final report - review of the performance and ... · the market remains highly concentrated among...

Independent Pricing and Regulatory Tribunal

Review of the performance and competitiveness of the retail electricity market in NSW

Energy — Final Report November 2015

From 1 July 2014 to 30 June 2015

Review of the performance and competitiveness of the retail electricity market in NSW From 1 July 2014 to 30 June 2015

Energy — Final Report November 2015

ii IPART Review of the performance and competitiveness of the retail electricity market in NSW

© Independent Pricing and Regulatory Tribunal of New South Wales 2015

This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism and review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgement of the source is included.

ISBN 978-1-925340-31-0

The Tribunal members for this review are:

Dr Peter J Boxall AO, Chairman

Ms Catherine Jones

Mr Ed Willett

Inquiries regarding this document should be directed to a staff member:

John Smith (02) 9113 7742

Jenny Suh (02) 9113 7775

Yan Cheung (02) 9290 8467

Independent Pricing and Regulatory Tribunal of New South Wales PO Box K35, Haymarket Post Shop NSW 1240 Level 15, 2-24 Rawson Place, Sydney NSW 2000

T (02) 9290 8400 F (02) 9290 2061

www.ipart.nsw.gov.au

Contents

iii IPART Review of the performance and competitiveness of the retail electricity market in NSW

Contents

1 Executive summary 1 1.1 Our finding is that competition is effective 1 1.2 Our findings 4 1.3 Our recommendation 4 1.4 Updates since our Draft Report 5 1.5 What does the rest of this report cover? 5

2 Context for this review 6 2.1 Retail electricity price deregulation 6 2.2 Roles of IPART, AEMC and Electricity Price Commissioner 7 2.3 Developments that affect the retail electricity market 8 2.4 Report on regulation of retail energy markets 10 2.5 Submissions on our Draft Report 11

3 Our approach and process for this review 16 3.1 Our approach to the review 16 3.2 Information we considered 17 3.3 Our process for this review 18

4 Barriers to entry, expansion and exit 19 4.1 Overview of our findings 19 4.2 Findings on barriers to entry, expansion and exit 20 4.3 Number of retailers contesting the market 24 4.4 Market concentration 26

5 Customer participation and outcomes 29 5.1 Overview of our findings 29 5.2 Customer participation 31 5.3 Customer outcomes 36

6 Price movements 39 6.1 Overview of our findings 39 6.2 Overview of our approach for assessing price movements 40 6.3 Measuring price changes 40 6.4 Changes in underlying costs 50 6.5 Our assessment of price changes and cost changes 53

Contents

iv IPART Review of the performance and competitiveness of the retail electricity market in NSW

7 Rivalry and price and product diversity 54 7.1 Overview of our findings 54 7.2 Retailers’ perceptions of rivalry 55 7.3 Alternative energy sellers 56 7.4 Marketing practices 56 7.5 Price and product diversity 57 7.6 Our assessment of rivalry and price and product diversity 62

Appendices 63 A List of submissions 65 B More information on price changes 66

1 Executive summary

Review of the performance and competitiveness of the retail electricity market in NSW IPART 1

1 Executive summary

This report outlines the Independent Pricing and Regulatory Tribunal’s (IPART’s) final findings on the performance and competitiveness of the retail electricity market in NSW for residential and small business customers for the period 1 July 2014 to 30 June 2015. This is the first annual review we have undertaken in our role as Market Monitor since retail price regulation was removed in NSW on 1 July 2014.

1.1 Our finding is that competition is effective

Our finding is that competition for residential and small business customers in the NSW retail electricity market is working effectively, and that a detailed review of retail prices and profit margins is not necessary. However, there are still opportunities to make the market work better for customers. These findings are consistent with our Draft Report released in July this year.1

1.1.1 There are no substantial barriers to market entry

Retailers generally consider the barriers to entry and expansion in the retail market in NSW as ‘neither difficult nor easy’.2 In the year to 30 June 2015, four new retailers entered the NSW market and the removal of retail price regulation was cited as a major reason for this. Incumbent retailers face the continuing threat of new competition from retailers entering the market and we consider that this is the most effective form of protection from the exercise of market power. The market remains highly concentrated among the ‘big three’ retailers (AGL, Origin Energy and EnergyAustralia), however smaller retailers are gradually increasing their market share at the expense of larger retailers.

1 IPART, Review of the performance and competitiveness of the retail electricity market in NSW – Draft

Report, July 2015. 2 Australian Energy Market Commission, 2015 Retail Competition Review, Final Report, AEMC,

30 June 2015, Sydney, Appendix C, Table C.3, p 245.

1 Executive summary

2 IPART Review of the performance and competitiveness of the retail electricity market in NSW

Some retailers are concerned that state-based energy efficiency schemes are a barrier to entering the market. Many retailers operate in several Australian jurisdictions, and these retailers indicated that managing the different state schemes requires considerable resources. In our view, these differences present an unnecessary regulatory barrier. As energy efficiency is an eligible activity under the Australian Government’s Emissions Reduction Fund, the continued operation of state-based schemes may duplicate rather than complement the objectives of this fund. If this is the case, duplicative components of state-based schemes could be wound up and any residual functions that are complementary could be transitioned to a national scheme. Clear transition arrangements would need to be put in place to maintain certainty for businesses investing in state-based energy efficiency schemes.

1.1.2 Customer participation and outcomes are generally good

Among residential and small business customers (small customers), there continues to be a high level of awareness of their ability to choose their retailer and electricity plan. Over the past year, around one-third of these customers have looked at their options, and around one-quarter decided to switch retailer or electricity plan.3 Most customers who participated in the market reported that they were satisfied with the experience.4

Some small customers have not participated in the market. The most commonly cited reasons for this were that they were satisfied with their current arrangements, did not have time, could not be bothered, or had no particular reason. By not participating in the market, these customers are probably paying more than they need to. However, we do not consider that this is a sign of a problem with the market. Instead, it most likely means that for many of these customers, the search costs involved in selecting a better offer outweighs the saving that they would make from switching. In these instances, it is a rational decision for them not to participate in the market.

There are also customers who have difficulty engaging in the market because of language or other barriers. A submission from the Ethnic Communities Council of NSW (ECC NSW) notes that culturally and linguistically diverse customers are yet to fully engage in the retail market. In our view there is an opportunity for the market (ie, retailers) to play a role in assisting these customers, along with targeted government assistance programs such as those already provided by the ECC NSW.

3 Newgate Research, Consumer Research for 2015 Nationwide Review of Competition in Retail Energy

Markets, Section 3.2.2, p 148. 4 Newgate Research, Consumer Research for 2015 Nationwide Review of Competition in Retail Energy

Markets, Section 3.2.3, p 173.

1 Executive summary


1.1.3 Retail electricity prices have declined in all network areas

The retail electricity prices paid by most small customers declined in all network areas over the year to June 2015 compared to the previous year’s regulated and standing offer prices. This decline appears to be broadly consistent with changes in the main underlying costs of supplying electricity, including the removal of the carbon price and lower network prices.

Prices in regional areas were higher than in urban areas, mainly due to higher network costs. However, generally the discounts available to customers in regional areas were not materially different from those in urban areas.

1.1.4 There is evidence of rivalry and price and product diversity

We found evidence of retailers actively trying to attract and retain customers, and a range of prices and products in the market. The Energy Made Easy website indicates that considerable savings are available for customers who shop around for a better offer. Retailers are also attracting customers through non-price measures, such as offering more flexible payment options, increased call centre hours and online tools to help manage electricity usage. Competition is also evident in relation to fees, with large retailers removing early termination fees from their market offers. In addition, new products that target the growing number of small customers interested in solar photovoltaics (PV) are emerging, including zero upfront cost solar systems and battery storage products.

1.1.5 There are opportunities to make the market work better for customers

We consider there are also opportunities to make the NSW retail electricity market work better for customers. There has been an increase in complaints made to retailers and to the Energy & Water Ombudsman NSW (EWON). Many of these complaints relate to billing, customer service and credit issues. These are areas where retailers’ performance could improve.

In addition, there continues to be a relatively low level of awareness of independent price comparison websites like Energy Made Easy. Customers who use the Energy Made Easy website5 tend to be more confident in choosing the right electricity offer for them. The Energy Made Easy website has recently been updated and is now easier for customers to use. The NSW Government recently ran a promotion for this website in its “the power’s in your hands” campaign. There may be further opportunities for the NSW Government to promote this website, targeted at the customers who would benefit most from this service. The Australian Energy Market Commission’s (AEMC) ‘Increasing Consumer Engagement’ report provides information about the characteristics of customers who would benefit most from engaging in the market.

5 https://www.energymadeeasy.gov.au/

1 Executive summary


As summarised in section 1.2 below, we have also made two recommendations to improve the performance and competitiveness of the retail electricity market in NSW.

1.1.6 The outlook for competition is positive

Our view is that the outlook for competition in the NSW retail electricity market is positive. A recently deregulated market provides the impetus for dynamic efficiency through market-led product and service innovation. We expect the benefits of deregulation will be realised gradually. In the large customer market where retail electricity prices have not been regulated, we have already seen more innovative metering, cost-reflective pricing and demand management arrangements to reduce costs. In the small customer market, we expect innovation will be supported by technology, including solar panels, batteries and smart meters. This technology allows customers to better understand and have more control over their energy usage and costs. It is also leading to the emergence of new participants in the market, including businesses offering zero upfront cost solar systems. This will likely challenge traditional retailers to attract, retain and add value for their customers.

1.2 Our findings

We have made two main findings for our review. These are discussed in more detail throughout the following chapters of this report, but for convenience are also listed below.

IPART findings

1 That competition for residential and small business customers in the NSW retail electricity market is working effectively, and that a detailed review of retail prices and profit margins is not necessary.

2 That competition in the retail electricity market is providing a more effective form of protection for customers, relative to regulated early termination fee caps under the National Energy Retail Rules (NSW).

1.3 Our recommendation

We are also making one recommendation which we consider will improve the performance and competitiveness of the retail electricity market in NSW.

1 Executive summary


Recommendation

1 To reduce the barriers for small retailers entering the NSW retail electricity market, the NSW Government wind up duplicative components of state-based green energy and energy efficiency schemes and any residual functions that are complementary be transitioned to a national scheme such as the Emissions Reduction Fund. Clear transition arrangements need to be put in place to maintain certainty for businesses investing in state-based energy efficiency schemes.

1.4 Updates since our Draft Report

Since our Draft Report we have updated our analysis in Chapters 4 to 6 where new data was available for the June quarter of 2015. This includes data on price changes and market shares. We have also included additional analysis on early termination fees in market contracts in Chapter 7.

In Chapter 2 we outline the comments made by stakeholders in the six submissions received to our Draft Report. Submissions from retailers and the Energy Retailers Association of Australia supported our views on the competitiveness of the retail electricity market. However, as noted above the ECC NSW submits that culturally and linguistically diverse customers are yet to fully engage in the competitive market.

1.5 What does the rest of this report cover?

The rest of this report explains our review and final findings in more detail. It is structured as follows:

Chapter 2 provides some context for our review and outlines what we have been asked to do. It also discusses some developments in the retail electricity market that are relevant to our review and summarises submissions received to our Draft Report.

Chapter 3 describes our process and approach to the review.

Chapter 4 provides our final findings on the structure of the market and the barriers to entry, expansion and exit from the market.

Chapter 5 provides our final findings on customer participation and outcomes in the market.

Chapter 6 contains our analysis of price movements over the last 12 months.

Chapter 7 provides our final findings on rivalry between retailers and the extent of product and price diversification in the market.

The appendices provide supporting information.

2 Context for this review



In April 2014, the NSW Government decided to remove retail electricity price regulation, effective 1 July 2014. This decision was based on findings by both IPART and the AEMC that the NSW electricity market is competitive.

As part of its decision to deregulate, the NSW Government gave IPART a new role to monitor and report annually on competition in the retail electricity market. We have completed our first year in this role, and this is our first annual report on the performance and competitiveness of the retail electricity market for residential and small business customers.

This chapter provides more information on price deregulation in NSW and explains how our role relates to those of the AEMC and the Electricity Price Commissioner. It also summarises developments in the retail electricity market since deregulation and a recent report on regulation of retail energy markets that are relevant to this review.

2.1 Retail electricity price deregulation

As noted above, retail electricity price regulation in NSW has been removed since 1 July 2014. Prior to this date, small customers in NSW could choose from a regulated offer determined by IPART, or a standing offer or market offer with prices set by retailers in the competitive market.

