh perannumforeachofthejurisdictions.In NSW’s Ausgrid network area, the maximum price-spread between the threeretailerswas$137inNovember2015.ThedifferencewaslowestinMay–June2016(approximately $20) and as of September 2016 the difference was $110. EnergyAustralia’soffers(theincumbentretailer)producedthelowestbillsthroughouttheperiod,whilethedifferencebetweenAGLandOrigin’soffers isnegligible.AllthreeretailersincreasedtheirratesinJuly2016whennewregulatednetworkpricestookeffect.Chart27NSW(Ausgrid),AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscount(6,000kWhperannum,singlerate,GSTincl)

47InNSWthecomparisonisbasedonoffersintheAusgridnetworkandinVictoriaitisbasedonoffersavailableinCitipower’snetwork.TheofferscomparedareEnergyAustralia’s‘FlexiSaver’,AGL’s‘Savers’andOrigin’s‘DailySaverPlus’untilitwasdiscontinuedinOctober2015andOrigin’s‘Saver’productwasintroduced.

1,200

1,300

1,400

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1,800

Aug-15

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Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

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May-16

Jun-16

Jul-16

Aug-16

Sep-16

Origin

AGL

EA


37

In Queensland’s Energex network area, the maximum price-spread between thethree retailers was $176 from February to April 2016. The main reason for thedifferenceinannualbillsbeinghigherduringthesethreemonthswasAGL’smovetomaketheirdiscountsconditionalupondirectdebit.48 Thedifferencewas lowest inSeptember2015(nodifference)andasofSeptember2016thedifferencewas lessthan$40.Origin’soffersproducedthehighestbillsthroughouttheperiod,exceptforthefourmonthswhenAGL’sdiscountwasconditionalupondirectdebitpayments,but the difference between the three retailers is otherwise very small. All threeretailersincreasedtheirratesinJuly2016whennewregulatednetworkpricestookeffect.Chart28Queensland(Energex),AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscount(6,000kWhperannum,singlerate,GSTincl)

InSouthAustralia,thedifferencebetweenthethreebigretailers’offersisgreater.AsofSeptember2016thedifferencewasapproximately$210andithasnotbeen lower than $100 during the entire period,althoughnochangesweremade to the retailoffersfromDecember2015toJune2016.Allthreeretailersincreased their rates in July 2016 when newregulatednetworkpricestookeffect.

48Directdebitdiscountsaswellasadditionaldiscountsforcustomersthatsignupfordualfueloffersarenotincludedinthisanalysis.

1,500

1,600

1,700

1,800

1,900

2,000

2,100

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Origin

EA

AGL

“ThedifferencewaslowestinSeptember2015(nodifference)andasofSeptember2016the

differencewaslessthan$40.”


38

Chart29SouthAustralia(SAPN),AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscount(6,000kWhperannum,singlerate,GSTincl)

In Victoria’s Citipower network, the maximum price-spread between the threeretailerswas$50inNovember2015.ThedifferencewaslowestinJanuary2016(lessthan$20)andasofSeptember2016thedifferencewas$50.Whennewregulatednetwork prices took effect in January 2016, AGL reduced its rates while Originincreasedtheirsslightly.EnergyAustraliareduceditsratessomewhatfromFebruary2016.Chart30Victoria(Citipower),AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscount(6,000kWhperannum,singlerate,GSTincl)

Charts31–33belowshowwhentheretailersincreased,ordecreased,theiroffersinthefourstates.Whilewewouldexpecttheretailerstochangetheirofferswhennewnetwork charges take effect (in July in NSW, SA andQld, and January in Victoria)thesechartsindicatethatsomeoftheretailersmakeadditionaladjustmentstotheir

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

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Mar-16

Apr-16

May-16

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Sep-16

EA

AGL

Origin

1,200

1,300

1,400

1,500

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1,800

Aug-15

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AGL

Origin

EA


39

offers in all states at the same time. Origin Energy, for example, reduced theirdiscounts inallfourjurisdictionsinOctober2015(seechart31).AGLreducedtheirdiscounts in all states except Queensland in December 2015 (see chart 32) andEnergyAustraliadidthesameonemonthlater(seechart33).Chart31OriginEnergy,AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscount(6,000kWhperannum,singlerate,GSTincl)

Chart32AGL,AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscount(6,000kWhperannum,singlerate,GSTincl)

