Managing Retailer Default Situations
Decisions and reasons paper - November 2013
The Authority consulted on arrangements to manage a retailer default situation. The potential for an unresolved default situation has been a long-standing concern for the electricity industry and policy-makers.
The Authority has decided to introduce arrangements to manage a retailer default situation. The key elements of the arrangements are:
- a regulated process for resolving a retailer default is initiated when a retailer does not fulfil financial obligations to the clearing manager, becomes insolvent, or the retailer’s use-of-system agreement (UoSA) with a distributor is terminated because of a serious financial breach by the retailer (and certain other conditions are met)
- the defaulting retailer will have seven days to resolve the default situation (phase one)
- if the default situation is not resolved, the Authority will advise the customers of the defaulting retailer that they have seven days to switch to another retailer (phase two)
- the Authority will have three days to arrange to assign all remaining customers to a new retailer: first by running a two-stage tender process; and then by mandatory allocation process (phase three)
- all customers of the defaulting retailer are to be assigned to a new retailer 18 days from the process being initiated.
The Authority is finalising a plan for implementation of the new arrangements. The Authority considers that the key implementation actions will be:
- develop a process manual to specify the step-by-step actions the Authority will take if there is a retailer default situation
- finalise the guideline for managing a retailer default situation by including further detail identified during development of the process manual
- undertake a desktop exercise involving the Authority, the clearing manager, registry and participants to test the effectiveness of the arrangements and the preparedness of each party.
The amendments to the Code have been gazetted and will come into effect on 16 December 2013.
The Authority would like to thank all the market participants that provided feedback and support on the proposed arrangements to manage a retailer default situation. The Authority will be in touch to discuss the implementation process in greater detail in the coming weeks.
Final Report - December 2012
The Retail Advisory Group delivered its report to the Authority Board on 19 December 2012 outlining its analysis and recommended approach to managing retailer default situations. The Retail Advisory Group's main recommendations were:
- the Authority should amend the Code to establish a regulated process for ensuring that the defaulting retailer’s customers are transferred to another retailer in a way that:
- facilitates a commercial solution to a retailer default
- maintains the confidence of consumers in a reliable electricity supply
- maintains the confidence of industry participants that a retailer default will be resolved in a finite time
- the regulated process should involve:
- a period for the failed retailer (or the receiver/liquidator) to seek a commercial solution, eg a trade sale of the customer base or an equity injection. The RAG suggests 7 elapsed days
- a period for customers to switch to a new retailer. If a customer does not switch during this period they will be allocated a new retailer by the Authority. The RAG suggests 5 elapsed days
- a period for voluntary customer switches to be processed. The RAG wanted time for customer switching decisions to be processed. A mandated transfer could cause frustration by overriding customer decisions. The RAG suggests 5 elapsed days
- the event date for the mandated switch is day 17 of the process. Mandated switches should be completed over the next 10 days according to switching rules.
The Authority has decided to adopt the Retail Advisory Group's recommended approach to managing retailer default situations and will consult on detailed Code amendments in due course.
The final report is published below.
Discussion paper - August 2012
On 14 August 2012, the Retail Advisory Group published a second discussion paper on arrangements for managing retailer default situations. The discussion paper set out the preferred approach that was developed by the Retail Advisory Group and explained the rationale and implications of the steps in the preferred approach.
The discussion paper is available from the consultation page.
Discussion paper - February 2012
On 7 February 2012, the Retail Advisory Group sought feedback on a discussion paper on:
- the potential risks and consequences of a retailer not paying for electricity or electricity services (a retailer default situation)
- three options for limiting any adverse effects on consumers and electricity industry participants of a retailer default situation.
The discussion paper is available from the consultation page.
Assuring Customer Supply - March 2011
The Authority has developed internal guidelines for managing supply risk situations, as an interim step to engaging stakeholders in considering more permanent arrangements for the longer term. These interim measures provide a fall-back position while consideration of a longer-term solution proceeds as part of a broad-based project, involving advisory group input and sector consultation.
As part of its brief to promote competition, reliable supply and efficient operation of the electricity industry, the Authority announced in December its intention to review inherited policies and projects from the Electricity Commission.
The Authority has therefore reviewed work, commenced by industry participants in 2000 and pursued more recently by the Electricity Commission, to avoid customer stranding and ensure continuity of supply in the event of retailer default. These types of rules are common in other electricity markets.
Pending completion of permanent arrangements, the Authority has prepared interim measures that can be invoked in the meantime should a requirement arise. These measures involve internal Authority guidelines for managing potential stranding situations and draft Code amendments that can be introduced under urgency if necessary.
The requirement for orderly supply transition arrangements has been expressed in each electricity industry Government Policy Statement since 2000. Work was initially undertaken as an industry self-governance activity under the New Zealand Electricity Market and the Metering and Reconciliation Information Agreement. Further work, including industry consultation, was then done from 2004 by the Electricity Commission before being impacted by other higher priority projects and the 2009 Ministerial Review.
This extended development history reflects both the:
- complexity of balancing customer needs and retailer commercial interests in the design of any solution
- relatively low probability of occurrence. The instances of retailers exiting the electricity market since 1999 have all involved orderly customer transfer between retailers.
Guidelines-for-Managing-Retailer-Default-Situations.pdf | pdf | 209 KB | Last Changed: 24/03/2011 5:32pm
RAG-final-report-retailer-default.pdf | pdf | 519 KB | Last Changed: 14/01/2013 11:55am