IPART no longer determines any retail electricity prices and regulated offers are no longer available. From 1 July 2014 any customers who had remained on a regulated contract were automatically transferred to a 'transitional tariff' and will be moved to their retailer's default standing offer on 1 July 2016, unless they switch to a market contract beforehand.6

6 NSW Trade and Investment, FAQs about electricity price deregulation,

http://www.resourcesandenergy.nsw.gov.au/energy-consumers/energy-sources/electricity/ removal-of-electricity-price-regulation-faqs, accessed 29 June 2015.



2.2 Roles of IPART, AEMC and Electricity Price Commissioner

IPART is the Market Monitor for the NSW retail electricity market. In this role, we are required to report annually on the performance and competitiveness of the retail electricity market in NSW. The AEMC performs a similar function, as it reports on the state of competition for small customers in retail energy markets in all NEM jurisdictions, including NSW.

The NSW Electricity Price Commissioner, Professor Allan Fels, has a different role. Professor Fels will review the transaction documents for the long-term lease of NSW’s electricity networks to confirm that the lease will not put upward pressure on network prices.7

2.2.1 IPART’s role as Market Monitor

IPART’s role as Market Monitor is set out in the National Energy Retail Law (NSW) (the Act).8 The Act calls for the Market Monitor to report annually to the Minister on the performance and competitiveness of the retail electricity market in NSW, including:

the participation of small customers in the market and, if the Market Monitor thinks it appropriate, particular groups of small customers

prices of electricity for small customers in regional areas

any barriers to entry to or exit from, or expansion in the market

the extent to which retailers are competing to attract and retain small customers

whether price movements and price and product diversity in the market are consistent with a competitive market

if the Market Monitor is of the opinion that it is required, steps necessary to improve the competitiveness of the market

whether there is a need for a detailed review of retail prices and profit margins in the market (ie, ‘special review’), and

any other matters the Market Monitor thinks appropriate.

As indicated above, our review relates to small customers, which include residential and small business customers.9

7 NSW Liberal Party, Guaranteed Lower Prices for Electricity Customers, at

http://nsw.liberal.org.au/guaranteed-lower-prices-for-electricity-customers/, 8 March 2015, accessed 29 June 2015.

8 National Energy Retail Law (NSW), s 234A. IPART is prescribed by the NSW regulations as the Market Monitor for the purpose of Part 9A of the Act (National Energy Retail Law (Adoption) Regulation 2013, cl 8A).

9 Generally, small customers consume less than 100 megawatt hours per annum.



2.2.2 AEMC’s competition and price monitoring function

The AEMC also undertakes competition reviews on an annual basis for the Council of Australian Governments (COAG) Energy Council. It is required, under standing terms of reference, to assess the state of competition for small customers in retail energy markets in all NEM jurisdictions. In June 2015, the AEMC completed its second NEM-wide competition review.10

Prior to being tasked with annual reviews for all NEM jurisdictions, the AEMC completed a standalone review of retail energy market competition in NSW in 2013.11

2.2.3 Electricity Price Commissioner’s role

The role of the Electricity Price Commissioner was established in the context of the NSW Government’s decision to make some of NSW’s electricity networks (poles and wires) available for long-term lease.

In this role, Professor Fels will oversee the implementation and operation of the ‘Price Guarantee’. Under the Price Guarantee, bidders for the electricity poles and wires are required to guarantee that network charges will be lower in 2019 than they were in 2014. Professor Fels will review an annual statement of compliance with the Price Guarantee that will be submitted by the successful bidders. Any concerns will be referred to the Australian Energy Regulator (AER) or the Australian Competition and Consumer Commission (ACCC).12

2.3 Developments that affect the retail electricity market

Since retail electricity prices were deregulated in NSW there have been a couple of developments that we consider are relevant to our assessment of competition. These include:

the AEMC’s final rule change on Distribution Network Pricing Arrangements (more cost-reflective network prices), and

the AEMC’s draft rule on expanding competition in metering and related services.

10 See AEMC, 2015 Retail Competition Review, http://www.aemc.gov.au/Markets-Reviews-

Advice/2015-retail-competition-review, accessed 2 July 2015. 11 See AEMC, Review of Competition in the Retail Electricity and Natural Gas Markets in NSW,

http://www.aemc.gov.au/Markets-Reviews-Advice/Review-of-Competition-in-the-Retail-Electricity-an#, accessed 24 June 2015.

12 NSW Liberal Party, Guaranteed Lower Prices for Electricity Customers, at http://nsw.liberal.org.au/guaranteed-lower-prices-for-electricity-customers/, 8 March 2015, accessed 29 June 2015.



2.3.1 More cost-reflective network prices

The current network tariff structures do not send a clear signal to customers on the future costs of providing network services. They can also result in cross-subsidisation among customers.

In November 2014, the AEMC finalised a rule change that will see network prices reflect the cost of providing electricity to customers with different consumption patterns.13 The AEMC's determination requires that network prices be based on an estimate of the long run marginal cost (LRMC) of supply, and is an important step towards more cost-reflective prices. Cost-reflective network tariffs provide an incentive to customers to change their energy use from high-cost peak demand periods to lower cost periods. Where consumers respond to these price signals they can benefit from lower energy bills and reduce cross-subsidisation. Over the longer term, more efficient use of the network should result in cost savings that benefit all consumers.

The introduction of LRMC pricing for network services also provides an incentive for the adoption of more advanced meters, in particular for small customers who currently have basic accumulation meters (discussed below).

2.3.2 Metering and related services

Most small customers in NSW currently have accumulation meters which can only measure the total amount of electricity a customer uses over a period of time and must be read manually at the customer’s premises. This type of meter does not support flexible pricing, including time-of-use tariffs.

Advanced smart metering technology offers new ways for consumers to manage their electricity use and allows them to access a broader range of products and services offered by retailers. Advanced smart meters:

allow customers to get up-to-date information on their energy consumption and costs, and remote access to control household appliances

enable retailers to read them remotely, saving the costs of manual meter reading and avoiding the need to estimate energy use for billing purposes, and

allow electricity network businesses to more easily monitor the electricity network.

13 For information see AEMC, Distribution Network Pricing Arrangements Rule Change, at

http://www.aemc.gov.au/Rule-Changes/Distribution-Network-Pricing-Arrangements, accessed 2 July 2015.



In October 2014, the NSW Government announced measures to reduce barriers to the use of smart meters in NSW.14 The key measures are:

support for a market-led rollout of smart meters to ensure competition in metering services

adoption of a voluntary model to guarantee customer choice

support of a uniform, flexible and cost-reflective new and replacement meter policy by the network distribution businesses

support of an efficient and equitable approach to setting metering charges that aligns with national rules and regulatory settings, and

implementation of adequate consumer protections and privacy arrangements, in line with national best-practice standards.

Unlike Victoria where the rollout of smart meters was mandatory, customers in NSW can choose whether to have a smart meter installed.

The measures announced by the NSW Government are generally consistent with the AEMC’s draft rule change on the provision of metering services.15 The draft rule change addresses issues with the National Electricity Rules and National Energy Retail Rules that limit competition and may inhibit provision of advanced meters. The draft rule opens up the provision of metering services to more competition and allows for a market-led and consumer-driven approach to the provision of advanced meters. Under the draft rule, customers can retain their existing working meter, and where new meters are needed they can choose which, if any, services they want to access. If adopted, the rules are proposed to commence from 1 July 2017.

2.4 Report on regulation of retail energy markets

A report released in October 2015 by Professor Stephen Littlechild for the Energy Supply Association of Australia (ESAA) compared deregulated retail energy markets in the UK and Australia. Professor Littlechild notes that concerns in the UK over lack of customer engagement led to regulatory interventions designed to make the retail market simpler and fairer for customers. These included requirements to remove price differentials and limiting the number of tariffs that retailers can offer. However, these interventions had an adverse effect on competition; switching rates fell, innovation was stifled, rivalry between retailers fell and retailer profit margins increased.16

14 Minister for Resources and Energy, Media Release - NSW Gets Smart About Meters,

http://www.resourcesandenergy.nsw.gov.au/__data/assets/pdf_file/0017/533303/281014_NSW_gets-smart-about-meters.pdf, 28 October 2014, accessed 25 June 2015.

15 AEMC, Expanding competition in metering and related services Draft Rule, at http://www.aemc.gov.au/Rule-Changes/Expanding-competition-in-metering-and-related-serv, accessed 16 July 2015.

16 Littlechild, S, Regulation of Retail Energy Markets in the UK and Australia, October 2015, pp 3-4.



We agree with the cautions expressed by Professor Littlechild against Australian regulators taking similar interventions over concerns about customer engagement. The experience in the UK demonstrates that regulatory interventions stifled competition. Some customers do not engage in markets but this is not a sign that regulatory intervention is required. Some customers will consider that the search costs of finding a better deal – mainly the time involved – are higher than the savings they could make on their electricity bills. In our view, this is not a sign that the market is not competitive or is not working, but is instead an example of customers making rational decisions about their level of engagement given their circumstances.

2.5 Submissions on our Draft Report

We received six submissions to our Draft Report. Submissions from two retailers and the Energy Retailers Association of Australia support the evidence we found that competition in the retail electricity market is effective. However, the ECC NSW and two anonymous individuals raised some specific issues with the market. In this section we summarise the submissions received to our Draft Report, and respond to the issues raised.

2.5.1 Barriers to market entry, expansion and exit

AGL submitted that, although significant costs were incurred, its ability to build a significant market share in NSW despite not purchasing any of the three privatised retailers in 2010 shows that there are no substantial barriers to entry and expansion.17 AGL and Origin Energy submitted that an increasing number of active retailers including four new entrant retailers is also evidence of low barriers to entry and expansion.18 Origin Energy considered that the removal of retail price regulation has eliminated a significant regulatory barrier to entry, and observed that there is an increase in the market share of small retailers and in the number and variety of products and services offered in the retail market.19

AGL and Origin Energy agreed with our view that various state-based energy efficiency schemes could be transitioned to a national scheme and considered this would reduce unnecessary compliance costs.20 Origin Energy considered that different state-based energy efficiency schemes discourage new retailers from entering the market due to high compliance costs.21

17 AGL submission, September 2015, p 1. 18 AGL submission, September 2015, p 1; Origin Energy submission, September 2015, p 1. 19 Origin Energy submission, September 2015, p 1. 20 AGL submission, September 2015, p 2; Origin Energy submission, September 2015, p 2. 21 Origin Energy submission, September 2015, p 2.



We discuss barriers to entry in Chapter 4. While our view is that there are no substantial barriers for retailers to enter the NSW electricity market, the various state-based green energy and energy efficiency schemes create unnecessary regulatory costs. In addition, the ability for smaller retailers to expand in the market is yet to be fully tested.

2.5.2 Customer participation and outcomes

The AEMC’s customer survey results indicated that around nine in ten small retail customers are aware of their energy choice and are reasonably confident in selecting a product that suits their energy need and budget. Since retail price deregulation on 1 July 2014, more than 418,000 customers have switched to a better offer, leaving less than 21% of customers on the transitional tariff that replaced the former regulated price.22

AGL and Origin Energy agree with the AEMC’s survey findings that customers are highly aware of their ability to choose their retailer and electricity plan and are actively engaging with retailers. AGL stated that its customers (including those of Australia Power & Gas) are entirely those who engage in the market as it is not a Standard Retailer for electricity in NSW.23 Origin Energy commented that high customer awareness and engagement is driving incumbent retailers to compete on prices and customer service to retain customers, and as a result, customers are receiving better deals without necessarily switching retailers.24 Origin Energy pointed to its customer service innovations such as a Net Promoter System (NPS) to measure customer satisfaction, and online Customer Service Hubs to obtain customer feedback to continuously improve customer experience.

In terms of improving customer outcomes, AGL launched an Affordability Initiative targeted at giving support to customers vulnerable to financial hardship. The program provides financial counselling, energy efficient appliances and home audits, as well as payment incentives and more flexible billing options. AGL also collaborate with St Vincent De Paul Society on a policy proposal to publish all standing offers in NSW on the same day for ease of comparison.25 AGL did not consider the low level of awareness of price comparator websites such as Energy Made Easy was a sign of lack of customer engagement. It stated that most retailers constantly check competitors’ offers to ensure their offers remain price competitive and attractive to customers.

22 NSW Government, Anthony Roberts, Minister for Industry, Resources and Energy: Media Release,

21 October 2015. 23 AGL submission, September 2015, p 2. 24 Origin Energy submission, September 2015, p 2. 25 AGL submission, September 2015, p 4.



