Market Review: Completed

Overview

On 3 March 2011, the AEMC published its Stage 2 Final Report outlining its recommendations to promote competitionin the ACT electricity market. The lack of customer awareness and the unique characteristics of the ACT market were found to be significant factors limiting competition. This is best addressed through a package of reforms, which empower and support customers to make efficient decisions and make it easier for second tier retailers to enter into, and expand within, the ACT market.

The AEMC considers that the implementation of its package of policy measures will effectively increase the competitive pressure in the ACT. Given this competitive pressure, the AEMC considers that the removal of transitional retail price caps will further ensure that prices reflect the efficient cost of supply.

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<p>On 3 March 2011, the AEMC published its Stage 2 Final Report outlining its recommendations to promote competitionin the ACT electricity market. The lack of customer awareness and the unique characteristics of the ACT market&nbsp;were found to be significant factors limiting competition. This is best addressed through a package of reforms, which empower and support customers to make efficient decisions and make it easier for second tier retailers to enter into, and expand within, the ACT market.</p>
<p>The AEMC considers that the implementation of its package of policy measures will effectively increase the competitive pressure in the ACT. Given this competitive pressure, the AEMC considers that the removal of transitional retail price caps will further ensure that prices reflect the efficient cost of supply.</p>
<p>The AEMC published its Stage 1 finding that competition in the ACT electricity retail market is not effective on 24&nbsp;November 2010. At that time, the AEMC also provided its draft advice to the MCE and ACT Government on measures to improve competition in the relevant market. This analysis and draft advice was provided in the Stage 2 Draft Report, which was published for consultation.</p>
<p>During Stage 1, the AEMC's finding was that competition in the ACT electricity retail market for small customers was not effective. There were a number of inter-linking factors causing this:</p>
<ul>
<li>the weak presence of second tier retailers in the market reduces the overall level of awareness of full retail contestability, which was likely to make customers &lsquo;sticky';</li>
<li>the lack of awareness was considered to be creating perceived product differentiation as ActewAGL provides both retail and distribution services;</li>
<li>small size of the ACT market means there are fewer customers over which to spread the fixed costs of entry into the ACT market for second tier retailers;</li>
<li>the corporate structure of ActewAGL Retail and its economies of scope and scale were likely to provide it with cost advantages over new entrants; and</li>
<li>the regulated price is based on the efficient costs of ActewAGL Retail rather than a new entrant.</li>
</ul>
<p>In response to the finding from Stage 1, the AEMC has recommended a package of policy measures in its Stage 2 Final Report to promote competition in the ACT electricity retail market. These measures include:</p>
<ul>
<li>instigating a consumer education program for small electricity users that provides information on the electricity market to facilitate efficient decisions;</li>
<li>setting up a marketing campaign to inform customers of contractual details and obligations and the set up of a website containing baseline information relating to the ACT market;</li>
<li>continuing to monitor the effectiveness of customer protection and switching arrangements;</li>
<li>implementing nationally consistent frameworks, such as the NECF, as soon as practicable to improve harmonisation of the regulatory requirements between the ACT and other jurisdictions;</li>
<li>removal of the transitional retail price cap on residential customers from 1July 2012; and</li>
<li>establishment of a price monitoring regime on all products and prices for an initial period of three years.</li>
</ul>
<p>On 16 December 2009 the MCE formally requested the AEMC to assess the effectiveness of retail competition in the electricity retail market in the Australian Capital Territory (ACT Retail Review). The review will be conducted in accordance with the MCE's Request for Advice, and Revised Statement of Approach (21 December 2009). 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. It is anticipated that the Stage 2 Final Report will be published by 28 February 2011.</p>
<p>Consistent with the Australian Energy Market Agreement (AEMA), the AEMC is required to assess and publicly report on the effectiveness of retail competition in electricity and gas retail markets in each jurisdiction (except Western Australia). The ACT retail competition review will only consider electricity as natural gas is not subject to retail price regulation.</p>
<p>The AEMC completed reviews of the Victorian and South Australian retail markets in 2007 and 2008 respectively. For each review the AEMC found competition to be effective for small electricity and gas customers and the AEMC subsequently recommended that retail price regulation be discontinued and replaced with a price monitoring regime.</p>
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