Submission: Review into the arrangements for failed retailers’ electricity and gas contracts

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Compliance Quarter has urged the Australian Energy Market Commission (AEMC) to reconsider a proposal that would require all retailers to provide an ‘all assets’ security interest as a mechanism to increase the likelihood of cost recovery from failed retailers. In a submission to the AEMC’s review of the Retailer of Last Resort scheme, Compliance Quarter said that mandating such a security interest would likely increase financing costs for retailers and act as a barrier to new entrants in the market.

The AEMC is considering important reforms to improve the likelihood of the AER recovering costs from failed retailers. Its preferred option is to make the AER a secured creditor, requiring retailers to provide an ‘all assets’ security interest that would be registered on the Personal Property Securities Register.

There is clearly a need to ensure the efficient recovery of costs where a RoLR event occurs. However, Compliance Quarter submits that this approach would be disproportionate and would undermine competition. The capacity of a new entrant retailer to raise funds is limited to the extent of its existing capital and support by related entities and shareholders. Mandating registration of a security interest would likely increase financing costs for retailers by increasing risks for lenders and reducing retailers’ ability to use assets as collateral for loans. These factors would ultimately feed into higher costs of capital for retailers, undermining new entry and competition.

Compliance Quarter submits that there is a need for new entrants in the retail energy market, with no new retailers approved in the last 12 months and consumer choice diminishing. The submission also noted that while there have been retailer failures in recent years due to market upheaval, the number was comparatively low and responses needed to be proportional. Retail competition had increased over the last decade, with new entrants placing downward pressure on prices and encouraging innovation.

The AEMC is reviewing the Retailer of Last Resort scheme to ensure continued effective management of retailer failures and minimal disruption to customers.

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