The ERAA supports our view that some customers make a rational choice not to participate in the market based on their individual circumstances. In its view the lack of engagement by some customers does not indicate a need for regulatory intervention.26

The ECC NSW submitted that culturally and linguistically diverse customers are yet to fully engage in the competitive market and have a restricted understanding of the opportunities available to modify or reduce their energy costs. It notes that no data about ethnicity, language or culture was collected in the AEMC’s survey research used as the basis for IPART’s analysis.27

There may be specific groups of customers including culturally and linguistically diverse customers that may have difficulty engaging in various markets including the energy market due to language or cultural barriers. There are programs and services designed to assist these customers. For example, the Energy Made Easy price comparator website has a dedicated resource that provides translation and interpreting services in 21 different languages.28 The ECC NSW’s Business Energy Smart Tips (BEST) program assists small and medium sized businesses access information on how to assess and reduce their energy use. Funded by the Australian Government, the program provides information in a culturally and linguistically appropriate format. In our view there is also an opportunity for the market (ie, retailers) to play a role in assisting these customers.

We have discussed this issue with the AEMC. As part of its 2016 competition review, the AEMC is focussing on vulnerable customers. In its approach paper for the 2016 review, the AEMC state it will investigate issues related to vulnerable customers by considering changing or adding to the customer survey as well as considering conducting qualitative research on the vulnerable customer experience.29

While many of the comments in submissions support the evidence we found of generally positive customer participation and outcomes in the market, as discussed in Chapter 5, recently there has been an increase in customer complaints reported to the AER.

26 ERAA submission, September 2015. 27 ECC NSW submission, September 2015, pp 4-5. 28 Energy Made Easy website: https://www.energymadeeasy.gov.au/other-languages. 29 AEMC, 2016 Retail Competition Review, Approach Paper, October 2015, pp 16-17.



2.5.3 Price movements

AGL reported that the level of price discounting has increased in 2014-15 across metropolitan and regional areas. Similarly, Origin Energy noted that post-price deregulation differentiated tariff pricing across retailers is becoming more apparent with around 10% spread in market offers as at January 2015. Origin Energy also found that strong price-based competition to attract and retain customers has driven retailers to find ways to lower their operating costs.

AGL also noted that they offer fixed rate market contracts of up to 24 months for customers who want more certainty in their energy bills. Since March 2015 AGL has removed early termination fees on all its contracts so customers are free to switch offers without financial disadvantage.

2.5.4 Rivalry, price and product diversity

Retailers agreed with our view that a deregulated market promotes dynamic efficiency through market-led product and service innovation. Origin Energy considered that a competitive environment will continue to drive price discounts and product diversity.30 AGL stated that price deregulation reduced risk exposure for retailers to recover their reasonable costs, whilst the competitive market forces retailers to manage their costs to efficient levels.31

Submissions also supported our findings that while price/discounts remain the primary mechanism by which retailers compete, retailers are increasingly competing on non-price factors or service offerings including personalised/account management customer service, enhanced billing services and digital self-service channels. Other offerings include provision of energy audits, appliance swaps, energy efficiency advice, energy cap plans, and loyalty programs.

AGL has created a New Energy Division to lead and manage the array of new products and technology including smart metering, solar systems and battery storage solutions. AGL also introduced the Solar Smart Plan, which provides discounted electricity prices for a number of years and a solar PV system at no upfront cost to the customer. Origin Energy considered that substitutability between traditional sources of retail supply and embedded supply will intensify pressure on the traditional retail model to respond with more differentiated and improved products.

30 See Origin Energy submission, September 2015, p 3. 31 See AGL submission, September 2015, p 3.



Both AGL and Origin Energy submitted that advancing digital meter infrastructure will enable retailers to tailor products to suit customers’ lifestyles.32 Examples of such non-price based incentives include Origin’s ‘First Gas Bill Free’ and AGL’s ‘Free Power Saturdays’ campaigns. AGL considered that smart meters combined with new tariff structures that incorporate accurate price signals would provide customers greater visibility and control over their energy bills.

These initiatives demonstrate that there is strong rivalry, price and product diversity in the market, which we would expect to see in a competitive market that is working effectively.

2.5.5 Other issues raised in submissions

Two submissions from anonymous individuals raised some concerns with the retail electricity market. One submission noted the increase in retail electricity prices since 1979 was greater than the rate of inflation over the same period. In more recent times, the increase was largely driven by rising network (poles and wires) prices. However, changes in the framework for regulating electricity network prices contributed to most residential and small business customers having lower network prices on 1 July 2014. Price changes are discussed in Chapter 6.

The second submission highlighted some problems with electricity billing and solar rebates. It noted that it is not clear what some charges on electricity bills relate to, and disagrees with the NSW Government’s decision to wind back solar feed-in tariff incentives. In NSW, energy retailers are required to have Energy Price Factsheets for each of their offers. These factsheets help customers compare offers by requiring all retailers to present information on their offers in the same way. The factsheets set out the tariffs, fees and charges that apply to each offer. The AER also provides information on tariffs and fees.33 The NSW Government’s decision to close the subsidised feed-in tariffs under the NSW Solar Bonus Scheme was designed to limit the increase in electricity bills for customers, as the cost of the subsidies are funded by all electricity customers.

32 See Origin Energy submission, September 2015, p 4 and AGL submission, September 2015, p 3. 33 https://www.aer.gov.au/consumers/my-energy-bill/tariff-and-fees-explained, accessed

4 November 2015.

3 Our approach and process for this review



To conduct the 2015 annual review, we used an analytical approach that ensures we address all the matters we are required to consider, and had regard to the information specified in the Act. We followed a review process that involved public consultation as well as analysis.

3.1 Our approach to the review

The approach we used to make our final findings includes the following five steps:

1. Considering the requirements of the Act and other contextual factors to ensure we understand the matters we must take into account for our review.

2. Defining the retail electricity market as a single market with three distinct network areas (including the Ausgrid, Endeavour Energy and Essential Energy network areas).

3. Collecting and analysing information on competition ‘indicators’ including:

– barriers to entering, expanding and exiting the market

– customer participation and outcomes

– price movements (including prices in regional areas), and

– the extent of rivalry between retailers including price and product diversity.

4. Making an assessment on the performance and competitiveness of the NSW retail electricity market, considering the findings for all indicators and comments made by stakeholders in their submissions to our review.

5. Considering whether there are any actions needed to improve the competitiveness of the market, and if a special review of retail prices and profit margins in the market is required.

More information on how we have assessed each of the competition indicators is provided in subsequent chapters of this report.



A submission from AMCL Pty Ltd on our Issues Paper noted that our approach to the review should also consider the efficiency of the broader electricity supply chain including electricity network businesses. It recommended that IPART adopts ISO 55001 (International Organisation for Standardisation – asset management) in relation to electricity businesses.34 While we agree that efficiency and innovation in electricity networks will lead to lower costs and more flexible and cost-reflective pricing, the adoption of ISO 55001 for electricity network businesses is outside the scope of our review.

3.2 Information we considered

The Act outlines the information we can have regard to in preparing our report, which is limited to the following:

information provided by the AEMC and the AER

any publicly available information, and

information provided by a retailer under section 234A(8) of the Act.35

From the AEMC and AER, the information we considered includes:

the AEMC’s 2015 Retail Competition Review Final Report and consumer and retailer survey results

performance statistics (including customer numbers and contract types) from the AER’s website, and

market offer information from the AER’s Energy Made Easy website.36

The publicly available information we considered includes:

AEMO data on customer transfers/switching

the St Vincent de Paul tariff tracking report

EWON complaints data/annual report

half-yearly reports for listed retailers – AGL, Origin Energy and CLP Group (EnergyAustralia), and

various media articles published throughout the year.

34 AMCL Pty Ltd submission, February 2015, pp 2-3. 35 Section 234A(8) of the Act states that the Market Monitor may, by notice in writing served on a

retailer, require the retailer to provide it with particulars of the number of market offer customers of the retailer, the market offer prices of those customers, the number of customers on each standing offer price offered by the retailer that has been publicly advertised and those standing offer prices.

36 www.energymadeeasy.gov.au.



From retailers, we requested and considered information on their prices for both residential and small business customers in each of the NSW electricity network supply areas they are active.37 In particular, we considered each retailer’s:

electricity standing offers

lowest priced generally available electricity market offer, and

most common offer for electricity (by number of small customers).

3.3 Our process for this review

We began our review process by releasing a Fact Sheet in December 2014. The Fact Sheet outlined our role as Market Monitor and our proposed approach for fulfilling this role, and invited interested parties to make submissions on this approach. We received four submissions.

We released a Draft Report in July 2015, which explained our draft findings on the performance and competitiveness of the retail electricity market and addressed issues raised in submissions on our Fact Sheet. We received six submissions on the Draft Report. We considered all issues raised in submissions and conducted additional analyses in preparing this Final Report.

Submissions to our Fact Sheet and Draft Report are listed in Appendix A and are available in full on our website. The timetable and key milestones for our 2015 annual report are summarised in Table 3.1.

Table 3.1 Timetable and key milestones for the 2015 annual report

Milestone Date

Release Fact Sheet 8 December 2014

Release Draft Report 20 July 2015

Submissions close on Draft Report 4 September 2015

Provide Final Report to the Minister By 30 November 2015

37 We requested price information for each quarter from March 2014 to June 2015.

4 Barriers to entry, expansion and exit



The first competition indicator we considered for this review is the economic, legal, regulatory or other barriers that affect retailers’ ability to enter the retail electricity market in NSW, expand their share of this market share, and exit the market. We are particularly interested in identifying any unnecessary regulatory or legal barriers.

In our view, the most important indicator for a competitive market is low barriers to entry. Low barriers to entry mean that new retailers are able to enter the market and compete for customers, and therefore incumbent retailers face an ongoing threat of competition from new entrants. This threat provides the most effective protection for customers from the exercise of market power.

We also considered the number of retailers contesting the market, and concentration of the market, as these can be indicators of barriers to entry and expansion. More retailers in the market is normally considered a positive sign for competition. However, competition can be effective in markets where there are only a few retailers, particularly where there is the threat of competition due to low barriers to entry.

The sections below summarise our final findings on barriers to entry, expansion and exit and then discuss our assessment of these barriers, the number of retailers contesting the market, and market concentration in more detail. Box 4.1 details the information we used for this assessment.

4.1 Overview of our findings

Retailers generally consider the ease of entry and expansion in the retail market in NSW as ‘neither difficult nor easy’.38 In the year to 30 June 2015, four new retailers entered the NSW market and retailers have cited the removal of retail price regulation as a major driver for entry. As at 30 June 2015, there were 22 active retailers in the market. Although market share continues to be concentrated among the ‘big three’ retailers (AGL, Origin Energy and EnergyAustralia), smaller retailers are gradually increasing their market share at the expense of the big three. We consider that the barriers to entry could be reduced by harmonising state-based energy efficiency schemes, potentially by transitioning them to a national scheme. 38 Australian Energy Market Commission, 2015 Retail Competition Review, Final Report, AEMC,

30 June 2015, Sydney, Appendix C, Table C.3, p 245.



Box 4.1 Information used to assess barriers to entry, expansion and exit

To make our assessment, we used AER data on the number of retailers contesting themarket and the market share of these retailers (by number of small customers). We alsoreviewed surveys of retailers and the Energy Retailers Association of Australia (ERAA)that addressed views on barriers to entry, exit and expansion in the NSW retail electricitymarket. These surveys were conducted in February 2015 by Farrier Swier and K Loweas part of the AEMC’s 2015 retail competition review.

4.2 Findings on barriers to entry, expansion and exit

In a perfectly competitive market, there are no barriers to entry and a large number of retailers, and no retailer is able to influence the market price. These strict conditions mean that perfectly competitive markets rarely exist in practice. In making our assessment for this review, we examined retailers’ views on the barriers to entry, expansion and exit.

4.2.1 Retailer views on barriers to entry, exit and expansion

Retailers surveyed as part of the AEMC’s 2015 retail competition review were asked to rate the ease of market entry, expansion and exit in NSW, and to identify any specific barriers. They were also asked whether they had observed any change in these barriers over the past year.

Retailers expressed a variety of views, in NSW a group of large and small retailers rated entry and expansion in this market as relatively easy, while a separate group of large and small retailers rated them as difficult. However, the median ratings from this survey indicate that:

retailer entry into the NSW electricity market is relatively easy (rated somewhere between ‘neither difficult nor easy’ and ‘easy’)

expansion in the market is neither difficult nor easy, and

exit from the market is neither difficult nor easy.

Retailers considered that the removal of retail price regulation in NSW has improved entry and expansion conditions and prompted second tier retailers to enter the market. One retailer also noted that it had started retailing in network areas and customer classes that it had not previously serviced as a result of price deregulation.39

39 Farrier Swier Consulting and K Lowe Consulting, AEMC 2015 Retail Competition Review: Retailer

Surveys, May 2015, p 23.