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

SA

QLD

NSW

VIC

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

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2,400

Aug-15

Sep-15

Oct-15

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Mar-16

Apr-16

May-16

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QLD

NSW

VIC


40

Chart33EnergyAustralia,AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscount(6,000kWhperannum,singlerate,GSTincl)

These changes could reflect changes in thewholesale market. While retailers do enterhedging contracts in order to manage riskexposure caused by price volatility, significantchangesinwholesalecostsmayresultinretailersreducingthediscountofferedtonewcustomers.Charts34-37compareretailpricechangestopricechangesinthespotmarket.InVictoria (chart 34) increases and decreases in retail prices appear to somewhatreflect increasesanddecreasestowholesalecosts,exceptforthebriefpeak inthespotpriceinJune2016.Chart34Victoria(Citipower),Annualretailbills(inclusiveofpayontimediscount)andaveragespot-marketprice,August2015–September2016(6,000kWhperannum,singlerate,GSTincl)

1,3001,4001,5001,6001,7001,8001,9002,0002,1002,2002,3002,400

Aug-15

Sep-15

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SA

QLD

NSW

VIC

0102030405060708090100

1,250

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Jul-16

Aug-16

Sep-16

$perMWh

Annualretailbill($)

Wholesale AGL EA Origin

“[T]hesechartsindicatethatsomeoftheretailersmakeadditionaladjustmentstotheiroffersinall

statesatthesametime.”


41

SouthAustralia(chart35)showsasimilartendencytoVictoriabutwenotethatthespotprice isgenerallyhigher than inVictoriaand that thepeak inwholesalecosts(July2016)coincidedwithnewnetworktariffstakingeffect.Chart35SouthAustralia(SAPN),Annualretailbills(inclusiveofpayontimediscount)andaveragespot-marketprice,August2015–September2016(6,000kWhperannum,singlerate,GSTincl)

InNSW(chart36),thepeakinwholesalecosts(June2016)occurredjustbeforenewnetworktariffstookeffect (July2016). It isotherwisedifficulttoconcludewhetherchangestowholesalecostshavemuchimpactonchangestotheretailcosts.Chart36NSW(Ausgrid),Annualretailbills(inclusiveofpayontimediscount)andaveragespot-marketprice,August2015–September2016(6,000kWhperannum,singlerate,GSTincl)

0

50

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1,5001,6001,7001,8001,9002,0002,1002,2002,3002,400

Aug-15

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$perMWh

Annualretailbill($)


0

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$perMWh

Annualretailbill($)



42

InQueensland, changes to thewholesale price appear to have less impact on theretailpricesoffered(seechart37).Chart37Queensland(Energex),Annualretailbills(inclusiveofpayontimediscount)andaveragespot-marketprice,August2015–September2016(6,000kWhperannum,singlerate,GSTincl)

Asmentionedabove,all threeretailershaveofferedvariousoneoff incentives (i.eaccountcreditsforsigninguponlineandsupplychargewaivers)sinceAugust2015.The value of these one off incentives has not been included in the annual billcalculations presented in the above analysis. Charts 38 - 41 show annual bills foreach jurisdiction from August 2015 to September 2016 inclusive of one offincentives.49 They show that the maximum price spread is somewhat higher inQueensland and Victoria when we include these incentives in the annual billcalculationwhile theymake littledifference to themaximumprice spread inNSWandSouthAustralia.

49Notincludingincentivesordiscountsconditionalupondualfuelcontracts.

0

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$perMWh

Annualretailbill($)



43

Chart38Victoria(Citipower),AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscountandoneoffincentives(6,000kWhperannum,singlerate,GSTincl)

Chart39Queensland(Energex),AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscountandoneoffincentives(6,000kWhperannum,singlerate,GSTincl)

1,250

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1,550

Aug-15

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Origin

EA

AGL

1,500

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EA

AGL


44

Chart40SouthAustralia(SAPN),AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscountandoneoffincentives(6,000kWhperannum,singlerate,GSTincl)

Chart41NSW(Ausgrid),AnnualretailbillsAugust2015–September2016inclusiveofpayontimediscountandoneoffincentives(6,000kWhperannum,singlerate,GSTincl)

On average, themaximumdifference to the annualbillbetweenthethreeretailers’offers(includingpayon time discounts and one off incentives) fromAugust 2015 to September 2016 was $90 in NSW,$95 inQueensland,$155 inSouthAustraliaand$70inVictoria.Considering that theaverageannualbill,forhouseholdsusing6,000kWhperannum, for thesame period was $1,500 in NSW, $1,800 inQueensland,$1,975inSouthAustraliaand$1,430inVictoria, the difference between the big retailers’offersmustbeconsideredrelativelylow.

