National Smart Meter Programme. Time of Use Tariffs Mandate CER/13/152 Consultation Paper Response

Transcription

1 National Smart Meter Programme Time of Use Tariffs Mandate CER/13/152 Consultation Paper Response

2 Contents 1 Foreward Consultation Responses... 4

3 1 Foreword This document lays out the Bord Gais Energy response to the CER consultation process on the Time of Use Tariff Mandate. Bord Gais Energy acknowledges the Smart Meter Programme goals of Energy Reduction and Peak Demand Shifting. Bord Gais Energy also acknowledges the Time of Use Tariff mandate and its role in assisting programme goals. Bord Gais Energy has investigated the impact of a Time of Use mandate on itself and its customers. As a result, we highlight the diverse energy needs and consumption patterns across our consumer base and their requirement for diverse and flexible responses to those needs. We also regard some market changes as pre-requisites for the invocation of Smart Metering, introduction of Time of Use tariffs and progress towards Programme goals. These are: the availability of half hourly interval data for billing, settlement at MPRN level including distribution costs varying with time of day, a very restrictive opt-out approach that ensures maximum participation in the smart metering platform by consumers. Bord Gais Energy also requires the flexibility to innovate and create the best products for our customer base, assisting them to achieve programme goals, reduce energy use and shift peak demand. To do this: We require guaranteed access to half hourly consumption data We require market changes to incorporate half hourly settlement, including distribution charges that differ through the day, as a pre-requisite for Time of Use implementation We urge supplier flexibility in setting ToU tariff characteristics. Bord Gais Energy also acknowledges that some time-band restrictions may reasonably apply in transition but that a large number of time bands are required. We highlight consumer responses to inflexible tariff examples. These are perceived as unfair, not engaging and risk alienating consumers. They have no impact on use or cost. We encourage the CER not to over-specify tariff details mindful of the risk of customer disengagement and stifling of innovation in a young and recently de-regulated Irish market. We believe that Ireland has a unique opportunity to create an international benchmark for Smart Meter implementation. This can be achieved through the co-operation already evident in the programme to date, the active participation of a consumer-focused supply sector, flexibility and the space for innovation to emerge which achieves and potentially surpasses programme goals.

4 2 Consultation Responses The CER Consultation Paper on the Time of Use Tariff Mandate (CER/13/152) lays out the outputs from CER deliberations and industry engagement on the Time of Use mandate and related decisions made in The Bord Gais Energy responses to specific questions raised in the consultation paper are laid out below. Smart Meter Trial Findings Question 1: Do you think any additional analysis would be useful to support the development of an effective time of use mandate? If so, please describe the analysis and your reasoning. We think that there is potential to create strong supplier incentives to participate in a Time of Use (ToU) mandate through variable settlement pricing and provision of interval data. We are concerned by some of the conclusions drawn from the national trial, particularly in relation to mandated time-banding in the ToU tariff. There is merit in commissioning further analysis of the trial data i.e. particularly to explore the weak response to price signals in the standard ToU tariff offered. We believe this response may have been weak because of the dominance of working consumers in the trial and lack of relevance of the standard tariff to their consumption habits. The flexibility to shape multiple tariffs that resonate with consumer needs, offers the best opportunity to develop and effective ToU implementation. Micro-Generation Question 2: Do you have any customers on micro generation specific tariffs? If so, what are these, and how many customers are on each one? No. However the solution implemented should cater for exported power as suppliers may in the future provide signals to customers as to the optimum time to export.

