The AEMC today called for public submissions on draft recommendations to address risks that might arise following the financial distress or failure of a large retailer in the National Electricity Market (NEM).
Last year the Standing Council on Energy and Resources (SCER) asked the Commission to provide ministers with advice on the resilience of financial relationships between electricity companies arising from their exposure to a common spot price and their hedging arrangements.
The review is part of the Commission’s ongoing suite of work to provide a sound foundation for ongoing market stability and continuity of supply to consumers.
There is currently a retailer of last resort mechanism which is triggered when a retailer is in financial distress so that customers continue to receive electricity; and money continues to flow across the supply chain to generators.
The review’s first interim report contains draft recommendations which propose:
- Changes to the retailer of last resort scheme and credit support arrangements required by the energy market operator, AEMO.
- Further development of a special administration regime which could operate as an alternative to the retailer of last resort scheme in some cases for large retailers.
AEMC Chairman, John Pierce, said today that proposals to change existing arrangements for the retailer of last resort scheme and AEMO’s credit support were likely to mitigate some but not all of the risks of financial contagion which might flow from a large retailer failure.
“The retailer of last resort scheme has worked well in the past to protect customers of small retailers who have experienced trading problems.
“However, we are concerned that, in the unlikely event that a large retailer experiences financial distress, the retailer of last resort scheme could increase the risk of flow-on effects to other energy market participants.
“As a result we see merit in developing a new special administration regime, which could be used instead of the retailer of last resort scheme where necessary.
“Our draft recommendation is that further work be undertaken to develop the detailed design of a special administration regime and assess its costs and benefits.
While highly unlikely, the failure of a large retailer could have significant consequences for market participants and ultimately customers,” Mr Pierce said.
Submissions to the first interim report close on 12 July 2013.
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 retailer of last resort event.
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.
For information contact:
AEMC Chairman, John Pierce (02) 8296 7800
Media: Communication Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817
4 June 2013