If you’re planning to become an energy retailer in those states that have adopted the National Energy Customer Framework, you will require a retail authorisation issued by the Australian Energy Regulator. Broadly, you will need to demonstrate that you:
- Have the necessary organisational and technical capability;
- Have financial resources, or access to resources, to operate as a retailer; and
- Are a suitable person to hold a retail authorisation.
In this post we look at some of the key components of an energy retail authorisation application.
Organisational and technical capability
When examining your organisational and technical capacity to hold a retail authorisation, the AER will look at your industry experience, operational systems and staff expertise. In practice this means reviewing the resumes of your key staff, the various policies and procedures that you have to ensure compliance with all applicable law, and the systems that you will rely upon to ensure that you operate compliantly.
Experience in the industry
The AER will expect you to have key staff and executives with the necessary level of experience in the energy market. Typically, this means that you will need to have individuals with responsibility for operations, compliance, finance, and risk management who each have experience in the energy market. If you do not have individuals with such experience, you will need to explain how you will bring such capability into the business for example by working with an experienced consultant.
your business plan will form the foundation of the AER’s assessment of your retail authorisation application. It provides the context of your proposed operations and scope of operations. In broad terms, your business plan should describe your business, its objectives, its unique selling position, financial and operating forecast for the first 3 to 5 years including anticipated customer growth, revenue and expenses, and a cash flow analysis.
Compliance and risk management
Energy retail is a highly regulated industry, more so than any other industry in Australia. In your energy retail authorisation application, you will need to clearly demonstrate how you are able to comply with all applicable laws. This means that you will need to show that you have a compliance program that is consistent with the relevant Australian standard and that you have various documents in place that set out how you will comply. Alongside compliance is risk management. You will need to provide details of your risk management strategy covering both financial and operational risks.
The AER carries out a point in time assessment of an applicant’s financial capacity. They are looking to ensure that an applicant has (or has access to) adequate financial capacity to support the planned retail operations. Consequently, such an assessment relies heavily on an applicant’s business plan and approach to managing financial risk. In practice, the AER looks to ensure that you will have access to capital equal to at least one years’ worth of operating expenses assuming that you have no revenue. In examining operating expenses, the AER would expect you to include staffing, insurance, accommodation, wholesale acquisitions, network service costs, customer support and billing system cost, and ombudsman fees.
In terms of satisfying this criterion, the AER will examine your financial reports, if you are an existing business, and details of your current financial position such as interim financial statements and bank statements. The AER will also examine your ownership structure, contractual arrangements, and require declarations from your chief financial officer or chief executive officer. Finally, the AER requires a written declaration from an independent auditor or from your principal financial institution stating that an insolvency event has not occurred, that an insolvency official has not been appointed, and that they are unaware of any other factor that would impede your ability to finance your energy retail activities under the authorisation.
The AER’s assessment of financial capacity is a point in time assessment. On an ongoing basis AEMO is responsible for oversight of a retailer’s financial capacity with respect to wholesale acquisitions.
The question of whether a person is suitable to retail energy goes beyond an assessment of financial and organisational capacity and extends to a person’s character and reputation. The test here is similar to that applied when a regulator is considering whether a person is ‘fit and proper.’ In examining suitability, the AER looks to previous commercial dealings, as well as that of your offices, associates and any other entity that exerts control over your business activities. Such assessment looks at the degree of honesty and integrity shown in those commercial dealings and whether you are likely to contribute to the national energy retail objective. In satisfying this criterion, you will be required to include a number of declarations including as to any previous criminal convictions and regulatory actions.
Webinar on obtaining a retail authorisation
In the following webinar we provide an overview of the application process for a retail authorisation along with detail on some of the common traps.
Frequently Asked Questions
No, Victoria has a separate guideline and there are a range of significant differences in the process and expectations of the Victorian Essential Services Commission when compared to those of the Australian Energy Regulator. Typically, you will require new documents i.e. a financial hardship policy, specifically for Victoria. You should also note that the Essential Services Commission also takes significantly longer to assess an application than the Australian Energy Regulator.
As noted above, you will need to satisfy the AER that you have access to the resources you require elsewhere for example from a consultant.
If your entity is the one selling energy, it will have the need for a retail authorisation. There is no option to rent a retail authorisation. From the perspective of the AER, the applicant is the entity who was assessed and so needs to satisfy the eligibility criteria.
If your main business activity is selling energy then it is likely that you will need a retail authorisation. There are various exemptions available if you are selling energy incidentally, for example if you are an owners corporation, however a number of these will be phased out over time.
There is no application fee payable to the AER. There is a fee to apply to become a market participate with AEMO, which is needed if you are going to trade on the energy market and supply on market customers. There are also fees for joining the ombudsman schemes in each state and, finally, SA charge a fee for retailers operating in their state.