5 Tariff Design Question 3: Do you think that there are any other types of regulation or parameters to regulate that should be considered? We believe that the ToU mandate seeks to extend unreasonably into supplier ToU pricing, rate differentials and time banding. We don t accept the legitimacy of that extension. All of the ToU examples shown in the consultation paper display a level of regulatory intervention in a de-regulated market that is unacceptable to us as a supplier and counter-productive to achieving programme goals. We have always stated that by providing suppliers with half hourly consumption interval data, we will transition our customers to ToU tariffs in a thoughtful and measured way that offers best value for them and best matches with programme goals. Supplier motivation via proper commercial incentives will work far better than tight regulation of product available in the retail market. Such commercial incentives allow the market to change and adapt tariffs to consumer responses over time. A rigid regulatory interpretation of the mandate risks alienating consumers and prohibiting future market development and refinement. Evaluation Criteria Question 4: Is there anything you would add or remove from these evaluation criteria? The implementation of the ToU mandate should be assessed primarily on its contribution to programme goals. Some criteria in the consultation paper have no precedent and are unhelpful in assessing suitability or effectiveness of ToU options. It is unclear, for example, how CER would measure understanding. It is clear from focus groups that consumers readily understand Time of Use pricing, its intention and its applicability to Energy use and other areas. It is clear also from focus groups that consumers are eager to engage in finding the correct tariff for their energy needs. However, CER research in 2012 showed that 94% of consumers do not understand existing flat-rate tariffs although, again in focus groups, they understand clearly the concept of energy having a single price throughout the day. The same survey also showed very high levels of trust and satisfaction with suppliers of energy. This means that consumers understand the basis on which they are billed without necessarily understanding every aspect of the tariff which by its nature has technical and legal elements. A similar finding may emerge in subsequent surveys and therefore we suggest that measurements of understanding should be carefully chosen if they are to remain in the evaluation criteria.

6 On the point of consumer protection, such protection is fully in place through supplier focus, existing market rules and supplier handbook provisions. No new rules should be required here arising from the introduction of smart meters. Example Tariffs Question 5: Are there any other examples that you would add to this list? Beyond transition, we strongly believe that suppliers should be given the scope to innovate in an energy market only recently open to competition. Such innovation will be mindful of Programme goals and will respond to consumer demand. Restricted regulation may be warranted if this period of innovation were to demonstrate failing on behalf of the market to achieve programme goals or if the market evidently drifted out of alignment with programme goals. In summary, any proposal to regulate in this area should be evidence based and be derived from actual mass market response. Time of Use Example 1 Question 6a: Would you add any pros or cons to the lists described in this section? If yes, please provide rationale for the additions. Consumers see this option as unfair and restrictive. Consumers may see an arbitrary rise in costs if forced into high peak pricing while neighbours see reduction in costs despite action on their part. This arbitrary change in consumer costs can alienate consumers. This elevates degree of risk to Red. Question 6b: Do you disagree with any of the pros and cons listed in this section? If so, please explain which one, and provide rationale to support your viewpoint. No. Question 7: What would the impact of each of these examples be on your organisation? Please

7 provide indicative costs and supporting analysis where possible. This example substantially increases operating costs through the receipt of a massive increase in market data, changes to billing processes and changes to consumer interaction without any compensating commercial benefits. It risks alienating customers and leading them to perceive the ToU mandate as a tax or punishment for behaviour that is not discretionary. The data requirement as described is at odds with the Steady State Model implying that data might be aggregated by time band. We see half hourly data as a pre-requisite for participation. We see example 1 (and the proposed restrictive versions of examples 2 and 3) as unworkable. Question 8: Are there any operational issues we should consider that are associated with any of these examples? All examples, including this one, require substantial supplier change for market interaction, billing, information storage and archiving, settlement and customer care. A multi-year, multi-million euro investment is required in every case. Time of Use Example 2 Question 6a: Would you add any pros or cons to the lists described in this section? If yes, please provide rationale for the additions. Consumers have limited scope to choose an appropriate option and may see an arbitrary rise in costs if forced into high peak pricing while neighbours see reduction in costs through action on their part. This arbitrary change in consumer costs can alienate consumers. This elevates degree of risk to Red. There is no evidence that default option is suited to vulnerable customers and they run same risk of seeing arbitrary rise in costs. Their vulnerable status may mean that they are not empowered to seek a better tariff. Low cost of operation risk is Red.