Retailers in the survey were also asked to rate the importance of economies of scale and scope and vertical integration as barriers to entering and expanding in the market. Median ratings from retailers indicate that economics of scale and scope are of ‘slight importance’ and that having an interest in generation is not required in this market.40

Perceived barriers in the market

Retailers’ perceived impediments to market entry in NSW were generally issues that are common across the entire National Electricity Market (NEM). They include:

Limited access to competitively priced hedging products, which is related to the increasing degree of vertical integration and concentration in the wholesale market.

The prudential arrangements and credit support required by the Australian Energy Market Operator (AEMO), generators, financial intermediaries, the Australian Stock Exchange (ASX) and electricity networks, which can tie-up retailers’ working capital and limit their ability to expand.

The cost implications of jurisdictional differences in state energy efficiency schemes, concession schemes and adoption of the National Energy Customer Framework (NECF). In particular, the NSW concession scheme was seen by one retailer as archaic and inconsistent with the way some retailers are operating (paperless billing and electronic payment systems).

The political and regulatory risk that retail price regulation may be reinstated in NSW (the survey was carried out before the 2015 NSW state election and the possibility of a change of government).

Some smaller retailers raised concerns about their ability to access competitively priced hedging products. While acknowledging that in NSW risks can be hedged using interregional hedges, financial intermediaries and the futures market, they expressed concern about the increasing vertical integration and concentration in the wholesale market. Some smaller retailers also raised AGL’s acquisition of Macquarie Generation as a significant event. One retailer responded that the acquisition resulted in better generation trading arrangements, although this may be driven by the behavioural undertaking AGL is currently subject to. However, another claimed it limited the hedging options available to non-vertically integrated retailers. Some respondents noted that Snowy Hydro is still a net seller of hedging products in NSW and therefore in a position to provide smaller retailers coverage in the market.41

40 Ibid, pp 22, 26. 41 Farrier Swier Consulting and K Lowe Consulting, AEMC 2015 Retail Competition Review: Retailer

Surveys, May 2015, pp 23-25.



Perceived barriers in regional NSW

Retailers also raised some perceived barriers that specifically relate to regional areas in NSW and other states. These include:

the small and dispersed population, which results in higher customer acquisition costs

the higher loss factors, which may be difficult to pass on to customers, and

the higher network charges, which can reduce retail margins and possibilities for discounting.42

4.2.2 Our views on barriers to entry, expansion and exit

We consider that there are no substantial barriers for smaller retailers to enter the NSW electricity market. However, barriers could be reduced by removing inconsistencies between the various state-based green energy and energy efficiency schemes. In addition, the ability for smaller retailers to expand in the market is yet to be fully tested.

Limited access to competitively priced hedging products is an economic barrier that relates to the presence of large vertically integrated electricity businesses in the market. In our view, this presence could mean that a new retailer to the market needs considerable financial capacity to rapidly gain market share. The main implication of this and other economic barriers is that structural changes in the market are likely to take some time to occur.

42 Farrier Swier Consulting and K Lowe Consulting, AEMC 2015 Retail Competition Review: Retailer

Surveys, May 2015, p 25.



Retailers are required to provide credit support to mitigate the risk that they default on money they owe. These prudential requirements are in place to ensure confidence in the operation of the market. We consider that provided they are set at an efficient level, these are necessary costs of doing business for retailers. In 2012, the AEMC completed its consultation on a rule change in relation to the amount of credit support required by retailers to AEMO. This rule change alters the individual pattern and level of credit support provided by retailers, to align more closely with the risk posed by their possible default.43 In addition, AGL recently proposed a rule change to the AEMC in relation to arrangements for managing the risk of non-payment by retailers to distribution businesses. AGL considers that its proposal would better reflect the actual risk faced by distribution businesses.44

Currently, inconsistencies between state-based energy efficiency schemes present a barrier to entering the market. As many retailers operate under several Australian jurisdictions, such inconsistencies mean retailers require greater resources to manage compliance with the schemes. In our view, this is an unnecessary regulatory barrier. As energy efficiency is an eligible activity under the Australian Government’s Emissions Reduction Fund,45 the continued operation of state-based schemes may duplicate rather than complement the objectives of this fund. If this is the case, duplicative components of state-based schemes could be wound up and any residual functions that are complementary could be transitioned to a national scheme. Clear transition arrangements would need to be put in place to maintain certainty for businesses investing in state-based energy efficiency schemes.

Recommendation

1 To reduce the barriers for small retailers entering the NSW retail electricity market, the NSW Government wind up duplicative components of state-based green energy and energy efficiency schemes and any residual functions that are complementary be transitioned to a national scheme such as the Emissions Reduction Fund. Clear transition arrangements need to be put in place to maintain certainty for businesses investing in state-based energy efficiency schemes.

43 See the AEMC New Prudential Standard and Framework in the NEM review page, at

http://www.aemc.gov.au/Rule-Changes/New-Prudential-Standard-and-Framework-in-the-NEM, accessed 2 July 2015.

44 Under the proposed change, credit support requirements would be amended so that a retailer with a BBB- credit rating and above would not be required to provide credit support. Retailers with a credit rating below BBB- would be required to provide credit support in an amount that equates the value at risk to the distributor to the amount that would be at risk if the retailer was rated BBB-. See the AEMC Retailer-Distributor Credit Support Requirements review page, at http://www.aemc.gov.au/Rule-Changes/Retailer-Distributor-Credit-Support-Requirements, accessed 2 July 2015.

45 Australian Government, Department of Environment, Emissions Reduction Fund, at http://www.environment.gov.au/climate-change/emissions-reduction-fund, accessed 16 July 2015.



We do not consider that higher loss factors and higher network charges in regional areas should substantially affect entry and expansion in these regional markets, relative to metropolitan areas. This is because these costs, which are ultimately paid for by customers, are faced by all retailers serving these areas.

4.3 Number of retailers contesting the market

We do not consider that there is a minimum or optimum number of retailers needed for a competitive market. However, generally speaking, the presence of more retailers enhances rivalry and encourages retailers to offer more diverse and better value products and services.

As at 30 June 2015, there were 22 electricity retailers actively serving 3.3 million residential and/or small business customers in NSW, seven of which are also gas retailers (Figure 4.1).46 This includes five new electricity retailers that have entered the market in the past year (BlueNRG, CovaU, Powershop, Pooled Energy and Next Business Energy) and another retail brand introduced by incumbent retailer M2 Energy (Commander Power & Gas). As shown in Figure 4.1, not all retailers service both residential and small business customers.

46 AEMC, 2015 Retail Competition Review – Final Report, 30 June 2015, p 241.



Figure 4.1 Retailers contesting the market (as at 30 June 2015)

Note: Most small customers cannot choose between AGL and ActewAGL because these retailers’ markets do not geographically overlap.

Data source: AEMC, 2015 Retail Competition Review – Final Report, 30 June 2015, p 241, information provided by the AER.

The 22 retailers serving residential and/or small business customers are owned by 18 companies, with the following linked by ownership:

AGL, ActewAGL and Powerdirect.

Lumo Energy and Red Energy.

Commander Power & Gas and Dodo Power & Gas (both part of the M2 Group).



4.4 Market concentration

The NSW retail market is dominated by the ‘big three’ retailers – Origin Energy, EnergyAustralia and AGL. In June 2015, these retailers (and their related companies) had a combined share of the small customer market of 92.7%.47 This equates to a Herfindahl-Hirschman Index of 0.30, indicating a highly concentrated market.48

On the other hand, smaller retailers are gradually increasing their market share at the expense of larger retailers. In June 2015, retailers other than the big three had a combined market share of 11.2%. In comparison, their market share was 5.4% in June 2014 and 1.9% in June 2011. Figures 4.2 and 4.3 show changes in retailers’ share of the markets for residential customers and small business customers since June 2011.

Figure 4.2 Change in retailers’ market share – residential customers in NSW

Note: Market share is based on the number of residential customers for the relevant reporting period.

Data source: AER and IPART data on customer numbers.

47 Based on market performance data supplied by AER as at 30 June 2015. 48 The Herfindahl-Hirschman Index (HHI) is calculated by summing the square of the market

shares of each retailer. The HHI ranges from zero to 1, with zero representing an extremely competitive market and 1 is a pure monopoly. The ACCC consider an index > 0.2 to indicate a concentrated market. In calculating the H-H Index we have taken into account the joint ownership of AGL, ActewAGL and Powerdirect.



Figure 4.3 Change in retailers’ market share – small business customers in NSW

Note: Market share is based on the number of non-residential customers for the relevant reporting period.

Data source: AER and IPART data on customer numbers.

4.4.1 Our assessment of the number of retailers contesting the market and market concentration

We consider that new retailers entering the market are a sign that barriers to entry, expansion and exit are reasonable. Although there continues to be a high concentration in market share, it is encouraging to see that smaller retailers are increasing their market share at the expense of the big three retailers over time.

In our view, the concentration in market share is a function of how the market has developed. Up until 2002, there was a single government-owned vertically integrated electricity business supplying electricity in each of the three network areas in NSW (EnergyAustralia, Integral Energy and Country Energy). In 2002, the retail market became contestable, and as new retailers have entered the market customers have gradually moved to them. In 2011, the three government-owned businesses were broken up and their retail businesses were sold to the private sector. This increased the concentration of the NSW market as a whole, as Origin Energy purchased two of the government-owned retail businesses (Integral Energy and Country Energy) and TRUenergy purchased EnergyAustralia (later rebranding as EnergyAustralia).



In June 2011, Origin Energy and EnergyAustralia supplied 83% of small customers in NSW.49 Since June 2011, this has dropped to 67.8% as AGL has added 10% to its market share due in part to outs acquisition of Australian Power and Gas in 2013.50 AGL now holds around 25% of the NSW residential retail market, making it the third largest retailer in NSW after EnergyAustralia (30.6%) and Origin Energy (37.2%).51

49 Information provided to IPART by retailers. 50 Information provided to IPART by retailers and AER. 51 Since June 2011, this has dropped to 67.8% as AGL has added 10% to its market share due in

part to outs acquisition of Australian Power and Gas in 2013. Ibid.

5 Customer participation and outcomes



The next competition indicator we considered was customer participation and outcomes. Customer participation refers to customers being aware of the choices available to them in the market, and investigating the offers available to them to identify a better electricity plan or retailer for their circumstances.52 Customer outcomes refer to how satisfied customers are with their participation in the market and with their retailer in general.

In a competitive market, we would expect most customers to be aware of the choices available to them, and many customers to be shopping around for a better deal. In markets where competition is working effectively, we would expect most customers to be satisfied with their participation and experience in the market.

To assess customer participation and outcomes over the past year, we reviewed survey findings from the AEMC’s 2015 competition review on customer participation and outcomes in the market. We also considered data on customer switching published by AEMO.


The AEMC’s survey findings indicate that small customers have a high level of awareness of their ability to choose their retailer and electricity plan, particularly small business customers.

Many customers have actively investigated the offers available to them, and most of these customers proceeded to switch retailers or change plans (see Figure 5.1 and Figure 5.2). In addition, most customers who have participated in the market were satisfied with their decision to switch retailer or plan. Most customers also reported they were satisfied with their existing retailer.

52 Participating in the market does not necessarily mean customers switching retailers and offers,

as they may shop around and decide their existing offer is the best one for them.



While these indicators are generally consistent with what we expect in a competitive market, there are some areas for improvement. There continues to be a large number of customer complaints about billing, customer service and credit policies, indicating that retailers could improve their performance in these areas. Some customers find it difficult to compare energy offers and many are not aware of independent price comparison tools like Energy Made Easy.

Figure 5.1 Residential customers’ awareness and participation in the market

Residential customers

Data source: Newgate Research, Consumer Research for 2015 Nationwide Review of Competition in Retail Energy Markets, June 2015, pp 143,152,154.

Figure 5.2 Small business customers’ awareness and participation in the market

Business

customers

Data source: Newgate Research, Consumer Research for 2015 Nationwide Review of Competition in Retail Energy Markets, June 2015, pp 143,152,155.



5.2 Customer participation

To form our assessment on customer participation, we considered information on awareness and customer confidence, and investigating and switching between retailers and plans.

5.2.1 Awareness and customer confidence

The AEMC’s customer survey indicates small customers have a high level of awareness of their choices in the market:

89% of residential customers and 95% of small business customers (up from 86% in 2014) were aware they could choose their electricity retailer.

