Compensation for early power termination? EMA seeks enhancements to electricity retailer framework

THE Energy Market Authority (EMA) has launched a public consultation to seek feedback on proposed enhancements to the regulatory framework for electricity retailers.

In a consultation paper released on Wednesday (Feb 1), the agency said the proposed enhancements “seek to strengthen the resiliency of all retailers, in particular their ability to withstand market volatility to safeguard the relative stability of the retail market”.

The EMA is seeking feedback on four proposed measures: a paid-up capital requirement for all retailers; a requirement for retailers to seek EMA’s approval to appoint key appointment holders; raising hedging requirements for all retailers; and enhancing consumer protection against the premature termination of contracts by retailers.

This would address certain gaps that have been highlighted by recent upheavals in the retail electricity market, EMA said. This includes retailers not being sufficiently prepared for market volatilities and having large unhedged positions, while on the other hand, consumers lack sufficient protection when retailers exit the market or if they prematurely terminate contracts.

Since 2001, Singapore’s electricity retail market has been progressively liberalised to provide consumers with a wider range of retail price plans. The rollout of the Open Electricity Market (OEM) in 2018 gave consumers the option of buying electricity from retailers.

However, high prices and volatility in Singapore’s wholesale electricity market have pushed out a number of independent retailers, while others have prematurely terminated consumers’ contracts.

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For its first proposed measure, EMA intends to additionally require all retailers to have a paid-up capital or tangible net worth of at least S$1 million, to ensure electricity retailers are credible and have sufficient financial standing. This will be on top of existing requirements such as demonstrating that management staff have at least five years’ experience in either energy retailing and/or commodity trading, as well as submitting a comprehensive business plan.

Second, EMA intends to require all retailers to seek its approval to appoint key appointment holders. This requirement, which will be imposed via the Code of Conduct, will ensure that electricity retailers are headed by competent and honest individuals, the agency said.

All licence applicants will be required to comply with this requirement, while existing licensees are required to comply for any subsequent change in key appointment holders.

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Third, EMA intends to require both OEM and non-OEM retailers to hedge at least 80 per cent of their retail contract quantity on a rolling 24-month forward basis. They must also provide a performance bond to cover their projected residual unhedged quantities, which should not be more than 20 per cent of total retail contract quantity.

Fourth, EMA intends to amend the Code of Conduct to clarify that the retailer is not permitted to unilaterally terminate the contract as long as there is no payment or contractual default. This applies even if the consumer is insolvent, bankrupt or deceased.

The agency will also require retailers that impose early termination charges on consumers to compensate them in the event of early termination. The compensation provided for early termination must be at least as much as the penalties levied on consumers for early termination.

Noting that “early terminations may lead to some consumers having to purchase electricity at higher rates”, the agency is considering whether retailers should be required to compensate consumers for the positive difference between the consumers’ existing contract and applicable default supply arrangement for the remaining tenure, in the event that the retailer exits the market.

“In developing these enhancements, EMA has calibrated them to ensure that the enhanced regulatory regime continues to facilitate the participation of qualified retailers,” the agency said.

The public can submit comments on EMA’s four proposals via email by Mar 3.