The Australian Energy Market Commission has released its review of the Retailer of Last Resort Scheme – and found key improvements should be made to protect both consumers’ financial interests and the financial resilience of the retail market.

The Commission’s final report into the scheme recommends a number of key changes – including opening up the potential for customers who are transferred automatically from a failed retailer to be placed on a competitive market offer, rather than a more expensive standing or default offer, as happens now.

The Retailer of Last Resort – or RoLR – scheme is an existing feature of the national electricity market that is designed to protect consumers when their energy retailer goes out of business. It transfers customers of failed retailers to new providers to make sure their energy service continues. It has only been triggered on a handful of occasions – including in 2009 when Jackgreen’s failure affected 67,500 customers.

Energy Ministers asked the Commission to review the scheme after we made a series of recommendations for change in our 2020 Retail Energy Competition Review. That Review, published in June, looked at a number of issues, including impacts of the COVID-19 pandemic on the national electricity market and what measures might be needed to keep the market healthy as customers and retailers faced increasing financial pressure. 

Our final report into the RoLR scheme released today was designed to test with stakeholders the recommendations we previously made on the scheme and develop proposals for jurisdictions to progress them in coordination with the Commission’s rule change process. We have taken stakeholder feedback into consideration in developing our final report. 

The report recommends measures to ensure that consumers don’t bear the financial burden of their retailer going out of business. The measures would also give retailers who are designated ‘retailers of last resort’ greater certainty around recovering their costs and reduce barriers to encourage a wider pool of retailers beyond the traditional ‘Big 3’ (Origin, AGL, EnergyAustralia) to participate in the scheme, subject to them meeting stringent financial tests. 

Because electricity retailing is a relatively high-volume industry with low margins (about $4 for every $100 received), retailers carry the credit and cash-flow risks for the entire sector. A relatively small increase in non-paying customers can quickly put some retailers in a position where they can’t pay their own bills. The proposed changes are therefore designed to spread the risk of a retailer going out of business more broadly across the market.

“These changes will increase the financial resilience of the national electricity market by reducing the risk of the RoLR scheme triggering financial contagion across the sector due to the transfer of a large number of customers in the event of a large retailer failure or multiple retailer failures, causing the failure of the designated RoLR,” the report said.

It said that consumers would benefit from being placed on a market offer when transferred to a retailer of last resort rather than a standard or default offer because “experience shows that it may take many years for customers to shift onto lower priced market offer contracts”.

Media: Kellie Bisset, Media and Content Manager, 0438 490 041