Retail gas market

overview

Cameron O’Reilly

Chief Executive Officer 22 October 2013

About the Energy Retailers Association

• Peak body representing electricity and gas retailers in

the national energy market

• Members are mostly privately owned and vary in size

• Members are large, medium and niche retailers

• National coverage including WA

• Members have more than 10 million customers – more

than 3 million gas customers

• Most customers are dual fuel

Our members

2007

Australian energy market reform

2002

1995

1994

1990-1

Industry Commission inquiry

National Competition Policy

Review Committee - Hilmer

Competition Policy

Agreements

Energy Markets Review -

Parer

Energy Reform

Implementation Group -

Scales

Privatisation commenced 1995

…led to energy

market reforms

• Price deregulation (Victoria and South Australia)

• Australian Energy Market Commission

• Australian Energy Regulator

• Australian Energy Market Operator

• National Electricity Market

• National Energy Customer

Framework (NECF)

• National Competition Policy

• Full retail contestability

The competitive framework in Australia

Generation market

Competitive market with few existing participants.

New entrants encouraged by governments' renewable energy and other policies.

Independently governed access arrangements to enable energy distributors to purchase supply on fair and equitable terms.

Distribution market

Natural monopoly market with several participants.

New entrants restricted by government policy.

Network tariffs regulated by government.

Retail market

Contestable market with multiple participants.

New/existing entrants encouraged by price signals, government policy and market conditions.

Customer service focus.

Consumer protection laws apply.

Retailers deliver CSOs like government funded rebates.

Energy supply in Australia

Consumption by sector Generation mix

Source: Ernst and Young, Rationale and drivers for DSP in the electricity market, 2011,

p.14.

Productivity Commission Report 2012 p.83

The role of gas in energy generation

• East coast still dominated by coal – WA is a

different story

• Wholesale gas prices are forecast to rise

• Gas was expected to make up a larger part of the

energy mix to produce electricity (Energy White

Paper)

• Rising wholesale energy prices will increase

issues such as credit risk

Historic switching trends in NSW

Monthly switching by state

Source: AEMO data

Gas vs electricity switching

Retail market share

NEM retail energy reforms to date

Consumers benefit of energy price deregulation include:

– a choice in providers

– product innovation to suit their needs

– improved customer service and responsiveness

– option to shop around for better offers

– save on the standing price

Jurisdiction Pathways to price deregulation

Victoria Price monitoring 1 January 2009

South Australia Price monitoring 1 February 2013

NSW Subject to AEMC review

Three year price path set by IPART

Queensland One year price path

Recovery from tariff freeze

Price monitoring in SEQ from 2015

Victorian gas reforms

1996

• One supplier

• One buyer

• One jurisdiction

• Non-meshed network, no interconnectors

• No market, long term contracts only

Today

• Six suppliers

• Multiple retailers as major buyers

• Multiple wholesale traders and buyers

• National regulatory structure

• Multiple inter-region interconnectors and active

underground gas storages

• State wholesale spot market plus long-term

physicals supply contracts

• National short-term trading market (multiple hubs)

under development

Source: VENCorp

The Victorian gas market

• Declared wholesale gas market

• Short term trading market

• Deregulated gas and energy prices

• Greater reliance on gas by households

than other east coast states

• Dual fuel contracts and products from

retailers

The role of gas in energy market reform

• Recent energy reforms have focused on electricity

– Peak demand

– Network charges

– Smart meter developments focus on electricity

• Energy and electricity are often used interchangeably

• Gas not views extensively at small customer level

outside Victoria

• More liquid gas wholesale market needed

• Any gas price rises could diminish benefits of

flattening electricity prices- especially for large

customers

What will future gas retail market look like?

• Introduction of new gas hubs on the east coast will facilitate more wholesale competition

• Uncertainty in gas supply in NSW likely to increase retail prices

• More products and dual fuel offers from retailers would be apparent in a deregulated energy environment on the east coast

• Retailers must be able to cover risk/hedging

Further information:

www.eraa.com.au