Enabling investment and innovation
Internal transfer pricing and profitability
An investigation into internal transfer pricing practices.
Overview
Confidence in the retail market is undermined if parties have a partial view, and limited understanding of how generator retailers set their internal transfer prices and of the resulting implications for segmented profitability.
On 31 August 2021, we decided to amend the Electricity Industry Participation Code 2010 (effective 30 November 2021) to require the disclosure of retail internal transfer price (ITP) information and retail gross margins by retailers.
This improvement helps facilitate public understanding of the wholesale market and how ITP prices are set. It also helps us to understand and monitor the pricing practices used within integrated generator retailers. It enables us to identify whether electricity is provided at below efficient market prices to their own retail arms.
Timeline
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30 November 2021
Code amendment —Internal transfer pricing
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31 August 2021
Decision —To mandate disclosure of retail internal transfer prices and retail gross margins
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8 April - 18 May 2021
Consultation —Internal transfer prices and segmented profitability reportingView consultation -
25 August 2020
Correspondence —Request to voluntarily provide internal transfer pricing information to five of the largest vertically integrated generator-retailers
Background
The 2019 Electricity Price Review noted concerns that the pricing practices used within integrated generator retailers for transferring electricity between their generation and retail businesses may be undermining competition.
Independent retailers and consumers may be disadvantaged if large generator-retailers, which control the greater part of electricity supply, provide electricity at below fair market prices to their own retail arms.
This project acted on these concerns to identify and understand pricing issues and make improvements to ensure the electricity markets function fairly and competitively. It focused on improving information disclosure by participants, reducing information asymmetries amongst participants and fostering greater understanding of the competitive behaviour of retailers.
You can view how participants' internal transfer prices compare to a series of benchmarks on our EMI website.
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