Rule Changes: Completed

Retailer insolvency costs - pass through provisions

Reference:
ERC0172
Proponents:
COAG Energy Council
Decision:
Rule made
Amending rule:
NER and NGR Final Rules
Commenced:
09-Feb-2017
Amending chapters:
NER: chapter 6B, NGR: Division 4 of Part 21
Rule version:
Other rule versions:

Overview

For information on this Rule change, please refer to the Retailer-Distributor Credit Support Requirements project page.

Consolidation of rule change requests

The Australian Energy Market Commission (AEMC) has consolidated the consideration of the COAG Energy Council’s rule change request related to the retailer insolvency cost pass-through provisions with AGL’s retailer-distributor credit support requirements rule change request (ERC0183). The two requests were be treated as one request for the purposes of Part 7 of the National Electricity Law and werel be addressed under the process for the AGL rule change request.

For further information on the consolidated rule change request, please refer to the Retailer-distributor credit support requirements project page here

Background

Initiation of the rule change process

The AEMC commenced the rule changes process regarding retailer insolvency costs pass through provisions on 30 October 2014. Eight submissions were received in response to the consultation paper.

The rule change request

The AEMC received a rule change request from the COAG Energy Council seeking to amend the distribution cost pass through provisions in the National Electricity Rules to:

  • allow distributors to recoup their unrecovered revenue in relation to regulated services that have been provided, but remain unpaid for by retailers that have become insolvent; and
  • allow the pass through of these amounts to be approved by the Australian Energy Regulator without being subjected to the materiality threshold usually applied to cost pass through events

If made, the effect of the proposed rule would be that if a distributor cannot recover its revenue following the insolvency of a retailer, that revenue would be collected from the distributor’s customer base, thereby keeping the distributor whole.

Current cost pass through provisions allow distributors to recover the increase in costs incurred by a specified event, including a retailer insolvency event, but do not allow the recovery of foregone revenue. This is the revenue that is due in relation to regulated services that have been provided to a retailer, but which remain outstanding because the retailer has become insolvent.

While other recovery options are available to distributors, these may be uncertain in terms of the timing and extent of recovery that may be achieved.

The COAG Energy Council considers that the full recovery of revenue in these specific circumstances is appropriate. This is because the National Electricity Rules impose particular obligations of supply on distributors but also limit their ability to independently manage the commercial risks associated with such supply.

The COAG Energy Council also considers that the proposed rule would correct existing drafting errors in the National Electricity Rules, and better reflect the original policy intent of the National Energy Customer Framework.

 

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