Bodies corporate could be in for more than a shock by the collapse of embedded network and billing providers.

Bodies corporate collapse of embedded network and billing pr

The appointment of Voluntary Administrators to Apex Energy Holdings Pty Ltd (Apex) has brought into sharp focus the inadequacies of embedded network and billing agency agreements (Billing Agent Agreement) with bodies corporate and occupiers (Consumers) and, in particular, the billing and payment arrangements for essential services such as electricity (utilities).

A fool and his money are soon parted…

The wholesale market for utilities is currently volatile – Consumers are seeing unprecedented rises, with the price of electricity increasing several fold in 2022 alone.

A volatile and uncertain electricity market has placed considerable pressure on wholesalers, some of whom are suffering serious losses as they are locked into supplying electricity to Consumers at rates less than their cost of purchasing.

Why would that impact Billing Agent Agreements and Consumers?

A quick recap. With appropriate approvals in place, bodies corporate may enter into a bulk purchasing agreement with electricity wholesalers and on-sell that to occupiers. There are extensive rules around this and it’s regulated by a Commonwealth body known as the Australian Energy Regulator (AER).

While the structure of each scheme may be different, schemes usually have a parent meter and individual meters for each lot, including common property. For compliance and other purposes, Consumers often engage third party service providers (such as Apex) to install and/or maintain those meters and to provide meter reading and billing services. This is done under a Billing Agent Agreement.

These arrangements are to be contrasted with a retail model where Consumers purchase their electricity directly from an AER approved wholesaler (of which Apex was one) who bill them directly, although it was Apex’s exposure as a wholesaler under the retail model which ultimately led to its insolvency and highlighted the shortcomings in the Billing Agent Agreement model.

Why?  A diagram is worth 1000 words.

As the diagram clearly demonstrates, the contract to supply and the primary obligation to pay for energy is between the Energy Wholesaler and the Consumers. That makes sense. What doesn’t make sense is the flow of money. Under the Billing Agent Agreement model, the Consumer blindly hands over their money to the Billing Agent (to pass onto the Wholesaler). The Billing Agent has no contract with the Wholesaler and its only compulsion to pass on the Consumers’ money is a promise in the Billing Agent Agreement.

On one view, that doesn’t matter much until, the Billing Agent is exposed to a volatile electricity market (wearing a different hat as a wholesale energy retailer), is losing money and there is nothing to stop the Billing Agent using the Consumers’ money (which was intended to be paid to the Wholesaler) to prop up its business. Then wholesalers are left unpaid and Consumers are left out of pocket having to effectively pay twice to ensure continuity of supply, alternately run the risk of debt collection by those wholesalers.

From the Billing Agent Agreements that I’ve seen, Billing Agents want to completely control Consumers’ money. No attempt is made to keep that money separate from their own funds or indeed separate from funds received from Consumers from other schemes (or under different models). Everyone’s money is intermingled in one or more bank account/s controlled by the Billing Agent.

To fix this, Billing Agents must stop intermingling Consumers’ funds. Billing Agent Agreements should make Billing Agents implement internal arrangements to preserve Consumers’ funds and use them for the specific purpose for which they were paid. Separate bank accounts may be an answer, opened in the name of Consumers. Legislative reform allowing for trust accounts may be another. Or, perhaps, a simple modification to the billing process to pay the Wholesaler directly.

A Deed of Company Arrangement was approved by Apex’s creditors which involves a partial recapitalisation, on the condition that there is a change in ownership. Assuming that proceeds, creditors (including Consumers who paid invoices under the Billing Agency Agreement that weren’t passed onto to the Wholesalers) will be out of pocket. Apex won’t be the last AER approved wholesaler to go insolvent, particularly if this current model is allowed to flourish in the market unchecked.

Connect with Troy on LinkedIn.

Leave a Comment





Legislation, CMS and Plans

Symphonic Sex and Self-help in Strata

The anchovy method and statutory reform

STAY IN THE LOOP

Subscribe to receive stratify blogs straight to your inbox.

"*" indicates required fields