The Australian Energy Market Commission (‘AEMC’) has just finalised a rule that will allow the majority of market energy retailers in Australia to defer network bills for 6 months. Here we explain this decision and what it means for retailers.
The Problem for Retailers
COVID-19, and the regulatory responses to it, has had a significant impact on energy retailers. The usual collections processes used by electricity retailers have changed as those retailers have sought to act in a manner that is consistent with the AER’s 10 Principles. One consequence of this, is that customer debt to retailers is increasing significantly. This has, in turn put cashflow pressure on retailers.
AEMC’s Solution : Deferral of Network Bills
Network charges are the amounts that retailers need to pay to their local distributors (‘Distribution Network Service Providers’, or ‘DNSPs’ for the use of their electricity infrastructure: The ‘poles and wires’ and associated equipment.
Given that these charges typically make up around 40 percent of retail bills, a relaxation on the payment requirements would be of significant help to retailers in trying to pay their own bills. Key details of the proposal include:
- Payment deferral for network charges will only be permitted with respect to residential and small business customers on a payment plans, hardship arrangements or deferred debt arrangements, at the time the retailer is issued with the bill. This means that the retailer cannot simply defer payment of all network bills;
- It does not apply to government-owned retailers or retailers of last resort. This is because there is already a solvency framework in place for these retailers to support them;
- Interest is charged on deferred payments. This is intended to have the effect of discouraging retailers from using deferral unless they have to.
Our take
It was inevitable, of course, that relaxed payment mechanisms for customers would have an impact on retailer cashflow and potential solvency. This mechanism should give some degree of breathing space to market retailers who are feeling the pressure. Note, this deferral will not apply to ‘on-selling’ retailers (such as those who sell energy entirely in embedded networks) as they are not liable to pay network charges to DNSPs.
Note that these changes are in addition to general protections which were introduced in response to COVID-19 to support any company in Australia (including energy retailers). These changes include:
- An increase in the minimum required amount for a statutory demand for payment of debt ($2,000 to $20,000) as well as the time required to pay (from 21 days to six months). This was the standard mechanism by which liquidation proceedings would be commenced;
- A new temporary ‘safe harbour’ for company directors who may otherwise be facilitating insolvent trading;
- Various cash grants to support businesses in difficulty.
