Independent Regulator Highlights Default Tariff Risks

The latest independent regulatory assessment of electricity retail pricing has highlighted the risks involved in re-regulation via a default tariff, the Australian Energy Council said today.

In its latest draft report into the New South Wales retail electricity market the Independent Pricing and Regulatory Tribunal (IPART) has warned that while there could be short-term benefits from a default price, it could lead to less competition and higher prices in the longer term.

The Australian Energy Council’s Chief Executive, Sarah McNamara, said “this report highlights that any moves to introduce a binding default price, or a benchmark price, require careful consideration and consultation to avoid unintended consequences.

“IPART’s work illustrates that it is not straightforward for any regulator to set a default price accurately.

“Set too low it will push energy companies out of the market.  Set too high it will mean consumers are paying more than they should.

“Retailers remain willing to work with government to achieve better outcomes for electricity customers,” Ms McNamara said.

The IPART report also showed that the bulk of price increases in NSW in the past 10 years had occurred when prices were regulated, while average electricity bills have fallen by 1 per cent in real terms for most NSW customers since deregulation.

“We agree with IPART that the most effective way of limiting further price increases in the future is to encourage more investment in the wholesale market to replace retiring power plants.

“Recent high power prices have been driven by increased wholesale prices as a result of more than 5000MW of power stations closing since 2012 with no like-for-like replacement.

“Replacement investment requires stable and predictable policy.”

About the Australian Energy Council

The Council represents 21 major electricity and downstream natural gas businesses operating in competitive wholesale and retail energy markets. These businesses collectively generate the overwhelming majority of electricity in Australia and sell gas and electricity to over 10 million homes and businesses.