Australia: Opening up the WA residential and small business electricity market to competition

Last Updated: 5 September 2016
Article by Brett Cohen and Armin Fazely

Most Read Contributor in Australia, August 2016

Full retail contestability in the WA electricity market is coming, but the State Government is still considering the steps it needs to take to implement it.

One of the key reforms selected by the State Government following the review of the Wholesale Electricity Market for the South West Interconnected System (SWIS) was to open up the residential and small business electricity market to competition, known as "full retail contestability". This is expected to commence by 1 July 2019. In this article, we consider this key reform and the changes currently being developed to implement full retail contestability.

Current state of play

Electricity consumers within the SWIS can be divided into two general categories - contestable and non-contestable - based on the quantity of electricity consumed during each year.

The non-contestable category of consumers are customers that consume 50 megawatt hours of electricity or less during a year (equating to an annual electricity bill of approximately $14,000). Generally, all residential households and small businesses in WA are non-contestable consumers.

Currently, only Synergy can supply electricity to the non-contestable electricity market within the SWIS. Contestable customers on the other hand (being customers that consume more than 50 megawatt hours of electricity in a year) have a choice of electricity providers.1

The full retail contestability project involves redesigning the SWIS to allow electricity retailers to access all electricity customers within the SWIS. This will be consistent with the National Electricity Market which is a fully contestable electricity market. Competition in the market should put downward pressure on electricity prices offered to consumers and drive innovation in the market, although without a break-up of some sort of Synergy, the scope of meaningful retail competition will arguably be limited.

Some of the changes currently being considered by the State Government in order to implement full retail contestability within the SWIS are considered below.

Lifting the prohibition on new entrants

Under the Electricity Corporations Act 2005 (WA), no electricity retailer other Synergy is allowed to supply electricity to customers in the SWIS who consume 50 megawatts of electricity per annum or less.

The full retail contestability reform will therefore require legislative changes to remove the prohibition on supply to non-contestable consumers in order to allow competition for all electricity customers within the SWIS. There will also be changes required to the tariffs that Synergy may charge as regulated by by-laws made under the Electricity Operators (Powers Act) Act 1979 (WA) to ensure that competition between retailers can exist.

Removing barriers to entry

As part of the full retail contestability reform, the State Government has set up a separate but related project to identify material barriers to entry into the electricity market. The Government aims to remove or minimise barriers in order to encourage new entrants into the retail electricity market once it is opened to competition.

This area of reform is focused on the following objectives:

  • ensuring that electricity providers are able to secure access to competitive wholesale electricity within the SWIS in order to enter and supply to the retail market;
  • safeguarding Government concessions that some household consumers of electricity currently receive so that those consumers will be able to continue receiving concessions regardless of their choice of electricity retailer; and
  • removing any undue barriers to emerging energy technologies, including battery storage and solar power.

Small consumer protections

Currently, the Economic Regulatory Authority is responsible for regulating the conduct of retailers who supply electricity to residential and small business customers in Western Australia and larger consumers that purchase up to 160 megawatt hours of electricity per annum. The regime that Synergy must comply with when supplying to these customers at the date of this article - referred to as the Code of Conduct for the Supply of Electricity to Small Use Customers - took effect on 1 July 2016.

The introduction of competition in the retail electricity market will necessarily mean that there will be changes in the relationship between customers and electricity providers within the SWIS and that changes in the consumer protection framework will be required. The State Government is in the process of reviewing the protections currently afforded to small consumers of electricity within the SWIS under the Code. There is a possibility that the State Government will adopt the National Energy Customer Framework (with or without amendments) in replace of the Code, which at the date of this article is in force in New South Wales, Queensland, Tasmania, the ACT and South Australia.

The adoption of the National Energy Customer Framework will improve the ability of electricity providers currently operating in other parts of Australia to enter the SWIS residential and small business market.

Integration of electricity and gas markets

The residential and small business gas market in Western Australia was opened up to competition in 2004. However, there is a moratorium on Synergy supplying natural gas to the consumers who consume less than 0.18 terajoules per annum. This quantity of gas equates to an annual gas bill of approximately $6,000. The rationale behind the Synergy moratorium is to achieve competitive neutrality for participants in the residential and small business electricity and gas markets.

As part of the full retail contestability reform, we expect the State Government will remove the gas moratorium in place with respect to Synergy. This, along with the introduction of full retail contestability in the electricity market, will allow Synergy and other retailers to sell both electricity and natural gas to the residential and small business market within the SWIS, giving customers more market choice.

Footnote

1 The contestable market is divided into two sub categories - customers who consume between 50 megawatt hours per year and 160 megawatt hours per year and customers who consume more than 160 megawatt hours per year. Synergy charges regulated tariffs to customers who consume between 50 megawatt hours per year and 160 megawatt hours per year, although they may choose to negotiate with a different electricity provider. Consumers who consume more than 160 megawatt hours per year may negotiate a contract with an electricity retailor of their choice and Synergy may not offer regulated tariffs to those customers.

RELATED KNOWLEDGE

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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