National Smart Meter Programme
Time of Use Tariffs Mandate
CER/13/152
Consultation Paper Response
Contents
1
Foreward ......................................................................................................................................... 3
2
Consultation Responses.................................................................................................................. 4
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.
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 2012.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.