Tariff Structure Statement SA Power Networks AER public forum - PowerPoint PPT Presentation

Tariff Structure Statement – SA Power Networks AER public forum

Requirements, proposal & observations - cost reflectivity of tariffs - customer impacts

Rules – defining & reflecting costs • “…promote efficient investment in , and National efficient operation and use of , Electricity electricity services for the long term Objective interests of consumers with respect to…” • “…tariffs a distributor charges in respect of its Network 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  Iterative process to compliance – over time and by business

Proposal - Defining & linking costs to customers Total regulated revenue LRMC Augex – capex Demand (AIC & opex Forward costs component method) 10 yr forecast Fixed, demand Residuals & usage (consumption) General Business Residential customer DTF HV - Major Voltage LV - LV - bus bus bus connect res bus New Existing: Existing New Status invest’ < or > < or > invest’ threshold threshold usage usage Social Specific Solar hardship

Proposed residential & small bus’ tariffs New or new investment Existing customer (physical supply alt’s; new inverter, appliances > < 20 mWh (res) or <40 > 20 mWh (res) or >40 25amps) mWh (bus) per annum mWh (bus) per annum No advanced Advanced meter meter Mandated Opt-in Mandated Demand Current consumption tariff demand tariff (transitional) (transitional) tariff Fixed Fixed Consumption Consumption consumption Demand (min demand 1kw) Demand (min Consumption or toU or simple $p windows & demand 1kw) demand lower rate vs opt-in Solar customer Fixed Consumption block Fixed Social hardship Consumption block Existing tariffs (LV tariff class) DTF business

Proposed demand tariff – $p windows Opt in version Mandatory (transitional) version Calc’n Max demand - Highest 30mins per month, inc. min demand (1kW) Time Resi – peak & shoulder 4-9pm Resi – One rate 4-9pm Bus – peak 12-9pm Shoulder 12-4pm Bus – One rate 12-9pm Resi: Mon-Sun.Excl. Christmas day Resi: Mon-Sun.Excl. Christmas day Day Bus: Workdays. Exl weekends Bus: Workdays. Exl weekends Month Peak (Nov-Mar) Shoulder (Apr-Oct) No variance Source: SAPN, TSS overview paper p.32

Proposed demand tariff – $p windows  Link to cost drivers (network stress periods) but: sufficiently linked?  Different peak/shoulder windows for opt-in and transition but: sends helpful message?  Based on total network peak but: constraints instead?

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 needs more integrated considerations?  Offer range > more opt-in tariffs with more cost reflectivity? Some might be willing; retailer innovation?

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 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 – no locational pricing for small obligations customers

Impacts & understandability  Rules require distributors to consider impacts but difficult exercise: ◦ Retailer has 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 ◦ Retailer incentive to make tariff info easy to understand?

Impacts Residential without PV identified Switching from existing to opt-in demand Residential with PV tariff Source: SAPN, Consultation paper

Impacts Business single rate identified Switching from existing to opt-in Business two rate demand tariff Source: SAPN, Consultation paper

Identifying impacts  Need to identify relatable quantitative impacts: ◦ Types of customers – characteristics (e.g. load ratios, size) ◦ Use of different appliances  Helps retailers and customers > who worse or better off and how to respond ◦ Stay on modified existing tariffs or opt-in to demand tariff? Also, merit of opt in vs opt out. ◦ Benefit from opting into even greater levels of cost reflectivity? ◦ Informs suitable length of transition > for changes to existing tariffs?

Managing impacts – transition methods Approach Proposal Observation Cost ramp up > Demand component set at • Transition warranted, existing Mandated 40% of intended amount for customers most affected. transition TSS period. From 2020, • 6 years too long > esp for new demand tariffs 20% annual increase – 6 customers / new investments? More year transition relevant for threshold customers? Opt-in and opt- • Opt-in for existing • Opt-in approach manages impacts on out of cost customers existing customers – those most reflectivity • Mandated for new and affected by changes. trigger/threshold • Distinction between existing and new customers customers / new investments speeds up tariff reform but appropriate? Mandated Charging windows > no • Helps understanding but correct demand tariffs shoulder period, & don’t message? (simple differ by month/season windows) Opting into Optional full demand tariffs Good idea but more such options? • greater levels of available for customers with cost reflectivity appropriate metering

Summary  In short term > ◦ Metering constraints > continue with existing non-peak reflective tariffs but close to new customers  Long term plan for moving to more cost reflectivity> ◦ Choices to protect most existing customers ◦ Triggers / thresholds to speed up reform implementation  Demand tariffs = core to forward strategy > ◦ Questions on ideal design and implementation (existing vs new customers / new investments; rationale for threshold assignment) ◦ More info on switching benefits > relate impacts to characteristics?  Better integration of network spend vs DM vs price signals?

End

Key discussion topics  Distinctions appropriate - existing vs new customers / new investment customers?  Mandated and opt-in demand tariffs: ◦ Benefits of switching clear? Who better or worse off? ◦ Charging windows – info sufficient to understand if refinements required? ◦ More opt-in choices?  Rationale for mandatory tariffs for threshold customers (demand & consumption variants)  Interactions clear > network spend vs DM vs pricing?  Other issues?

Key Dates  Submissions due 28 Apr 2016  AER draft determination 1 Jul 2016  SA Power Networks revised proposal 1 Sep 2016  AER final determination 30 Jan 2017  SA Power Networks pricing proposal 31 Mar 2017  AER approval of pricing proposal 16 May 2017  New tariffs introduced 1 Jul 2017  Email submissions to SAtss2016@aer.gov.au