lance hoch - oakley greenwood - metering competition – what it entails and what it means for the...
TRANSCRIPT
WA Power & Gas Conference
Perth,15-16 March 2016
Metering competition – what it entails
and what it means for the retail market
Disclosure
The author has provided advice on the implications of metering competition to the WA
Public Utilities Office and the VIC Department of Economic Development, Jobs, Transport
and Resources.
The views expressed in this paper, however, are the author’s alone and do not reflect the
opinions or policy positions of either the WA Public Utilities Office or the VIC Department of
Economic Development, Jobs, Transport and Resources.
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Topics to be addressed
• The rationale for making the provision of metering and metering services
competitive
• Changes in the roles and responsibilities of various parties
• Possible impacts on the retail market
Background – the age of smart meter roll-outs
• Victoria
– Cost-benefit studies established the economic rationale for interval metering and two-way
communications (2003 and 2005)
– Decision (2008) made to roll-out AMI to all households and small business consumers (< 160
MWhpa)
• MCE’s national cost-benefit assessment (2007-08)
– Considered both distributor- and retailer-led approaches and direct load control as alternatives
– Selected the distributor-led approach as providing the greatest absolute level of benefit and an
acceptable benefit-cost ratio
– Recommended that all states and territories undertake a CBA and, where determined cost-
effective, deploy AMI
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The rationale for the change to a retailer-led approach
• VIC roll-out experience
– Really big cost overruns
– Delays in deployment and availability of functions/benefits
– Highly visible negative customer reaction
– Government intervention
• AEMC’s Power of choice review (November 2012)
– Introduce competition in metering services and develop a framework for smart meters and their services
– Establish the regulatory framework to encourage commercial investment in smart meters and associated services to promote consumer choice.
– The onus will be on the retailer or DSP service provider to elicit consumer consent to a smart meter through offering appropriate retail pricing offers and value added services. This approach will support efficient markets as it promotes innovation, greater DSP options for consumers and efficiency in metering costs. This is preferable to retaining networks as the monopoly provider of metering services to households and small businesses.
• Endorsed by COAG (Dec 2012); Rule change adopted (Nov 2015)
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A key difference to note due to the change
• The benefit case in the network-led approach was comprised primarily of benefits in
network operations and would therefore reduce costs for all customers1
• The benefits in the retailer-led approach primarily accrue to customers that choose smart
meters and their retailers – particularly in the short to medium term
– May include products and services not considered in the original benefit cost studies
– May provide a fair amount of spillover benefit to all customers, but only over time as the density of
metering reaches relatively high levels
1. Re-categorisation by OGW of benefit values provided by Futura Consulting, Advanced Metering Infrastructure Program – Benefits Realisation Roadmap, for Department of Primary Industries (Vic), December 2009.
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Benefit area % of total
benefits
Distribution network and metering operational efficiency improvements 75.7%
Reductions in retailer operating costs 1.9%
Benefits from changes in customers’ energy consumption pattern enabled by
detailed consumption information & cost-reflective price signals22.4%
What the Rule change entails
• Shifts overall responsibility for the provision of metering services from the distribution
company to the retailer that serves the customer
• Establishes three new roles:
– Metering coordinator
• Appointed by the Retailer
• Responsible for all functions previously provided by the distributor, and additional responsibilities so that “the
security of, and access to, advanced meters and the services they provide are appropriately managed”
• Appoints Metering Provider and Metering Data Provider
– Metering Provider – installs, operates and maintains the meter
– Metering Data Provider – collects, processes and stores metering data; can develop and provide
additional services using the data
• AEMO has established and published specific requirements for each of these roles, and
also provides accreditation
• The same party may register as and become accredited to perform all three roles, but
separation of the roles allows the most appropriately resourced and qualified parties to
perform each role
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Responsibilities and relationships of the new roles
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Source: AEMC
What the Rule change entails (2)
• Requires (except in specific circumstances) installation of ‘smart meters’
– in all new and replacement applications (including replacement of a faulty meter), and
– where offered by a retailer and requested or agreed by a customer in place of an existing,
functional accumulation meter
• Establishes a minimum services specification (rather than a specification of required
technical components):
– remote disconnection and reconnection service
– remote on-demand meter read service
– remote scheduled meter read service
– meter installation inquiry service
– advanced meter reconfiguration service
• The AEMC considered that these are the services most likely to deliver benefits to a
large proportion of small customers at a relatively low cost.
