Market Review: Completed

Overview

MCE requested AEMC to review the effectiveness of retail competition in electricity and gas retail markets in each jurisdiction (except WA). If the AEMC finds effective competition it must provide advice on ways to phase out retail price regulation. If competition is found to be not effective its advice must identify ways to promote the growth of effective competition. This review examines retail competition in electricity and gas retail markets in South Australia.
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<p>
MCE requested AEMC to review the effectiveness of retail competition in electricity and gas retail markets in each jurisdiction (except WA).&nbsp; If the AEMC finds effective competition it must provide advice on ways to phase out retail price regulation.&nbsp; If competition is found to be not effective its advice must identify ways to promote the growth of effective competition.</p>
<p>
This review examines retail competition in electricity and gas retail markets in South Australia.</p>
<h2>
Background</h2>
<p>
On 13 December 2007, the MCE formally requested the AEMC to undertake a review of the effectiveness of competition in the electricity and natural gas retail markets of South Australia (the South Australian Review).</p>
<p>
The AEMC&#39;s timetable for the South Australian Review provided that it would publish:</p>
<ul>
<li>
an Issues Paper detailing the scope of the South Australian Review in March 2008;</li>
<li>
a draft report on its assessment of the effectiveness of competition in June 2008 (the First Draft Report);&nbsp;</li>
<li>
a final report on its assessment of the effectiveness of competition in September 2008 (the First Final Report);</li>
<li>
a draft advice on the future of retail price regulation in October 2008 (the Second Draft Report); and</li>
<li>
a final advice on the future of retail price regulation in December 2008 (the Second Final Report).</li>
</ul>
<p>
A formal notice of commencement of the review was published on the AEMC website on 14 March 2008 and in The Australian and The Advertiser newspapers on 15 March 2008.&nbsp;</p>
<p>
On 14 March 2008, the AEMC published an Issues Paper inviting submissions from interested parties on issues relevant to the South Australian Review, including on the effectiveness of competition. The Issues Paper referred to the review of the effectiveness of energy retail market competition conducted by the Essential Services Commission of South Australia (ESCOSA) in 2007.</p>
<p>
On 14 March 2008, the AEMC also released two reports it commissioned from NERA Economic Consulting. One of the reports outlines the structure of the upstream gas market, its competitive environment and potential implications for competition at the retail level, and the other outlines these issues in relation to the wholesale electricity market. These reports were originally commissioned as part of the Victorian Review and were updated to reflect recent developments in the Australian energy industry.</p>
<p>
On 4 July 2008, the AEMC published the First Draft Report. The First Draft Report contained the AEMC&rsquo;s preliminary finding that competition in both electricity and natural gas retailing in South Australia is effective.</p>
<p>
As part of its information gathering exercises for preparing the First Draft Report, the AEMC sought a detailed examination of consumer and retailer experiences of competition in South Australia. McGregor Tan Research was commissioned to conduct and report on the results of a representative telephone survey of, and focus groups with South Australian residential and small business electricity and gas customers (Consumer Survey Report). The Commission also engaged LECG to conduct and report on the results of a survey of electricity and gas retailers to obtain their perspectives on energy retailing in South Australia (Retailer Survey Report).</p>
<p>
On 19 September 2008, the AEMC published the First Final Report. The First Final Report confirmed the AEMC&rsquo;s preliminary finding that competition in both electricity and gas retailing in South Australia is effective.</p>
<p>
The publication of this report completed the first stage of the South Australian Review. Future of retail price regulation In the second stage of the South Australian Review, the AEMC considered ways to phase out the current retail price regulation arrangements. The AEMC provided advice to the South Australian Government and the MCE as to how this could be achieved.</p>
<p>
On 14 October 2008, the AEMC published the Second Draft Report. Given its finding that competition is effective, the AEMC&rsquo;s draft advice recommended that the existing framework for regulating retail energy prices be replaced by a price monitoring framework, supported by the ability to re-introduce retail price regulation if competition deteriorates.</p>
<p>
A public forum on the Second Draft Report was held on Friday, 7 November 2008 in Adelaide. The AEMC delivered a PowerPoint presentation at the forum and prepared a transcript of the proceedings. The AEMC also received written submissions in response to the Second Draft Report.</p>
<p>
On 18 December 2008, the AEMC published the Second Final Report. The Second Final Report sets out the AEMC&rsquo;s final advice to the South Australian Government and the MCE on ways to phase out retail price regulation. The Second Final Report recommended:</p>
<ul>
<li>
that the regulation of standing contract prices should cease by no later than the expiry of the current price determinations for electricity and gas;</li>
<li>
introducing a comprehensive price monitoring and reporting framework for a period of at least three years following the removal of retail price regulation. This framework would be supported by the energy-specific monitoring and reporting functions currently performed by the Essential Services Commission of South Australia;</li>
<li>
introducing a conditional statutory reserve power to re-introduce retail price regulation, if competition deteriorates;</li>
<li>
retaining the obligation on retailers to agree to supply and sell energy to small customers; and&nbsp;</li>
<li>
the continuation of South Australia&rsquo;s non-price consumer protection framework.</li>
</ul>
<p>
The Commission considered that its recommended regulatory framework, together with the continuation of the existing consumer protection framework, provided an appropriate balance between protecting the interests of consumers and ensuring that the viability of energy retailing is maintained into the future in changing market conditions. Notice of the publication of the Second Final Report was published in The Australian and The Adelaide Advertiser newspapers on 18 December 2008.</p>
<p>
The South Australian Minister for Energy, the Hon Patrick Conlon, MP has <a class="cManager" href="~/Media/docs/Minister for Energy's Response-f1e594e0-a706-42f2-8259-43ef8a49a807-0.pdf" id="mid-f1e594e0-a706-42f2-8259-43ef8a49a807" target="_blank">responded to the Second Final Report.</a></p>

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