1,500

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EA

AGL

Origin

1,200

1,300

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1,800

Aug-15

Sep-15

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Feb-16

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Sep-16

Origin

AGL

EA

“Onaverage,themaximumdifferencetotheannualbillbetweenthethreeretailers’offers…fromAugust2015toSeptember2016was$90in

NSW,$95inQueensland,$155inSouthAustraliaand$70in

Victoria.


45

AccordingtotheAEMC,themarketshareofthe‘bigthree’isapproximately90%inQueensland(Energex),91%inNSW,63%inVictoriaand79%inSouthAustralia.50Weacknowledgethatthismarketsharehasdecreasedovertimewithcompetitionbutitisstillpossiblethatthe‘bigthree’arenotpursuingnewcustomersasmuchasthey

arefocusingonretainingtheircurrentshareandtheystillhaveadvantages over 2nd tier retailers that enable them to offer a“middleoftheroad”price.Nonetheless,weaskwhetherthereis healthy rivalry in a market where the big players do notappear to compete? An analogy would be three majorsupermarket chains without an interest in price wars and wethought competitionwashigh justbecause therewerequiteafewcornerstorescompetingforasmallnumberofcustomers.

50AEMC,2016RetailCompetitionReview,June2016,Table10.1,121

“Nonetheless,weaskwhetherthereishealthyrivalryinamarketwherethebigplayersdonotappeartocompete?”


46

6.SolaroffersThis yearwas the first time the Tariff-Tracking project covered offers available tosolarcustomersandcomparedoffersbasedonbothelectricityboughtand feed intariff(FIT)ratesforelectricitysold.Theworkbooksallowuserstocompareoffersfor3 kW and 1.5 kW capacity systems, based on nominated consumption levels andlocation(networkandurbanornon-urbansetting).Theanalysispresentedbelowisbasedon3kWsystemsinurbanlocationsandtheassumptionsappliedareshownintable4.Table4Assumptions:Generationcapacityandexport(%)incapitalcities,3kWsystems51Capitalcities Annualgeneration

perkWinstalledExportrates(%)

Adelaide 1.680MWh 51.8%Brisbane 1.736MWh 53.4%Melbourne 1.539MWh 47.4%Hobart 1.185MWh 47.4%Canberra 1.801MWh 55.1%Sydney 1.614MWh 49.9%Chart42showsaverageannualbillsforsolarcustomers(3kWsystemsinstalled)inmetropolitanareasusing6,000kWh(importedaswellasgenerated)perannum.52WhileSouthAustraliancustomershavethehighestelectricitybillsingeneral,SouthAustralian solar customers with this consumption level have, on average, lowerannual bills compared to customers in Tasmania and Victorian customers in thePowercorandAusnetnetworks.

51Theexportratesandgenerationcapacities(ExceptforHobartandCanberra)arebasedonMelbourneandwereusedfortheanalysispresentedinareportfortheAlternativeTechnologyAssociation(ATA)byAlvissConsulting(AlvissConsulting,RetailOffersandMarketTransparencyforNewSolarCustomers,June2013).TheTasmanian1.185MWhgenerationcapacityisbasedonsmall-scaletechnologycertificates(STC)forzone4.TheExportrateisbasedonMelbourneassumptionsandmaythereforebeslightlyhigherthantheTasmanianaverage.TheCanberraassumptionsarebasedonnon-metropolitanNSWratesandwillthereforebesomewhathighforACThousingexperiencingovershadowing.52Basedonaveragemarketoffer(allretailers)includingguaranteeddiscounts,payontimediscounts,FITcreditsandGST.NSW’sEssentialnetworkisnotincludedasitcoversruralNSWonly.


