The Australian Energy Market Commission (AEMC or Commission) has initiated a review into the arrangements for failed retailers’ electricity and gas contracts. On 13 October 2022, the AEMC published the terms of reference for the self-initiated review and paper to facilitate stakeholder consultation.

The AEMC review seeks to determine whether changes are needed to the current Retailer of Last Resort (RoLR) scheme or other legislation to minimise the risks and costs associated with retailer failures.

Context

Prior to May 2022, very few retailer failures had been observed in Australia's east coast electricity and gas markets. However, in the past five months, seven electricity retailers, one gas retailer and one embedded network operator have failed. 

Overseas, energy retail markets with similar characteristics have also seen significant retailer failures. In the United Kingdom, more than fifty retailers have failed since 2019 and this has included large retailers whose failure could threaten the financial stability of the retail market.

This has prompted the AEMC to examine whether and how the regulatory framework may be improved to manage the risks and costs with retailer failures.

Issues for consultation

The AEMC is exploring the nature and magnitude of the problem for:

• electricity retailers not having access to the failed retailer’s contracts to manage spot price exposure for the customers transferred to them 
• the current RoLR gas directions framework and whether it is sufficient for gas retailers to manage risks for the customers transferred to them
• retailers undertaking unusual behaviour during volatile market conditions to prevent a potential retailer failure.

The Commission sets out some potential solutions to facilitate consultation and stakeholder submissions. We also encourage stakeholders to submit alternative solutions for consideration. In particular, the Commission seeks stakeholder views on:

• potential solutions for electricity retailer failures
• potential improvements to the existing RoLR gas directions framework.

We are exploring and seeking stakeholder views on whether the solutions are workable, the likelihood of them solving the potential problems with the regulatory framework and their overall merit as policy solutions.

Key dates

The Commission notes the review may identify policy solutions that require implementation through legislation other than the energy laws and rules. Therefore, the review is being undertaken in two parts:

Stage 1 involves a feasibility study to identify what policy options are available to address the matters within the scope of the Review and the relevant law and/or rule changes that may be required to achieve them. 

Key milestones

The upcoming key milestones for this stage are:

• Consultation paper - 13 October 2022 
• Submissions close - 10 November 2022
• Stage 1 final report - April 2023.

Stage 2 of the review will address the implementation of feasible policy options identified in the first stage. These dates will be released once the scope of Stage 2 is determined.