Managing trader default situations

Ongoing failure by a trader to pay for electricity or distribution services can lead to increasing financial losses by generators and distributors. The failure of traders to pay for these services is commonly referred to as trader default. The Authority has processes in place to ensure that a customer will never be without a retailer as a result of a trader default.

In this section:

Retailer default decisions and reasons paper

Proposed Code amendments: Implementing retailer default

Regulated arrangements for managing a trader default became operational in July 2014. The regulated process for resolving a trader default is initiated when a trader does not fulfill financial obligations to the clearing manager, becomes insolvent, or the trader's use-of-system agreement with a distributor is terminated because of a serious financial breach by the trader (and certain other conditions are met).

The arrangements for managing a trader default situation are contained in Part 11 and Part 14 of the Code.

The key elements of the trader default regime are:

Open all

Days -5 to 0: Preliminary assessment

-5 0	Trader fails to pay clearing manager or distributor (subject to conditions) or becomes insolvent	Preliminary: After we’ve received a formal notification but before the official process starts, the Authority needs to review the situation and decide the next steps.
	Authority reviews situation and decides to initiate trader default process

Days 1 to 7: Trader default process begins

1 7	Authority's trader default process starts	Phase 1: the defaulting trader has seven days to resolve the default situation or assign its customers to another trader.
	Trader seeks commercial solution to resolve default

Days 8 to 14: Customers advised to switch trader

14	Authority advises consumers to switch away from defaulting trader	Phase 2: if the default situation is not resolved, we will advise the customers of the defaulting trader that they have seven days to switch to another trader.
	Customers switch away from defaulting trader

Days 15 to 18: Remaining customers assigned

18	Authority assigns remaining customers	Phase 3: we run a three stage process to assign all remaining customers to a new trader - first by running a two-stage tender process, and then by a mandatory allocation process. The aim is to run the tenders over three days.
	Two tenders to assign any remaining customers, followed by mandatory allocation if needed
	All customers of the defaulting trader should have a new trader 18 days after the process has been initiated, although this may be longer if Phase 3 takes longer than three days.

In order to implement the regime, we:

have a process manual that details the step-by-step actions we will take if there is a trader default situation
have a guideline for managing a trader default situation
undertook a desktop exercise involving the Authority and the registry to test the effectiveness of the service providers system in place. This exercise ensured the registry system could handle small and large events of trader default.
made a presentation to traders and distributors at our annual reconciliation participant forum in June 2015. We stressed that traders be prepared for the potential influx of calls to their call centres from potential customers as a result of the Phase 2 advertising, should be able to prepare tenders in time for Phase 3, and have systems and processes in place for mandatory assignment.