Market segmentation and domestic electricity supply in Victoria

If the observations of unregulated and recently deregulated essential services were to hold for electricity reform, we could expect to see market segmentation of household customers. This is a corporate strategy aimed at the acquisition of attractive customers and the avoidance of unattractive customers. It is a function of market relations and commodification. Some markets already segment and assign unattractive customers to 'residual' markets, 'sub-prime' markets or 'markets of last resort'. Residual markets tend to involve market abuse by suppliers because these customers lack market power. It is possible therefore to suggest that segmented markets are characterised by simultaneous competition and monopoly. The implications for the supply of essential services, such as electricity, are profound. This research sought to identify whether there is evidence of emerging segmentation of the domestic electricity market in Victoria. In practice, few essential services areas are completely deregulated. The history of segmentation in the US insurance and lending industries provides valuable insights into markets, market failure and social protections. Taking this history and the more recent experiences of reforms in the US, the UK and Australia, it has been possible to identify three models of social protection: 'universal service', a 'civil rights' model, and a 'market' model. The Victorian reforms reflect some elements of each of these. The social protections included in the reform package both encourage and present barriers to market segmentation. At the time of the research, some elements of the safety net arrangements and customer inertia (born out of negative attitudes to competition) have acted to inhibit segmentation. Customer inertia in its own right poses questions for the efficacy of competition policy. The key understanding that is gained from this research is that both civil rights and socioeconomic entitlements (social rights) are required to prevent markets in essential services acting upon and exacerbating inequality. This suggests that universal service, as a model of social protection, is most likely to ameliorate the impacts of inequality.