Malcolm Turnbull wants the competition watchdog to investigate Australia's energy retailers

ZHEJIANG, CHINA – OCTOBER 07: (CHINA MAINLAND OUT)Electricity workers inspected the new erection power line on Sunday, October 07, 2012. in Zhoushan, Zhejiang, China(Photo by TPG/Getty Images)

Prime minister Malcolm Turnbull has ordered the Australian Competition and Consumer Commission (ACCC) to review retail electricity prices, just a fortnight after a major report into the sector revealed prices and profit margins had nearly doubled in the last decade.

After blaming state governments and their renewable energy targets for higher prices in recent months, today Turnbull took a different tack, saying the government wants the ACCC to investigate whether electricity retailer margins and profitability are in line with their costs and risks.

Electricity prices in the key capitals. Source: The Grattan Institute

Earlier this month, the public policy think tank the Grattan Institute published a report that concluded that government may need to intervene and re-regulate prices because competition had failed to deliver lower prices.

Looking at the Victorian market, the Grattan Institute said the profit margin for electricity retailers seemed to be around 13% – more than double the margin regulators traditionally considered fair, padding out profits by around $250 million annually in the state. If the profit margins were similar to other retailers, Victorian households would save around $100 each per year.

Retail profit margins. Source: The Grattan Institute

Adding to the problem, the way retailers advertise discounts and deals is complex, confusing and “possibly misleading”, the Grattan Institute found, meaning consumers either give up or end up paying higher prices.

The government’s move also comes two years after a senate committee found that the sector was “gold-plating” the network, adding to costs for consumers

The prime minister said the ACCC review will investigate electricity retailer behaviour as well as contracts offered to residential and business customers.

“The inquiry will consider any impediments to consumer choice, such as the transparency and clarity of contracts that energy companies offer to consumers,” Turnbull said.

The ACCC will look at the key cost drivers of retail electricity pricing, entry barriers in retail markets, whether any behaviour is preventing or limiting competition or consumer choice, and the profitability of retailers.

With the government sliding in the polls – today’s Fairfax poll gave Labor a 10-point lead on a two-party preferred basis – the prime minister has put considerable effort into appearing to act in recent weeks on the issue of electricity costs.

In the past fortnight he’s announced plans for a $2 billion upgrade to the Snowy hydro scheme, as well as holding a roundtable with gas producers to guarantee local supply.

But the federal government’s attacks on the states have also caused it pain, with South Australian premier Jay Weatherill standing beside federal energy Josh Frydenberg and berating him on live television.

And earlier this month 18 peak bodies chastised politicians for “partisan antics” that have led to “enduring dysfunction in the electricity sector”.

The sector is also sick of the political machinations, with Energy Council CEO Matthew Warren saying the sector has spent the last decade being “held hostage in an escalating ideological and political struggle over climate change”.

Many are waiting for the results of a review by Australia’s chief scientist, Dr Alan Finkel, into the future security of the National Electricity Market (NEM).

Finkel released his preliminary report last year saying this was a “once-in-a-generation opportunity to reform the NEM to make it more resilient to the challenges of change”.

While the ACCC released a report into the east coast gas market 12 months ago, warning of a looming crisis amid an increasingly complex and uncertain market, chairman Rod Sims said just a fortnight ago that “energy markets as a whole could be said to be in crisis”.

But if Turnbull is seeking fast solutions, the new ACCC inquiry into electricity retailers won’t be one them.

The government says that due to the “data-intensive and complex nature” of the sector, the ACCC will have until June 30, 2018, to report.

But Turnbull has asked the ACCC to come with a paper within six months offering “preliminary insights into the strategies and pricing behaviours of key electricity retailers”.

“The Turnbull Government will consider what further action should be taken by policy makers and regulators to ensure markets are competitive and energy consumers, both residential and business, can have confidence in the reliability, security, pricing and terms and conditions of supply,” the prime minister said.

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