Inquiry into energy retailer failure to begin

Monday, 01 June, 2020

Inquiry into energy retailer failure to begin

An urgent inquiry request to protect energy consumers from COVID-19 retailer failure has been made.

The Australian Energy Market Commission is considering the request, which was made by the Australian Energy Regulator in a bid to ensure power certainty for consumers.

The Regulator said the way electricity is supplied to households and businesses is under threat because of the risk of a large-scale, cascading retail failure or ‘financial contagion’ in the national electricity market.

The Commission has begun an urgent consultation process on the Regulator’s proposal for electricity network businesses to share more of the COVID-19 burden by putting some network charges on hold for six months for retailers with pandemic-affected customers.

“... we’ve begun the independent process of weighing up the impact this proposal would have on network businesses, retailers and consumers,” said AEMC Chair John Pierce.

“We know that retailers are facing increases in the level of non-paying and hardship customers while still paying for wholesale electricity and network access — which together make up nearly 80% of their costs. And they have been put on notice not to disconnect customers who are having trouble paying their bills because of COVID-19.

“Some retailers are more financially healthy than others — but if a large retailer or a number of smaller ones go out of business in a short space of time this may have a domino effect on the others who, in turn, will be under pressure to service larger numbers of hardship customers.

The Australian Energy Regulator is concerned that in the event of retailer failures affecting a large number of customers, their bills will increase both because of the way the Retailer of Last Resort arrangements operate and because there will be less competition. The Retailer of Last Resort mechanism enables customers to transfer to another retailer if their own retailer goes out of business.

The Regulator has proposed that retailers pay back the money after six months — possibly with interest — as a way of managing cashflow during the pandemic.

The Commission has agreed to treat the proposal as an urgent energy rule change request and is calling for stakeholder submissions by 25 June.

“The only way to effectively deal with this request is urgently,” Pierce said.

“If you accept that financial contagion in the market from multiple retail business failures is a plausible risk, then we have to adopt the fastest statutory timetable.

“The purpose of the Regulator’s proposal will be negated if it isn’t dealt with as quickly as possible. The impacts of COVID-19 are occurring now — it makes sense to consider this issue urgently, so customers affected by COVID are best supported by their retailers.”

Some of the key issues the Commission will need to consider in its deliberations include:

  • what the expected impacts of COVID-19 will be on retailer cash flows and how long these might be expected to last;
  • whether the assistance already available to customers will be sufficient to mitigate the risks identified by the Regulator;
  • whether all retailers with customers facing COVID-19-related difficulties should be included in any measures taken or only those who can demonstrate legitimate financial need;
  • whether any measures taken should include large industrial and commercial electricity customers in addition to households and small businesses;
  • whether six months is the right timeframe for putting some network payments on hold — and if it is appropriate to give the Regulator the discretion to extend the timeframe;
  • what are the potential impacts of the proposal on network service providers?

“Federal and state concessions packages have been a good first line of defence in helping Australians manage through this unprecedented health and economic shock,” Pierce said.

“We need to consider if a further line of defence to protect consumers’ access to electricity is required.”

Image credit: © Radkov

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