81% of residential customers and 87% of small business customers were aware they could choose from different energy plans with the same retailer.53

Survey respondents were reasonably confident in choosing the right energy offer (includes electricity and gas) for their household or small business. However, particular groups of small customers were more confident than others. Residential customers were more confident than small business customers. Among residential customers, confidence levels were significantly higher for those customers who:

were aged under 35

had mains connected gas

were on special payment arrangements as a results of financial hardship

had been approached by an energy company in the past 12 months, and

had actively investigated offers in the past 12 months.54

5.2.2 Investigating and switching between retailers and plans

Every month AEMO publishes the total number of customers who have transferred between retailers55, and provides IPART with detailed information on electricity customer transfers by retailers. The total number of customer transfers published by AEMO includes some transfers that do not represent a decision by customers to change retailers, for example transfers due to error, a new meter installation or move-in/out. Therefore, we have considered two switching rates:

the gross switching rate, which is consistent with the monthly switching data published by AEMO, and


Markets, June 2015, pp 143, 144. 54 Ibid, pp 142, 147. 55 http://www.aemo.com.au/Electricity/Data/Metering/Retail-Transfer-Statistical-Data,

accessed 18 June 2015.



the net switching rate, which measures a customer’s decision to change retailer based on transfers between retailers where the customer’s address is unchanged.56

The net switching rate is likely to underestimate actual switching rate as it does not account for customers switching electricity plan with their current retailer. The gross switching rate may overestimate or underestimate the actual switching rate depending on the number of transfers within a retailer and transfers due to error, new meter installation or change of address.

The average gross switching rate for electricity customers during 2014 was around 15%. This is down from 2013 when the average gross switching rate was around 19%. Since the middle of 2014 gross switching rates have trended upwards, peaking most recently in May 2015 at 18%. The net switching rate is much lower than the gross switching rate, but shows a similar pattern to the gross switching rate. As at June 2015, the gross switching rate is around 17% and the net switching rate is around 7%.

Figure 5.3 Customer switching rates from January 2013 to June 2015 (Annualised for 12 months)

Note: Net customer transfer data was unavailable for February 2013, March 2013, February 2014 and August 2014. For these months, net transfers were interpolated by applying the growth rate for gross customer transfers.

Data source: AEMO data and IPART calculations.

56 AEMC, Review of Electricity Customer Switching – Final Report, 10 April 2014, p 92.



As mentioned above, AEMO switching data does not capture customers who have chosen to switch plans with their existing retailer. In its submission to our Fact Sheet, the Public Interest Advocacy Centre (PIAC) suggested that IPART examine such switches.57 The AEMC’s survey asks customers whether they have switched offers with the same company. When responses to this question are also taken into account, the overall switching rate is higher than indicated by the AEMO switching data only.58

The responses to the AEMC’s survey also indicate that some customers who investigated switching did not proceed to do so. In particular, this survey found that in NSW:

Around one-third of surveyed customers had actively investigated switching energy offers over the past 12 months. The share of residential customers investigating offers increased significantly (by six percentage points), while the share of small business customers investigating offers decreased.59

Around a quarter of surveyed customers had changed their electricity company or plan at least once in the last 12 months (23% of residential customers, 26% of small business customers).60

Customers with solar panels were more likely to have participated in the market in the last 12 months. Half these customers had actively investigated different energy offers and options that they could potentially switch to, compared to around one-third of customers without solar panels.61

Around half the surveyed customers in NSW had switched their electricity company or plan in the past five years (52% of residential customers, 54% of small businesses). This is significantly lower than the proportion of residential customers who reported switching electricity in the past five years in the 2014 survey (60% of residential customers in 2014 compared to 52% in 2015), while the proportion of business customers is broadly unchanged.62 This may be due to energy companies making fewer direct approaches to customers over the past 12 months (which was another of the survey’s findings). It may also be due to the fairly stable prices over the past 12 months, after a series of price increases in previous years.

57 PIAC submission, 13 February 2015, p 3. 58 Newgate Research, Consumer Research for 2015 Nationwide Review of Competition in Retail Energy

Markets, June 2015, p 152. 59 Ibid, pp 154, 155. 60 Ibid, p 152. 61 Additional analysis by Newgate Research of data collected for Newgate Research, Consumer

Research for Nationwide Review of Competition in Retail Energy Markets, June 2015, p 4. 62 Newgate Research, Consumer Research for 2015 Nationwide Review of Competition in Retail Energy

Markets, June 2015, p 151.



Customers with solar panels were more likely to switch to a different electricity retailer or plan. Two in three customers with solar panels had switched at least once in the last five years, compared to half of customers without solar panels. While customers generally switched less in the last 12 months than in the last five years, customers with solar panels continued to be more active in switching than those without solar panels. Around 40% of customers with solar panels had switched in the last 12 months, compared to 20% of customers without solar panels.63

We find that an increasing share of customers are on market contracts, as opposed to standing contracts. As at March 2015, 68% of small customers in NSW were on market contracts.64 This has increased from about 60% in September 2013 (Figure 5.4).

Figure 5.4 Standing and market offer contracts in NSW

Data source: AER, NSW - small customer contract types, https://www.aer.gov.au/node/23463, accessed 27 October 2015.

Why do customers switch?

Consistent with past surveys, in 2015 price-related factors were the main reason for residential and small business customers switching energy retailer or plan. Another common reason was moving house.65

63 Additional analysis by Newgate Research of data collected for Newgate Research, Consumer

Research for Nationwide Review of Competition in Retail Energy Markets, June 2015, p 8. 64 AER, NSW - small customer contract types, https://www.aer.gov.au/node/23463, accessed

18 June 2015. 65 Newgate Research, Consumer Research for 2015 Nationwide Review of Competition in Retail Energy

Markets, June 2015, pp 156, 159.



The magnitude of bill savings required to motivate customers to switch company or plan are quite high. The AEMC customer survey found that to seriously consider switching retailer or plan, residential customers wanted to save an average of $194 per year on their electricity bill and small business customers wanted to save about $695 on their electricity bill. Those with higher energy bills wanted to see a bigger saving before they considered switching.66

Why do customers investigate, but not switch?

Around 10% of small customers investigated a better option or plan, but decided not to switch.67 The most common reason not to switch for residential customers was that their current retailer had a better price. In total, around 43% of these customers responded that there was an insufficient value proposition and 11% found it too confusing.68

Why do customers not investigate their options at all?

Residential customers’ most commonly cited reasons for not investigating offers or not switching were that they are satisfied with their current retailer, "no particular reason", that it would be too much hassle or that there is little difference between options. Small business customers were more likely to have not investigated switching due to being too busy or not having enough time.69

5.2.3 Our assessment of customer participation

We consider it is a positive sign for the competitive market that around nine in 10 small customers in NSW are aware of the choices available to them. Many customers are looking for a better deal and switching their electricity plan or retailer. Some investigate but do not switch, and this is usually because their existing plan is the better deal.

The more customers shopping around for a better deal, the more pressure there will be on retailers to offer better prices and services. However, we expect there will always be some customers who choose not to participate. Some customers will consider that the search costs of finding a better deal – mainly the time involved – are higher than the savings they could make on their electricity bills. In our view, this is not a sign that the market is not competitive or is not working, but is instead an example of customers making rational decisions given their circumstances. Other customers may not participate because they find it too difficult because of language or other barriers. As discussed in section 2.5.2, there is an opportunity for the market to play a role in addressing this issue, along with some targeted government assistance to these customers.

66 Ibid, p 170. 67 Ibid, pp 152, 154. This assumes that customers who switched had actively investigated offers or

options. 68 Ibid, p 166. 69 Ibid, pp 167-168.



5.3 Customer outcomes

To assess customer outcomes, we examined data on customers’ satisfaction with switching and with their electricity retailer, and customer complaints data.

5.3.1 Satisfaction with switching

The AEMC’s customer survey indicates that most customers are satisfied with their decision to switch retailer or plan:

78% of residential customers and 82% of small business customers who switched electricity retailer or plan were happy with the decision to switch.

Around 75% of residential and small business electricity customers got what they expected from this switch.70

5.3.2 Satisfaction with electricity company

The AEMC’s survey asked customers about their satisfaction with their current retailer, quality of customer service and value for money:

74% of residential customers and 61% of small business customers responded that they were very or somewhat satisfied with their current electricity retailer.

65% of residential consumers and 45% of small business customers rated the overall quality of customer service provided by their electricity retailer as very high. Those with mains-connected gas, younger residential customers and those on a payment arrangements rated the quality of customer service significantly higher.71

56% of residential customers and 32% of small business customers rated the overall value for money provided by their electricity retailer quite highly. Compared to the previous year, value for money ratings improved for residential customers (by six percentage point) but declined for small business customers.72

The improvement in residential customers’ satisfaction results indicates an increasingly competitive market. However, as the AEMC observed, the “improved value for money ratings potentially relate to a reduction in the rate of increase in average electricity bills in NSW in 2014 as compared with previous years”.73 The AEMC also cautions that satisfaction levels should be interpreted carefully, as high satisfaction ratings often relate to an absence of negative issues with retailers rather than a particularly positive experience.

70 Ibid, p 162. 71 Ibid, p 173. 72 Ibid, pp 175-177. 73 AEMC, 2015 Retail Competition Review – Final Report, 30 June 2015, p 104.



Across all of the relevant questions, residential consumers tended to rate their electricity retailer higher than small business consumers. This indicates scope for retailers to improve the satisfaction levels of their small business customers.

5.3.3 Complaints data

In its submission to our Fact Sheet, PIAC recommended that IPART examine complaints data to assess whether competitive pressure is leading to retailers improving their customer service performance.74 In response, we have looked at the complaints made to EWON and to retailers. We found that while most customers reported satisfaction with their participation in the market and with their retailer, not all have had positive experiences in the past year.

Growth in the complaints about electricity retailers to EWON slowed to 2% between 2012-13 and 2013-14, after two years of around 50% growth each year.75 The level of complaints is still much higher than it was several years ago. As in past years, billing issues were the most common complaints raised with EWON, followed by credit and customer service complaints.76

The AER also publishes the number of energy complaints (electricity and gas) reported by retailers to the AER. The number of complaints reported by NSW retailers in 2014-15 exceeds the total number reported in 2013-14 by around 50%. Most of the growth in complaints relates to billing and marketing issues.77 We understand that some of the increase in complaints made to retailers may relate to changes in how retailers report to the AER.

5.3.4 Our assessment of customer outcomes

The AEMC’s survey findings suggest that most customers are satisfied with their experience in the NSW retail electricity market. This is a sign that the market is performing well. While these findings are positive for competition, surveys of this nature need to be interpreted with a degree of caution. For example, because some customers say they are satisfied with getting value for money doesn’t necessarily mean they are getting good value for money.

74 PIAC submission, February 2015, p 2. 75 EWON, Annual report 2011-2012, 2012, p 16; EWON, Annual report 2012-2013, 2013, p 16; EWON,

Annual Report 2013-14, 2014, p 21. 76 Ibid, p 22. 77 Information provided by the AER in November 2015.



A small proportion of residential and small business customers are not satisfied with the performance of the market. For example, some say they have not changed retailer or electricity plan because it is too confusing. Some of those who have changed retailer or electricity plan weren’t satisfied with the outcome, or aren’t satisfied with their retailer in general. These customers may complain to their retailer, and/or to EWON. While we understand that some of the increase in complaints made to retailers may relate to changes in how retailers report to the AER, nevertheless, complaints relating to billing, customer service and credit issues are areas where retailers’ performance could improve. In the last 12 months, some retailers have responded to customer feedback and increased their call centre hours to improve customer service.78

In our view, both customer participation and outcomes could be improved though more frequent use of the Australian Government’s Energy Made Easy website. Despite recent NSW Government campaigns, there is a relatively low level of awareness of independent price comparison websites like Energy Made Easy.79 Customers who use these website services tend to be more confident in choosing the right electricity offer for them.80 The Energy Made Easy website has recently been updated and the new user interface makes it easier for customers to find a better offer.

The NSW Government recently ran a promotion for Energy Made Easy in its “the power’s in your hands” campaign. We recommend that the NSW Government looks for further opportunities to promote this website, targeted at the customers who would benefit most from this service including low income households. The AEMC’s Increasing Consumer Engagement report provides information about the characteristics of customers who tend not to engage in the market.81

78 Call centres power up service, Courier Mail Brisbane, 24 October 2014. 79 Newgate Research, Consumer Research for 2015 Nationwide Review of Competition in Retail Energy

Markets, June 2015, p 194. 80 AEMC, 2015 Retail Competition Review – Final Report, 30 June 2015, p 89. 81 AEMC, Supplementary Report: Increasing Consumer Engagement, October 2013,

http://www.aemc.gov.au/getattachment/57d65ebf-9231-4890-a9f0-f3e0723b0a7f/ Supplementary-report.aspx, accessed 9 July 2015.

6 Price movements


6 Price movements

In line with the requirements of the Act, the third competition indicator we examined was price movements. In particular, we assessed whether price movements and price and product diversity are consistent with a competitive market. We also looked specifically at prices in regional areas.

