On 20 June 2024, the Australian Energy Market Commission (AEMC or Commission) published a final report for the Review into the arrangements for failed retailers’ electricity and gas contracts. Our 10 final recommendations would simplify and improve the Retailer of Last Resort (RoLR) scheme, better protect retailers that take on a failed retailer’s customers, and lower costs for consumers.

Our recommendations would simplify and improve the RoLR gas directions framework

The Commission has made six final recommendations to simplify and improve the gas directions framework, which would have the following key benefits:

• expanding the gas directions trigger would better protect designated RoLRs by ensuring that they have access to important contracts held by the failed retailer (recommendation 1)
• expanding the gas directions period would give designated RoLRs sufficient time to negotiate long-term contract coverage (recommendation 2)
• removing the mandatory negotiations and auctions processes would simplify arrangements and reduce risks for gas producers (recommendation 3)
• clarifying arrangements for contracts due to end or commence during the directions period would increase certainty for relevant parties (recommendation 4)
• expanding the scope of gas directions to include gas held in storage would help ensure that designated RoLRs have the same contractual coverage as was available to the failed retailer (recommendation 5)
• requiring designated RoLRs to pass on the benefits of gas directions to consumers would help ensure that consumer outcomes are prioritised (recommendation 6).

Our recommendations would reduce costs and improve incentives for failing retailers in electricity and gas

The Commission has made four recommendations to improve the RoLR scheme for both electricity and gas RoLR events, which would have the following key benefits:

• improving the RoLR cost recovery framework would increase certainty for market participants (recommendation 7)
• expanding the AER’s information gathering powers under the RoLR Regulatory Information Notice (RIN) process would help ensure that designated RoLRs have timely access to important information (recommendation 8)
• introducing a new bill framework would reduce the cost of RoLR events for consumers (to the extent that the failed retailer is able to pay the bill, as well as disincentivise misuse of the RoLR scheme (recommendation 9)
• a new civil penalty would further disincentivise misuse of the RoLR scheme, thereby avoiding unnecessary costs being passed on to consumers (recommendation 10).

Retailer failures are managed using the Retailer of Last Resort scheme

In the event of a retailer failure, the Retailer of Last Resort (RoLR) scheme facilitates the orderly transfer of customers to new retailers without disruption to their electricity or gas supply.

Between 2012 and 2022, the RoLR scheme had only been used four times, and the AER had never used its RoLR gas directions powers. The high wholesale prices and reduced liquidity in the contract market that occurred in 2022 put pressure on retailers, resulting in seven authorised retailers failing and triggered Retailer of Last Resort (RoLR) events, including the AER using the gas directions powers for the first time.

The RoLR scheme represents risks for the designated RoLRs

While the RoLR scheme facilitates a timely transfer of customers to a new retailer it can result in risks and costs for customers and remaining retailers. The failed retailer's customers are transferred but the contracts that the failed retailer used to manage wholesale price risks are not transferred to the designated RoLR.

If retailer failure occurs in volatile market conditions with high wholesale prices, the designated RoLR may face financial stress from being exposed to these prices. For gas retailer failures, the designated RoLR may face the risk of being unable to obtain gas.