Vics switched on for a better electricity deal

Victoria probably leads the world in the percentage of the population that is inebriated on the first Tuesday of November each year.

We also head the list in another seemingly trivial but actually very important measure.

Victorians lead the world in switching electricity retailers.

Some 75 per cent of us have changed our electricity retailer since 2002 when the market was opened up to competition.  This is considerably ahead of the top US jurisdiction, Texas, where only about 25 per cent of retail consumers have switched.

With 32 licensed retailers, Victoria may also be the best served in terms of supplier numbers.

Why does this matter?  After all, we get hassled by telephone sellers, shift to another retailer and save a few dollars or get cheap footy club membership.  And to us the shift is virtually meaningless.  Electricity is electricity.  It's the ultimate commodity with no quality differences and reliability levels we take for granted.

The cut-throat competition we are seeing actually provides many pro-consumer benefits aside from price.

Important among these is that retailer rivalry has brought a realisation that many of us find direct billing acceptable.  Retailers offering this make paperwork savings and offer customers a share of these.

More fundamentally, vigorous competition forces retailers to search out the lowest cost supplies and to match these with customer demands.  Competitive markets provide a particularly strong incentive.

This is because the price retailers charge is only about $0.14 a kilowatt hour (over half of which is wire costs).

But the cost of the electricity itself can rise to $10 a kilowatt hour.  This forces retailers to place a very high priority on contracting ahead for their electricity needs.

In the past, with a monopoly retailer, if a shortage occurred, supplies could be just cut off.  The industry lost a sliver of revenue and the customer was inconvenienced.

Now the industry faces a real penalty for non-performance, it takes special care to meet customer demands.  In Victoria and elsewhere in Australia this has meant a spate of new plants built by Alinta, AGL, Tru, Origin and Snowy to cover peak demand.  The outcome has been a bonus of much better reliability at lower cost.

Retail competition also offers other benefits.  For example it facilitates a variety of different product offerings.  Among these has been "green" power packages obtainable by those prepared to pay a premium for this form of electricity supply.

Many are keen to see "smart" meters being installed so that power use by time of day can be measured.

This would allow a matching of the electricity costs with prices for those using air conditioners during peak hours.  It would drive correspondingly lower charges to other customers.

The overall benefit of this turns on the potential cost saving against the installation costs of smart meters.

Australia has come a long way in transforming the lumbering State Electricity Commission into a set of consumer oriented businesses which have carved out excessive costs and provided better reliability.

Electricity retailers, once the Cinderellas of the industry, have been indispensable in this process.

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