Energy Action Group
(this page last updated 19 June 2002)
FULL RETAIL COMPETITION (FRC) IN ELECTRICITY –
STARTED ON 13 JANUARY 2002
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What does full retail competition mean?
As of January 13th, 2002 electricity customers at the household level will be able to choose which electricity retailer supplies them with energy. This means you are choosing which company supplies you with the electricity you use (as opposed to the company that gets the electricity to you physically – this is the ‘distribution’ or transportation of the electricity and continues to be provided by your monopoly distribution business (DB)).
Retail competition
affects about 20% to 40% of your total bill.
Electricity competition is similar to competition in the telecommunications industry. You can be supplied by a number of phone companies but they pay Telstra a toll to use Telstra cables.
Competition starts on 13th January 2002 but there is no need for you to make decision about your supplier immediately (see below).
What do you need to know for
competition?
You need to know many things:
1. Do I have to choose a new supplier
immediately?
No. All households were transferred from the old Maximum Uniform Tariff (MUT) onto “deemed” tariffs on 1st January 2001. The “deemed” tariff is a transitional tariff – it allows you until 31st December 2003 to choose your new supplier.
Should you be connecting onto supply after 13th January 2002 you will not be on a deemed tariff. You will be required to choose between a “market” contract or a “standing offer”. The standing offer is like a safety net tariff. Each of the “host” retailers (that is the incumbent retailers that having been supplying households prior to competition – click here for details) is obliged to offer you the standing offer if you do not want/cannot get a suitable market contract. You can also go to the standing offer if you have already been on a market contract. The deemed and standing offer tariffs are currently the same in terms of price and terms & conditions. The standing offer tariffs are also legislated to end on December 31st, 2003. At the present time legislation does not provide for an obligation to supply after December 2003.
The deemed and standing offers were created by the Victorian Government but the prices for these tariffs are not formally regulated. The Government allows the retailers to set the prices and will only intervene if they believe the retailers are charging a monopoly price. The terms & conditions however are regulated by the Essential Services Commission. Standing offer tariff (prices/terms & conditions) are required to be published in the Government Gazette 60 days prior to being implemented. Current deemed/standing offers tariffs (AGL, TXU, Citipower, Origin, Pulse) are listed in the Victoria Government Gazette and prices apply from 13th January 2002 . To see the prices click on each retailer: AGL, TXU, Citipower, Origin, Pulse
Each retailer will have its own contract but this contract will be based on the regulations set out by the Essential Services Commission in the “Retail Code”.
a) The terms & conditions of the deemed contract cannot only be deviated from in very particular circumstances.
b) The terms & conditions of the standing offer can be varied in a number of respects
c) The terms & conditions of the market contracts are determined by agreement between the customer and the retailer but must comply overall with the Retail Code.
It is very important that customers read the contract before signing an agreement. You can check whether the contract complies with the Retail Code by reading the Retail Code (Click here).
Customers have at least 5 days cooling off period (10 in some cases – check Retail Code/Marketing Code)
Retailers must also comply with the:
Marketing Code of Conduct (effective may 1st 2002)
Credit laws
Trades practices Act
(this section still under construction)
Electricity Retailers must hold an Electricity Retail License in Victoria (click here for details) if they are to sell you electricity. However, you may also be buy electricity through a broker or aggregator. Brokers and aggregators are organisations that negotiate deals with retailers on behalf of customers. Aggregators specialise in setting up bulk buying groups. For example a group of local governments are working to establish Community Power www.communitypower.org for electricity customers that live in the cities of Darebin, Moreland and Port Phillip; Our Energy for customers in the north eastern part of Victoria www.wawcu.com.au/ourenergy . A question remains however if such schemes can be successful given the market we have – click here for more detail
Click here for advice on brokers & aggregators (brokers & aggregators do not need to hold a retail license and are not signatories to the Marketing Code of Conduct).
The deemed and standing offer tariffs are set higher than the prices that are anticipated in the market. This is to encourage competition (a bit like when the department store puts up its prices before holding a sale!). Therefore, the tariff you are on now (the deemed tariff) is likely to be higher that what you may be offered in the market – it will depend on how much electricity to consume, the time of day you consume it (your electricity “profile”) and what other non-energy services you may elect to buy if offered by the retailer (retailers now offer other services). It will also depend on how often you want to be billed, the payment method, the information you want on the bill amongst other things. The price offered may be attractive but the terms & conditions may have some downsides – customers need to be careful that they both understand the offer being made and the contract conditions and can comply with these conditions over the life time of the contract (for example, there may be penalties for breaking the contract). It is possible that unless the customer is careful new charges will be passed through (like Ancillary Service Payments, or seasonal rates introduced without the customer understanding the implications for them. Therefore, Buyer Beware!!
EAG recommends that customers consider these issues in depth. Click here for more detail.
2. What are you paying for when paying
your electricity bill?
Your current electricity bill is made up of several parts, including:
For most households the distribution charge makes up between 60% and 80% of your total bill, although it depends on how much electricity you actually consume. Retail competition therefore is about 20% to 40% of your bill.
The electricity retailer buys electricity from the wholesale electricity market to sell to you, the end customer. The retailer must also pay a toll to the distribution business (DB) and transmission company for using their poles and wires. Transmission charges and very small and are often rolled into the distribution charge and listed as “network” charges.
Your electricity retailer is buying from the wholesale market (called the National Electricity Market (NEM)). Electricity is sold in the ‘spot market” (like the stock exchange) of the NEM every five minutes and priced on half hour blocks. The price moves continuously. Traditionally electricity retailers buy at this variable rate but sell to the household customer at a fixed rate. Retailers also buy electricity directly from electricity generators at fixed prices. They also usually have a range of financial instruments, like hedges and other derivatives to ‘insure’ them against price volatility. The price of the spot market very roughly gives you an idea of what the retail price of electricity should be. You find out what this price is by going to the National Electricity Market Management Company (NEMMCO) website http://www.nemmco.com.au/
At the present time the customer does not see the DUOS or TUOS listed separately on the bill. All the charges are combined or “bundled”. If you know what these costs are before accepting an offer from a retailer you will have a reasonable understanding of how much the retailer is then charging you for the actual energy.
