Tariff Structure Statements Requirements, Victorian proposals & - - PowerPoint PPT Presentation

Tariff Structure Statements

Requirements, Victorian proposals & observations

Law & Rule requirements - Cost reflectivity in prices

Rules – defining & reflecting costs

National Electricity Objective

• “…to promote efficient investment in,

and efficient operation and use of, electricity services for the long term interests of consumers with respect to…” Network Pricing Objective

• “…tariffs that a distributor charges in respect of

its provision of direct control services should reflect the distributor’s efficient costs of providing those services to the retail customer” Distribution pricing rules –

efficiency

• Pricing principles
• Tariff classes
• Tariff assignment /

reassignment Distribution pricing rules

– customers &

compliance

• Customer impacts
• Understandability of tariffs
• Jurisdictional gov’nt obligations

Rules – Defining & reflecting costs

• Identify

forward looking costs (LRMC)

• Link costs to

customers – tariff classes & assignment / reassignment

Define costs & causation links

• LRMC –

time & location, but: rules silent on tariff design

Design of tariffs

• Minimise

distortions to forward looking tariff signal

Recover residual costs

• Revenue

between SA & AC to avoid cross subsidies

Stand- alone & avoidable cost

• Transition

approach

• Understandable

tariffs

• Gov obligations

Alter tariffs (customer impacts & compliance)

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 &

• bservations

Defining & linking costs to customers

Forward costs Residuals Augex – capex &

• pex

10-20 yr forecast Total regulated revenue Demand component Fixed & usage (consumption) Residential Small-medium business Commercial & industrial LRMC (AIC method) Low voltage Low-High voltage Meter type Low voltage Meter type

Commercial & industrial tariffs >no change in TSS Residential & small-medium business tariffs > 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 – key changes

Fixed Usage - consumption Fixed Usage - consumption Usage – maximum demand Current – 2 part tariff Proposed new – 3 part tariff

Link to cost drivers (network stress periods). Based on peak events but: constraints instead? Align to facilitate vs target cost drivers (network specific)?

Tariffs – demand tariff design

Charging parameters Application Time Day Month Highest 30mins per month Residential Small-medium business 3pm-9pm – all 10am-6pm (CP, P, UE) 10am-8pm (Jem) 3pm-9pm (Au) Mon-Fri (excl public holiday, weekends) - all Mon-Fri (excl publ holiday, weekends) - all High (Dec-Mar); Low (Apr-Nov) - all High (Dec-Mar); Low (Apr- Nov) – All but Jem Jem – 1 period

Jemena – Time of day windows

Demand tariff - Charging windows

Jemena, TSS, p. b.2 Residential peak SME peak

Powercor – Month windows

Demand tariff - Charging windows

Powercor, TSS, p.28 SME peak months Residential peak months

Price & non-price alternatives

Price signals > part of suite of network management

approaches

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

Constraints driven by peak demand Signal price to motivate response Build more network Procure demand management alternatives

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

End

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

Moving to more cost reflective tariffs but cognisant

• f impacts on customers > transition

Rule requirements

Defining costs & causation Designing tariffs Recovering residual costs Standalone & avoidable costs Adjusting tariff approach for customer impacts &

• ther

compliance

Rule requirements

Consider impacts Need for transition over time – may extend over multiple reg periods Extent customers can choose tariff Extent customers can mitigate impact through usage decisions Tariff structure

• reasonably

understandable Consider type & nature of customer Departures from cost reflectivity Consider info provided & consultation undertaken Jurisdictional

• bligations

SA & Tas – no residential locational pricing , Vic – AMI tariff offers

Victorian proposals &

• bservations –

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

AER based on Citipower sample of 20 customers

Citipower: Impact – move from current to full demand tariff

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-

• ut of cost

reflectivity Demand mandatory but opt out allowed (all exl. AusNet) in 1st year

• Assignment reasonable - opt-in for

standard tariff mightn’t work

• Opt-out – pros & cons?

Opting into greater levels of cost reflectivity Opt-in to full demand (CP , P , UE)

• Customers can save more
• Not constrain retailer innovation
• More such options?

Tariff alignment

• Residential charge

windows aligned (time, day, month)

• No charge on public

holidays & weekends Simplification benefits significant? Costs > not address network costs? Cost ramp- up Gradual increase over 4-9 years Appropriate transition > time for retailer/customer to consider response Pros / cons of shorter time 2-3 yrs?

End

Key discussion topics

Impact management reflects stakeholder views? Tariff structures & their impacts understandable? Retailers – ability/constraints in offering various tariff

• ptions?

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?

Key Dates

Submissions due

20 Jan 2016

AER draft determination

22 Feb 2016

Distributor revised proposals

29 Apr 2016

AER final determination

29 Jul 2016

Distributors submit pricing proposal 30 Sep 2016 AER approval of pricing proposal

11 Nov 2016

New tariffs introduced

1 Jan 2017

Email submissions to VicTSS2015@aer.gov.au