Rivalries keep the market buzzing

First Data, Finland's highly regarded retail energy markets authority, rates Victoria as the world's most competitive energy market.

Victoria was among the first jurisdictions in the world to introduce full retail competition and, unlike other Australian markets, has dispensed with government control over retail pricing.

Last year, 600,000 electricity and 400,000 gas customers switched suppliers.  With 14 electricity and 10 gas retailers, there is plenty of competition.

Surveys undertaken for the Essential Services Commission show different price schedules make it worthwhile for customers to shop around.  The big three -- Origin, TRU and AGL -- are not always the cheapest supplier.

Green energy specialist, Jackgreen, was actually the cheapest for many customers but has recently gone into receivership.  Jackgreen fell victim to wafer thin margins on its wholesale energy purchases.  The market took that company's failure in its stride and no customer was disadvantaged.

The intensity of the competition in Victoria has provided not only sharper prices but also great incentives for suppliers to ensure high service levels.  Hence, when AGL ran into systems problems a year or so back, it very quickly moved to correct these knowing that its market share was vulnerable to fleet-footed businesses keen to exploit any weaknesses in a rival.

Such beneficial outcomes are due to competition.  This requires an ability of newcomers to enter the market and for all operators to unwind positions that have become unprofitable.  Also necessary is a capacity of suppliers to win market share if they have a better price and this involves them getting out and promoting their products.

Customer irritation with marketing campaigns is a small price to pay for the low prices and good service we enjoy.  However, a strong retailing sector is only one component of supply.

NSW customers have regulated electricity prices and competition is far less vigorous.  Regulation in NSW therefore requires periodic adjustments to all electricity price components.

This month, the NSW energy regulator recommended electricity price increases of 62 per cent for smaller customers.

The recommended NSW price increase involves a 60 per cent hike in the energy cost component and a similar increase in network costs.

As in other jurisdictions, Victoria's electricity network prices are regulated, because "poles and wires" are natural monopolies.  Inevitably, in Victoria those prices will also be increased, though less than in NSW, partly because the privatised businesses here operate more efficiently than their state-owned counterparts north of the Murray.

However, Victorians will see increases in the energy component of their electricity bills comparable to those in NSW.  At about $300 per customer and growing, these increases stem from the Commonwealth-proposed Emissions Trading System tax.

The Brumby Government has endorsed the ETS tax, which as well as hitting consumers would also severely damage Latrobe Valley generators.

Astonishingly, Victoria's state Liberal MPs also supported the tax, though they may yet reverse course and follow the changed Abbott-led Liberal Party position.

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