Rule Change: Completed
On 6 August 2020, the Commission published a final determination and rule that introduces a mechanism to allow some retailers to defer the payment of network charges to distribution network service providers (DNSPs) for customers impacted by COVID-19 for six months. The final rule balances the need for a framework to provide immediate cash flow relief to retailers to help the market manage the impacts of COVID-19 while ensuring that the impact of the deferral mechanism is manageable and should not pose any material risk for DNSPs
Rule change request
On 6 May 2020, the Australian Energy Regulator (AER) submitted a rule change request to the Commission seeking to allow retailers to defer the payment of network charges for customers affected by the COVID-19 pandemic for six months.
The AER proposed the delay in response to the impact of COVID-19 on some customers’ ability to pay their energy bills and the associated impact on retailers’ cash flows. The AER suggested that the proposed deferral mechanism would provide necessary cash flow relief to retailers, ensuring they can focus on the ongoing supply of electricity and appropriate customer support and reducing the risk of multiple retailer failures during this period.
Final determination and rule
The Commission has made a rule to allow eligible retailers to defer the payment of network charges to DNSPs incurred between 6 August 2020 and 6 February 2021 for residential and small business customers on a payment plan, hardship arrangement or deferred debt arrangement. These payments will be deferred for a period of six months.
The key features of the more preferable final rule are:
- Retailers that are government-owned or registered as a Retailer of Last Resort (RoLR) are not eligible to access the deferral mechanism.
- Eligible retailers will be required to pay interest on any deferred network charges at a rate of 3 per cent per annum.
- DNSPs will be able to defer the payment of a proportionate amount of transmission use of system charges to TNSPs.
- Participants are required to negotiate in good faith and agree on processes to give effect to the deferral mechanism under the final rule as soon as practicable, and in any case no later than 10 business days after the commencement date.
- Retailers will be required to report monthly to the AER on the number of customers whose network payments are deferred under the scheme, the total network payments deferred under the scheme and the latest due date for payment of those network charges. The AER will also be required to publicly report on this data each month.
The implementation of a deferral mechanism with the design features discussed above is a necessary and proportionate response to the impacts of COVID-19 on the electricity market. The issues identified above heighten the risk of multiple retailers exiting the market as a direct result of the unique circumstances caused by the COVID-19 pandemic, which do not reflect normal competitive market forces. The Commission considers that multiple retailer failures would not be in the long-term interests of consumers as this would reduce retail competition, which may lead to sub-optimal consumer outcomes.
The rule change process
Directions paper and extension
On 7 July 2020 the Commission extended the period of time for making the final determination for the rule change request to 6 August 2020 under section 107 of the National Electricity Law (NEL). The Commission considered that this extension was necessary due to the complexity of the issues raised in the rule change request and submissions to the consultation paper. In particular, the changes to the rules required to give effect to the proposed deferral mechanism are complex and the Commission considered that these changes needed to be tested with stakeholders. Several stakeholders also requested that additional time be allowed for consideration of these issues and further consultation.
The extension allowed the Commission to publish a directions paper on 9 July 2020 to facilitate further stakeholder consultation on the proposed rule change. The directions paper set out the Commission’s proposed policy positions in respect of the rule change request.
The Commission also published indicative rule drafting that is proposed to give effect to the policy positions outlined in the directions paper. The Commission sought stakeholder feedback on the proposed rule drafting, particularly whether it would allow the proposed deferral mechanism to be implemented in an effective and timely manner.
Submissions were due by close of business on 23 July 2020. The Commission received 12 submissions from stakeholders, which are available below.
On 28 May 2020 the AEMC published a consultation paper seeking feedback on the proposal. Key issues the Commission are seeking feedback on include:
- How has COVID-9 impacted retailers’ cash flows?
- Which retailers and customers should be eligible to access the proposed deferral mechanism and how should this be determined?
- What is an appropriate timeframe for the proposed payment deferrals?
- How would the proposed payment deferrals be implemented in practice?
- What would be the financial impact of the proposed deferral mechanism on NSPs?
Submissions to the consultation paper were due by 25 June 2020. The Commission received 26 public submissions (which are available below), as well as a number of confidential submissions.
Initiation of the expedited rule change process
The Commission commenced the rule change assessment under the expedited rule making process. The Commission considers this rule change request should be considered urgent as:
- The COVID-19 pandemic has caused a severe economic downturn impacting consumers ability to pay their energy bills
- The potential reduction in revenue is likely to cause financial stress for retailers and may lead to financial contagion in the energy sector, potentially impacting the effective operation of the wholesale exchange
- The rule change proposal would defer costs for some participants under cash flow stress from COVID-19.
Any objections to the proposed urgent rule change process were due by close of business 11 June 2020. No objections were received by the Commission.
Consultation paper stakeholder briefing
The project team held a briefing for all interested stakeholders on 1 June 2020. The slides from this briefing are attached here and a recording is available here.
The purpose of this briefing was to provide an overview of the consultation paper and explain the rule change process.