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Price shocker: EnergyAustralia, Integral Energy and Country Energy could force users of-failed off-grid gen to pay capital costs of connection, diesel costs

Posted by gasweek on 25 September, 2007

Caravan park dwellers and use of new local gas-powered small generation could face a super price shock if the islanded, off-grid supplier went bust. In debate triggered by a GridX licence application, IPART warned if a local off grids supplier went bust – under NSW rules State monopoly distributors – EnergyAustralia, Integral Energy and Country Energy – could then charge users of-failed off-grid gen;

• full capital costs of grid connection;

• plus interim diesel costs.

Small users could face huge bills: Under the current rules – if the non-NEM small generator failed financially, the costs of this could be huge; for example, a person in a caravan park paying $100 a quarter, could be up for part part of a multi-million dollar bill; and a family in a off-grid-supply housing development, for the same.

The retailers could enforce grid connection: IPART reported “In their submissions to the AER issues paper, all three endorsed retailers of last resort in NSW (EnergyAustralia, Integral Energy and Country Energy) pointed out that under the current Retailer of Last Resort (RoLR) arrangements and in the event of business failure by GridX, they would have no responsibility to maintain supply to GridX’s customers. The Tribunal confirmed that was the case.

The IPART warning: ” Where customers are not connected to the national grid for supply — such as those connected to an islanded network like GridX proposes — the costs of maintaining supply after a last resort event are difficult to predict, as many factors are likely to be involved. However, these costs could be significant especially if the period to augment the distribution network is long. As noted above, such customers would be required to pay the capital costs of connecting them to the national grid, and to pay the costs of interim supply prior to grid connection. If the islanded networks are located close to the grid, and if at the time, there are no distribution network capacity constraints, these costs may be small. But if islanded networks are located some distance from the grid, and the capacity of the local networks needed to enhance to enable their connection, these costs could be high”.

What the rules say: “Under the current regulatory framework, existing RoLR provisions deal with the business failure of a licensed supplier on existing distribution networks supplied by the national grid;

• Customers of the failed retailer continue to be supplied by the designated RoLR (ie, the RoLR becomes responsible for a short period for the payment of generators, transmission and distribution companies on behalf of these small retail customers and in turn can bill for these services);

• In the event of a business or infrastructure failure by a bundled supplier like GridX (generator, distributor and retailer), there is a danger that electricity supply will be cut to customers of the islanded network. A receiver or liquidator may maintain supply until such time as a new operator can be found. However, there is no guarantee that this would happen and, in the interest of customer protection, amendments to the regulations may be required to enable the appointment of a RoLR to maintain essential electricity supplies.

A RoLR replacing a bundled supplier may be required to perform a number of additional functions to maintain supply compared to the duties of a RoLR supply customers who are connected to the national grid. These may include:

• arranging ongoing operation of the onsite generation system, and /or

• arranging temporary generation of electricity, for example by mobile diesel generators, and/or;

• arranging connection to the local DNSP network.

The Ministerial trigger: “Whether a DNSP or retailer should be appointed to perform these functions will also need to be considered. Legislative provisions currently applying in the NSW gas industry provide a useful guide to some aspects of RoLR regulation that may be required. Briefly, the Minister forms an opinion that a last resort supply event has occurred, triggering the appointment of a RoLR.

The gas connection: The Minister’s opinion may be based on various factors including where a gas supplier has ceased or is likely to cease to supply gas to all or some of its customers. Without limitation, this opinion may be formed on advice from the supplier or an administrator, receiver or liquidator that supply has ceased or is likely to cease. The financial risk to customers associated with the failure of their retail supplier’s business varies considerably, depending on whether they are connected to the national grid.

How the rules apply today: Where customers are connected to national grid, the current RoLR provisions require the RoLR to supply the affected small retail customers with electricity, on the same terms and conditions that apply to small retail customers under the standard form supply contract applicable to the supply district in which the customer’s premises are located. A RoLR may also require these customers (except those who were already on standard form supply contracts) to pay a last resort supply fee not exceeding $50.27 Therefore the customer costs would be small. Where customers are connected to an exempt network(such as those within caravan parks), there are no formal RoLR provisions in place. On the few occasions in recent years where a caravan park proprietor has not paid his or her bills and the whole park has faced disconnection, the Electricity and Water Ombudsman of NSW (EWON) has successfully negotiated with retail suppliers to only disconnect some facilities (ie, the proprietor’s residence and park’s office/shop) while maintaining supply to permanent park residents. In the past this has led to the payment of outstanding bills. In addition, if a last resort event did occur, the customers connected to the exempt network are still connected to the national grid (via an embedded network), so the costs associated with maintaining ongoing supply would not be significant”.

Reference: Independent Pricing and Regulatory Tribunal, GridX Power Pty Ltd – retailer supplier licence application. Electricity Licensing – Consultation Paper, May 2007. Inquiries regarding this document should be directed to a staff member: Gary Drysdale Phone: (02) 9290 8477 Email: gary_drysdale@ipart.nsw.gov.au Website: http://www.ipart.nsw.gov.au

Erisk Net, 21/8/2007

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