Electricity Tariff Equalisation Ministerial Corporation
Background Information
The Electricity Tariff Equalisation Ministerial Corporation commenced administration of the Electricity Tariff Equalisation Fund (ETEF) on 1 January 2001. The Fund is designed to manage wholesale electricity pool purchase cost risk for those standard government owned retail suppliers that are required to supply electricity to small retail customers at tariffs determined by the Independent Pricing and Regulatory Tribunal (IPART).
Small retail customers are those residential and small business customers consuming less than 160 MWh per annum who have not elected to enter into a negotiated supply contract. There are three standard retail suppliers in New South Wales - EnergyAustralia, Integral Energy and Country Energy.
Standard retail suppliers are required to pay money into the Fund when wholesale prices are lower than the energy cost component they charge customers buying their power under regulated tariffs. When wholesale prices are higher than the energy cost component in the regulated tariff, the ETEF makes payments to the standard retail suppliers from the Fund to ensure they earn a regulated return.
In this way, the Fund is able to smooth out the volatility in wholesale prices for those government retailers that are required to sell at regulated tariffs. At the same time, the Fund ensures that the standard retail suppliers do not face a commercial advantage or disadvantage because they supply regulated customers.
In the event there is a sustained rise in pool prices and there are insufficient funds, New South Wales state-owned electricity generators are well placed to 'top-up' the ETEF as they have benefited from the high wholesale prices that caused the Fund to be depleted. Generator payments to the Fund are repaid to generators whenever standard retail suppliers make a payment into the Fund. The involvement of generators ensures that the Fund can never be in deficit.
Standard retail suppliers and state-owned generators make payments into the Fund and receive payments from the Fund in accordance with the payment rules established by legislation (Electricity Supply Act 1995). The direction and level of payments is dependent on movements in average wholesale electricity prices.
The ETEF arrangement is designed to offer price protection for small retail customers on regulated arrangements by managing the purchase risk of standard retail suppliers.
The Fund is an equalisation mechanism in that surpluses resulting from low prices in one period are paid out in future periods to offset higher prices.
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