Use of system agreements

Part 12A of the Code requires certain aspects of use-of-system agreements to be standardised to promote competition and efficiency.

In summary, Part 12A requires:

• distributors to consult with retailers  if a distributor makes a change to its tariff structure that will materially affect traders or consumers

• distributors and retailers to comply with a standard format for exchanging information about changes to distribution tariffs

• distributors and retailers to negotiate the terms of their use-of-system agreements in good faith, and to enter into mediation when the parties are unlikely to agree to terms

• unless agreed otherwise by both parties, each use-of-system agreement between a distributor and a retailer must include an indemnity in favour of retailers in respect of liability under the Consumer Guarantees Act 1993 for breaches of acceptable quality of supply, where those breaches were caused by events or conditions on the distributor’s network
• restrictions on the level of prudential requirements that may be set by a distributor.

Review of model use-of-system agreements

At the time the model use-of-system agreements were finalised in September 2012 we elected to go with voluntary rather than regulated arrangements, but with regular monitoring and review of use-of-system agreements to determine if the model use-of-system agreement objectives - improving efficiency and promoting retail competition - were being achieved.

Consequently, we’ve initiated a project to consider options for achieving our expectations for more standardisation of use-of-systems agreements, including potentially setting the model use-of-system agreement as a mandatory or default agreement. We are expecting to publish a consultation paper in early 2014 and will finalise next steps after considering the submissions.