On 4 June 2013, the AEMC published a first interim report with draft recommendations to reduce the risks that might arise following the financial distress or failure of a large electricity retailer. Public submissions on the report are invited by 12 July 2013. View more
On 4 June 2013, the AEMC published a first interim report with draft recommendations to reduce the risks that might arise following the financial distress or failure of a large electricity retailer. Public submissions on the report are invited by 12 July 2013.
The first interim report is part of our public consultation on the development of our advice to the Standing Council on Energy and Resources (SCER) on financial resilience in the National Electricity Market (NEM).
The draft recommendations aim to reduce the risk that the financial distress of a large retailer and subsequent retailer of last resort (ROLR) event will cause flow-on effects to other market participants that lead to financial contagion. Financial contagion refers to the potential for the financial problems of one business to be transmitted to other businesses, to the detriment of the long term interests of customers.
Our draft recommendations incorporate two elements:
- Changes to the ROLR scheme and the credit support arrangements required by the Australian Energy Market Operator (AEMO). These changes aim to mitigate the risk that an otherwise solvent retailer is unable to fulfil the significant financial obligations imposed on it due to its appointment as the ROLR.
- Further development and assessment of a special administration regime which could be used instead of the ROLR scheme if necessary. It could be triggered if one of the largest retailers encountered financial distress and there was concern that the ROLR scheme would not effectively manage the orderly transfer of customers without the risk of financial contagion in the NEM.
A second interim report will be published in the second half of 2013, focussing on potential sources of financial contagion in the NEM other than the financial distress of a large retailer and ROLR event. A specific issue that we will consider is whether the G20 reforms to regulation of over-the-counter derivatives should be applied to the electricity sector.
We will develop our final recommendations and advice to SCER after consideration of stakeholder views in relation to both interim reports. We expect to publish our final report by the end of 2013.
Advice requested by SCER
SCER has requested that the AEMC, with input from market participants, provide advice under the Australian Energy Market Commission Establishment Act 2004 (SA) on:
the nature of any risks to financial stability in the NEM arising from financial interdependencies between market participants;whether the existing mechanisms to mitigate these risks are adequate; andif necessary, options to strengthen those existing mechanisms and minimise the identified risks and their consequences.
Options paper and Issues paper
On 9 November 2012, the AEMC published an options paper exploring ways to mitigate the financial risks that could arise following the financial distress or failure of a large electricity retailer.
The AEMC also published an issues paper on 8 June 2012. Submissions were invited to both of these papers.View less