ACCC warning to power retailers as default offer kicks in

Angela Macdonald-Smith
Jul 1, 2019
AFR

Chief competition regulator Rod Sims has vowed to seek penalties for electricity retailers that don’t abide by the new rules on offers and discounts, and warned them against watering down their cheapest deals to recover the cost of the new default market offer (DMO) that came into effect on Monday.

Electricity retailers will have to use the same benchmark to set discounts. Virginia Star

Mr Sims, chairman of the Australian Competition and Consumer Commission, said the DMO was set high enough to allow competition in the regions where it will apply – NSW, south-east Queensland and South Australia – still to thrive. That should leave plenty of scope for discounting.

“You’ll still easily get a better deal out there,” he said.

But the same can’t be said of the Victorian Default Offer, which will apply in that state and which is set at a lower price.

“We are concerned about what will happen in Victoria,” Mr Sims told The Australian Financial Review. “The VDO is at a level so low that everyone might flock to that and say, ‘why bother’ [to seek a market offer]”.

The new rules eliminate expensive standing-offer electricity prices, moving those customers onto the default market offer, and impose benchmarks for discounting. Mr Sims said the ability for customers to easily compare discounts between competing retailers may even result in more – not less – competition.

The measures triggered a $1.3 billion write-down recently flagged for the country’s third-biggest electricity and gas retailer, EnergyAustralia, and is a major part of the “headwinds” on profits cited by both its larger rivals, Origin Energy and AGL Energy.

Some executives had suggested some of the cheapest competitive offers for power may disappear from the market as a result of the partial re-regulation of prices as retailers sought to offset the effects, as has occurred in some markets overseas.

JPMorgan analyst Mark Busuttil said the bigger impact would likely be on  smaller retailers, “which could ultimately diminish competition”. Any loss in margins by Origin, AGL or EnergyAustralia could be made up for by gains in market share over time due to their lower cost bases, he said.

Still, Mr Sims made it clear the ACCC expects to see no lessening of competition among retailers at prices below the default offer.

“Retailers should not seek to recoup lost profits from the new cap on standing offer prices from other customers currently on cheaper market offers,” he said.

Today we’re straightening out the ‘confusopoly’ we’ve helped to create.

— Mark Collette, EnergyAustralia

“We see no reason for these current cheaper market offers to be affected if there is truly competition in the retail electricity market.”

The replacement of expensive standing offers by the DMO will cut electricity prices for almost 800,000 customers in south-east Queensland, NSW and South Australia,  federal Energy Minister Angus Taylor said. Households in NSW could save as much as $663, up to $662 in south-east Queensland and up to $525 in SA, with more than treble the savings for small-business customers.

Mr Taylor said the DMO would serve as a “price cap” to protect consumers who found pricing and discounting confusing or who had not had time to negotiate a better deal.

But the reality is that 77 per cent of Australians won’t see any direct benefit from the DMO, according to Fred van der Tang, chief executive of energy comparison service Make it Cheaper. He is concerned that small businesses will get the impression they no longer need to actively shop around for a better deal, when the opposite is true.

EnergyAustralia’s head of customers, Mark Collette, said about 173,000 customers would  automatically be shifted to the DMO or VDO from standing offers, saving customers between $130 and $487 a year. Another 450,000 customers would be contacted with offers for “simpler, fairer energy plans to reduce their power bills”.

“Today we’re straightening out the ‘confusopoly’ we’ve helped to create,” Mr Collette said.

The federal government’s Retailer Reliability Obligation also came into effect on Monday, making retailers responsible for guaranteeing firm supply to meet demand, despite the increase of intermittent wind and solar power in the mix.