47

Chart42AnnualretailbillsforsolarcustomerspostJuly2016,inclusiveofpayontimediscountsandFITcredits(6,000kWhperannum,singlerate,GSTincl)

Chart 43 compares average solar customer bills to average non-solar bills in eachnetwork area and it shows that the difference is greatest in South Australia andsmallestintheACTandTasmania.Chart43Annualretailbillsfornon-solarcustomersandsolarcustomerspostJuly2016,inclusiveofpayontimediscountsandFITcredits(6,000kWhperannum,singlerate,GSTincl)

ThedifferenceinSouthAustraliaispartlyexplainedbyretailers,onaverage,offeringhigherFITratescomparedtootherjurisdictions(seetable5below)butalsobecausesolar customers avoid kWh (because of their own generation) that non-solarcustomersdonot.Thisgeneration/avoidedpurchasebecomesevenmorevaluablewhenthetariffappliedisanincliningblocktariffwherethepriceperkWhincreasessignificantlywithincreaseinoverallconsumption.

0

200

400

600

800

1,000

1,200

1,400

1,600Annualbill($)

0

200

400

600

800

1,000

1,200

0

500

1,000

1,500

2,000

2,500

Difference($/annum)

Annualbill($)

Solar Non-solar Difference


48

Table5AnnualaverageFITcredit,marketoffers,6,000kWhperannum,singlerate

Jurisdiction AverageannualFITcredit($)SA $205QLD $200NSW $147VIC $139ACT $119TAS $112


49

7.ObservationsandrecommendationsThisfinalsectionhighlightssomeoftheissuesidentifiedinthisreportandproposesrecommendationsforhowtheycanbeaddressed.7.1De-linkcostcomponentstodriveinnovationAsdiscussed in section3above,noneof theretailers have seen an opportunity indramatically reducing their fixed chargessinceretailderegulation.InVictoria,theretailenergy market has been deregulated foralmosteightyearsandmorethan20retailersoffercontractstoresidentialconsumers.Still,theretailcomponentofthedailyfixedchargecontinuestoincreaseyearafteryear.Retailers are typically quick to highlight that any proposed regulation can stifleinnovation, yet in one area where they are not facing any regulation, structuringtheirtariffsandsettingtheirprices,wehavehardlywitnessedanyinnovationatall.53Inourview,retailersneedanincentivetoinnovatearoundwheretheyloadupthecost(e.g.infixedorvariablecharges).Todate,theretailershavehadanincentivetohide behind the network businesses’ service to property charge to significantlyinflatethefixedcharge.Clearlyafixedchargeisfavouredbyretailersandaslongasmostcustomersremainunawareofwhythischargeisashighasitis,thereisalackofincentiveforretailerstoinnovate.Retailers’descriptionofthedailysupplychargealso alludes to the majority of this cost being to pay for major infrastructure.Powerdirect,forexample,explains:

“Dailysupplychargescoversomeofthecostsofmaintainingandoperatingthe Distribution and Transmission networks (see explanation of NetworkCosts above), and some of the operational costs of servicing ourcustomers.”54

Similarly,EnergyAustraliaexplains:

“Thesupplychargeisthecostperdaythatischargedforprovidingyouwithelectricity(includingthemaintenanceofpolesandwires).”55

53See,forexample,retailers’submissionstotheESCEnergyHardshipInquiryathttp://www.esc.vic.gov.au/document/energy/26283-energy-hardship-inquiry-draft-report/.Inrelationtoflexiblepricing,ortimeofusepricing,Victorianretailershavefacedlimitationintermsofthetariffstructurebutnotinregardstoothertariffs/metertypes.54http://www.powerdirect.com.au/energy-rates-explained/w1/i1083859/55EnergyAustralia,Yourguidetoreadingyourelectricitybillavailableathttps://www.energyaustralia.com.au/residential/bills-and-accounts/bills-payments/understanding-your-bill/different-types-of-bill

“Retailersaretypicallyquicktohighlightthatanyproposedregulationcanstifleinnovation,yetinoneareawherethey

arenotfacinganyregulation,structuringtheirtariffsandsettingtheirprices,wehavehardlywitnessedany

innovationatall.”


