FINANCIAL STABILITY PROPOSALS FOR THE NATIONAL ELECTRICITY MARKET
The Australian Energy Market Commission has called for submissions on draft recommendations to improve market responses to the financial distress of a major participant. They are focussed on making sure electricity consumers continue to be supplied their electricity.
The AEMC’s National Electricity Market (NEM) Financial Resilience Review today released its second interim report for public comment.
The AEMC’s report presents a forward-looking, proactive response to the COAG Energy Council’s request for us to assess the electricity market’s ability to manage flow-on effects to energy businesses and consumers in the event of large retail company’s financial failure.
AEMC Chairman, John Pierce, said while the electricity market is working well, it could be better prepared to manage the consequences of a financial failure.
“This is all about being prepared in case a major energy company gets into financial distress. We’re not saying that it is likely to happen, but it may be possible - so our goal is to minimise disruption to customers in the event that does occur.
“Consumer choices and market dynamics are evolving and the energy market of tomorrow will be very different from today,” Mr Pierce said.
“Consumers and investors need to have confidence that the market has the right mechanisms to manage change and function well into the future.
“It makes sense to be prepared. Now is the time to plan and put in place arrangements so that the market can withstand future challenges in ways which will not impose long-term costs on consumers.
“Our 2nd interim report recommends market arrangements so customers can continue to be supplied as part of the response to the failure of a major electricity market participant and while the stability of the market is maintained.
“This review is part of our long-term reform program to work on strong market foundations so the power system can adjust efficiently to whatever comes” Mr Pierce said.
- A major market participant, with a large retail business experiencing financial distress or failure, could cause flow-on effects to other participants. Potentially this could lead to financial system instability in the NEM if those other participants could not manage these effects. If this occurred a number of negative impacts could result, including damage to consumer and investor confidence.
- The current arrangements for managing and responding to threats to financial system stability in the NEM are found to be insufficient.
- New arrangements would provide a clear framework for managing the consequences of a major participant’s failure, avoiding the need for unplanned government intervention that could otherwise be required.
- The proposed arrangements include:
- making government the single decision maker to respond to a major failure;
- establishing arrangements for the Chair of the COAG Energy Council to decide the level of interventions required and focus action on the specific circumstances of any future failures;
- establishing a NEM resilience council market bodies (AEMC, AER, AEMO, ASIC) to advise the government on appropriate responses;
- expanding the range of solutions that could be used to address the flow on effects of a large participant failure;
- making improvements to the current Retailer of Last Resort (ROLR) scheme so that it can operate in a broader set out circumstances without making worse the risks to financial system stability.
- The National Electricity Market Financial Resilience Review 2nd interim report was released today for public comment.
- Submissions are due by 25 September 2014.
- We will develop our final recommendations and advice to the COAG Energy Council after consideration of stakeholder views. If the COAG Energy Council accepts the final recommendations it would make changes to the law and submit rule requests to the AEMC.
For information contact:
AEMC Chairman, John Pierce (02) 8296 7800
Media: Communication Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817
14 August 2014
About the AEMC
AEMC is the independent body responsible since 2005 for providing policy advice to Australian governments on the electricity and gas sector. Its role is separate from the Australian Energy Regulator, which regulates the energy sector.