– Prescribing a broader list of services might have resulted in higher costs for services used by only
a small proportion of customers
– Customers and DNSPs can negotiate for additional services
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What the Rule change entails (3)
• Metering data
– Will be provided to all parties that require it to meet statutory requirements
• Retailer
• Distributor
• Market Operator
– Metering Coordinator may, subject to certain limitations, also provide metering data and metering
services to other parties on a commercial basis including DNSPs and parties providing energy
management services (where the customer consents)
• A discretionary service by the Metering Coordinator under commercial arrangements
• But, the Metering Coordinator will not be required to provide any such services and where they are provided
their prices will not be subject to regulation
• Jurisdictional departments or jurisdictional safety regulators retain the right to:
– Require retailers to offer particular standing offer tariff structures
– Regulation of electrical safety matters
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What the Rule change entails (4)
• The local DNSP will serve as the initial Metering Coordinator where existing
accumulation or manually read interval meters are in place
– The DNSP will continue in this role until another Metering Coordinator is appointed
• The DNSP will be able to charge an exit fee where an advanced meter replaces a
functional type 5 or type 6 meter
– The level of the exit fee will be determined by the AER
• DNSPs can:
– Negotiate with the retailer and Metering Coordinator for the deployment of advanced meters to
defer the need for network augmentation, encourage more efficient utilisation of the network, and
manage the reliability, quality, safety and overall performance of the network, and seek to recover
the costs through the existing regulatory process
– Continue to use their existing network devices or install new network devices at or adjacent to a
meter, provided there is sufficient space to house both the metering installation and the network
device in the metering facility.
• But cannot use a network device to provide services to retail customers or to any other third party
– Serve as an MC, MP or MDP, through an appropriately ring-fenced subsidiary business
• The AER is charged with developing a new set of ring-fencing guidelines (which will apply to other services
as well as metering services) by 1 Dec 2016
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Expected benefits
• Consumers will be able to better understand their electricity consumption
– And, if they choose, to take up products and services that better reflect their needs and
preferences
• Consumers will be able to:
– Switch electricity retailers more quickly
– Choose to receive retail bills more regularly to help with household budgeting
– Be billed based on actual rather than estimated meter readings
• New and more efficient retail services will likely be available, including:
– Remote meter reading and faster disconnection and reconnection services, for example when
consumers move house, or after a period of disconnection
• Network prices will be enabled that better reflect the costs of providing network services
to individual consumers
– Another Rule change requires DNSPs to move toward cost-reflective tariffs)
– Will allow consumers to make more informed decisions about how they want to use energy
services
• DNSPs will be able to respond more quickly, and at lower cost, to power outages or poor
supply quality
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And possible risks
• Is there potential for the retailer to discourage the provision of metering data to third
parties?
• Will exit fees make switching less attractive?
• Will retailers use the cost of the meter as a means for making contract periods longer and
reducing churn? Or will meter providers collectively have an interest in making it easy to
transfer the meter asset from one retailer to another?
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Steps to implementation
• AER to publish ring-fencing guidelines (1 Dec 2016)
• AEMO to publish information on the process for applying for registration as a Metering
Coordinator by 1 March 2016
• Retailers and DNSPs to publish amended standard contracts by 1 December 2017
• Metering competition to commence in the NEM on 1 Dec 2017
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How will this progress in WA?
• Metering competition is being considered as part of the WA Government's Electricity
Market Review
– WA has decided to adopt the chapters of the NERs that apply to network regulation and metering
– As such, and absent a derogation, competition in metering services will apply from either:
• 1 July 2018 (commencement of the next regulatory control period), or
• When the NEL is expected to take effect in WA
• Should metering competition be introduced in WA, and if so, when and how?
• What is the relationship between metering competition and competition in the provision of
retail electricity services?
– Full retail competition (FRC) will have been in place for 8 to 15 years in the eastern states at the
time metering competition comes into effect
– And there are a number of well-established retailers in each of the NEM jurisdictions
• Can metering competition help FRC work – or is it a complication that will hinder retail
competition?
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How will this progress in WA? (2)
Policy development needs to balance
Making the playing field as level as possible
Getting the anticipated benefits of the competitive deployment of smart meter as quickly as
possible
• Introduce metering competition before or at the same time as FRC?
+ Scale and scope economies of incumbents - Would this make it harder for some retailers to
could result in lower prices compete effectively?
+ Gets smart meters (and their benefits) - Would this make it harder for other parties to act
into the market sooner in the new roles and potentially slow competition
in metering services?
• Introduce metering competition after FRC is established
+ Avoids possibility of undue incumbent - Delays spread of smart meters and their benefits
advantage
The challenge is to identify and adopt a path that neither:
Overly complicates the introduction of FRC in short term, nor
Reduces the effectiveness of retail competition in the longer term
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