Australian Energy Market Commission inquiry to consider risk of ‘cascading retail failure’
Electricity customers are being shielded from the full brunt of the coronavirus downturn. But now retailers are at risk and electricity market controllers are worried.
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An urgent inquiry will look at the prospect of “cascading retail failure” in the electricity market because households and small businesses affected by the coronavirus pandemic can’t pay their bills.
More than 20,000 electricity customers nationally have registered for payment plans — where they cannot be cut off despite not paying their bills when due — since early March 2020.
The problem is growing with more than a thousand customers a week also seeking assistance from retailers, according to the Australian Energy Regulator.
If smaller retailers fail because they’re not being paid, under market rules their customers will be passed on to another retailer — risking a domino effect as the burden of unprofitable customers accumulates down the chain.
The market’s rule setting body, the Australian Energy Market Commission, will announce today it will urgently consider options, including letting retailers at risk defer paying to use the network for six months.
“Some retailers are more financially healthy than others – but if a large retailer or a number of smaller ones go out of business in a short space of time this may have a domino effect on the others,” commission chairman John Pierce said.
The commission was asked to hold the inquiry by the regulator.
In March, the regulator told electricity companies they were expected to look after their customers. This included making it easier for customers to enter hardship payment plans, not disconnecting customers and not using debt recovery methods.
Regulator chair Clare Savage said these measures recognised “customers are doing it tough at the moment”.
However, she acknowledged it could hurt retailers’ cash flow, causing them to close.
“This means fewer options for customers and possibly higher prices, as well as adding to Australia’s increasing unemployment rate,” she said.
“Allowing retailers to defer their payment of network charges for a short period will provide a buffer for retailers who are providing this extra assistance, further supporting the market and competition.”
Retailers would likely have to pay the deferred network charges later, possibly with interest.
Electricity and gas network companies have already voluntarily offered a relief package which began in April and will run until the end of June.
The relief package was co-ordinated by Energy Networks Australia, whose chief executive Andrew Dillon said it was expected to cost companies hundreds of millions of dollars in forgone revenue.
SA Power Networks also has offered a concession to larger businesses.
However, the regulator is concerned that economic pressure will continue for the second half of the year and the existing relief will not be enough.
The commission will consider the Energy Networks Australia scheme and other supports.
“Federal and state concessions packages have been a good first line of defence in helping Australians manage through this unprecedented health and economic shock,” Mr Pierce said.
“We need to consider if a further line of defence to protect consumers’ access to electricity is required.”
The commission is inviting stakeholder submissions on the issue until June 25 and will publish its decisions by July 23.