A leading Australian energy lawyer says big power providers are facing increased scrutiny from the competition watchdog amid concerns a shake-out of the industry could lead to price gouging.
- A top energy lawyer says the ACCC is likely to increase its scrutiny of energy pricing as competition diminishes
- There are fears soaring wholesale power costs could wipe out many retailers in the National Electricity Market
- The new Labor government says it will back action by the ACCC if warranted to help tackle rising prices
Soaring wholesale power prices are threatening to send many smaller electricity retailers to the wall, sparking fears consumers will be on the hook as competition disappears from the market.
Adding to the woes is a gas crisis on Australia’s east coast, where prices this week rose 50-fold and prompted warnings that some manufacturing businesses would be wiped out.
Luke O’Callaghan, a partner at Perth-based law firm Lavan specializing in energy, said the upheaval in the energy industry would be of intense interest and concern to regulators.
Chief among them was the Australian Competition and Consumer Commission, which Mr O’Callaghan predicted would be watching events closely to ensure there was no “unlawful anti-competitive behaviour”.
Mr O’Callaghan said the turmoil in the energy markets would be likely to flush out a number of smaller retailers who had been vital to providing competition and lowering prices.
While he stressed he was not suggesting wrongdoing, he said reducing competition could hand more power to incumbent providers such as AGL and Origin.
“Smaller…retailers that are trying to offer cheaper prices to consumers will probably go to the wall, which will mean there’ll be a major consolidation in the market,” Mr O’Callaghan said.
“And so, your AGLs, your Origins will become more powerful still.
“Because that nimble, retail competitive tension may well end up leaving.”
Industry on notice: Bowen
On Thursday, new Energy Minister Chris Bowen put energy retailers on notice by saying the Government would back action by the ACCC or the Australian Energy Regulator if it was warranted.
Mr Bowen made the comments after coming under questioning about what the new Federal Labor Government would do to tackle spiraling energy costs.
“If the Australian Energy Regulator needs to take action they will have our full support.
“But it will be based… on any evidence of wrongdoing or changes in approach.”
The ACCC was contacted for comment.
Worries about a UK-style energy crisis were thrust into the spotlight this week when power retailer ReAmped became the latest provider to bail of the market.
The New Zealand-based firm blamed the rocketing cost of wholesale electricity for the decision, saying it was no longer able to provide affordable supplies to households and businesses.
Driving much of the upheaval has been a spike in prices for coal and gas, which account for much of the electricity generated in the national electricity market.
According to chief executive Luke Blincoe, consumers would have a short window of opportunity to find another provider before ReAmped was forced to jack up prices as much as 100 per cent from July.
“The wholesale energy market has just become so extreme that we’re now seeing a situation where wholesale prices are above retail prices,” Mr Blincoe said.
“So, unless you’re a generator, there is simply not a sustainable position in the retail marketplace.
“And now is the opportune time to do that while there are still some deals available.”
Customers ‘will fall back’
At the heart of problems affecting many smaller retailers such as ReAmped is their exposure to the wholesale power market.
Energy lawyer Mr O’Callaghan noted that unlike bigger providers, smaller retailers such as ReAmped did not have their own generation plants and were therefore heavily exposed to wholesale prices.
Mr O’Callaghan suggested that as more retailers exited the market, people would increasingly fall back on benchmark prices mandated by the Federal Government.
Rates for those so-called default market offers were increased up to 18.3 per cent by the Australian Energy Regulator last month.
They also increased in Victoria, which has a separate system, albeit by a smaller amount.
According to Mr O’Callaghan, the prices were typically considered to be a cap on what retailers could charge consumers for power.
But amid the demise of smaller providers and expectations of jumbo-sized price increases elsewhere in the market, he said the default offers would become a safe haven.
“It’s going to get worse from the perspective of competition,” he said.
“A lot of the challenger retailers that were there to bring price control to a competitive market… will start getting flush out because the wholesale price will increase.
Events unprecedented: Industry
Analyst Marja Petkovic from Energy Synapse said the fact that surging coal and gas prices were behind many of the problems affecting the market at the moment highlighted the need to switch away from the fuels.
“What this energy crisis shows more than anything is that Australia needs to urgently put politics aside and get on with the job of building vastly more renewable energy and energy storage to reduce our reliance on fossil fuels,” Ms Petkovic said.
“This could be our biggest competitive advantage for decades to come.”
The Australian Energy Council, which represents major energy retailers, said there were no easy fixes for the problems bedevilling the electricity and gas markets in the Eastern States.
Chief executive Sarah McNamara says many of the factors affecting the market, such as coal and gas prices, are beyond Australia’s control and energy retailers.
She noted outages at some power plants in recent months had made the supply squeeze worse, but those problems would pass.
“But even with more supply, we can still expect to see ongoing price pressures given external factors, as well as factors like domestic gas shortages and high black coal prices,” Ms McNamara said.
“These market conditions are placing extreme pressure on gas and electricity retailers, and this will need to be monitored closely. Retailers need to balance the need to recover the higher costs of supply with cost-of-living pressures for end users.