Empowering Consumer C hoice in E nergy Markets

1. Empowering Consumer Choice in Energy Markets Institute for the Study of Competition and Regulation, 21 March 2014 JOHN PIERCE CHAIRMAN AUSTRALIAN ENERGY MARKET COMMISSION

2. Governance in the National Electricity Market in Australia: separate accountabilities and functions National Electricity Law Sets out powers and accountabilities of market institutions Delegates Rule Making Authority to the AEMC National Electricity Rules Sets out market operation and economic regulation framework, and delegates Market Procedures Authority to the AEMO and Guidelines Authority to the AER and AEMO Market Procedures Sets out the detail of how the market operates on a daily basis, eg settlements Guidelines Sets out approaches on how market institutions interpret rules and make decisions under the rules, eg revenues

3. Consumer bills are a function of what happens in the competitive, regulated and policy sectors Competitive generally not contributing to increases Retail 10% Wholesale 23% Regulated driven most increases Networks 51% NSW consumer bills increased 58%-82% in the past 5 years (12%-16% pa) Other 15% Policy driving some increases Bill breakdown for NSW from AER, State of the Energy Market 2013, p.129, drivers of increases from section 5.5.2; increases for NSW calculated from AER, Submission to the Senate Select Commission on Electricity Prices, 17 September 2012, p. 5.

4. Competitive Retail Findings and recommendations Wholesale Regulated Networks Consumer bills Other Policy

5. Consumers are active in energy markets in New South Wales Switching behaviour in the last 2 years Source: Newgate Research, NSW Consumer and Stakeholder Research Report, September 2013

6. Retailers are competing with each other Greater Sydney area: estimated bill for electricity customers that pay on time July 2012 – July 2013 (average consumption of 7,200kWh) Even if you paid late you could save! Source: St Vincent de Paul Society, NSW Energy Prices July 2012-July 2013, August 2013

7. New retailers are entering the market Customer churn for the 12 months to 30 June 2013 A further 5,000 customers switched from Origin and EnergyAustralia to smaller retailers Source: Credit Suisse, Integrated Utilities Update, 10 September 2013

8. Overall, we found the NSW market is competitive • Competition in NSW is sufficiently robust to promote consumer choice • Removing retail price regulation will lead to more innovation, product choice and competitive pricing • However, we found that consumers find information on energy plans difficult to find and understand • Empowering consumers to participate in the market will further enhance the effectiveness of competition • The second part of the NSW competition review thus focused on the consumer experience and how to support consumer confidence

9. We asked customers about their experience in the market and what they think, do and want I think it’s too complicated to compare deals I would be interested in switching if I can save money I do not trust retailers and the information they provide I know I can choose my retailer, I just didn’t know there were different plans If there was a website to go to, I would use that to check information

10. We found that not all consumers are interested in switching: some need more information to help Very low interest and confidence and highly unlikely to switch despite moderate concern about prices Confident they know the options and concerned about prices but unlikely to switch. They lack trust and find it too complicated to compare offers. Confident they know the options available, likely to have switched, be currently looking for a better deal or intend to switch. Fairly interested in switching but lack confidence and need reassurance about consumer protection. Fairly confident and concerned about prices but unlikely to switch. Can be swayed if they can save money. Looking for credible information. Highly confident with moderate interest and concern but extremely unlikely to switch. Happy with current provider.

11. We developed recommendations to empower consumer choice based on the research • We developed a consumer engagement blueprint to identify consumers’ information needs • The objective of the blueprint is: • The elements of the blueprint included: • Providing information/an information campaign • Refinements to existing comparison tools • Providing additional support to consumers that need it • Consumers are confident they have the right information and support to choose an energy plan that suits their needs

12. Competitive Retail Findings and recommendations Wholesale Regulated Networks Consumer bills Other Policy

13. Power of choice: AEMC developing mechanisms to increase demand side participation

14. Competitive Retail Findings and recommendations Wholesale Regulated Networks Consumer bills Other Policy

15. Consumers have traditionally not been part of the regulatory process: we are now seeing to it that they are

16. Total demand in the NEM has been falling in recent years

17. But growth in demand has been falling for some time Derived from: BREE, Australian Energy Statistics 2013, Table I. Our understanding is that this data includes NEM and off-grid electricity consumption.

18. Changes in demand trends: rethinking the role of consumers and the structure of tariffs

19. Competitive Retail Findings and recommendations Wholesale Regulated Networks Consumer bills Other Policy

20. Policy integration: key to avoiding unintended consequences

21. Summary: consumer bills are a function of what happens in the competitive, regulated and policy sectors Competitive Retail Wholesale Regulated Networks Consumer bills Other Policy

22. But consumer engagement throughout the supply chain results in better, consumer-focused, outcomes Retail Competitive Wholesale Networks Regulated Consumer engagement Other Policy