This involved considering changes in both retail prices for electricity and the underlying efficient costs of supplying electricity. In a competitive market, we would expect that in the long term, retail prices would change broadly in line with changes in efficient costs. In the short term, price movements may be greater than or less than changes in efficient costs, but we would likely see some general relationship between prices and costs.

To make our assessment we requested that retailers provide us with information on their standing offer prices, most common market offer prices by number of customers, and their lowest generally available market offer prices. These prices were provided for each network area in NSW.


Retail electricity prices declined in all network areas over the year to June 2015. These reductions appear broadly consistent with changes in key underlying costs over this period, including the repeal of the carbon price and lower network prices more than offsetting the higher green scheme costs.

Prices in regional areas are higher than in urban areas, mainly due to higher network prices. However, the price discounts available to customers in regional areas are not materially different to those available in urban areas. Therefore, customers in regional areas could also make savings on their total bills by shopping around for better deals. In our view, this is consistent with what we expect to see in a competitive market that is working effectively.

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6.2 Overview of our approach for assessing price movements

Our approach for assessing whether price movements are consistent with a competitive market involves three steps:

1. measuring price changes over the past 12 months (including prices in regional areas)

2. collecting data on changes in the main underlying costs of supplying electricity over the past 12 months, and

3. making broad observations of how price changes relate to cost changes.

We did not attempt to reconcile price movements with changes in efficient costs. Nor did we try to estimate price changes for all customers or consider all the efficient costs faced by retailers. Instead, we observed how changes in the main costs of supplying electricity may explain the general direction of price changes.

We intend to apply this approach in each annual monitoring report.

In its submission to our Fact Sheet, PIAC recommended that IPART examine whether the competitive market has resulted in reduced electricity prices, in real or nominal terms, in any areas of NSW.82 In competitive retail electricity markets, over the long term price movements should broadly reflect changes in the efficient costs of supplying electricity. If costs rise then prices will also rise. However, even in a competitive market, price movements may be above or below changes in efficient costs in the short term. However, if there are low barriers to entry, then higher than efficient prices will not persist for long.

6.3 Measuring price changes

Measuring price changes is challenging given the dynamic nature of the retail electricity market. For example, retailers continually bring new offers to market and withdraw old offers. Measuring price changes does not capture these changes in product and service quality. This means it is easier to observe the change in prices available at different points in time, rather than tracking what is happening to individual customers’ prices over time.

82 PIAC submission, February 2015, p 3.

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In its submission, PIAC suggested that IPART track prices for individual customers who have taken up a market contract. This would indicate whether these customers are actually better off having participated in the market, or whether their prices were increased shortly after they were ‘locked-in’. In general, we consider that if customers are misled through an electricity market offer then this is a consumer protection issue where the Australian Competition and Consumer Commission has responsibility. The AEMC’s customer surveys indicate that most customers were satisfied with their decision to switch electricity plan/provider.83 On this issue, AGL submitted that contract price changes generally occur around July each year to coincide with changes in network charges, which account for up to 40% of a typical electricity bill. Hence, customers who signed up to a market contract shortly before July may perceive that prices changed soon after they have signed up. AGL submitted that a recent change to the National Energy Retail Rules requires retailers to disclose to customers upon entry to a market contract whether prices under that contract can be varied and when customers will be notified of any price variation.84 We consider that the information we used provides an overview of prices – and the range of prices – that most customers paid during this reporting period. Box 6.1 provides more detail on this information and the assumptions we used in assessing price movements.


Markets, June 2015, p 162. 84 AEMC, National Energy Retail Amendment (Retailer Price Variations in Market Retail Contracts) Rule

2014 No 1. Clause 46A Explicit Informed Consent – Variation of tariffs, charges or benefits to the customer.

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Box 6.1 Information and assumptions we used in assessing price movements

To measure price changes we requested information from electricity retailers operating inNSW, including their:

standing offer prices (these are the default prices for customers who haven’t taken upa market offer)

most common market offer prices by number of customers, and

lowest generally available market offer prices.

Seven retailers responded to our information request, covering around 95% of the smallcustomer market. Retailers provided quarterly prices from March 2014 to June 2015 forresidential and small business customers and for each network area in NSW.

This information provides an overview of the prices, and the range of prices, that mostcustomers were paying at different points in the reporting period. This information alsoindicates the savings available to customers who participate in the market relative tostanding offer prices.

In analysing the prices of different offers, we:

assumed annual consumption of 6,500 kWh per year for residential customers and10,000 kWh per year for small business customers

accounted for all conditional and non-conditional discounts such as pay on timediscounts and direct debit discounts in calculating annual bills, and

calculated annual bills using annualised quarterly demand and prices.

We took this approach as each retailer’s lowest or most common offer as at each quartermay not be the same offer. This means our approach is more a snapshot of pricesavailable at a particular point in time rather an annual bill accounting for price changesduring the year. All annual bills and annual bill difference discussed in this section arein $2014-15.

6.3.1 Changes in residential customer prices

Figure 6.1 to Figure 6.3 compare the annual bills for residential customers in 2013-14 and 2014-15 in each network area ($2014-15). The 2013-14 bills are calculated using standing offer and regulated offer prices, annualised as at June 2014. These 2013-14 bills include the cost of the carbon price. The 2014-15 annual bills are calculated using standing offer, most common and lowest priced offer prices, annualised as at June 2015. Due to the repeal of the carbon price, these bills do not include any carbon price costs.

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Changes in standing offer prices from June 2014 to June 2015

Our analysis indicates that standing offer retail electricity prices for residential customers have decreased in all network areas since June 2014. Retailers’ standing offer prices declined by around 4% to 11% in all network areas between June 2014 and June 2015. For typical residential customers on standing offer prices, the estimated annual bill reduction is around:

$161 to $243 (around 7% to 11%) in the Ausgrid network area

$89 to $219 (around 4% to 10%) in the Endeavour network area, and

$134 to $290 (around 5% to 10%) in the Essential network area.

For most retailers, their lowest priced offers available were their best offers. However, there is an instance where a retailer’s lowest priced offer was more expensive than its most common offer prices. This occurs when most customers are on offers with bigger discounts than the current lowest priced offers, and the most common offers are no longer available to new customers.

Figure 6.1 Annual bill comparison for residential customers in the Ausgrid network area ($2014-15, incl. GST)

Note: Bills are calculated based on annual consumption of 6,500 kWh, taking into account all available conditional and non-conditional discounts. Simply Energy did not operate in the Ausgrid area as at June 2014. The 2013-14 regulated prices and standing offers as at June 2014 include the carbon price.

Data source: Electricity retailers and IPART calculation.

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Figure 6.2 Annual bill comparison for residential customers in the Endeavour network area ($2014-15, incl. GST)

Note: Bills are calculated based on annual consumption of 6,500 kWh, taking into account all available conditional and non-conditional discounts. The 2013-14 regulated prices and standing offers as at June 2014 include the carbon price.


Figure 6.3 Annual bill comparison for residential customers in the Essential network area ($2014-15, incl. GST)



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Savings available relative to standing offer prices at June 2015

In addition to reductions in standing offer prices, as at June 2015 most residential customers could save money by being on a market offer rather than a standing offer:

In the Ausgrid network area, customers on the most common market offer were saving on average $232 (or around 12%) per year relative to standing offer prices. Customers on the lowest priced offer were saving on average an additional $34 (or 2%) per year.

In the Endeavour network area, customers on the most common market offer were saving on average $192 (or 10%) per year relative to standing offer prices. Customers on the lowest priced offer were saving on average an additional $69 (or 4%) per year.

In the Essential network area, customers on the most common market offer were saving on average $254 (or 10%) per year relative to standing offer prices. Those on the lowest priced offer were saving on average an additional $77 (or 3%) per year.

Customers moving from a standing offer to a market offer and switching retailers were likely to be able to make even greater savings. Depending on their network area, such customers could save up to $389 to $522 by switching to the lowest priced market offer across different retailers.

Our findings are qualitatively similar to those published in the St Vincent de Paul Society’s (St Vincent’s) report on the NSW energy prices.85 The key findings of St. Vincent de Paul Society’s report are as follows:

As at 1 July 2015, electricity retail prices in NSW are typically $190 - $400, or 9% to 13%, lower depending on the network area and meter type compared with last year (in July 2014).

Prior to 1 July 2014, approximately 35% of residential customers remained on the regulated rate; these customers were transferred to the ‘transitional tariff’ and received even greater electricity price decreases of between $235 and $655, or 11% to 21% (depending on network area and meter type).

Customers switching from the highest electricity standing offer to the lowest market offer could save up to $550 to $1,050 annually (depending on the network area) provided that they pay their bills on time.

85 St Vincent de Paul Society, NSW energy prices July 2015 – An update report on the NSW tariff-

tracking project, July 2015.

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In the year to July 2015, the average price reduction in market offers is between $220 to $380, or 11% to 14% annually. However, these savings are largely achieved through conditional discounts such as paying bills by the due date. Otherwise, the average market offers have reduced by around 9% to 13% over the same period, which is consistent with the price movement that was measured for electricity standing offers.

Our numerical results cannot be directly compared to these, as St Vincent’s report relates to price changes for different time periods and calculates annual bills based on average consumption of 7,200 kWh (we use 6,500 kWh).

6.3.2 Changes in small business customer prices

As for residential customers, we compared the annual bills for small business customers in 2013-14 and 2014-15 in each network area ($2014-15). The 2013-14 bill is calculated using standing offer and regulated offer prices, annualised as at June 2014. These 2013-14 bills include the cost of the carbon price. The 2014-15 annual bills are calculated using standing offer, most common and lowest priced offer prices, annualised as at June 2015. Due to the repeal of the carbon price these bills do not include any carbon price costs.

Changes in standing offer prices from June 2014 to June 2015

Standing offer retail electricity prices have also declined for small business customers. These prices decreased in all network areas by around 4% to 13% between June 2014 and June 2015. For typical small business customers on standing offer prices, the estimated annual bill reduction is around:

$125 to $381 (or around 4% to 11%) per year in the Ausgrid network area

$146 to $390 (5% to 13%) per year in the Endeavour network area, and

$208 to $438 (around 4% to 9%) per year in Essential network area.

Appendix B provides figures comparing annual bill for small business customers by retailer in each network supply area.

Savings available relative to standing offer prices at June 2015

As at June 2015, most small business customers could save money by being on market offer rather than standing offer prices:

In the Ausgrid network area, customers on the most common market offer were saving on average $386 (or 12%) per year relative to standing offer prices. Customers on the lowest priced offer were saving, on average, an additional $114 (or 4%) per year.

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In the Endeavour network area, those on the most common market offer were saving on average $369 (or 14%) per year relative to standing offer prices. Customers on the lowest priced offer were saving, on average, an additional $69 (or 2%) per year.

In the Essential network area, customers on the most common market offer were saving, on average, $427 (or 10%) per year relative to standing offer prices. Those on the lowest priced offer were saving, on average, an additional $158 (or 3%) per year.

Appendix B provides more information.

6.3.3 Prices in regional areas

As required under the Act, we considered retail electricity prices in regional areas, and assessed the differences between these prices and those in urban areas. We analysed the differences in annual bills for typical residential and small business customers across network areas, and the savings available relative to standing offers across network areas.

Differences in annual bills across network areas

Our analysis indicates that annual bills for small customers on standing offer electricity prices are higher in regional areas than urban areas. In the Essential Energy network area, which represents regional areas of NSW, estimated annual bills are approximately:

30% to 38% higher for typical residential customers than in the Ausgrid and Endeavour network areas, and

34% to 39% higher for typical small business customers than in the Ausgrid network area, and 58% to 65% higher than in the Endeavour network area.

These differences in estimated annual bills are largely due to the higher network costs in the Essential network area. For typical residential customers, network prices in this area are 36% and 64% higher than in the Ausgrid and Endeavour network areas, respectively. For typical small business customers, network prices in the Essential network area are 46% and 100% higher than those in the Ausgrid and Endeavour network areas, respectively.

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Differences in savings available relative to standing offer prices across network areas

To compare the savings available to small customers relative to standing offers across network areas, we estimated annual bills using the prices for each retailer’s standing offer and lowest priced offer. We took account of all available conditional and non-conditional discounts to calculate the ‘effective discounts’86 embedded in the lowest priced offer prices relative to standing offer prices as at June 2015.

