Ergon Future Network Tariff Submission

Transcription

1 "Advocating on behalf of peak FNQ industry and social organisations for competitively priced and reliable electricity in FNQ" Ergon Future Network Tariff Submission PO Box 2148, Cairns QLD 4870 T : (07) F : (07) research@cummings.net.au DISCLAIMER This project was funded by the Consumer Advocacy Panel (www,advocacypanel,com,au) as part of its grants process for consumer advocacy projects and research projects for the benefit of consumers of electricity and natural gas. The views expressed in this document do not necessarily reflect the views of the Consumer Advocacy Panel or the Australian Energy Market Commission.

2 Introduction The Far North Queensland Electricity Users Network (FNQEUN) advocates on behalf of 17 peak industry and social organisations in Far North Queensland (see Attachment 1). Our aim is to ensure that Far North Queensland has access to competitively priced and reliable electricity. To achieve our aim we believe it is necessary to articulate our view that businesses, industries and households in Far North Queensland will be adversely affected by Ergon s current Regulatory Proposal. The Australian Energy Regulator (AER) will make its final determination regarding Ergon s Regulatory Proposal in July 2015, providing Ergon does not challenge the AER s decision. The Determination will set Ergon s revenue cap including Ergon s capital and operating expenditure for the next five years. There is a direct relationship between the revenue cap and the network tariffs ie the revenue cap will govern the revenue required to be recovered by tariffs/prices. Current indications are that the revenue cap will be significantly reduced. The reduced revenue cap should translate to lower tariffs. Lower tariffs/prices should stimulate demand and reverse the current downward spiral. The downward spiral is a result of higher prices reducing demand which in turn results in more costs to customers still on the network which again reduces demand and increases prices. The tariff reform journey should recognise the unknown impact of Ergon s Determination on future tariffs. All customer groups have strongly argued the case for a substantial reduction in tariffs. Yet Ergon has started the tariff reform journey with the aim of ensuring tariffs are kept to CPI minus 1. Customer groups and Ergon have clearly commenced the tariff reform journey from a different starting point. The starting point will be known in July 2015 when the Australian Energy Regulator announces its final decision on Ergon s Determination. The introduction of Ergon s new tariff structure in is premature Members of the Far North Queensland Electricity Users Network (FNQEUN), together with peak industry organisations in Queensland, have been fully engaged with the Australian Energy Regulator on Ergon s Determination since November The Ergon Determination process is now at a critical stage and has required, and will require, ongoing engagement with both the Australian Energy Regulator and Ergon. Despite members of the FNQEUN being heavily involved in the Australian Energy Regulator s process since November 2013, members of the FNQ Electricity Users Network were not invited to be part of Ergon s tariff reform journey which commenced in January The FNQEUN commenced its engagement in Ergon s tariff reform in February 2015 after pro-actively seeking the involvement. We believe that FNQEUN is at least on par with other consumer group s knowledge of Ergon s proposed new tariff structure. We question the breadth and depth of customer engagement undertaken by Ergon prior to Ergon Future Network Tariff Submission Page 1/11

3 We also question the need to bring forward the introduction of voluntary Time Of Use tariffs to 1 st July 2015 ie in only three months time. The Time of Use tariffs are a completely new concept to customers in regional Queensland. Regional Queensland customers are still coming to terms with the doubling of electricity bills in recent years and would be very wary of a Queensland government owned monopoly that is proposing customers switch to a new tariff structure that Ergon say will be of benefit to the customer. Experience has shown that when the Queensland Government implemented a price freeze in 2012/13 (due to cost of living pressures), it resulted in an electricity price hike of 22.6 percent a year later. Peak organisations participating in Ergon s tariff reform process are grappling with understanding the impact of the new Time Of Use tariffs on their members. If peak organisations are concerned about the unknown impact, it is highly likely that the average Ergon customer, who has minimal knowledge of electricity pricing and supply, will be wary of and not embrace the new tariff structure. We recommend that the introduction of a voluntary Time of Use tariff be delayed to at least Prior to the introduction of a voluntary Time of Use tariff we believe the following issues need to be addressed: 1. Ensure the new tariff structure is fair and equitable across customer groups 2. Ensure trials are undertaken to understand the impact across each customer group by region 3. Assessing the impact of the new draft National Electricity Rule on the provision of metering services 4. Ergon need to quantify the benefits to early adopters of Time Of Use tariffs 5. The risk to Ergon s total revenue if the new tariff structure reduces overall network consumption from residential and small to medium size businesses 1. Ensure the new tariff structure is fair and equitable across all customer groups The Queensland Competition Authority (QCA) recommended in its Draft Determination for Regulated Retail prices that fixed charges increase by 42 to 49 percent. As per Table 1, households with one or two persons will be most affected by the rebalancing in favour of fixed charges. The higher fixed charge component will affect overall demand for electricity. However, if Ergon s revenue cap is lower in the subsequent lower tariffs could stimulate demand. Higher demand improves overall network utilisation but does not necessarily reduce peak demand. To reduce peak demand customers need to clearly understand how they can reduce their peak demand. This will require smart meter (advanced or interval meter) infrastructure and electricity bills which can be understood by the average Ergon customer. Ergon Future Network Tariff Submission Page 2/11

