The next big challenge in the Australian energy market is to ensure the benefits of the energy reform process are not reduced through increased market concentration, ACCC Commissioner, Mr Ed Willett, said today*.
The reform process has transformed the operation of the electricity market and it is widely recognised that the electricity industry performs far better now that it did previously.
"The electricity industry is being restructured with vertical integration between generators and retailers the dominant model in markets were electricity assets have been privatised, that is in Victoria and in South Australia. With privatisation of government owned electricity retail businesses in Queensland, there is likely to be further integration of retail businesses as existing electricity businesses seek to acquire these assets.
Mr Willett said the original design of the National Electricity Market was based on structural separation of generators from retailers.
"The move to generator-retailer integration to create 'gentailers' represents a fundamental change to the original model. Instead of buying through contract markets, integrated retailers generally hedge risk internally with their own generators".
Mr Willett said the trend towards greater integration of retailers and generators seemed likely to continue as businesses acted to ensure they are not disadvantaged in their ability to buy and sell electricity and manage risk compared to other generator-retailers.
"The trend to vertical integration will ultimately deliver a very different market structure than the one that existed at the commencement of the NEM.
"There is considerable data on the operation of the market and some data on retail market outcomes. Given the risks associated with the trend to vertical integration, the outcomes will need to be closely monitored and policy responses considered if the data points to emerging problems.
"In the meantime, the Commission and the Australian Energy Regulator encourages the Energy Reform Implementation Group to consider the issues as part of its current review".
Mr Willett said that the introduction of cross-ownership rules to prevent integration between contestable and non-contestable elements of the electricity supply chain was a step in the right direction.