New measures to improve the National Electricity Market’s resilience

06 March 2015

The Australian Energy Market Commission today released recommendations to improve the resilience of the National Electricity Market.  New arrangements would help to minimise disruptions to customers and maintain the financial stability of the market if financial shocks occur. 

AEMC Chairman John Pierce said today’s announcement was focussed on protecting consumers by having measures in place in the event of a major financial shock to the market.

“The electricity market is working well. Businesses have come and gone in the market without causing widespread financial problems or disruptions to customers,” Mr Pierce said.

“However the failure of a large energy business could result in significant flow-on effects – seriously affecting investor and public confidence in the market.

The AEMC’s resilience review released its final report today recommending:

  • improvements to the current Retailer of Last Resort Scheme so it can operate more effectively in a broader set of circumstances;
  • a timely response framework where a large energy business fails, with co-ordinated advice provided to ministers by energy market institutions and the Australian Securities and Investments Commission; and
  • the development of additional mechanisms to address the flow on effects of the failure of a large energy business.

“This is all about being better prepared in case a major energy company gets into financial distress. We’re not saying it is likely to happen, it’s about being prepared in the event that it does happen,” Mr Pierce said.

“A comprehensive framework for decision-making and co-ordination across all relevant government and market institutions would assign clear accountabilities to effectively manage the consequences of a large company failure,” Mr Pierce said

“Many issues would need to be considered within a short time. These include: minimising disruptions to consumers; financial stability considerations; broader consumer and investor confidence; competition and industry structure impacts; and flow on effects to the broader economy.

Changes are also recommended to improve the current Retailer of Last Resort Scheme which works by transferring the customers of a failed retailer to other “last resort” retailers in the market. The changes are designed to help take pressure off last resort retailers so they have more time to meet their expanded financial obligations.

We recommend the COAG Energy Council develop changes to legislation and submit rule requests to the AEMC to progress implementation of the new decision-making framework for large energy company failures as well as changes to the Retailer of Last Resort Scheme.

We also recommend further work to develop additional mechanisms to increase the options available to effectively address the impacts of a large energy company failure. This work could have implications beyond the energy sector. Consequently jurisdictional energy departments should undertake this further work in consultation with Commonwealth and state and territory treasuries.

“Now is the time to plan and put in place arrangements so that the market can withstand financial shocks in ways which will not impose long-term costs on consumers,” Mr Pierce said.

Final recommendations have been provided to the COAG Energy Council for consideration.

 

For information contact:

AEMC Chairman, John Pierce (02) 8296 7800

Media: Communication Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817