Final rule determination on retailer-distributor credit support requirements

02 February 2017

The AEMC today published final rules to improve the mechanisms available to distributors to manage the risks they face from a retailer default. This risk arises when a retailer is unable to pay its outstanding network charges, as distributors rely on retailers to collect the network charges from their shared customers and to remit those funds to the distributor.

The final rules, which are more preferable rules and apply to both electricity and gas markets, would allow distributors to collect unpaid network charges and any costs associated with a retailer default. This would provide more certainty to distributors, financial markets and other market participants, as distributors would be able to collect their regulated revenue amount in full.

The final rules would also remove the requirement for credit support between retailers and distributors, except in the case of a history of late payment. This means that retailers would avoid incurring the upfront costs of insuring against a default risk that may never happen – costs that are typically passed on to customers.  The requirement for a retailer to provide credit support where it has a history of late payment provides an incentive to retailers to pay distributors’ invoices on time.

Any existing credit support arrangements between distributors and retailers would be ‘grandfathered’.

The final determination relates to rule change requests received from AGL, the COAG Energy Council and Jemena Gas Networks.

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