Australian Energy Regulator urged to cut NSW retail profits margins

The Minns government says it’s open to the option of following Victoria in boycotting national energy price regulation to slash retailer profit margins and lower bills by up to $140 a year.

Hundreds of thousands of NSW households face paying more than $100 a year extra for electricity because the price regulator wants to let retailers reap a profit margin nearly twice as big as permitted in Victoria.

A recent Australian Energy Regulator (AER) draft decision green-lights a retail margin of 10 per cent on so-called “default” or basic plans in NSW from July.

But in Victoria, which sets its own charges, the permitted retail margin is going to be 5.7 per cent.

Were that margin applied in NSW, households would save $84 to $138 annually — depending on location and consumption — reducing the looming annual bill increase to between $250 and $394.

Following Victoria’s lead offers even greater potential benefits for small businesses, because they use more power and the AER’s proposed profit margin on default offers to SMEs in NSW is 16 to 20 per cent.

NSW residents have seen their bills skyrocket in recent times.

The AER has estimated that in dollar terms, retailer’s profit from NSW small businesses will be worth up to $1000 a year. In Victoria, the regulated margin is still 5.7 per cent, leading to a profit of barely $200 from an SME.

About 325,000 NSW households are on the Default Market Offer (DMO) prices set by the AER, as are 56,000 small businesses.

DMO prices act as a benchmark and upper limit, thereby influencing prices paid by other consumers. As drafted, the AER‘s DMOs for NSW in 2023-24 will increase bills by 15-24 per cent.

DMOs also apply in southeast Queensland and South Australia, but the retail margins proposed in these areas are smaller — as little as 6 per cent.

DMOs were introduced in 2019 under the Morrison Coalition government, but Dan Andrews’ Labor administration opted out and imposed its own price regulation. At the time their Essential Services Commission (ESC) said the “Victorian Default Offer” was a more “profound” market intervention aimed at delivering “fairness”.

Penny Sharpe said she will look at all options. Picture: NCA Newswire / Gaye Gerard

New state Energy Minister Penny Sharpe last night left open to the option of following Victoria in boycotting national energy price regulation, noting it was the Liberals who had signed up to the DMO when Gladys Berejiklian was Premier.

“The Minns Labor Government will look at all options and work with industry to put downward pressure on electricity prices for households and businesses,” Ms Sharpe said.

The official national advocate on electricity, Energy Consumers Australia, urged the AER to reconsider the draft increases in NSW by looking to Victoria.

The ECA also rubbished the regulator’s argument that allowing fatter margins would stimulate greater competition here.

The AER had earlier told The Daily Telegraph that the ESC set the Victorian Default Offer price “at the level of retailers’ efficient costs, whereas the AER’s DMO retail allowance enables retailers to make a reasonable margin and to compete and provide incentives for customers on a default offer to switch to a more competitive offer, in line with the policy objective.”

In other words, under the AER‘s higher regulated price, it is financially easier for retailers to create cheaper alternative deals.

ECA CEO Lynne Gallagher said “Victoria has a lower retail margin than other states and this has not impacted competition, which is the false argument that retailers use to push back against the Victorian approach to the VDO.

“We’ve made clear that consumers will benefit from a lower retail margin built into the DMO,” Ms Gallagher said.

“Consumers are struggling with high energy costs. We should be looking under every rock to find savings for households and small businesses and this is an obvious place to start.”