Tn theory competition should bring prices down. It seems bizarre, therefore, that the Independent Competition and Regulatory Commission has recommended that the ACT Government allow full retail electricity competition in the ACT even though the commission acknowledges that the residential consumers would pay on average about $2 more per month for electricity.
The commission argues that if the ACT does not allow contestability, the ACT would lose competition payments from the Commonwealth. These payments are made under an agreement made in the 1990s between the states and territories on one hand and the Commonwealth on the other to gradually break down state held monopolies – mainly in utilities like electricity, water, gas, building approvals and so on. Unlike private sector companies, the state monopolies had largely escaped the requirements in force against monopolies since the mid-1970s. The privatisations and breaking down of monopolies have not been altogether successful. In Victoria, in particular, they have been met with higher prices and lower reliability. True, the prices might have gone up anyway and supply might have been more erratic anyway, but that is not the way consumers see it. They are more wont to look back to the “”good old days”.
There will be some political risk for the Government in accepting the commission’s advice, particularly as ActewAGL has been singularly successful in providing reliable supply – perhaps the most reliable in the country over the past decade – at low prices – at present 20 per cent below the national average. Moreover, ActewAGL has done this in the face of competition that was introduced in the commercial sector.
It seems that the commission has adopted a slogan of: “”If it ain’t broke, break it.”
ActewAGL says that the costs of introducing competition would be several million dollars. ActewAGL will be entitled to recoup that cost from consumers. This will give consumers the capacity to elect to get their electricity from a supplier other than ActewAGL. That might be of little benefit given that prices elsewhere are generally higher.
That said, there is a step into the unknown here. It may well be that outside suppliers offer cheap deals to gain some market share and ActewAGL responds. In turn, all suppliers seek to become more efficient. That is the economic theory.
The fundamental weakness is that – as with Telstra in telecommunications – ActewAGL will continue to hold the infrastructure. While that remains the case it will always give itself more favourable access to that means of delivering electricity to the consumer than to others. A better model would have been to have split ActewAGL into a retailing arm and an infrastructure owning arm – with the former perhaps being privatised.
It seems, however, that at least in the short term, ACT residents will pay for the introduction of competition for an uncertain long-term gain, though off-set by Commonwealth grants to encourage competition for its own sake.
Ultimately, ACT residents will vote with their feet. It is likely that the vast majority will stay with ActewAGL out of local loyalty and out of that strongest loyalty of all – loyalty to the lowest price. If so, Canberrans can get the best of both worlds – grants from the Commonwealth for introducing competition and the low price of a continued monopoly with the added advantage that the fear of losing market share would keep ActewAGL on its toes to maintain good service.
The political danger for the ACT Government is that consumers are quick to lay blame if anything goes wrong after competition is reduced at the same time being slow to acknowledge any benefits that competition might bring.