Protecting electricity retailers against price volatility: The Electricity Tariff Equalization Fund in New South Wales

This PPIAF publication from the Gridlines series looks at the lessons learned from the experiences of the the Australian state of New South Wales in using a transitional mechanism to provide protection to retailers against price volatility. Most commentators agree that the benefits of competitive electricity markets will materialize only if wholesale prices are allowed to fluctuate more or less freely so as to provide adequate pricing signals to generators. Most also agree, however, that small electricity users need to be protected against wholesale price volatility through stable, predictable retail rates. That raises a difficult question about whether the retailers or distributors, caught in the middle, also need some protection, especially early in the development of competitive markets. Lessons learned from this experience could be of interest for other countries.