4 Table 1: Impact of increased fixed charges in QCA s draft regulated retail prices on Cairns/Postcode 4870 Source: (1) Energy Made Easy Australian Government website maintained by the Australian Energy Regulator (2) Compiled from prices in QCA s Draft Determination Regulated Retail Prices for The average Ergon customer needs time to understand the impact of increased fixed charges on their electricity bill without the added problem of introducing a complicated Seasonal Time of Use tariff. A large number of one or two person households are pensioners, concession card holders or independent retirees on a fixed income. As per Table 2, pensioners and concession card holders account for about 25 percent of disconnections in the Ergon area due to non-payment of an electricity bill. This means that 75 percent of customers who cannot pay their electricity bill are working families and individuals. Table 2: Small customer disconnections due to non-payment Period Business Customer Retailer data Distributor data Pensioner/ Concession Card Holder Residential Customer Retailer data Others % Business Customers (using Distributor data) Sept Quarter % 8.07% 19.82% - Ergon only % 5.67% 23.69% June Quarter % 7.51% 19.99% Mar Quarter % 7.13% 18.28% Dec Quarter % 8.02% 24.27% Sept Quarter % 8.96% 18.87% - Ergon only % 3.28% 25.78% Dec Quarter % 6.68% 21.60% Dec Quarter % 5.58% 17.72% Dec Quarter % 6.75% 17.86% Source: Queensland Competition Authority, Small Customer Disconnection Quarterly Reports Total Distributor data Total Customers Retailer data Distributor data % Business Customers (using Retailer data) Disturbingly the number of Ergon business customers disconnected due to non-payment rose from 109 in September Quarter 2013 to 180 in September Quarter If small business is the engine room of the Queensland economy the rise in business disconnections will result in less regional jobs. The Far North Queensland region has had one of the highest unemployment rates in Australia. Far North Queensland needs to maintain existing jobs and create new regional jobs which will increase demand on Ergon s network and improve Ergon s network utilisation. Another barometer which provides an insight into the affordability of electricity is the number of customers participating in hardship programs. A hardship program allows for a customer with % Pensioners/ Concession Card Holders (using Retailer data) Ergon Future Network Tariff Submission Page 3/11

5 payment difficulties to be removed from a retailer s normal debt collection activity and allows for extended payments. A debt is defined as an amount outstanding to a retailer for the sale or supply of electricity for a period of 90 days. In September Quarter 2010 there were 4,932 small residential customers in Queensland on hardship programs with 2,367 located in the Ergon area. As per Table 3, the number has risen in September Quarter 2014 to 11,422 in Queensland with 3,242 customers located in the Ergon area. Table 3: Hardship program uptake by small residential customers Participating in a hardship program (#) % in a hardship Denied access to program in Ergon a hardship area program (#) Exited a hardship program (#) Av. Debt on entry into a hardship program ($) Source: Queensland Competition Authority, Small Customer Disconnection Quarterly Reports Whilst the number on hardship programs is of concern, of equal concern is the dramatic jump in the average debt of Ergon customers entering into a hardship program. Average debt has almost doubled in three months from $388 in June Quarter 2014 to $726 in September Quarter Ergon has signalled the need to move to monthly electricity bills to avoid bill shocks caused by their Seasonal Time Of Use tariffs which will see electricity bills spike over summer compared to the other 9 months of the year. Ergon should also take into consideration that besides higher electricity bills, summer also coincides with major household expenses such as back to school and Christmas. Av. Length of time a customer remained in a hardship program (days) Period Sept Quarter n/a n/a - Ergon only % June Quarter n/a n/a - Ergon only % March Quarter n/a n/a - Ergon only % Dec Quarter n/a n/a - Ergon only % Sept Quarter n/a n/a - Ergon only % Dec Quarter n/a n/a - Ergon only % Sept Quarter n/a n/a - Ergon only % Dec Quarter n/a n/a - Ergon only % Sept Quarter n/a n/a - Ergon only % Dec Quarter n/a n/a - Ergon only % Sept Quarter n/a n/a - Ergon only % Considering the sluggish economy and the increasing number of customers in the Ergon area being disconnected or entering hardship programs, it is imperative that Ergon understands the impact it has on its customers rather than just the impact the customer has on Ergon s business. Ergon Future Network Tariff Submission Page 4/11