8 Question 6b: Do you disagree with any of the pros and cons listed in this section? If so, please explain which one, and provide rationale to support your viewpoint. The assertion that data requirements are the same as example 1 mean that in reality no competition or innovation will be possible as choice is so restricted. Question 7: What would the impact of each of these examples be on your organisation? Please provide indicative costs and supporting analysis where possible. As before, substantial increase in costs but with limited and restrictive opportunities to engage consumers or recover costs. Question 8: Are there any operational issues we should consider that are associated with any of these examples? All examples, including this one, require substantial supplier change for market interaction, billing, information storage and archiving, settlement and customer care. A multi-year, multi-million euro investment is required in every case. Time of Use Example 3 Question 6a: Would you add any pros or cons to the lists described in this section? If yes, please provide rationale for the additions. The assertion that data requirements are the same as example 1 means that CER sees this as a very restricted option. In reality no competition or innovation will be possible as choice is so restricted.

9 Question 6b: Do you disagree with any of the pros and cons listed in this section? If so, please explain which one, and provide rationale to support your viewpoint. The assertion that data requirements are the same as example 1 mean that in reality no competition or innovation will be possible as choice is so restricted. Question 7: What would the impact of each of these examples be on your organisation? Please provide indicative costs and supporting analysis where possible. As before, substantial increase in costs but with limited and restrictive opportunities to engage consumers or recover costs. Question 8: Are there any operational issues we should consider that are associated with any of these examples? All examples, including this one, require substantial supplier change for market interaction, billing, information storage and archiving, settlement and customer care. A multi-year, multi-million euro investment is required in every case. Time of Use Example 4 Question 6a: Would you add any pros or cons to the lists described in this section? If yes, please provide rationale for the additions. This option has the most potential to offer tariffs that resonate with consumer groups and their energy needs. It has the potential to maximise savings among those with discretionary energy usage and minimise cost rises among those with no discretionary usage.

10 Question 6b: Do you disagree with any of the pros and cons listed in this section? If so, please explain which one, and provide rationale to support your viewpoint. No. Question 7: What would the impact of each of these examples be on your organisation? Please provide indicative costs and supporting analysis where possible. This example offers the best opportunity to create ToU tariffs that map to customers energy usage profiles. This allows the customer to meaningfully manage their energy usage and reduce their overall energy in line with the first programme goal. Not all customers contribute to the network peak. It would also allow suppliers to identify customers specifically contributing to the national network peak and to offer them meaningful tariffs that encourage peak shifting. This contributes to the second programme goal. This example also substantially increases operating costs through the receipt of a massive increase in market data, changes to billing processes and changes to consumer interaction but offers the potential for some supplier/consumer benefit. Question 8: Are there any operational issues we should consider that are associated with any of these examples? All examples, including this one, require substantial supplier change for market interaction, billing, information storage and archiving, settlement and customer care. A multi-year, multi-million euro investment is required in every case.

11 Our summary assessment of all examples is shown below: Migration to Time of Use Tariffs Question 9: Would you add or remove any of these readiness criteria and how do they rank in terms of importance? Please provide your rationale The migration criteria in this section seem sensible. We would add a qualifying threshold for smart meter deployment and qualifying threshold for penetration amongst each supplier s customer base. A qualifying geographical threshold may also be worthy of consideration. Question 10a: Do you agree with our assessment that moving to half-hourly (electricity) settlement for residential customers would align incentives on suppliers more effectively? Yes this move is a pre-requisite for operating smart meters. Without this there is no business case for suppliers.

