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New index sheds light on power price fluctuations

Supplier: Energy Action
30 January, 2013

Launched recently, the Energy Action Price Index (Business) will give businesses granularity and transparency on retail electricity price fluctuations.

The index will be published regularly throughout the year and is based solely on electricity contracts secured for Australian organisations.

For the first time, Australian businesses will have access to a realistic benchmark to baseline and compare their retail electricity rates.

The index for businesses encompasses pricing from numerous energy retailers via the Australian Energy Exchange (AEX), offering genuine insight into retail electricity rates.

The AEX is Australia's only reverse auction platform for electricity and runs approximately 10 to 15 electricity auctions every day.

For many years the Consumer Price Index (CPI) has helped Australian's understand pricing levels across a broad range of goods, including energy.

Businesses have traditionally used the CPI to forecast increasing overheads. However, for businesses, the CPI has its limitations, particularly when attempting to index volatile electricity price fluctuations.

The Energy Action Price Index attempts to fill this gap by supplying access to a moving comparison. It shows the raw electricity component of a bill (excluding any network charges, etc) so businesses can better understand pricing and compare like for like.

Electricity rates differ between residential and business contracts, making it difficult for Australian organisations to accurately understand, predict and track electricity cost movements.

Most Australian businesses have become accustomed to forward contracting their electricity to secure a level of price certainty. To date, many have relied on advice based on the wholesale electricity market's price movements. Whilst this is helpful as a guide, the retail prices that can actually be achieved do not always align due to constantly changing market conditions.

The index highlights electricity price movements and the real impact of market forces when securing forward contracts.

For example, a clear jump in pricing can be seen in February 2012, due to the introduction of the carbon price. Although the carbon price commenced later than this, from February 2012 energy suppliers began to price their forward contracts on the Australian Energy Exchange (AEX) with carbon included. Existing carbon exclusive contracts have incurred a carbon adjustment uplifting their energy rates to factor in the carbon increase.

About the Energy Action Price Index

Energy Action compiles the retail index from data collected from their customers and suppliers. It extracts an average retail price from this information, and should be treated as an estimate only.

The index is not currently available for ACT, TAS, NT and WA as these states have a smaller number of retailers and a slower rate of customer switching contracts.

In these large contestable markets the churn rate is much lower compared to NSW, QLD, VIC and SA, where consumers have more options and switch more regularly. Lower churn rates result in less pricing data being available.