50

RedEnergyissomewhatlessspecificintheirexplanationbuttheystillmakeitsoundlikeitisagiven,unquestionablecharge:

“Service To Property Charge: This is the cost to supply andmaintain yourpropertywithelectricity.”56

Whatcustomersarenottold,isthatonlyasmallpartofthefixedchargegoestothenetworkbusinesses,whichisthesameforeveryonewithinthenetwork,andtherestgoes toretailerseventhoughtheymayalreadychargeyouextra forpostingabill,processing your payment and any other ‘additional service’ they provide to keepyouraccountopen.As illustrated in the OriginEnergy/Citipower example in chart 18above, 53%of the daily fixed charge is aretail charge while the remaining 47% isnetwork charges, including additionalsmart meter charges. If customersactuallyknewthatOriginchargesthem(inthis instance) 50 cents a day purely forbeingtheircustomer,andwithoutusingakW of electricity, they may askthemselveswhetherotherretailerscando it for less.And ifcustomersstartaskingwe will hopefully see some innovation. As household consumption levels varysignificantly, such newproducts could result in very useful product innovation forcustomers. With the ever increasing cost of energy, consumers, as well asgovernments,maywant to invest in solutions that can reduce their consumption,but if a large proportion of costs are loaded up in the fixed charges, behaviouralchangesandenergyefficiencyinitiativeswillhavelessimpactonreducingcosts.RecommendationIn order to ensure that customers are aware of what they are paying for andretailerscanmoreeasilyinnovate,westronglyrecommendthatallPriceandProductInformation Statements and all bills clearly separatemarket based charges (retailandwholesale) fromother charges, such as regulated network charges and policycoststhatapplytoallcustomerswithinajurisdiction/network.7.2ConsumerawarenesscandriveconsumerengagementInarecentperformancereport,theAERfoundthatcustomerswitchingrates“wereflatordeclined”in2015-16.57Asdiscussedabove,thiscouldbebecauseretailersarefocusingonretailingcustomersratherthengainingnewonesandwenotethattheswitchingratesdonotincludecustomersthathaveswitchedtoadifferentofferwiththesameretailer.However,itcouldalsomeanthatmanycustomersareunawareof56https://www.redenergy.com.au/docs/Red-Energy-Quarterly-Bill-Explained.pdf57AER,AnnualReportonthePerformanceoftheRetailEnergyMarket2015-16,16

“Withtheeverincreasingcostofenergy,consumers,aswellas

governments,maywanttoinvestinsolutionsthatcanreducetheir

consumption,butifalargeproportionofcostsareloadedupinthefixedcharges,behaviouralchangesand

energyefficiencyinitiativeswillhavelessimpactonreducingcosts.”


51

acommonmarketcontractfeaturecalled“limitedbenefitperiod”andfalselythinkthey are still on a good offer after they last switched, say 18 months prior. Thelimited benefit period applied bymany retailers (and all of the ‘big three’) simplymeans that the ‘benefits’ associated with the contract (typically the discountsapplied) will cease when the benefit period is finished (typically after 12 or 24months).Someretailersappeartousetheterm‘benefitperiod’asinterchangeablewith terms such as ‘contract length’ or ‘contract term’. Covau’s Price andProductInformationStatements(PPIS),forexample,simplystates:

“Ongoingcontractwithbenefitperiod.”(Covau)Otherretailersuseitasanadditionalfeatureby,forexample,stating:

“Yourmarketcontracthasnocontractterm.However,attheendofyour1yearbenefitperiod,youwillbeplacedonanewenergyplan.Wewillnotifyyouifthereareanydifferencesbetweentheseplans.”(AGL)“Ongoingcontractwhichcontinuesuntilyouorweendit.Thebenefitperiodis12months.Whenthebenefitperiodendswe'llstillsupplyyouwithenergyunderourcontractbutyou'llnolongerreceivethebenefit.”(Origin)“The Benefit Period is for 1 year.Wewill provide youwith notice of youroptions prior to the end of the Benefit Period. Your contractwill continueuntilitisendedbyeitherparty.”(EnergyAustralia)

It is however somewhat unclear whether, and how, retailers’ actually notify theircustomersaboutthebenefitperiodending.InthecaseofRedEnergy,forexample,theircommitmenttocontactthecustomerpriortothebenefitperiodendingislessclear:

“ThisisanongoingContractwithabenefitperiodof2years.Wemaycontactyou prior to the end of your benefit period to advise options available toenterintoanewbenefitperiod,otherwiseyourContractwillcontinueuntilitisendedbyyouorus.”(RedEnergy-ouremphasis)

Furthermore,notallretailersdefinebenefitsasadditionaldiscountsonly.AlintaandSimply Energy, for example, explicitly state that the customermay be required topaystandingofferpricesafterthebenefitperiodisover.

