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Energy Regulator ramps up pressure for further electricity tariff reductions

The Australian Energy Regulator has rejected arguments by Energy bosses against partial re-regulation of electricity prices, saying that the move has worked for customers who are paying lower prices and can expect further electricity tariff reductions.

Chair Clare Savage said the new rules have struck a better balance between electricity customers and the energy industry. 

She rejected claims that the reduction in prices was putting the required new investment in transmission at risk.

Interviewed by the Australian Financial Review just before the release of the AER’s annual State of the Energy Market Report on July 1, she said: “I think we have got the balance right”. 

The AER’s review of energy tariffs found that customers not on competitive market offers saw electricity tariff reductions of between 11 and 13 percent in New South Wales and South Australia in the latter half of 2019.

Default market offers were introduced in mid-2019 under the stewardship of Energy Minister Angus Taylor and drove a round of write-downs and profit reductions among large electricity players. 

Ms Savage said the rate at which they were set still encouraged energy consumers to shop around on the competitive market, while allowing the industry to also invest in innovation. She also said that competition was healthy and working, pointing out that electricity consumers were moving away from the traditional “Big 3” to smaller retailers.

She said that given the sudden and substantial drop in wholesale prices and network tariffs, bigger price reductions are expected from electricity retailers in the future. She said that the drop announced for 2020-21 was quite modest.

In fact, AGL is holding prices steady in New South Wales while Origin reduced its average tariff by just 0.6 percent. Both are making bigger cuts in South Australia and Queensland. 

“I would expect to see some of those lower wholesale prices filter through in these … new financial year offers, but we should see much, much more of them next year,” she said, adding that the Australian Competition and Consumer Commission would be examining that in the context of its “big stick” energy legislation.

The government expects the large reductions in wholesale electricity prices to be respected by retailers.

The Prohibiting Energy Market Misconduct legislation came into effect on June 10 and requires cost reductions to be passed on to customers.

Energy Minister Angus Taylor said the reduction in wholesale prices “must flow on” to lower bills for homes and businesses.

He said: “Even before COVID-19 came along, we had seen significant reductions in wholesale prices and the government will be evaluating the new prices on offer by the big energy companies against wholesale price reductions.”

Ms Savage, who joined the AER in October and is also on the Energy Security Board, said she was very keen to make sure the energy industry regained the lost trust of the government and consumers, which had driven many of the policy reactions.

The AER found that more than 93 per cent of the investment since 2012-13 had been in wind and solar power, requiring more money to ensure system stability and reliability.

Ms Savage said that although a lot of work was being done by regulators and market bodies to integrate renewables, a lot more was needed, particularly to meet the net-zero goal by mid-century set by the Australian Energy Council last week.

“The transition is happening about as fast as it can right now, but it’s going to need to speed up if we are going to get to net zero by 2050.”

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