Completing the introduction of competition into the Australian electricity industry

In January 2002 all consumers in New South Wales and Victoria gained the ability to exercise choice of their retail electricity supplier. This introduction of 'full retail competition' is the final stage of the reform process that began in Australia in 1991. Over the course of the 1990s the electricity industry has been radically reformed in terms of its structure and the manner in which it delivers electricity. Vertically integrated companies have been separated, a national wholesale market established, retail choice introduced and in some cases state owned assets pnvatised. From the point of view of consumers, however, it is the introduction of retail competition in the mass market that provides the most visible change to the manner in which they deal with the supply of electricity. The purpose of this paper is to discuss the role of retail competition in electricity and the cost and benefits of its implementation. In particular the potential benefits will be identified, both to consumers and to the creation of a dynamic industry that provides for an optimal allocation of resources. In the first section the general background to the reform of the Australian electricity industry is given. In the following section the benefits to consumers in terms of electricity pricing are noted. In the third section the costs of retail competition are identified and in the final section some of the dynamic benefits of retail competition are analysed. [Introduction