“The 24month benefit period commences from the commencement date.TheratesarebasedonAlintaEnergy’spublishedStandingTariffswhicharesubjecttochangeinaccordancewithapplicablelawsandmaychangeduringthe24monthbenefitperiod.Attheendofthe24monthbenefitperiodthebenefits will end but the agreement will continue. Wemay offer you, inaccordancewithourmarketoffertermsandconditions,andassetoutintheoffer,newbenefitsforanadditionalbenefitperiod.Ifwedonot,youwillbe


52

required to pay Alinta Energy’s then applicable published Standing Tariffswithnopayontimediscount.”(Alinta–ouremphasis)“Ongoingcontractwhichcontinuesuntil it isended inaccordancewithourContract Terms and Conditions. The benefit period is for 24 months. Thecontractstartsfromthedayyouacceptouroffer.Thebenefitperiodforthisenergy plan starts on the daywe start selling you energy.Wewill let youknow before your benefit period expires what your options are. We mayofferyouanotherenergyplanorareplacementcontract.Ifyoudon’tacceptanotherofferfromusbeforeyourinitialenergyplanexpires,yourratesandcharges will become the same as our then current standing offer prices.”(SimplyEnergy–ouremphasis)

WhileAlintacurrentlyappliestheirstandingofferratestotheirmarketoffers(whichthenoffersadiscounton these rates), SimplyEnergyhas standingoffer rates thatarehigher than theirmarketofferbase rates (prior todiscounts).ASimplyEnergycustomer could therefore end up with a significantly higher base rate and noadditionaldiscountwhenthebenefitperiodofthecontractisover.UrthEnergydoesnotusetheterm‘benefitperiod’,andtheyoperatewitha3yearlong contract term, but they do nonetheless automatically transfer customers tostandingofferrateswhenthecontracttermfinishes.

“Youragreement term is36months.At the conclusionof this energyplan,youwill beautomatically transferred toour standard residential offer. Youcan thendecide if youwish to continuewithUrthEnergyasyour retailer.”(UrthEnergy–ouremphasis)

Someretailers’‘benefitperiods’andexplanationsofwhathappenswhenthebenefitperiod is over are just confusing.Momentum’s PPIS for Smile Power contracts inNSW,forexample,doesnotincludeanyadditional‘benefits’suchasdiscounts,andexit fees are applied if the customer decides to leave Momentum before thecontract term isover.StillMomentumstates that it isan“[o]ngoingcontractwithbenefitperiod”andthat:

“Attheendofthe1,2or3yearbenefitperiod,theenergycontract,includingallproduct features,applicablediscountsandaccountcredits,will continueforafurtherbenefitperiod,unlessweadviseyouotherwiseoryourcontractisterminated.Youmustprovideuswith20daysnoticeatanytimeaftertheCooling-offPeriodifyouwanttoendtheContract.”(Momentum)

Powerdirectalsoofferscustomers‘ongoingcontractwithbenefitperiod’buttheydooffer an additional pay on time discount and do not charge exit fees for earlytermination.StillPowerdirectstatesthatthereisaminimumtermandofferarathervagueexplanationforwhatwilloccurwhencontract/benefitperiodisover:


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“At the end of the 24 month minimum term, your agreement may beextended for a further benefit period if we have notified you of thatextension and you have not notified us that you do not wish to extend.”(Powerdirect–ouremphasis)

TheclearestcontracttermswecameacrossduringthisprocesswerethoseofferedbyCommanderandDodo:

“Notermcontractsdonotexpireuntilyounotifyus inaccordancewithourEnergyMarketTermsandConditions.”(CommanderandDodo)

While this explanation still requires the customer to read the retailers’ Terms andConditions,itislessconfusingastheydonotapplyalimitationontheirownoffer.Asmostretailoffers(apartfromsomefixedpricecontracts)willstatethattheretailercanmakechangestotheoffersatanytimeaslongasthecustomerisnotified,theconceptofa‘benefitperiod’isfairlyredundant.AsstatedinCommanderandDodo’sPPISs:

“Wemayvaryyourratesandchargesbyprovidingyounoticeofthatchange.Noticewillbeprovidedassoonaspracticableandinanyeventnolaterthanyournextbill,orasoutlinedinourtermsandconditions.”(CommanderandDodo)

