Tariff Structure Statements Requirements, Victorian proposals & observations
Law & Rule requirements - Cost reflectivity in prices
Rules – defining & reflecting costs • “…to promote efficient investment in , National and efficient operation and use of , Electricity electricity services for the long term Objective interests of consumers with respect to…” • “…tariffs that a distributor charges in respect of Network its provision of direct control services should Pricing reflect the distributor’s efficient costs of Objective providing those services to the retail customer” • Pricing principles Distribution • Tariff classes pricing rules – • Tariff assignment / efficiency reassignment Distribution Customer impacts • pricing rules Understandability of tariffs • – customers & Jurisdictional gov’nt obligations • compliance
Rules – Defining & reflecting costs • Identify forward looking • Transition • Minimise costs (LRMC) approach Stand- distortions • Link costs to Design of alone & • Understandable to forward customers – tariffs tariffs avoidable looking tariff classes & cost • Gov obligations tariff signal assignment / • Revenue reassignment • LRMC – between time & Alter tariffs Recover SA & AC location, (customer Define costs & residual to avoid but: impacts & causation links costs cross rules compliance) subsidies silent on tariff design
Rules – Defining & reflecting costs � Cost reflectivity = means to achieve efficient usage and investment (network & customer side) � Spectrum of degrees of cost reflectivity: � Rules (NPO, LRMC) refer to prices reflecting costs of providing services to individuals � Cost = time & location specific � Technology, practicality, acceptability determine degree / speed of cost reflectivity progress for each distributor � Rules encourage progress over time along cost reflectivity spectrum � Nature of compliance with rules to evolve – over time & by business
Victorian proposals & observations
Defining & linking costs to customers Total regulated revenue Augex – LRMC capex & Demand (AIC opex Forward costs component method) 10-20 yr forecast Fixed & usage Residuals (consumption) Commercial & Small-medium Residential industrial business Low voltage Low voltage Low-High voltage Meter type Meter type
Tariffs – key changes � Commercial & industrial tariffs >no change in TSS � Residential & small-medium business tariffs > Current – Proposed new 2 part tariff – 3 part tariff Usage – Usage - Usage - Fixed Fixed maximum consumption consumption demand � Demand tariff component: ◦ Step along cost reflectivity spectrum > move from consumption usage, factors that don’t drive costs ◦ Signals costly usage periods > opportunity to consider appliance use during these times
Tariffs – demand tariff design Highest 30mins per month Application Small-medium business Residential 10am-6pm (CP, P, UE) Time 3pm-9pm – all 10am-8pm (Jem) 3pm-9pm (Au) Charging Mon-Fri (excl publ holiday, Mon-Fri (excl public Day parameters weekends) - all holiday, weekends) - all High (Dec-Mar); Low (Apr- High (Dec-Mar); Low Month Nov) – All but Jem (Apr-Nov) - all Jem – 1 period � Link to cost drivers (network stress periods). � Based on peak events but: constraints instead? � Align to facilitate vs target cost drivers (network specific)?
Demand tariff - Charging windows Jemena – Time of day windows SME peak Residential peak Jemena, TSS, p. b.2
Demand tariff - Charging windows Powercor – Month windows SME peak months Residential peak months Powercor, TSS, p.28
Price & non-price alternatives � Price signals > part of suite of network management approaches Constraints driven by peak demand Signal price to Build more Procure demand motivate response network management alternatives � Interactions in approaches > network costs driven by asset condition at specific times & locations: ◦ Locational prices = theoretical best but complex – future? ◦ More averaged prices = more reliance on DM � TSS’ need show more integrated consideration & long term vision: ◦ Some examples > UE locational rebates
Tariffs – standard vs menu offerings � Largely standard offering > 3 part tariff, with demand to target peak driven costs: ◦ Some exceptions > � Full-demand opt-in (CP, P, UE) � Flagged trials. � Customers willing & able to respond shouldn’t be prevented from doing so: ◦ Menu of tariffs? � Some might want greater savings by shifting demand � Retailer innovation
Summary � Demand tariff component – step along cost reflectivity spectrum � Design of charging windows important to link prices to network stress periods � Need more integrated network pricing / planning / demand management consideration � Single standard or menu of options
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Key discussion topics � Charging windows targeting peaks or constraints? � Aligned charging windows? � Sufficient integration of network pricing, planning, demand management? � Locational pricing – for the future? � Standard offer or menu of tariffs? � Practicality of menu of tariffs?
Rule requirements – Identifying & managing impacts
Rule requirements Standalone Designing & Adjusting tariffs avoidable tariff costs approach for Defining Recovering customer costs & residual impacts & causation costs other compliance � Moving to more cost reflective tariffs but cognisant of impacts on customers > transition
Rule requirements Consider Need for transition over time – may Departures impacts extend over multiple reg periods from cost reflectivity Extent customers can choose tariff Extent customers can mitigate impact through usage decisions Consider type & Tariff structure nature of customer - reasonably understandable Consider info provided & consultation undertaken Jurisdictional SA & Tas – no residential locational obligations pricing , Vic – AMI tariff offers
Victorian proposals & observations – customer impacts
Impacts & understandability � Rules require distributors to consider but difficult exercise: ◦ Retailers have direct contract with customers: � Will retailers be able to offer varied options (flat tariffs, peaky tariffs, critical peaks, mobile phone style cap plans?) � Varied retailer options in effect could manage impacts? � What constraints will retailers face in offering various options? ◦ If likely to be constrained – impacts of network tariffs more identifiable ◦ Retailers incentive to make tariff info easy to understand?
Identifying impacts � Need to identify relatable quantitative impacts: ◦ Types of customers – characteristics ◦ Use of different appliances � Helps retailers and customers > who will be worse or better off and how to respond � Informs suitability of transition management approaches > ◦ Faster or slower transitions ◦ Opt-in or out approaches ◦ Menu of tariffs with greater levels of cost reflectivity
Identifying impacts – AER sample Citipower: Impact – move from current to full demand tariff AER based on Citipower sample of 20 customers
Managing impacts – transition methods � Possible objectives > transition methods: 1. Managing price increases for end consumers 2. Minimise cross-subsidies during the transition 3. Allow time for retailers – business integration 4. Allow time for consumers – informing & considering response 5. Allow choice of greater level of cost reflectivity – choice & innovation � Other / different objectives?
Managing impacts – transition methods Approach Proposal Observation Opt-in & opt- Demand mandatory Assignment reasonable - opt-in for • out of cost but opt out allowed standard tariff mightn’t work reflectivity (all exl. AusNet) in 1 st Opt-out – pros & cons? • year Opting into Opt-in to full demand Customers can save more • greater (CP , P , UE) Not constrain retailer innovation • levels of cost More such options? • reflectivity Tariff • Residential charge Simplification benefits significant? alignment windows aligned Costs > not address network costs? (time, day, month) • No charge on public holidays & weekends Cost ramp- Gradual increase over Appropriate transition > time for up 4-9 years retailer/customer to consider response Pros / cons of shorter time 2-3 yrs?
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Key discussion topics � Impact management reflects stakeholder views? � Tariff structures & their impacts understandable? � Retailers – ability/constraints in offering various tariff options? � Objectives of transition management – correct? � Cost ramp up sufficient transition or need accompany with others (e.g. opt-out)? � Length of cost ramp up transition? � Other transition approaches?
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