12 Question 10b: Do you agree that half-hourly data will be needed by both suppliers and networks if we move to half-hourly settlement? Yes this is a pre-requisite for operating smart meters. The half-hourly data is pushed by Networks to Suppliers in order to ensure billing and settlement accuracy and to achieve the programme goals of energy reduction and a shift in peak usage. Question 11: What would the impact of moving to half-hourly (electricity) settlement on your organisation be? Our initial assessment indicates a substantial cost for process change in billing, settlement, market messaging and substantial system change in the same areas. Further work is required in-house and with system support staff and business leads to arrive at definitive costs. We can say that costs are very substantial and are multi-year in order to participate in the Smart programme and contribute to programme goals. Half hourly data in an intrinsic part of that participation. Question 12: How much notice would you need prior to moving to half-hourly (electricity) settlement? Similar criteria apply as for consumer changes driven by interval data. Therefore a minimum of 12 months data should be provided, market changes should be implemented and operating and settlement system changes in place to align with new arrangements.

13 Network Charging Question 13: Do you agree that DUoS and TUoS charging should be reviewed, in light of the move to time of use customer tariffs? Please explain your reasoning. We agree that DUoS charging should be reviewed to provide appropriate price signals to network users so as to maximise the benefits of the programme. There is a lesser but beneficial case for TUOS changes. Exceptions and exemptions Question 14: Do you have any comments on the appropriate approach to exceptions and exemptions? Please explain your reasoning. No doubt there may be locations where the smart meter cannot be implemented and therefore a mandate cannot be applied and this exception is understandable. Exemptions however should be by extreme exception. The CBA was predicated on 100% take up and this makes business sense. Any retention of a legacy capability is heavily laden with cost. Any consideration of an exemption option for more than the most extreme cases, challenges the CBA and needs wider debate. Monitoring and Mandate Review Question 15: Do you agree that monitoring is required and what forms should it take? We don t believe that any additional market monitoring is required. We believe that an approach based on regulatory guidance and market innovation will be far more effective in ensuring the success of smart metering than an one based on prescriptive intervention and market monitoring.

14 Illustrative Migration Approaches Question 16: Do you have any comments on the relative merits of the illustrative approaches to transition listed? We do not agree with either approach. Suppliers should be allowed to use judgement and market knowledge to drive the timing and nature of tariff introduced to support the ToU mandate and the customer education to support the transition. Once the appropriate commercial incentives are enabled, suppliers can more effectively make a decision on the appropriate steps and risks to take. Question 17: What other approaches to transition should be considered? Suppliers own and value the relationship with our customers. It is clear from market research and ToU focus groups that customers struggle to differentiate the many roles and parties in the energy market. Therefore it is in the suppliers strong commercial interest to craft a transition approach that best resonates with their customer base and is coherent and compelling as a customer offer. The most effective transition arrangement therefore will be supplier-led and customer-focused. Time of Use Gas Tariffs Question 18: What are the opportunities and risks for consumers, and for retail competition, if the development of TOU tariffs in gas is left to the market in the context of a mandated migration to TOU for electricity customers? The positive migration of electricity to ToU creates a climate of understanding for Gas customers around price variability and time-based pricing. In that context, introduction of Gas ToU occurs in a positive climate and represents opportunities for consumers to reduce gas costs also. It also creates an opportunity for suppliers to innovate in the Gas market, to reduce overall usage and better manage peak demand within day and within season. The risk is that a negative migration to electricity (through inflexibility or overregulation) may lead to inertia or resistance to Gas ToU also and a double negative consumer reaction for suppliers to manage.

15 Wholesale Market Question 19: What are the opportunities and risks for consumers, and for market participants, associated with making charges for wholesale gas and network usage more dependent on when gas is consumed by household and smaller business customers? The opportunity is similar to electricity. It allows shippers and consumers (with discretionary use) to make sensible, cost based decisions on how to manage, consume and distribute that discretionary energy usage within day and within season. Conclusion Question 20: Do you have any additional comments? Consumers repeatedly inform us that changes only occur where substantial cost benefits are perceived. Consumers have a poor understanding of kilowatts of power or cubic meters of gas. Noticeable and consistent reductions in cost coupled with a personal ability to influence cost reduction will drive changes that benefit the programme s goals. This view was articulated during the Smart trials, is re-enforced in consumer engagement with suppliers and was amplified in consumer engagement during the Time of Use design phase.