Many retailers operate in the NSW energy markets
There are many retailers that compete against each other in NSW to offer electricity and gas plans. You can see what plans they are offering on the Australian Government's Energy Made Easy website.
Different retailers have been able to operate in NSW since 2002. Before this, there was a single government-owned supplier in each network area that provided both distribution and retailing services.
In the early days of competition, IPART continued to set limits on retail prices for the Government owned suppliers in each network. The NSW Government removed retail price regulation for electricity from July 2014, when the Australian Energy Market Commission found that competition was sufficiently developed. It removed retail price regulation from gas in July 2017.
When price regulation was removed, IPART commenced a role monitoring competition in these markets.
Retail price regulation for electricity was reintroduced in 2019 through the introduction of the Default Market Offer. The Default Market Offer sets a maximum price that can be charged to residential and small business customers on standard offer contracts. Retailers are also required to compare the price of a market offer contract to the Default Market Offer price when advertising an electricity offer. This helps consumers to easily compare see which offer is cheaper.
While retail price regulation has been reintroduced, IPART continues to monitor competition in the retail electricity and gas markets. We report annually to the NSW Minister for Energy. Our latest energy market monitoring reports are available here: Energy Market Monitoring 2023-24.
What is the purpose of competition?
Competition was introduced into energy retail markets to provide value for customers in the longer term. Without competition, there are limited incentives for businesses to become more efficient over time.
In a competitive market, businesses need to find new ways of doing things to gain customers – either by becoming more efficient to reduce prices, or by offering a better product or service. If a business increases its prices above what it costs to supply the service plus a reasonable profit, then they will be outcompeted and lose customers.
Market driven cost reductions should outweigh the costs to competition
There are some costs to competition. For example, businesses need to spend money on marketing to attract customers. In the energy market, systems needed to be set up to transfer customers from one retailer to another. However, these costs should be outweighed by the continual pressure on retailers to reduce their key cost drivers. This means buying wholesale energy efficiently to avoid exposure to high price spikes or finding new ways to drive down these costs – like rewarding customers to reduce energy usage when wholesale prices are high or selling electricity from household batteries back into the market at these times.
Pricing differences can accelerate competition
As retailers compete with each other, a range of prices will emerge in the market. This reflects the variation in service and product offerings, and the different price strategies used by retailers’ costs.
A common strategy has been for retailers to charge higher prices to customers who are less price sensitive and less willing or able to switch retailers. This has been referred to as ‘loyalty tax’. Differences between prices can encourage people to engage with the market and shop around because to make savings. As retailers attempt to outcompete each other for these customers, they should become more efficient, and the quality of services and products should improve.
Competitive markets should result in relatively lower prices in the long run
Although retailers constantly face competitive pressure to either lower their prices or develop new and better products, this does not mean that price rises will not occur in competitive markets. Even efficient, competitive retailers must respond to external cost pressures they can’t control, in some cases by increasing prices. In electricity markets, these external costs include the network costs faced by retailers, or increases in the cost of purchasing electricity from the wholesale market, known as the National Electricity Market.
However, over the long run, competition should deliver lower prices and more choice for consumers compared to a situation without competition, where a single supplier faces little (if any) no incentive to adapt to consumer preferences, to lower prices or to improve product offerings.
Strong protections are required for customers experiencing vulnerability
Energy is different from other products and services because it is an essential service. Therefore, strong customer protections are needed to ensure that customers are able to connect with a retailer, and to provide customers in financial difficulties with different options for paying their bills to stay connected.
In addition to the Australian Consumer Law, which applies to all businesses, energy retailers must comply with the National Energy Retail Law and Rules. These provide energy-specific consumer protections and more detailed provisions regulating the rights and obligations of retailers and consumers in retailer energy markets.
In any market, there will continue to be customers experiencing vulnerability even with additional protections. Governments provide targeted assistance to these customers through the social welfare system.
The NSW Government offers a range of assistance to households including the Low-Income Household Rebate and NSW Gas rebates among others. You should visit the NSW Government’s Savings Finder website or book an appointment with a specialist to check if you are eligible for assistance.