Competition: A Market Failure?

This submission responds to the Independent Pricing and Regulatory Tribunal’s (IPART) Review of regulated retail prices and charges for gas from 1 July 2016 (the issues paper). IPART has been tasked with a review of competition in retail gas market in New South Wales. IPART will undertake this review as part of the process to develop voluntary pricing arrangements (VPA) for the three standard retailers for 2016-2017. The Australian domestic market is undergoing significant change with price increases, difficulty obtaining long-term gas agreements and governance and organisation changes flagged for the coming years. It is in this context that the current review takes place and customers are feeling this uncertainty. Debt, disconnections and hardship are on the rise for NSW residential customers and the cost of gas as a proportion of household income is increasing. Therefore, PIAC makes several recommendations to IPART to include customer indicators in the review of competition, including examining debt levels, hardship and quality of choice to ensure competition works for consumers. If competition is to be beneficial for consumers, quality choice must be implemented so that all residential customers benefit. In addition, PIAC recommends that the customer acquisition and retention cost allowance be removed from the standard retailers VPAs, as it is not facilitating customer switching to market contracts. PIAC recommends that IPART review its policy of setting the price on the costs of an efficient new entrant, that the retail operating costs are set at the lower range of $91 per customer and that the retail margin is set at 6.3%. Given the uncertainty in the market, the overwhelming market share of the three largest retailers and only 76% of customers have moved onto a market contract, PIAC recommends that IPART adopt a precautionary approach to determining the VPAs to avoid further bill increases and hardship for customers.