The nation needs to pull the trigger on gas supply to lower prices or face factory closures and job losses, the Australian Competition and Consumer Commission chairman Rod Sims has warned.
Australian manufacturers would likely to suffer if the gas crisis continues, as state government regulations coupled with limited competition create a very different story on the east and west coasts, with contracts in Western Australia pricing gas at less than half of those on the east coast, he said.
This price imbalance, coupled with take-it-or-leave-it contracts found on the east coast, was having a disastrous impact on business, he said.
"While firms come and go, it would be sad to see firms fail just because our east coast gas market is dysfunctional," Mr Sims said.
Gas suppliers are continuing to sell gas on the international spot market, even though they are receiving a lower price than available on the domestic market.
The ACCC had spoken to commercial and industrial gas users and found a third were considering either reducing production or closing factories due to energy supply issues.
"Many medium-sized food and non-food manufacturers have seen prices increases by 20 per cent recently or 100 per cent over last 5 years," Mr Sims said.
This situation had been worsened by state bans on gas exploration and development, adding further costs to the high gas prices, he said.
The confusing state of the gas market is further destabilising the electricity market, hitting both the commercial and consumer sectors.
"We have gas affordability issues for completely different reasons to those driving our electricity affordability issues. The gas shortage, however, is making the electricity affordability issues worse," he said.
"We are told we have three issues to deal with in electricity: reliability, sustainability, and affordability. Basic economics says with three problems you need three different solutions. Beware of 'silver bullets' that are said to address all three objectives," Mr Sims said.
He broke down the factors that contributed to the overall price increase, with nearly half - 41 per cent of increases - coming from network costs alone.
Mr Sims pointed the finger at state governments as one of the major factors for this situation.
"These increases are largely because state governments pushed for and achieved looser regulation of these then largely government-owned network companies to protect revenues," he said.
The following sell-off of assets in NSW coupled with these weakened rules limited the ability of the Australian Energy Regulator to ensure consumers were paying efficiency costs.
"While the rules have now been tightened, the damage has been done," he said.
At the retail level Mr Sims said the market was highly concentrated with three players (Origin, AGL and Energy Australia) servicing over 70 per cent of customers.
Mr Sims added that high levels of vertical integration made it difficult for other businesses to compete.
"The rules never envisaged a generation market as concentrated as what we now have. In each state the combined market shares of the two or three most significant generators is well over 70 per cent, sometimes much higher," he said.
However, he did not believe that giving the ACCC more power to break up these larger businesses would be the best result.
"We're not seeking more powers, we don't want the power to bust up companies....despite speculation."
Mr Sims also pointed to the unexpected cost increases created by green schemes, in particular, the solar feed-in tariff, which have collectively contributed to a 16 per cent rise in cost.
"These solar feed-in schemes were very generous," he said.
This is coupled with wide price dispersion and a lack of transparency in switching, which creates an inertia in consumers.
While the government and retailers themselves are working to remove barriers for swapping offers, many consumers are confused by the complexity of the market, and moving those on poor offers to better situations requires consent, and this can be difficult to obtain.
Sims: retail electricity market characterised by wide price dispersion: consumers can save by shopping around, but it's complicated #npc??? ACCC (@acccgovau) September 20, 2017
"If lessons are learnt, and given the steps taken by the government - or those that hopefully will be taken - we will get quick improvements and see continuing downward pressure on electricity prices," Mr Sims said.
"Affordability is an issue that has to be addressed for the future of Australia, and it has an obvious political imperative," he said.
"The consequences of not acting are very dire for all Australians."
