Market Review: Open
The Australian Energy Market Commission (AEMC or Commission) is reviewing the arrangements for failed retailers’ electricity and gas contracts.
On 11 May 2023 the AEMC published a directions paper, outlining refined options to improve the electricity and gas Retailer of Last Resort (RoLR) scheme. The potential improvements being further investigated incorporate stakeholder feedback from our consultation paper.
The Commission received 14 submissions to this paper, which are available below.
Retailer failures are managed using the Retailer of Last Resort scheme
In the event of a retailer failure, the Retailer of Last Resort (RoLR) scheme facilitates the orderly transfer of customers to new retailers without disruption to their electricity or gas supply.
Between 2012 and 2022, the RoLR scheme had only been used four times, and the AER had never used its RoLR gas directions powers. The high wholesale prices and reduced liquidity in the contract market that occurred in 2022 put pressure on retailers, resulting in seven authorised retailers failing and triggered Retailer of Last Resort (RoLR) events, including the AER using the gas directions powers for the first time
The RoLR scheme represents risks for the designated RoLRs
While the RoLR scheme facilitates a timely transfer of customers to a new retailer it can result in risks and costs for customers and remaining retailers. The failed retailer's customers are transferred but the contracts that the failed retailer used to manage wholesale price risks are not transferred to the designated RoLR.
If retailer failure occurs in volatile market conditions with high wholesale prices, the designated RoLR may face financial stress from being exposed to these prices. For gas retailer failures, the designated RoLR may face the risk of being unable to obtain gas.
The AEMC is seeking stakeholder feedback on a range of potential improvements for both electricity and gas retailer failures.
The electricity RoLR scheme facilitates the orderly transfer of customers but has no process to manage the sudden increase in costs incurred by the RoLR from servicing new customers. Two key measures are being explored to reduce the costs of an electricity RoLR event:
- clarifying the costs designated RoLRs can claim from a RoLR event.
- introducing a mechanism to bill the failed retailer for the costs of its failure.
Other changes are also being considered to improve the way the AER and RoLRs have access to appropriate information to help them better manage their new customers in a timely manner.
The AEMC is considering improving and expanding the current RoLR gas directions framework to better support the designated RoLR manage its new customers by:
- amending the circumstances where the AER can issue a RoLR gas direction
- increasing the time a RoLR gas direction applies to better reflect the period of risk
- examining the mandatory negotiation process by either modifying it, or removing it entirely
- expanding the directions framework to include storage contracts.
The AEMC is also considering other modifications to the existing gas RoLR scheme informed by recent experience. Specifically:
- how the costs and benefits of a direction are shared with customers
- the appropriate information for the AER and designated RoLRs to manage their new customers in a timely manner
- clarifying the circumstances where the direction applies for contracts that expire or are due to commence during the direction period.
Retailer failures are managed through legislation held in the National Energy Retailer Law (NERL). Therefore, any recommendations from this review will need to be endorsed and implemented by Energy Ministers through a package of law and rule changes.