Pricing Objectives and Existing Tariff
Structures
Nabil Chemali
Commercial, Strategy and Performance Manager
29/05/2014
Objective
The objectives of this presentation are to:
•inform the group about our pricing objectives
•inform the group about our existing tariff structures and classes
•consult on our preliminary thinking of tariff options
2
Who are some of our Major Customers
and Customer Representatives?
3
Who are our Retail Customers?
4
What do we consider when making
pricing decisions?
We consider and balance the following pricing objectives when
setting tariffs. We seek to:
• drive economic efficiency — prices should be cost reflective and
should encourage efficient consumption decisions
• recover our efficient costs of operation — we need to continue
providing safe and reliable electricity network services into the future
• treat customers equitably — similar customers pay similar prices
• provide simplicity and transparency — customers can understand our
charges and can react to price signals
• provide certainty — prices should remain relatively stable over time to
permit customers to conduct long term planning
5
Trade-offs between competing pricing
objectives
In making pricing decisions we need to make trade-offs between
the competing pricing objectives, such as:
• Cost-reflectivity and simplicity — a pure cost reflective approach
would result in complex tariff structures that customers may find
difficult to understand.
• Equity and cost-reflectivity — cost-reflectivity may result in locational
tariffs, resulting in similar customer paying different prices depending
on their location within the network.
6
How did we design our tariff classes?
7
How do our Customers contribute to
our consumption and revenue?
8
Our Residential Solar Penetration
9
We have different tariff structures for
different type of customers
Tariff components
Tariff
class
Tariff structure
Fixed
Flat
TOU 5-day
TOU flexible
Dedicated circuit
Flat
TOU 5-day
TOU 5-day D
TOU 7-day
TOU 7-day D
Unmetered
LB - LV
TOU 5-day D
LB - HV
LB – Sub
Res
SB
All
time
ȼ/kWh
Peak
ȼ/kWh
Off
peak
ȼ/kWh
Demand
kW
Common form
peak, shoulder,
off peak (ȼ/kWh)
TOU 5-day D
TOU 5-day D
10
What are we currently doing?
• We have engaged a consultant to develop our cost of supply model
• The model will provide us with a tool to:
– Assess the cost reflectivity of our existing prices, tariff classes &
structures; and
– Develop more cost reflective tariffs
• We have collected interval data for a large sample of our residential
customers:
– Sample size 129,800 non-solar and 8,900 solar customers
• We are in the process of analysing the data to better understand our
residential market’s load profile in order to make appropriate pricing
and tariff design decisions
11
Initial assessment of interval data
Non-solar residential customers
Solar residential customers
• Flat and block tariffs send poor price signals.
• Demand tariffs are more cost reflective than energy
only tariffs.
• Solar customers reduce energy consumption but
place similar burden on our system as non-solar
customers.
12
Our preliminary thinking of tariff options
Tariff components
Tariff
class
Tariff structure
Block
ȼ/kWh
Demand
kW
Block
Demand (kW)
Res
Flat
TOU 5-day
TOU flexible
Dedicated circuit
Flat
TOU 5-day
TOU 5-day D
TOU 7-day
TOU 7-day D
Unmetered
SB
Demand
KVA
INFORM &
CONSULT:
Do you support
our preliminary
tariff options?
LB - LV
TOU 5-day D
LB - HV
TOU 5-day D
LB – Sub
TOU 5-day D
13
Next steps
• We will provide you with our tariff structure statement in the
third quarter of this year
• The statement will outline our approach to developing:
– rule efficiency tests, i.e. stand alone, avoidable and long run marginal
costs; and
– tariff structures, prices and expected trends
14