Arrangements for Retailer Failure in the NEM

by Energy Action | Apr 06, 2016
An electricity retailer going out of business is a rare event in Australia, but it has happened. Were your retailer to cease trading what would then happen? Would your premises continue to get their power or would you be cut off? And if you did continue to be supplied, by whom, what would you be charged and would you have any say in it?

To help answer these questions, we have reviewed the current arrangements in place in the National Electricity Market should a retailer fail.

These arrangements are managed by two separate agencies. If your site is in the ACT, NSW, South Australia, Queensland or Tasmania, arrangements come under the Australian Energy Regulator (AER). For customers in Victoria it’s the Victorian Essential Services Commission (ESC). You’ll need to know this if you want to speak directly to either of the schemes’ administrators. Both schemes have been created through legislation and are designed to ensure that no-one loses supply as the result of a retailer failure. Whichever jurisdiction you come under, arrangements are largely the same but for the sake of simplicity it is the arrangements under the AER that are described here.

Once the AER is satisfied that your retailer can’t continue, it will notify the market and set a notional date for your site to transfer to one of a limited number of Retailers of Last Resort (RoLR). These are retailers that have the financial standing to pick up large numbers of customers should one of the smaller retailers fail and include AGL, Energy Australia, Origin Energy and if you’re site is in the ACT or Tasmania, ActewAGL or Aurora Energy. You don’t have a choice in who this new retailer is: this decision is made for you by the AER. Also, because the transfer date is notional it means that you don’t have to wait the two to four weeks that it normally takes for a transfer to a new retailer to occur, it is just taken to have happened on the date stipulated by the AER and you do not have to do anything.

On the notional transfer date the new retailer will become responsible for your site and supply will continue uninterrupted. Here it is important to understand that there would be no gap between your old retail contract ceasing and supply from the new retailer commencing. In the next few weeks following the notional transfer, your new retailer would then be in touch with you. The new retailer does not have to honour the prices under your old contract. There are some pricing protections in place for small customers whereby the new retailer is limited to charging no more than the prices under his standard contract for small customers. These would however be higher than the rates that you were previously paying. The definition of a small customer varies by state but is based on annual consumption of less than 100MWh per year for sites in the ACT, NSW and Queensland, less than 160MWh per year for sites in South Australia and less than 150MWh per year for sites in Tasmania.

Large customers for the most part have to take the prices offered by the new retailer even though they could be significantly higher than that under their existing contract and there is no price protection. In fact, if you signed your current contract within the last two years when the electricity component of your bill was at historical lows, you would almost certainly be facing an increase from your new retailer even if it put you on the best prices available in the market today. If your new retailer applied a “risk premium” to compensate itself for having to pick up your site unexpectedly, the prices could be higher still.  However, you don’t have to stay with the new retailer. Once they have transferred to their RoLR (the new retailer) all customers are free to enter into a market priced contract with any retailer and they should act as soon as possible in doing so.

More information on the RoLR schemes is available on the AER website and on the ESC website.

 

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