The retail market
Energy retail markets provide the interface between retailers and their customers. They allow energy retailers to sell electricity, gas and energy services to residential and business customers.
Retail markets provide:
- the framework for retailers to offer energy services to energy customers
- retail competition - allowing consumers to choose between competing retailers
- balancing and reconciliation services - for instance, managing the daily allocation of gas usage to retailers to enable the settlement of gas supply contracts
Competitive retail markets with appropriate consumer protections provide a basis for innovation, product choice and competitive pricing.
Consumers have the ability to choose their retailer for:
- electricity in all six National Electricity Market (NEM) jurisdictions
- gas in all Australian states and territories.
Consumers have greater opportunities for participation in retail markets as technology advances, competition increases and retailers differentiate their offerings. Advanced metering technology will provide richer consumption information and more service possibilities. Distributed generation allows people to generate their own electricity and sell energy they do not use themselves back into the market.
In 2013 the AEMC started work on a series of rule changes recommended by our Power of Choice review. The review recommended a package of integrated demand side participation reforms. The package provides households, businesses and industry with more opportunities to make informed choices about the way they use electricity and manage expenditure.
Operation and regulation of retail markets
Elements of energy retail markets - such as those relating to metering, customer transfers (when a customer switches retailer) and balancing and reconciliation - are contained within the National Electricity Rules and the National Gas Rules.
The AEMC makes the rules that facilitate the provision of electricity and gas services to retail customers, including rules relating to:
- customer connections
- retail competition - allowing customers to choose between competing retailers and to switch their retailer
- energy-specific consumer protections
- basic terms and conditions contained in standard and market retail contracts
Energy-specific consumer protections and more detailed provisions regulating the rights and obligations of retailers and consumers in retailer energy markets are contained in the National Energy Retail Law (NERL) and National Energy Retail Rules (NERR). They:
- govern the sale and supply of electricity and natural gas to retail customers and applies to both the National Electricity Market and to natural gas markets.
- cover the relationship between retailers and their customers, including obligations to make offers, minimum contract terms and consent requirements for entry into contracts
- cover the relationship between distributors and customers, including standard contract terms
- enable retailer authorisations (licences) to sell electricity and/or natural gas to customers
- enable retailer of last resort arrangements
When making or amending the NERR, we must have regard to the National Energy Retail Objective (NERO) and to whether the proposed changes to the NERR are compatible with the application and development of consumer protections for small customers.
- manages the retail markets for
- electricity - in the NEM jurisdictions for electricity
- gas - in Queensland, New South Wales, the Australian Capital Territory, Victoria and South Australia.
- provides the systems
- that enable customers to switch electricity and gas retailers.
- including delivery point management and balancing and reconciliation (managing the daily allocation of gas usage to retailers to enable the settlement of gas supply contracts).
The National Energy Customer Framework (NECF) acts to protect small customers in their electricity and gas supply arrangements.
The energy-specific consumer protections under the NECF are intended to complement and operate alongside consumer protections in the general law. These include protections under the Australian Consumer Law and also state and territory consumer protection laws.
The objective of this regulatory framework is to promote the NERO.
The AEMC conducts reviews into the effectiveness of competition in energy retail markets . In past reviews we have found that in most jurisdictions consumers have benefitted from increasing choice in their retailer and the type of products available. We have also found that in most jurisdictions the number of consumers on regulated tariffs is steadily decreasing.
Following our competition reviews in Victoria, South Australia, the Australian Capital Territory and New South Wales, we recommended that retail price regulation be removed in these jurisdictions.
Annual Residential Electricity Price Trends review
The purpose of the annual Residential Electricity Price Trends review is to provide an understanding of:
- the cost components of the electricity supply chain that contribute to the overall price paid by residential consumers; and
- the expected trends in each of these components:
- competitive market sector;
- regulated network sector; and
- environmental policies
The AEMC uses a mix of observed data and projections. Methodology mainly involves taking averages of actual offers/prices in the base year for each jurisdiction. Separately we develop estimates of the underlying supply chain cost components.
The retail component is not directly observable and has been derived as the residual when all of the non-retail cost components are subtracted from the representative market offer price. We then project the retail component forward at inflation for the reporting period.
- rights for energy consumers
- obligations for energy retailers
In both of these functions, we are required by law to have regard to the National Energy Retail Objective which promotes the efficient investment in, and efficient operation and use of, energy services for the long term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply of energy.