The results of this analysis should be interpreted with caution. In particular, the analysis was designed to observe whether the savings available to a retailer’s regional customers (ie, those in the Essential Energy’ network area) are materially different to those available to its urban customers (the Ausgrid and Endeavour areas). It was not designed to rank the retailer’s market offers. Indeed, a market offer with a higher discount does not mean it provides a better deal for customers. For example, some retailers may use a higher benchmark price than others, so their market offers appear to include larger discounts. In addition, our calculation of the effective discounts does not take into account non-price incentives such as sign-up bonus rebate or credit, extra frequent flyer points or first-month free electricity. Further, our analysis is based on prices as at June 2015 and therefore does not reflect discounts currently available in the market.

We did not observe any material difference between the savings relative to standing offers available across network areas. As Figure 6.4 shows, in most cases, the discounts available to residential customers in the Essential network area are similar to those available in the Endeavour network area. Some retailers provide higher discounts in the Essential network area than in the Ausgrid network area. Figure 6.5 shows that the discounts available to small business customers are more variable across regions. In most cases, discounts available in the Essential network area are similar to those in the Ausgrid network area. These findings suggest that customers in regional areas are unlikely to be at a disadvantage in terms of accessing discounts off the standing offers – and, if they shopped around for better deals, they could gain bigger savings as a percentage of total bills than customers in some urban areas.

86 When promoting market offers, retailers often advertise the deal as a discount off their standing

rates. However, actual savings on the total bill are likely to be different from the advertised rates depending on whether discounts apply to usage and/or fixed charges. We therefore calculate an “effective discount”.

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Figure 6.4 Effective discounts embedded in lowest priced offers for residential customers by distribution area

Note: Bills are calculated based on annual consumption of 6,500 kWh, taking into account all available conditional and non-conditional discounts as at June 2015.


Figure 6.5 Effective discounts embedded in lowest priced offers for small business customers by distribution area

Note: Bills are calculated based on annual consumption of 10,000 kWh, taking into account all available conditional and non-conditional discounts as at June 2015.

Data source: Electricity retailers and IPART calculations.

6 Price movements


6.4 Changes in underlying costs

We analysed the changes in some of the underlying costs of supplying electricity over the past 12 months. We focussed on cost categories where information is readily available and covers the vast majority of a retailer’s total costs of supplying electricity. These categories include:

costs associated with the carbon price and its repeal network costs wholesale electricity prices, and green scheme costs.

6.4.1 Changes in costs associated with the carbon price

The carbon price was repealed in July 2014, with effect from 1 July 2014. After the approval of the carbon price repeal, electricity retailers announced that cost savings would be passed onto households and backdated to 1 July 2014. The Australian Competition and Consumer Commission was responsible for monitoring that electricity retailers passed through these savings to customers.

Average cost savings in NSW ranged from around 8% to 10% for a typical residential customer, and from 7% to 9% for a typical small business customer.87 These cost savings are averages; for individual customers, the cost saving will depend on where they live, the type of tariff they are on, and how much energy they use.

6.4.2 Changes in network prices

On 1 July 2014, there was a reduction in network prices for most residential and small business customers. The impact on total annual electricity bills varied, depending on the customer’s level of consumption. However, for typical residential customers with annual usage of 6,500 kWh, the network component of the retail electricity bill fell (in real terms) by around:

3.9% in the Ausgrid network area

3.4% in the Essential network areas, and

0.3% in the Endeavour network area.

For typical small business customers with annual usage of 10,000kWh, network prices decreased by around 0.3% and 3.7% in the Endeavour and Essential network areas, but did not change in the Ausgrid network area.

87 Each retailer was required to publish this information in a Carbon Tax Substantiation Statement

on its website.

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6.4.3 Changes in wholesale electricity prices

Across 2013-14, the volume-weighted average weekly spot price in NSW tracked around $50/MWh. In 2014-15, this price ranged from around $26 to $53/MWh (Figure 6.6).88 Spot prices may not reflect retailers’ actual exposure to the wholesale electricity market, as retailers generally use a range of exchange-traded and over-the-counter derivatives to manage price volatility. They also serve customers who normally have a ‘peakier’ load profile than the overall system load. This means changes in spot prices may not necessarily reflect changes in efficient costs for retailers.

Figure 6.6 Volume-weighted average weekly spot prices in NSW from 2011-12 to 2014-15 (nominal)

Note: See footnote 88 for a description of the high price event in December 2013.

Data source: AER, Weekly volume weighted average spot prices, http://www.aer.gov.au/node/14439, accessed 27 October 2015.

6.4.4 Changes in green scheme costs

Retailers also incur costs to meet ‘green scheme’ obligations including the:

Renewable Energy Target (RET), which comprises the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES).

Energy Savings Scheme (ESS).

88 The high price event in December 2013 was due to i) high temperatures (41 degrees at Olympic

Park) driving high demand in NSW, ii) a reduction in the available capacity in NSW due to physical reasons such as unplanned outages, and iii) network congestion in Victoria forcing electricity to flow from NSW to Victoria, increasing prices in NSW. AER, Electricity spot prices above $5000/MWh – 20 December 2013 New South Wales, 20 February 2014, http://www.aer.gov.au/node/23877, accessed 22 June 2015.

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In general, retailers are required to purchase and surrender a certain number of certificates to meet their obligations under these schemes. For the LRET and SRES, retailers purchase and surrender large-scale generation certificates (LGCs) and small-scale technology certificates (STCs), respectively. For the ESS, retailers purchase and surrender a certain number of energy savings certificates (ESCs).

Figure 6.7 shows that daily spot prices of LGCs have generally increased over the past year. In July 2014, these prices were around $30/MWh. Prices had spiked to $50/MWh by mid-March 2015, and further increased to around $52/MWh by June 2015 – an increase of more than 73% over the year.

Figure 6.7 Daily closing spot LGC price during 2014-15 (nominal)

Data source: Business Spectators, Renewable certificates at record peaks, available at http://www.businessspectator.com.au/article/2015/7/3/carbon-markets/renewable-certificates-record-peaks, accessed 27 October 2015.

Figure 6.8 shows the STC prices have increased slightly since July last year, reaching $40/MWh in June 2015 after a dip at the end of calendar year 2014.

ESC prices have also increased since last year. The average spot price in 2014 was $13/MWh. In the six months to 30 June 2015, it was $18/MWh, and reached a high of $23/MWh on 15 June 2015.89

89 An ESC represents 1 tonne of CO2 equivalent (CO2-e) resulting from energy savings activities,

and is quoted in $/tCO2. For consistency, we have converted ESC prices to $/MWh using a conversion factor of 1.06. See http://www.ess.nsw.gov.au/Common_questions/ Energy_savings_certificates, accessed 15 July 2015.

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Figure 6.8 Daily closing spot STC price during 2014-15 (nominal)

Data source: Business Spectators, Renewable certificates at record peaks, available at http://www.businessspectator.com.au/article/2015/7/3/carbon-markets/renewable-certificates-record-peaks, accessed 27 October 2015.

6.5 Our assessment of price changes and cost changes

In our view, the reduction in standing offer prices over the past year is broadly consistent with the reductions in the cost of supply due to the removal of the carbon price and lower network prices. These cost reductions may have been offset to some extent by rising green scheme costs. We have not made an assessment of changes to retailers’ operating costs or profit margins. Based on our findings we consider that a detailed review of retail prices and profit margins is not necessary.

7 Rivalry and price and product diversity



The final two competition indicators we assessed were:

rivalry between retailers – the extent to which they are competing to attract and retain customers, and

price and product diversity – whether this diversity is consistent with a competitive market.

We assessed these indicators together because they are related. In a competitive market, retailers need to compete with their rivals to attract and retain customers. The primary way they do this is by marketing their products and services and competing on price and non-price components of their market offers. Therefore, in a competitive market, we would expect to see active rivalry between retailers and a range of different price and service offerings to meet the needs of customers.

To make our assessment, we considered retailer surveys conducted for the AEMC’s 2015 competition review, analysed the market offers available on the Energy Made Easy website, and took account of various media releases and reports made throughout the year.


We found evidence of retailers actively trying to attract and retain customers and a range of different prices and products in the market.

Price is the most common way that retailers attract and retain customers. Generally, they advertise their price as the percentage price discount it provides compared to a reference rate. In 2014-15, retailers offered substantial price discounts. However, as noted above, the largest percentage discount does not necessarily represent the lowest priced offer, as the reference rate can vary across retailers and plans. This means that to find the lowest priced offer, customers are likely to need price comparator tools like the Energy Made Easy, which allows them to search for the offer that provides the lowest bill, based on their consumption information.



We observed quite a wide range of prices in the market. Some of this variation relates to the different features of the market offers, such as fixed price and green power options. However, some customers, including those on standing offers, are likely to be paying more than they need to for a similar product. Some of these customers may need some help in shopping around for a better deal. However, others may feel that the time involved in changing to a better deal is worth more than the saving they could make from this. We do not consider that this is a sign that there is a problem with the market – rather, it is a rational decision for these customers not to participate in the market.

Retailers are also attracting customers through non-price measures, for example through offering lower or removing fees, providing more flexible payment options, increased call centre hours and online tools to help manage electricity usage. There are also new products including zero upfront cost solar systems, and emerging battery storage products that are targeted towards the growing solar PV market.

These findings are consistent with retailers’ views that there is strong rivalry and competition in the market, and with what we would expect to see in a competitive market that is working effectively.

7.2 Retailers’ perceptions of rivalry

As part of its competition reviews, the AEMC surveys retailers’ views on the degree of price and non-price rivalry in the market. In the 2015 survey, the respondents’ median rating for this rivalry in the NSW market was ‘high’, compared to ‘medium’ in the previous year’s survey. They attributed the increase in rivalry to the removal of retail price regulation, which they believe has encouraged new retailers into the market.90

Respondents also noted some specific indicators of increased rivalry, including an increase in the level of inducements and discounts offered to customers and increased marketing effort from small and large retailers.91

In addition, listed energy retailers (AGL, Origin Energy and CLP Group92) highlighted strong competition in the retail electricity market in NSW in their reports to shareholders.93

90 Farrier Swiss Consulting and K Lowe Consulting, AEMC 2015 Retail Competition Review: Retailer

Surveys, May 2015, p 26. 91 Ibid. 92 CLP Group is the parent company of EnergyAustralia. 93 AGL, Half Yearly Report to Shareholders - Half Year ended 31 December 2014; AGL, FY15 Full Year

Results Presentation, 12 August 2015; Origin Energy, 2015 Half Year Results Announcement, presentation to investors and analysts, 19 February 2015; Origin Energy, 2015 Full Year Results Announcement, 20 August 2015; CLP Group, Quarterly Statement 2015 (January – March); CLP Holdings, 2015 Analyst Briefing, October 2015.



7.3 Alternative energy sellers

In its submission to our Fact Sheet, EnergyAustralia noted that new business models using new technologies are an emerging source of competition for traditional retailers.94 These ‘alternative energy sellers’ usually offer solar power purchase agreements (SPPAs) to electricity customers. Under these agreements, the company provides, installs and maintains a solar panel system, at no initial cost. The customer agrees to buy the energy provided by the solar panels at a set price. In response to our Draft Report, Origin Energy agreed that the penetration of alternative energy suppliers has expanded the diversity of products available to customers and is putting pressure on the traditional retail model to respond with more differentiated and improved products to ensure they can compete.95 Alternative energy sellers may hold an AER issued exemption from the requirement to obtain an electricity retailer authorisation under the National Energy Retail Law. There are currently around 60 exemptions for alternative energy sellers listed on the public register on the AER’s website.96 A similar emerging business model is innovative energy sellers who offer solar and storage/battery services to customers.

In our view, over time, these new business models will increasingly compete with traditional retailers. As discussed below, some retailers are already responding to this source of competition by expanding their product offerings.

7.4 Marketing practices

Retailers use different marketing practices to attract and retain customers. Throughout the year there have been various television advertising campaigns particularly by the three largest retailers. For example:

AGL’s “not all solar is created equal” campaign97

Origin Energy’s “don’t waste your roof” campaign98, and

EnergyAustralia’s “home services” campaign.99

94 EnergyAustralia submission, February 2015, p 3. 95 Origin Energy submission, September 2015, p 4. 96 AER Public register of retail exemptions, http://www.aer.gov.au/node/11037, accessed

5 July 2015. 97 AGL ‘Not all solar is created equal’, https://www.youtube.com/watch?v=U51vmHJGuos,

accessed 4 July 2015. 98 Origin Energy, Origin Solar, https://www.youtube.com/watch?v=BwgARFDAncs, accessed

4 July 2015. 99 EnergyAustralia, Home services TV commercial, http://www.energyaustralia.com.au/about-

us/media-centre/TV-media-campaigns/home-services-tvc, accessed 4 July 2015.



