Full Retail Contestability - Victoria

01 Dec 1999Archived News Climate Change Matters

On the 1st January 2001 the next phase of contestability will be rolled out. All sites using more than 40MWh will be contestable, giving those previously below the 160MWh cut off mark the chance to enter the new market.

 

Unlike the previous tranche of contestable customers, the 40-160MWh users are not required to move directly into a negotiated contract. All users below 160MWh will be immediately supplied and protected under a 'deemed contract', with the 40-160MWh users able to enter into a negotiated contract as of 1st January 2001.

The 'deemed' contract provides standard retail prices and terms determined by the Office of the Regulator General (ORG). According to the ORG, the reduction in costs these prices are expected to bring are around 3-7%. However, difference in Network Use of System (NUoS) costs will be an important differentiating factor for rural users. Prices may be changed after 2 months notice, however, these 'contracts' will continue to be regulated by the ORG. At this stage, deemed contracts and pricing will remain available until the end of 2003, subject to review by the ORG.

Retail Code

The new Retail Code, effective as of 1st January 2001 will replace the Supply and Sale Code which previously prescribed minimum retail standards for franchise (non-contestable) customers. The Retail Code will set out minimum standards for customers on deemed contracts.

Most importantly, when customers do enter into a negotiated retail contract, the contract will need to be "not inconsistent" (ORG) with the minimum standards as set out in the Retail Code. Thus, the 'Retail Code' provides a valuable safety net.

Metering

The cost of metering is a significant issue for contestable customers. At this stage, 'code compliant' meters cost around $850 per year. However, relief is on the way. Significantly lower costing metering solutions should be available for 40-160MWh users in 12 months or so. Furthermore, a system of deemed load profiles is being proposed for sites using less than 40MWh per year.

Our View on the Current Market

Clearly there are many issues to consider before entering into the contestable market. With retail rates high for large energy consumers, smaller users are faced with a grim outlook especially with metering costs set to remain significantly high for at least another year. Clearly, reaping the benefits of deregulation is going to be a more arduous task for smaller consumers than for previous larger entrants.

At least for the present, the option of choosing to enter into a negotiated contract with a retailer of your choice appears much less attractive than that of being moved into a deemed contract with your incumbent retailer and overseen by the ORG. If you are considering entering into a negotiated contract, you need to make sure that the contract has clear savings and sufficient risk protection compared to the deemed contracts. When calculating and comparing costs, remember to include:

Network Use of System (NUoS) costs

  • Metering fees
  • Pool fees
  • Retail rates
  • Loss Factors

If savings are not yet attainable, we suggest you wait until rates drop and/or metering costs become more suitable.

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