Watchdog: electricity market raises "significant concerns"

Inflated costs, lacklustre competition and weak infrastructure are hallmarks of the current electricity industry.

Confusing pricing, a lack of competition and rising wholesale costs are behind household electricity bills surging by more than 60% within the last ten years.

That's according to the preliminary findings of a six-month inquiry conducted by the Australian Competition and Consumer Commission (ACCC), after it was tapped by the federal government to scrutinise the behaviour of electricity retailers and examine why competition hasn't resulted in lower prices.

The Retail electricity pricing inquiry preliminary report reveals household electricity bills shot up by 63% on top of inflation from 2007 to 2008, highlighting "significant concerns about the operation of the national electricity market".

Among the many factors behind rising bills is the complex electricity plans being offered, says Rod Sims, chair of the ACCC, as they discourage customers from shopping around for a better deal.

"Consumers and businesses are faced with a multitude of complex offers that cannot be compared easily. Many of these issues arise from unnecessarily complex and confusing behaviour by electricity retailers," says Sims.

"In some cases this appears to be designed to circumvent existing regulation."

The watchdog characterises the market as lacking competition, with particular reference to the stronghold of the big three "gentailers". 

AGL, Origin and EnergyAustralia are said to be choking out competition from smaller electricity providers in most regions, especially in NSW, South Australia and Victoria, where they control more than 60% of the infrastructure needed to generate electricity.

Then there's the increased use of gas in electricity generation, when the gas industry is also being investigated by the ACCC for out-of-control costs. The closure of coal plants has created a need to use gas more in the generation of electricity, particularly in Victoria, with the rising cost-of-business being passed onto consumers.

But the main reason behind inflating electricity bills has to do with rising network costs. On the average electricity bill of $1524, the ACCC has found that network costs account for 48%, followed by wholesale costs at 22%, and retail and other costs 16%.

Wholesale costs were said to have jumped $167 per bill in 2016 to 2017.

Households in Queensland followed by South Australia and NSW faced the most expensive electricity bills in 2016 to 2017, the ACCC has found.

Some of the recommendations the ACCC makes in its preliminary report can be implemented now, including additional resources being allocated to the Australian Energy Regulators.

But most of the ACCC's recommendations will be included in the final report when it is submitted to Treasurer Scott Morrison in June 2018.

The options being considered by the watchdog include: finding out how to generate more electricity without relying on the big three gentailers; preventing further consolidation of existing generation assets; and improving the availability and cost of using gas in the generation of electricity.

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