retail market competition 1 st ate symposium, massey university, auckland 12 december 2013 carl...
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Retail market competitionRetail market competition
1st ATE Symposium, Massey University, Auckland
12 December 2013
Carl Hansen
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Overview
Brief overview of current regulatory arrangements for electricity
Competition in the NZ retail electricity market
Initiatives to enhance retail market competition in NZ
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StatutoryObjective
For the long term benefit of consumers
PromoteCompetition
PromoteReliable supply
PromoteEfficient operation
Reducingbarriers
Providing efficient
price signals
Fit-for-purposemarket services
How Facilitatingconsumer
participation
Promoting flexibility &resilience
Increasingcompliance
with the rules
Our objective is specified in s15 of the Act
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Big lift in perceptions of wholesale competition but no change for retail competition
Survey statement: prices in [this] market reflect the outcomes expected in a workably competitive market
2013Survey
2011Survey
Retail
Spot
Futures
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Structure
Seller and buyer concentration indicators
Barriers to entry indicators
Conduct
Price vs. cost indicators
Output withholding indicators, curious bids and offers
Competitive marketing activity
Performance
Static efficiency indicators
Dynamic efficiency/innovation indicators
Metrics for monitoring competition
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Competition in the NZ retail electricity marketCompetition in the NZ retail electricity market
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New Zealand has 13 independent electricity retailers
Market share of connections
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Any chance one of these will be a disruptive force? Or will it be one of the 9 potential new
entrants?
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Small retailers have expanded rapidly since 2008
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Retail market concentration (HHI) has declined significantly
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Sharp reductions in HHI are clearly possible in NZ
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Significant reduction in market share of largest retailer per region … driving the reduction in HHI
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Big increase in pitching to customers since 2011
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Before WMN After WMN
Retailer advertising now more price-focused?
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C&I prices rose considerably over 2001–2009 period
Prices in 2013 dollars
2001-2009
FRC startsChoice
starts
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C&I price rises due to rises in LRMC of generation
2001-2009
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But residential prices have risen faster than C&I prices since 1985 and since 2001 – why?
Prices in 2013 dollars
FRCNo Residential Competition
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Residential demand is very peaky: eg Pauatahanui
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Modelled cost-to-serve for three customer types
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Long-dated futures prices fallen sharply since July 2012 – will they flow into lower residential prices?
• Blue line shows average prices for long duration contracts – large fall in prices due to flat demand and over investment in generation capacity
• Red line shows average prices for short duration contracts – largely driven by hydro conditions
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QSDEP: posted residential prices increased 3.3% (annual) Energy component contributed 2.5% Distribution and transmission contributed 0.8% But QSDEP (and Stats NZ prices) don’t capture many discounts
Ad-hoc discounts to attract residential customers range $80 - $300 A $150 upfront discount = 6% price reduction for an average consumer This amounts to 1.7c/kWh off 28c/kWh
Comparable to dollar value of discounts for C&I customers Anecdotal evidence that C&I receiving 2.5c/kWh off 11c/kWh
Reduction in futures prices flowing to some residential consumers Implies strong competition for some residential consumers
Posted prices increase in 2013 but also significant
discounting to attract new customers/retain shoppers
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Cost drivers for stand-alone retailer since Sept 2010
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Costs facing stand-alone retailers rose faster than
residential prices for Dec 2010 – Mar 2013
Is this an indictor of a workably competitive retail market?
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Initiatives to further enhance retail market competitionInitiatives to further enhance retail market competition
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Is this due to poor visibility of retail prices (and prices vs. costs)?
Until very recently consumers rarely saw mass advertising of residential retail price discounting
Complex pricing structures make it difficult for consumers to know their average effective price (c/kWh) for electricity
There don’t appear to be accurate and timely measures of aggregate residential retail prices
There has been no measure of prices relative to the cost-to-serve residential customers
There is a lack of authoritative reporting about drivers of price changes
Retail market not widely seen as workably competitive
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Or is it that we don’t yet have strong enough competition for residential consumers? Too risky for new entrant retailers to ‘take on’ the incumbents? Are there barriers inhibiting expansionary retailers from easily finding the
profitable customers? Are residential consumers easily segmented?
Strong competition for ‘active shoppers’ but weak competition for inactive consumers?
Hence competition for marginal consumers doesn’t discipline pricing for all consumers?
Evergreen contracts allow consumers to avoid decision-making? Complex retail pricing structures making decision-making difficult for
consumers? Barriers to competitive provision of switching services for residential
customers? Barriers to group switching initiatives?
Retail market not widely seen as workably competitive
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Initiatives to reduce barriers to retailer expansion
AncillaryServices
Spot
Hedge
Retail
Transport
3. Review ‘saves’ to ensure level playing field for new entrants
2. Improve retailer access to consumer information
4. Revise prudential rules to reduce retailer risks
5. Introduce pivotal pricing rules to reduce retailer risks
6. Review of distributor contracts potentially inhibiting retailer access
1. Review of barriers to retailer competition on embedded networks
8. Extend FTR market to more locations to assist retailers to manage risks
7. Introduce peak load futures to assist retailers to manage risks
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Initiatives to enhance consumer choice
AncillaryServices
Spot
Hedge
Retail
Transport
5. Continue WMN campaign?
4. Review of barriers to group switching and mass market aggregation
2. Improve consumer ability to compare
retail pricing offers
1. RAG project: improve transparency of consumer electricity charges
3. Review impact of low user fixed charge
regulations
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DiscussionDiscussion
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Our latest enquiry is on ‘saves’ and ‘win-backs’