Know which monopoly distribution business supplies you & how much they charge
There are only five DBs in Victoria. They are regulated by the Essential Services Commission (ESC). The DBs are Citipower (Melbourne central business district and inner suburbs), TXU (the outer eastern suburbs of Melbourne and the eastern part of Victoria), United Energy (Melbourne south-eastern suburbs and Mornington Peninsula), Powercor (outer western suburbs and western part of Victoria Find), and AGL (Melbourne northern and western suburbs). Find out whose area you are in by going to the ESC website distribution areas
Once you know which DB you are in, find out what the distribution charge is for your tariff. The distribution tariffs are published on the ESC website, links below for 2002 tariffs. Please note that most households on the GD/GR tariffs will be on the distribution “small single rate” tariff. You can check at the tariffs yourself but we provide the network charges (distribution & transmission combined here for GD/GR tariffs)
Small single rate
standing charge (per annum): $21.19.
First 1020 Kwh per quarter 4.114 cents per kwh.
Balance of consumption 5.367 cents kwh
Small single rate
standing charge (per annum): $25.534
United Energy has a different approach to the other Dbs. It applies summer and non-summer rate. Summer (which is from 1st November to 31st March) is charged at 5.671 cents per kwh. The non-summer charge is 4.536cents per kwh.
EAG objects to this approach because UE does not actually read the meters on the change over dates and hence bills are based on a pro rata(estimates). The effect is that customers will either be over-charged or under-charged. EAG is seeking legal advice on this issue.
Small single rate
standing charge (per annum): $ 23.30
All consumption @ 5.121 cents per kwh
Small single rate
standing charge (per annum): $31.802
First 4000kwh @ 5.924
Next 16000 kwh@ 6.923
Next 50000kwh @ 7.922
Balance of consumption @8.921 cents kwh
Small single rate
standing charge (per annum): $44.40
First 1020 per quarter Kwh @ 4.266cents per kwh.
Balance @ 4.788cents kwh
Why is it important to know the
underlying charges?
For example, retailer A may offer you a flat rate tariff of 15ckWh, and retailer B may offer 18ckWh. Your friend may be offered 12ckWh by retailer A. Why? You may find that your friend lives in a different distribution area – each DB has different charges and the rural DBs tend to be more expensive than the Melbourne DBs.
It is vital that you are able to compare apples with apples. The basics:
To know how much the bill will be you need to calculate the number of kWh you use and multiple it by the price. For example, if you use 1020kWh over three months (or quarter) the cost is 1020 x 14 cents which equals $142.80
Peak 1020 x 14ckWh = $142.80
Off peak 346 x 2.1ckWh = $72.66
Standing charge = $33.00
Total = $248.46
First 1020kWh @ 12ckWh = $122.40
Next 239kWh @ 13ckWh = $31.07
Sub-Total $125.47
(Total consumption 1259kWh)
GST $12.54
Total $137.97
When a retailer makes you an offer you need to know whether the quoted price is for the energy price only, or whether it is for the total (that is, including distribution, transmission etc). All non-electricity services should be listed & priced separately.
When considering offers of retailer make sure to always bring that offer back to the “apples with apples” comparison. Some retailers will say things like “we are 15% cheaper than your current supplier”, “this offer means savings of $103 pa”. These statements tell you nothing. You must know all the details. For example at the present time AGL has their deemed/standing offer tariff listed on their website. However, whilst they tell you how much the kWh charge and mention that there is a standing charge – but they do not say how much the standing charge is!
4. Understanding your electricity
consumption
The best way to save money is to use less electricity!
Electricity retailers of course want all of
us to consumer more and more electricity – but this is not sustainable for the
environment and it means that we will be paying more and more for our
electricity. This is because new demand for electricity requires new power
stations to be built, bigger & stronger transformers to replace the smaller
ones, upgraded sub-stations and the like. When we do energy conservation
(especially if it is on a planned system wide scale, which is called ‘least
cost planning’, or ‘demand management’) we are spending some money in order to
save a far greater amount. The fact
that some people make their homes energy efficient means that all of us save
money!
The thing about electricity is that it is a network – how much and what time of
day/week or month we use electricity impacts on the cost every other
electricity user pays. When everyone rushes to use electricity at the same time
is when it is the most expensive, because we then need many big power stations
just for that small amount of time. The rest of the time the power station may
not even need to operate! It’s like buying a car that is only used 5 times a
year.
So the savings for energy conservation are twofold – it brings down the cost of electricity, and you save on all the electricity you no longer have to buy!
Click here for information on energy efficiency in the home
Did you know that traditionally electric space heating and electric hot water heating account for the biggest part of your electricity bill?
Click here for how energy efficiency affects the price of electricity
Did you know that air-conditioning is responsible for price increases?
5. Consumer Rights
First rule: always keep your bill and your receipt!
see the various sections and links above
also
Energy & Water Ombudsman of Victoria
Financial & Consumer Rights Council
Consumer Law Centre of Victoria
6. Smart meters
Finally –
the information and advice on this page is provided with absolutely no financial support from the Victorian Government or electricity companies. The Victorian Government has chosen not to fund any kind of service that assists consumers to understand the electricity market, understand their rights or help them to compare offers. At this point in time, retailers are not even required to publish their market prices! Even though we have an “Essential Services Commission” this office will not provide households with information to assist them in comparing offers either!