Melbourne, Australia --- (METERING.COM) --- June 26, 2007 – The case for removing retail price regulation for electricity and gas in an openly competitive energy market is compelling and must be acted on quickly, the Energy Supply Association of Australia said today following the release of a report into the effects of retail price regulation on Australian energy markets.
ESAA, representing the views of 44 electricity and downstream natural gas companies, said the community should know that regulating the price of electricity and gas for residential consumers comes at great cost, much of which is borne by the consumer.
ESAA Chief Executive Officer Brad Page said the report, by consultants CRA International, found that price regulation in contestable retail energy markets confers little or no public benefit but imposes considerable direct and indirect costs. It found that the ongoing regulation of retail energy prices limits competition for lower priced and more innovative services, distorts price signals for efficient investment in new energy supply and imposes unnecessary regulatory costs on the taxpayer.
"Recent decisions on new maximum retail electricity prices in several states show why only an openly competitive retail market can get the price right," said Mr Page. "In New South Wales, for example, the regulator has set prices for the next three years but included a provision to annually review the decision because of uncertainty about the future cost of wholesale electricity.
"This demonstrates that you cannot independently determine retail prices in a highly competitive wholesale market. There really is no substitute for vibrant competition among energy retailers."
Mr Page said that continued retail price control arrangements are also a substantial impediment to achieving environmental objectives. "With governments committed to emissions trading and many requiring improved energy efficiency and demand management outcomes, continued strict price control regimes limit the ability of energy retailers to offer pricing structures that support more greenhouse-friendly consumption decisions.
"Regulators are very unlikely to accurately determine the real cost of trading emissions or meeting energy efficiency obligations, so consumers are likely to pay more than they need to," he said.
In addition, regulators cannot possibly tailor pricing regimes that suit the wide variety of consumption and service requirements of ordinary Australian families.
"Allowing energy companies to compete for customers free from price controls means a more efficient delivery of energy, greater consumer choice and improved energy efficiency opportunities," said Mr Page. "Removing retail price controls for electricity and gas services for residential and small users is the most significant task remaining in Australia's energy market reform program, and an urgent priority in the current environment of needing to address greenhouse gas emissions."