6 2. Ensure trials are undertaken to understand the impact across each customer group by region Ergon have undertaken to ensure that no customer will be worse off under the new Seasonal Time Of Use tariffs. It is understood that Ergon intends to reimburse customers adversely impacted by the voluntary Seasonal Time of Use Tariff. In a business and industry environment where margins are extremely tight, reimbursing businesses may well occur after the customer has already closed their business. Households also do not need the additional cost of living stress resulting from the high summer electricity bills. The example used by Ergon to demonstrate the impact of a Seasonal Time Of Use Tariff was based on a household consumption of 9,500 kwh. As per Table 4, the average consumption in 2012/13 across Ergon s area was 6,811 kwh. Table 4: Average electricity use by postcode/city by household type and Ergon statistical region Source: (1) Energy Made Easy Australian Government website maintained by the Australian Energy Regulator (2) Data supplied by Ergon Energy Ergon s high consumption example of 9,500 kwh hides the impact of the higher fixed charge component proposed by the Queensland Competition Authority for regulated retail prices in The 9,500 kwh slide presented during Ergon s March 2015 webinar is shown below as Table 5. All examples pertaining to the effect of Time Of Use tariffs should be relevant to residential and business consumption in the Ergon region. Due to the difference in energy consumption between regions and the need to avoid bill shock, it is recommended that Ergon conduct trials by customer class and by Ergon statistical region. To implement trials Ergon will need to closely liaise with peak industry bodies in Brisbane as well as organisations based in regional Queensland. The trials need to be of typical customers of a particular customer class in an Ergon statistical region. For example, the dairy industry in Far North Queensland consists of 59 dairy farmers supplying fresh milk north to Torres Strait, south to Mackay and west to Mt Isa. It is critical that this Ergon Future Network Tariff Submission Page 5/11

7 essential industry remains viable. A trial could be implemented whereby 12 dairy farmers representing small ( cows), medium (150 to 200 cows) and large (200 plus cows) dairy enterprises could be provided with a smart meter with a comms unit and their consumption measured over 12 months. The trial would show their reliance on the network (dairies are typically situated in high rainfall areas with limited solar energy possibilities) and their in-elastic demand (cows are milked during peak demand periods every day). Table 5: Demand tariff Annual Bill (9.5 MWh per year) Source: Ergon Network Tariff Reform webinar customers using less than 4GWh per year, 18 March 2015 Trials involving other customer groups such as canegrowers, mining, manufacturing, retail, councils and various sized households will provide real data on the elasticity of demand during summer of customers in Far North Queensland and throughout regional Queensland. Without realistic trials the outcome of the new Seasonal Time of Use tariff is too risky for all customer groups, particularly as the Time Of Use tariff targets summer consumption. Ergon Future Network Tariff Submission Page 6/11

8 3. Assessing the impact of the new draft National Electricity Rule on the provision of metering services All customers intending to convert to Ergon s Time Of Use tariffs will require an advanced or interval meter. At present we understand there may be around 50 residential customers in the Ergon area on the Time Of Use Tariff 12 which requires an advanced or interval meter. Customers in the Ergon area are not alone in their very small uptake of advanced meters. Most meters used in the National Electricity Market (ie connected to the east coast poles and wires grid) at the premises of small customers are accumulation meters. Accumulation meters can only be used to measure the total amount of electricity a customer uses over a period of time and must be read manually at the customer s premises. Advanced meters can measure both how much electricity is used and when it is used remotely in real time. Despite the benefits of advanced meters, the Council of Australian Governments (COAG) Energy Council identified a number of issues. Firstly, COAG Energy Council identified that the exclusivity arrangements which limit who can take responsibility for the provision of metering services for certain types of meters impede competition and potentially encourage the continued use of accumulation meters. Additionally, the COAG Energy Council also identified that certain exit fees and the structure of metering charges create a disincentive for retailers to invest in advanced meters. Other issues identified by the COAG Energy Council related to minimum requirements for advanced meters and uncertainty over access to advanced metering services and metering data and consumer protections. With these issues in mind, the COAG Energy Council tasked the Australian Energy Market Commission with the drafting of a National Electricity Rule to provide a framework for the competitive provision of advanced meters and services to residential and small business customers. The Draft National Electricity Rule on metering was released on 26 March 2015 with submissions due to the Australian Energy Market Commission on 21 May The push by Ergon to introduce voluntary Time Of Use Tariffs in , when the national metering rule regarding advanced meters is yet to be established, is premature. Advanced meters should be installed for Ergon trials in consultation with regional organisations and peak industry organisations based in Brisbane. Ergon Future Network Tariff Submission Page 7/11

