Apr 14 2016

Go Energy gone: Retailer of Last Resort comes into play

Last week, on 2 April, Go Energy was suspended from the National Electricity Market (NEM) by the Australian Energy Market Operator (AEMO) for failing to comply with AEMO requirements. Go Energy’s authorisation to trade in the NEM was revoked from 12am Saturday, 2 April 2016. The event also highlighted the role of the Retailer of Last Resort scheme, or RoLR, in the energy system.

Background

Over the past 16 years the NEM has provided secure, reliable, and high quality electricity and gas services to consumers. In that time other electricity RoLR events have included Energy One (2007) and Jackgreen (2009).  

Under the National Energy Retail Law (Retail Law), the national RoLR scheme establishes arrangements to transfer the customers of a failed retailer to another retailer, so there is continuity of supply, with the Australian Energy Regulator responsible for administering several aspects of the national RoLR scheme, including developing, making and maintaining RoLR plans – the most recent plan was released in July last year.

Go Energy Case

In the case of Go Energy’s failure, around 2,200 electricity customers in the ACT, South Australia, Queensland, and NSW were affected. However, not one customer was without power as a result.  Essentially the RoLR process means that a retailer, such as Go Energy, is subject to a call notice, then a default notice and then a suspension notice from AEMO. This staged approach gives the distressed retailer the opportunity to correct its financial position to either the National Electricity Market, (NEM) or the wholesale gas market or the gas Short Term Trading Market (STTM).  It should be borne in mind that for a call notice to be issued in the first place the retailer has already failed to meet the financial commitments required by AEMO as and when they fall due.

Once Go Energy was suspended from the NEM, the flow of customers to the default RoLR was automatic. Because of the small volume of customers involved in the case of Go Energy, all customers went to the default, or designated, local area RoLR - being AGL, ActewAGL, Origin and EnergyAustralia.  The former customers of Go Energy would be supplied on the published RoLR prices, terms and conditions of the relevant RoLR.  In general these are the Standard tariffs of the retailer in that area, plus an administrative fee. Customers are able to transfer to another retailer or contract at any time. In the event of a large-scale RoLR event, the Australian Energy Regulator (AER) has a register of ‘Additional RoLR’s’ which may be consulted by the AER and required to accept customers on similar predetermined prices and conditions.

Often, the RoLR may not be aware that a default notice is likely to be issued until immediately before such a notice is issued.  Until this point the identity of the failing retailer is considered confidential, as is their customer base, and the AER is the party that will contact the RoLR(s) in the first instance. 

The division of the 2,200 Go Energy electricity customers between four large retailers is unlikely to cause too much financial shock.  But it raises questions about when retailers should be alerted to what may be around the corner. There is a considerable administrative burden associated with providing written notices and written opportunities to exit standard contracts to these new customers, along with internal briefings so that inbound calls from confused customers are not met with confused customer service agents.  This applies even where the volume of customers is relatively low. For these reasons, industry members have argued that de-identified descriptions of the customer numbers, load and dispatch information associated with the distressed retailer should be provided as early as possible to any RoLR – it will allow them to ensure they are prepared ahead of the suspension notice.  

Interestingly, a suspension of the electricity authority does not automatically mean that the gas authorisation will be revoked.  In the case of Go Energy, its gas authorisation was revoked by AEMO on 4 April, two days after the electricity suspension.  Whilst the same RoLR scheme applied, the failure of Go Energy’s gas retail operations impacted a small number of larger commercial customers in New South Wales and Queensland, with no residential or small business customers affected.

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