Australian electricity retailers could get help as customers struggle to pay in coronavirus crisis
Electricity retailers across Australia could be offered relief from network costs that make up a big portion of power bills, freeing them up to help customers who are struggling to make payments during the coronavirus crisis.
The proposed move comes amid fears retailers could go bust and trigger a “financial contagion” in the national electricity market – reducing competition and disrupting electricity supply to some homes and businesses.
The Australian Energy Market Commission announced on Thursday it would urgently consider a rule change allowing electricity retailers with pandemic-affected customers to put some of their electricity network charges on hold for six months.
In a separate move, the AEMC also revealed plans to let customers in remote communities access off-grid energy from their electricity network – such as from a combination of solar, batteries and back-up generators.
Across Australia, retailers have been deluged with requests from customers who are coming under financial pressure. More than 20,000 electricity customers have registered for payment plans since March, while requests for assistance are currently coming at the rate of more than 1,000 a week.
Retailers have already been putting distressed customers on payment plans or delaying debt repayments – but there are fears that the retailers themselves will come under financial pressure without relief from the electricity network costs charged by distributors.
The AEMC chair, John Pierce, warned of a “domino effect” if retailers went bust. He said the body would move quickly to consider the rule change – taking submissions until late June, with a decision in July – because of the risk of “financial contagion in the market from multiple retail business failures”.
“We know that retailers are facing increases in the level of non-paying and hardship customers while still paying for wholesale electricity and network access – which together make up nearly 80% of their costs. And they have been put on notice not to disconnect customers who are having trouble paying their bills because of Covid-19,” he said in a statement.
“Some retailers are more financially healthy than others – but 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, who in turn will be under pressure to service larger numbers of hardship customers.”
Out of every $100 paid on retail bills, about $43 goes towards network costs, according to the Australian Competition and Consumer Commission. A further $33 covers wholesale electricity costs, $8 for environmental scheme costs and $11 for retailer costs, leaving a retail margin of $4.
The Australian Energy Regulator – which requested the urgent rule change
– has argued these margins mean a relatively small increase in customer nonpayment could hit retailers’ cashflow and “may threaten their viability”.
If energy retailers ceased operation as a result of extending support to Covid-19-affected households and businesses, it could result in less competition in the market, the AER chair, Clare Savage, said.
“This means fewer options for customers and possibly higher prices, as well as adding to Australia’s increasing unemployment rate,” she said.
An AEMC spokesperson said a hardship customer was generally defined as someone who was having trouble paying their energy bills for a number of reasons including things such as unemployment, reduced income, family violence, household illness or a death in the family.
The regulator’s request, however, was to defer network charges incurred by retailers in relation to customers they had on a ‘Covid-19 arrangement’.
“This means a hardship customer or someone who has been put on a payment plan/has arranged to defer their debt for the period between 1 March and 31 December 2020,” the AEMC spokesperson said.
“It doesn’t apply to the network charges of customers on payment plans/who were deemed hardship customers before that date.”
Asked about the proposed benefit that would flow to households, the AEMC spokesperson said: “It’s about making sure they can still access their electricity supply – and this is a benefit for all customers not just those on hardship provisions.”
Consultation on the proposal was launched on the same day the AEMC unveiled plans to support the use of offgrid energy in some remote communities – potentially including in bushfire, cyclone or flood-prone areas and weak parts of the power grid.
The rule change will allow energy distribution businesses to “take advantage of improved renewable technologies to choose stand-alone power systems when it’s cheaper than using poles and wires to supply their customers via the grid”.
“Stand-alone power systems, which are usually a combination of solar, batteries and a back-up generator, are getting cheaper and more sophisticated,” Pierce said.
“In contrast, supplying customers using poles and wires in remote areas can be very costly.
“Stand-alone systems give electricity networks more options.”
The AEMC says the total number of customers eligible for stand-alone power systems will be relatively small, but the move could drive large cost savings to networks, because getting power to remote communities is “disproportionately expensive”.
The new rule would ensure customers did not lose consumer protections, retail deals or reliability. It applies across Australia except in Western Australia, because that state is not part of the national electricity market. WA moved recently to put in place its own off-grid arrangements.