9 4. Ergon need to quantify the benefits to early adopters of Time Of Use Tariffs Ergon claim there will be benefits to early adopters of Time Of Use tariffs. This claim needs to be clarified as in many cases early adopters experience difficulties when adopting new technology eg will advanced meters perform reliably in tropical conditions? What effect will brown outs and black outs have on the accuracy of advanced meter readings? 5. The risk to Ergon s total revenue if the new tariff structure reduces overall network consumption from residential and small to medium size businesses As per Table 6, Ergon is heavily reliant on the revenue from Small Asset Customers who consume less than 100 MWh per year ie residential and small & medium size businesses. Table 6: Weighted average annual revenue for Ergon (GST exclusive) Source: Compiled from Ergon Pricing Proposal Version 1.1 AER approved Ergon Future Network Tariff Submission Page 8/11

10 It is important that Ergon does not adjust tariffs in a manner which adversely affects demand from the Small Asset Customer group consuming less than 100 MWh per year. Due to their large contribution to Ergon s revenue, any reduction in their demand would perpetuate the downward spiral of lower network demand resulting in higher customer prices. Ergon s knowledge of customer demand and demand elasticity seems to be poor and requires significant improvement. For example, Ergon s Seasonal Time Of Use tariff proposes to increase the cost of electricity significantly during summer peak and shoulder demand periods. Ergon s peak demand charge for businesses will include the hours 10 am to 8pm summer weekdays. Normal business hours are 9am to 5pm thus the bulk of normal business hours will receive peak charges in summer. Shops and manufacturing businesses in tropical north Queensland cannot change their hours any more than dairy cows can be milked at midnight. Similarly, peak charges for residential demand in summer will be from 4.30pm to 9.00 pm. Most children and working people will be going to bed in summer waiting for their air conditioning to start once the peak charges cease at 9.00pm. Ergon claim that customers will benefit from lower charges in the other 9 months. This depends on your view on the elasticity of demand in tropical Far North Queensland and hot Outback Queensland during summer. Conclusion The pace of Ergon s tariff reform journey is too fast and the impact on various customer groups is too vague. The COAG Energy Council is currently taking the time necessary to determine how advanced metering services and infrastructure will be rolled out across the national electricity grid. Time of Use tariffs require advanced metering infrastructure and are a completely new concept to regional Queensland. Regional customers are still grappling with the rebalancing of tariffs in favour of fixed charges. It is recommended that Ergon invests the time necessary to undertake trials of various customer groups across regional Queensland to more accurately predict the impact of Time Of Use tariffs. Ergon needs to place more emphasis on the impact it has on customers and rather than the impact the customers have on Ergon s business. Finally, the Ergon tariff reform journey must take into consideration that the Australian Energy Regulator will determine Ergon s revenue cap for the period in July The revenue cap is critical to Ergon s tariffs. Ergon Future Network Tariff Submission Page 9/11

11 Attachment 1 The following is a list of organisations involved in the FNQ Electricity Users Network: 1. Cairns Regional Council 2. Tablelands Regional Council 3. Cook Shire Council 4. Far North Queensland Regional Organisation of Councils 5. Advance Cairns 6. Tourism Tropical North Queensland 7. Regional Development Australia FNQ & Torres Strait 8. Cairns Chamber of Commerce 9. Mareeba Chamber of Commerce 10. Atherton Tableland Chamber of Commerce 11. Innisfail District Chamber of Commerce 12. Urban Development Institute of Australia 13. Consolidated Tin Mines Ltd 14. Snow Peak Mining Pty Ltd 15. Tableland Canegrowers 16. Queensland Dairyfarmers Organisation 17. Australians in Retirement (Cairns branch) Ergon Future Network Tariff Submission Page 10/11