Time to stop treating the symptoms and fix the cause

Energy prices do need to come down, but short-term government intervention could create problems in the long run.

Frank Calabria, CEO

Today, Australia has a singular focus when it comes to energy: get power prices down. Power prices have risen significantly for households and businesses over the past decade and governments are right to focus on them. But short-term interventions are not the answer and not in the interests of the sector or consumers.

In its July report, the ACCC found that over the past decade power prices have risen substantially due to over-investment in the distribution networks that transport electricity, the cost of state and federal green schemes, and volatility in wholesale power prices due in part to the early closure of coal plants with no new supply in its place.

Much of this is has been exacerbated by a lack of coordination between energy and climate policies at state and federal levels.

The government is progressing a handful of the ACCC’s 56 recommendations for reform across the sector: a default reference price, harsh penalties for market manipulation including a threat to break up energy companies, underwriting new baseload generation and caps on the amount of generation any participant can own in a market.

These actions might provide some short-term price relief, and we are more than willing to work with government on the implementation of these actions. However, we also need to recognise that these interventions do not get to the core of what drove up power prices in the first place.

The ACCC highlighted costs right across the energy supply chain, and the government is yet to provide a formal response to the recommendations that address these issues. We are happy to play our part, but everyone across the industry has a role to play if we want to make energy more affordable for the long term. In this, I was encouraged by Minister Angus Taylor’s recent opinion piece in this paper that network costs and solar subsidies are on his radar.

We share other areas of alignment with the new Energy Minister. We agree on the need to reduce power prices, and that’s why we were the first retailer to deliver flat or falling tariffs in most markets from 1 July. This included Origin absorbing $80 million in green scheme and networks costs in NSW.

We absolutely agree that energy offers need to be simplified so customers can readily and easily compare retailers. We support the banning of unanchored discounts which only confuse customers and the introduction of dollar estimates, which are easy for anyone to understand and compare. We also support banning practices that further confuse retail customers, or target the vulnerable, such as door knocking – a practice Origin recognised as detrimental some years ago. These actions among others will put customer outcomes back at the heart of our energy sector – where they should be.

These reforms could be implemented easily and help consumers to access savings immediately – as opposed to a complex default reference price which takes time to get right and needs to be regularly updated.

To make one thing clear, we are not a company or an industry afraid of scrutiny or reform.

With energy prices already on their way down we have a golden opportunity to implement reforms that we know will deliver a further structural fall in energy prices, encourage continued investment in new supply and can simplify the retail market so more consumers engage and experience the benefits. By just adopting five of the ACCC recommendations the government would be missing a vital opportunity to regain Australia’s comparative advantage in energy.

A default price that is genuinely a reference point and that is set at the appropriate level to enable competitive offers from a wide range of retailers can work in the consumer’s favour. However, fixed price regulation would result in unintended consequences and is effectively focusing on the symptom, not the cause. At a time when energy companies need to throw everything at new products and services to help customers make the transition, capping prices would add complexity and cost, stifle investment and innovation and ensure that only the larger retailers such as Origin are able to effectively compete for customers.

Many consumers are getting good deals, but the industry needs to work on simplifying and better communicating offers, and cutting out dodgy practices so more people engage in the market. At the same time, let’s also focus on a productive discussion about all the issues across the whole supply chain, rather than emotive rhetoric that discourages a rational policy response.

At the end of the day, the industry supports sensible and well considered energy market reform that delivers good outcomes for consumers and the market.

This was an opinion piece published in The Australian Financial Review on 8 October 2018.

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