’Domino effect’ fears as electricity retailers struggle

HOUSEHOLDS could face soaring power prices if a coronavirus cashflow crisis hitting small electricity retailers causes a “financial contagion” in the market.

More than 20,000 families and businesses have sought hardship help on their electricity bills during the pandemic, threatening the thin bottom line of some retailers.

The Australian Energy Regulator warned smaller electricity retailers were at risk of collapse, which could spark “large-scale, cascading retail failure”, reducing competition and forcing up power prices.

The Australian Energy Market Commission will today announce it is considering an urgent request from the regulator to require electricity network businesses to put some of the costs they charge to retailers on hold for six months.

The change would reduce the burden on retailers, which are not allowed to disconnect customers during the pandemic but have also seen revenue fall because businesses have reduced their power consumption due to the lockdown.

“If a large retailer or a number of smaller ones go out of business in a short space of time this may have a domino effect on the others,” AEMC chair John Pierce said.

About 1000 customers a week are seeking electricity payment plans.

Smaller retailers are particularly exposed to non-paying customers, with research showing for every $100 customers owe to their providers, $43 is payable to networks, $33 covers wholesale costs and $8 to environmental schemes.

Retailers typically only see a profit margin of $4 per $100 from each customer. Australian Energy Regulatory chair Clare Savage said: “If an energy retailer ceases operation as a result of extending its support to COVID-19 impacted customers, it could result in less competition in the market and possibly higher prices.”