It is important that customers are aware ofhow frequently they need to reassess theircurrent contracts and in order to effectivelycommunicate this message effectively tocustomers, a clear mutual understanding ofwhat the termsmean and what happens tocustomers after a ‘benefit period’ and/or‘contractterm’expiresisrequired.RecommendationsFirstlywerecommendthattheAER,aswellastheESC inVictoria,definetheterm‘benefitperiod’. In January2013, the ‘big three’ startedusing this term inVictoriaandithassincebecomeawidespreadcontracttermusedbymanyretailersacrosstheNEM.Inthebeginningitwasunderstoodtoonlyrefertotheadditionalbenefits(suchasdiscounts)offeredaspartofthecontractbutasdiscussedabove,thetermisnowusedwhentherearenoadditionaldiscountsoffered(e.g.Momentum), it isusedtorefertotheentrecontract,baseratesaswellasdiscounts (e.g.AlintaandSimply)andinmorerecentdevelopments,thebenefittermalsoincludesahigherFITrate.58 The AER has undertaken significantwork to ensure that the PPISs conveyclearandconcise informationabout theoffers,but the fields settingout ‘contract

58OriginEnergyisnowofferingaproductwithafixedbenefittermof12monthswherethehigherFITratewillbereducedwhenthebenefitperiodisover.

“Itisimportantthatcustomersareawareofhowfrequentlytheyneedtoreassesstheircurrentcontracts

andinordertoeffectivelycommunicatethismessage

effectivelytocustomers,aclearmutualunderstandingofwhatthe

termsmean…isrequired”


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terms’ and ‘contract expiry details’ are becoming useless with retailers inventing,andapplying,newterminology.Secondly, it is crucial that consumers, as well as the sector more broadly,understandswhathappentocustomerswhen:A)Abenefitperiodisover;andB)Acontracttermisfinished.Fromtheabovediscussionofenergy retailers’PPISs, retailersappear tohaveverydifferent approaches towhatmay happen aswell as how clearly the customer isnotified.WestronglyrecommendthattheAER,andtheESCinVictoria,investigatesthevariousretailers’processesandprocedures,assesswhethertheseprocessesandproceduresarewithintherules,and,iftherulesaredeemedadequate,publishclearguidelines onwhatmust happenwhen customers’ benefit period and/or contracttermsfinish. 7.3AbetterinformedcommunityVictorianretailersarenowrequiredtogazettetheirstandingoffersonthesamedayas well as providing an explanation for why prices have increased, decreased orremainedunchanged.ThishasbeenanissuethatwehaveadvocatedforinVictoria,aswellasotherstates,andwewelcomedtheVictorianGovernment’sinitiative.On 1 December 2016, retailers operating in Victoria gazetted new standing offerpricestotakeeffectinJanuary2017.59Thesestandingofferpricesthereforehadtoreflectfuturenetworkprices(totakeeffecton1January2017)aswellaschangestowholesalepricesandtheanticipatedimpactoftheclosureoftheHazelwoodpowerStationinMarch2017.The price changes varied significantly betweenretailers (fromzero to38%)andonlya fewactuallyprovided a reason for these increases.Dodo (whichdidnot increase electricity prices) probably had themost detailed statement in regards to reasons forincreasestogasprices:“duetoincreasesinthecostof purchasing gas and supplying gas”.60 AGL statedincreasingwholesalecostsasareason,GloBirdannouncedsignificantpriceincreasesandexplained itwasdue towholesale costsandother cost increases.Momentumalsogavewholesalecostsasareasonfortheirincreasestogetherwithtransmissionand distribution costs. While we certainly hope more retailers will producestatements in the future, and that the content of these statements will bemoreinformative,therequirementonretailerstogazetteonthesamedayisagoodstartto ensure that retailers set their base rates (standing offers) according to costsrather than other retailers’ prices. We will continue to monitor the retailers’statements as well as the impact this initiative has on the retail market. We do,59VictoriangovernmentGazette,S371,1December,201660Ibid.,163

“Thepricechangesvariedsignificantlybetweenretailers(fromzeroto38%)andonlyafewactuallyprovidedareason

fortheseincreases.”


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however, recommend that retailers’ increase their efforts to explain to customerswhythepricesarechanging.Aslongasretailershavetheopportunitytobundleallcostcomponents intoasingleprice (whichwerecommendchanging insection7.1above), we believe retailers also have a responsibility to explain why prices arealtering.RecommendationThat all retailers operating in the NEM, with the ability to bundle all costcomponents intoasingleprice,shouldberequiredtoexplainwhytheirbaserates(standingoffers)havechanged.

Draft NEM report - Vinnies · PDF fileas a result of reliance on the information presented....

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