In previous years, energy retailers also engaged in door-to-door and telemarketing sales. However, these methods of engagement appear to be declining, with fewer residential customers reporting direct approaches by retailers in the AEMC’s 2015 customer survey compared to last year’s survey.100 The ‘big three’ retailers have now ceased door-knocking practices.101 This follows some prosecutions of energy retailers for misleading or deceptive conduct when dealing with certain consumers.102

7.5 Price and product diversity

Energy Made Easy is a comprehensive and independent source of information on market offers for electricity and gas. By examining the offers available on this website, we made observations about the extent of diversity in tariff structures, prices, and product and service offerings.

7.5.1 Diversity in tariff structures

Tariff structures include a fixed charge and usage charges. Usage charges are either ‘single rates’, where you pay the same amount regardless of when you use electricity or ‘time of use’, where you pay a different amount depending on when you use electricity. Time of use tariffs require a more advanced meter than a basic accumulation meter.

While there is limited diversity in tariff structures at this stage, we consider that different tariff structures are likely to develop over time. This will be supported by more flexible and cost-reflective network prices and the market-led rollout of more advanced (smart) meters (see Chapter 2).


Markets, June 2015, p 152. 101 AEMC, 2015 Retail Competition Review – Final Report, 30 June 2015, p 26. 102 See for example: ACCC, Media Release - AGL ordered to pay $1.5 million for illegal door-to-door sales

practices, https://www.accc.gov.au/media-release/agl-ordered-to-pay-15-million-for-illegal-door-to-door-sales-practices, 21 May 2013, accessed 6 July 2015; Media Release - Origin to pay $2 million for unlawful door-to-door sales tactics, https://www.accc.gov.au/media-release/origin-to-pay-2-million-for-unlawful-door-to-door-sales-tactics, 30 March 2015, accessed 6 July 2015.



7.5.2 Price diversity

Most market contracts include discounts or price-related offers to attract and/or retain customers. The type of discounts and other price-related offers vary over time, so offers available now may not be available at a later time and vice-versa. We observed a range of different discounts and price-related offers in NSW, including:

One-off incentives for switching retailers, such as one month’s free electricity.

Conditional discounts such as loyalty discounts, pay on time discounts, bundling discounts (eg, dual fuel offers) and direct debit discounts. These discounts are usually applied as a set percentage reduction on the usage component of a customer’s bill.

Guarantees such as a fixed unit price for a period of time.

Figure 7.1 shows the number of offers (including standing offers) available to residential and small business customers in each network area of NSW, as at 6 July 2015. It also shows the range in estimated annual bill amounts, assuming that all available discounts are received. The estimated bill was calculated in Energy Made Easy.

We consider that the range of offers available is consistent with a competitive market. It is clear that retailers are offering substantial price discounts as a way of attracting customers.



Figure 7.1 Summary of retailers’ market offers as at 15 July 2015

Note: Estimated annual bills are based on annual usage of approximately 6,500 kWh for residential customers and 10,000 kWh for small business customers and include all available discounts. Results assume that customers have a single rate tariff and do not have controlled load for their hot water or other appliances.

Data source: Energy Made Easy, https://www.energymadeeasy.gov.au/, accessed 15 July 2015.

In its submission to our Fact Sheet, PIAC noted that in a deregulated market, some customers will pay more than they need to for essential energy services unless they remain engaged in the market.103 The range of offers from NSW electricity retailers partly reflects differences in non-price elements of the available offers. In other words, some customers may be willing to pay more for services or ‘add-ons’ that they value (see below). However, it is likely that some customers are paying more than others for a similar product. While customers who shop around will generally pay less than those who do not, we do not consider that price differentials mean there is a lack of competition. Instead, as observed in a recent research paper, competition can force retailers to charge different prices to different groups of customers depending on how they respond to price changes.104

103 PIAC submission, 13 February 2015, p 2. 104 Stephen Littlechild, Promoting or restricting competition?: Regulation of the UK retail residential

energy market since 2008, EPRG Working Paper 1415, Cambridge Working Paper in Economics, September 2014, pp 8-9.



While this report is about small electricity customers, the market for large electricity customers provides some insights into the diversity of offers in a more mature market. For example, large customers have access to voluntary load shedding arrangements and demand charges that reflect customers’ load profiles:

Voluntary load shedding refers to when customers agree to reduce their energy consumption, during peak demand times.

Demand charges (also known as capacity charges) are based on the maximum amount of electricity required by a customer over a short interval (eg, half an hour). Customers with higher maximum demand are charged a higher amount.

These options provide customers with opportunities for bill savings (eg, companies may be able to structure operations so that their electricity consumption is less intensive or can be quickly reduced at peak times) and may also put downward pressure on the cost of generation across the NEM, for the benefit of all customers.

7.5.3 Diversity in product and service offerings

While price will likely remain the most important factor for customers, retailers are also attracting customers by enhancing and diversifying their product and service offerings. This was noted by EnergyAustralia in its submission to our Fact Sheet105 and also by both Origin Energy and AGL in their response to our Draft Report.106 We observed the following examples of this:

flexible payment options, including monthly billing and bill smoothing

programs to provide greater support to vulnerable customers

services and advice to help customers reduce energy consumption

online portals to monitor energy use and billing

introduction of smartphone apps to view and control energy usage

extension of customer service hours for small customers (eg, AGL launched a 24-hour customer service line, AGL Anytime 24/7)

‘GreenPower’ and solar-feed in options, and

bonuses, such as frequent flyer points, credits, vouchers, online shopping programs.

105 EnergyAustralia submission, February 2015, p 4. 106 Origin Energy submission, September 2015, p 3; AGL submission, September 2015, p 3.



Early termination fees

Another area where retailers are competing for customers is in relation to fees. We conducted a survey of the range of early termination fees (ETFs) in market offers. We present the results for customers in Essential Energy’s network area in NSW (Table 7.1). While not shown in the table below, the results discussed below are similar in other network areas.

Table 7.1 Summary of ETFs (November 2015)

Number of offers % of total offers

Total residential offers in Energy Made Easy 70

Offers with no ETF 57 81%

Offers with ETFs 13 19%

ETFs between $20-$30 (incl GST) 5 7%

ETFs between $30-$99 (incl GST) 4 6%

ETFs between $100-$157.50 (incl GST) 4 6%

Note: Based on single rate residential offers with no controlled load in Essential Energy’s network area (postcode 2430). The range of ETFs noted in the table are for the first year of a contract. ETFs are often lower in subsequent years.

Source: Energy Made Easy website and IPART calculations.

As expected in a competitive market, there is a mix of different ETFs in market offers. From a total of 70 residential offers available for single rate meters, 13 offers (or 19%) include an ETF (Table 7.1). Hence, if a customer did not wish to enter into a market contract with an ETF, they can choose from around 80% of available offers.

Over the last two years, competitive pressure has led the ‘big three’ retailers to remove ETFs from most of their offers. Both AGL and Origin Energy have removed ETFs from their market offers, whereas EnergyAustralia still retains ETFs on some of their fixed rate products. We also found cases where retailers will voluntarily waive ETFs if they could not match an offer from a competitor. For those offers that include an ETF, many are a flat rate between $20 to $30. The offers with higher ETFs tend to offer a greater percentage price discount or other upfront incentive, relative to those offers without ETFs.

Currently, a component of ETFs is subject to caps under the National Energy Retail Rules (NSW).107 In 2013, IPART was asked by the NSW Government to set these caps. In our Final Report in December 2013 we set caps of:

$130 within 12 months of the date of first supply, and

$45 thereafter (until the end of the fixed term contract or fixed benefit period of a market retail contract).108

107 These caps do not include the monetary costs to the retailer of any upfront inducements offered

to the customer. 108 IPART, Early Termination Fees – regulating the fees charged to small electricity customers in NSW –

Final Report, December 2013, p 2.



These amounts exclude GST and the monetary value to the retailer of any upfront inducement costs (eg, upfront rebate on first bill, frequent flyer points, etc.)

The majority of market offers now either don’t include an ETF or have ETFs well below these caps. Therefore, we consider that competition is providing a better form of protection for customers relative to regulated ETF fee caps.

IPART finding

2 That competition in the retail electricity market is providing a more effective form of protection for customers, relative to regulated early termination fee caps under the National Energy Retail Rules (NSW).

7.6 Our assessment of rivalry and price and product diversity

In our view retailers are actively trying to attract and retain customers through a range of different prices and products in the market. This is what we would expect to see in a competitive market that is working effectively.

Our report covers the over the first 12 months since retail electricity prices were deregulated in NSW. A recently deregulated market provides the impetus for dynamic efficiency through market-led product and service innovation. We expect the benefits of deregulation will be realised gradually. In the large customer market where retail electricity prices have not been regulated for many years, we have already seen more innovative metering, cost-reflective pricing and demand management arrangements to reduce costs.

As competition continues in the small customer market, we expect innovation will be supported by technology, including solar panels, batteries and smart meters. This technology allows customers to better understand and have more control over their energy usage and costs. It is also leading to the emergence of new participants in the market, including businesses offering zero upfront cost solar systems. This will likely challenge traditional retailers to attract, retain and add value for their customers.


Review of the performance and competitiveness of the retail electricity market in NSW IPART

6

Appendices

A List of submissions


A List of submissions

Table A.1 Submissions received to our Fact Sheet

Submitter Date

AMCL 27 February 2015

EnergyAustralia 13 February 2015

Origin Energy 13 February 2015

The Public Interest Advocacy Centre (PIAC) 13 February 2015

Table A.2 Submissions received to our Draft Report

Submitter Date

AGL Energy Limited 4 September 2015

Energy Retailers Association of Australia (ERAA) 4 September 2015

Ethnic Communities’ Council of NSW Inc. 1 September 2015

Origin Energy 4 September 2015

Individual – Anonymous 5 August 2015

Individual – Anonymous 27 July 2015

B More information on price changes



In this appendix we provide additional information in relation to price changes discussed in Chapter 6 of this report.

B.1 Residential prices

Table B.1 provides descriptive statistics of estimated residential annual bills annualised as at June 2015.

Table B.1 Descriptive statistics of estimated annual bills as at June 2015 ($2014-15)

Standing offer

Most common offer

Lowest priced offer

Ausgrid network area (n=7)

Mean 1,954 1,721 1,687

Median 1,957 1,717 1,677

Minimum 1,896 1,678 1,629

Maximum 2,018 1,762 1,757

Endeavour network area (n=7)

Mean 1,920 1,728 1,659

Median 1,911 1,702 1,621

Minimum 1,878 1,631 1,567

Maximum 2,000 1,861 1,861

Essential network area (n=7)

Mean 2,581 2,326 2,249

Median 2,580 2,295 2,212

Minimum 2,515 2,215 2,130

Maximum 2,652 2,488 2,488

Note: Bills are calculated based on annual consumption of 6,500kWh, taking into account all available conditional and non-conditional discounts.

Source: Electricity retailers and IPART calculations.



B.2 Small business prices

Table B.2 provides descriptive statistics of estimated small business annual bills annualised as at June 2015.

Table B.2 Descriptive statistics of estimated annual bills as at June 2015 ($2014-15)

Standing offer

Most common offer

Lowest priced offer

Ausgrid network area (n=7)

Mean 3,185 2,799 2,685

Median 3,183 2,827 2,749

Minimum 3,068 2,405 2,405

Maximum 3,323 3,172 2,816

Endeavour network area (n=7)

Mean 2,721 2,352 2,282

Median 2,756 2,349 2,305

Minimum 2,561 2,181 2,181

Maximum 2,827 2,628 2,404

Essential network area (n=7)

Mean 4,346 3,919 3,762

Median 4,354 3,807 3,788

Minimum 4,224 3,664 3,635

Maximum 4,459 4,280 3,807

Note: Bills are calculated based on annual consumption of 10,000 kWh, taking into account all available conditional and non-conditional discounts.

Source: Electricity retailers and IPART calculations.

Figures B.1 to B.3 summarise the changes in 2013-14 and 2014-15 annual small business bills in the Ausgrid, Endeavour and Essential network areas ($2014-15). The 2013-14 bill is calculated using standing offer and regulated offer prices as at June 2014. The 2014-15 annual bills are calculated using standing offer, most common and lowest priced offer prices as at June 2015.

For most retailers, their lowest priced offers available were also their best offers. However, there is an instance where a retailer’s lowest priced offers are more expensive than its most common offer prices. This occurs when most customers are on offers with bigger discounts than the current lowest priced offers, and the most common offers are no longer available to new customers.



Figure B.1 Annual bill comparison for small business customers in the Ausgrid network area ($2014-15, incl. GST)



Figure B.2 Annual bill comparison for small business customers in the Endeavour network area ($2014-15, incl. GST)





Figure B.3 Annual bill comparison for small business customers in the Essential network area ($2014-15, incl. GST)



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