REVIEW OF THE
ADVANCED METERING
INFRASTRUCTURE
PROGRAM
June 2011
VCOSS Submission
Review of the advanced metering infrastructure program – 0
About VCOSS
The Victorian Council of Social Service (VCOSS) is the peak body of the social and
community sector in Victoria. VCOSS works to ensure that all Victorians have access to and
a fair share of the community’s resources and services, through advocating for the
development of a sustainable, fair and equitable society. VCOSS members reflect a wide
diversity, with members ranging from large charities, sector peak organisations, small
community services, advocacy groups and individuals involved in social policy debates.
VCOSS is committed to living out the principles of equity and justice, and acknowledges we
live in a society where people are interdependent of one another. VCOSS respects the land
we live in and recognises the Indigenous custodians of the country. VCOSS is committed to
reconciling all injustices with Indigenous Australians. The VCOSS vision is one where social
well being is a national priority, and:
 ensures everyone has access to and a fair share of the community’s resources and
services;

involves all people as equals, without discrimination; and

values and encourages people’s participation in decision making about their own lives
and their community.
Authorised by:
Cath Smith, Chief Executive Officer
© Copyright 2011 Victorian Council of Social Service
Victorian Council of Social Service
Level 8, 128 Exhibition Street
Melbourne, Victoria, 3000
+61 3 9654 5050
For inquiries:
Dean Lombard
Energy Policy Analyst
E: [email protected]
Review of the advanced metering infrastructure program – 1
Background
VCOSS has engaged in energy policy debates and consultative processes for many years
as an advocate for disadvantaged and vulnerable (including low income) households. In
particular, we have been significantly involved as a key stakeholder in the AMI project
since its inception, sitting on a number of committees and working groups including:

the Functionality Working Group (2006-07);

the Customer Consultation Working Group (CCWG) (2010);

the Customer Impact Study Steering Committee (2010-11 and ongoing); and

the AMI Policy Committee (2010-11 and ongoing).
In addition VCOSS is a CCWG representative on the Concessions Review Working Group
convened (since late 2010) by the Department of Human Services Concessions Unit.
VCOSS is also a member of:

the Financial & Consumer Rights Council’s Utilities Working Group;

the Advocacy Panel-Funded National Consumer Roundtable on Energy;

the Consumer Utilities Advocacy Centre’s Reference Group and Domestic Issues
Group; and

the Essential Services Commission’s Customer Consultative Committee.
Additionally, VCOSS convenes the VicUtilities network that brings together policy and
advocacy workers from a range of community service organisations including many that
work directly with people in hardship.
Taken together, these connections and engagements give VCOSS a broad understanding
of technical and operational aspects of AMI rollout and implementation, issues facing
vulnerable consumers, and energy policy and regulatory challenges. We appreciate the
opportunity to participate in the review of the AMI program.
Costs and benefits outlined in previous studies
As a consumer advocate, and specifically, an advocate for the interests of disadvantaged
and vulnerable households, VCOSS is primarily interested in the benefits that will be actually
realised by residential electricity consumers. The National Energy Market (NEM) objective
likewise considers the interests of consumers as the overriding rationale for energy market
reform and development.
The AMI program benefits identified in the cost–benefit benefit studies undertaken to date
flow ultimately to end-users1 – as either financial or service quality gains – but flow in the first
instance to distribution businesses2. While we concur that there is a clear potential
consumer benefit – notwithstanding the overly hypothecated nature of some key benefits 3
Oakley Greenwood 2010 p.26
ibid. p.4
3 For example, those based on consumer responses to price signals but in the absence of sufficient recent relevant
demand elasticity studies or concrete information on the penetration and shape of retail tariffs.
1
2
Review of the advanced metering infrastructure program – 2
– it is far from certain that network savings will actually result in lower retail prices. The
sobering experience of 2006, when the 1 January distribution price cuts were not passed
onto consumers until late May when the State Government used its (since rescinded) retail
price regulation powers to enforce it, highlights how in a disaggregated privatised market
with no retail price regulation, cost-reflectivity cannot be assumed when it can’t be
enforced.
Summary
1. Considerable consumer benefit is contingent on retailer pass-through of network savings,
which is not guaranteed
Specific issues
The regulatory framework
One of our ongoing concerns with the AMI program, and the NEM in general, has been
deficiencies and inconsistencies in the regulatory framework that have or may have led to
unnecessary price increases for consumers, despite the NEM objective’s commitment to
efficient investment in and operation of the NEM.
One aspect of this is the distribution price determination process, which provides much
greater incentives for network augmentation and expansion than it does for demand
management and efficiency gains. This has certainly contributed to the scale of electricity
price rises in recent years, and works against the pass-through to end-users of efficiency
gains and cost reductions that are achieved otherwise.
The Australian Energy Regulator (AER) does have appropriate powers of scrutiny and
discretion to hold Distribution Network Service Providers (DNSPs) to account within this
imperfect framework; but unless the augmentation/expansion bias in the framework is
improved, there is a danger that the service cost and peak demand savings made possible
by AMI will be neutralised by other network cost increases as DNSPs seek to maintain
revenue and profit levels. We note that Oakley Greenwood cautioned that the
effectiveness of regulatory price-setting processes was a critical factor in the realisation of
consumer benefit from the AMI Program 4.
The AMI Cost Recovery Order is also of concern and, thanks to the smart meter charge, has
a more direct impact on consumers. By settling on prudent cost recovery (at 120 per cent
for the first year and 110 per cent for subsequent years) within program scope and
essentially limiting the AER’s scrutiny to whether or not the costs are in scope, it is far more
generous to DNSPs than the established price determination framework and offers no
incentive for costs to be efficient (or indeed reasonable). Additionally, as a parallel process
separate from the price determination process it raises the possibility of double-counting of
costs – in particular because there is considerable overlap between some aspects of the
AMI rollout and other business-as-usual DNSP processes (for example IT system
development).
Notwithstanding the deficiencies in the distribution price determination process discussed
above, AMI cost recovery ideally should be encompassed in the regular price
determination framework. We note that the Australian Energy Market Commission
determined that the National Electricity Rules adequately accommodate smart meter
4
Oakley Greenwood, 2010, p.8-9
Review of the advanced metering infrastructure program – 3
rollout cost recovery5 and indeed that “the distribution determination process provides the
most effective and rigorous mechanism for the recovery of the net efficient costs of
mandated smart meter roll-outs”.6 At the very least, the Order in Council should be aligned
with the AER’s distribution price determination framework to reduce the upfront cost on
end-users.
Retailers
VCOSS understands that electricity retailers, by and large, are not yet equipped to manage
interval data. We expect that over time they will develop lifestyle and niche products, not
necessarily involving dynamic tariffs, based on the greater understanding of customers’
consumption patterns facilitated by interval data. Selectively offering specific tariffs to
different types of customers may be one way they hedge against time-of-use (ToU) network
tariffs without having to offer ToU retail tariffs. However, we expect ToU retail tariffs to also
be offered.
In our experience, most energy consumers don’t really understand pricing and have
difficulty choosing the best deal. We also understand that low to moderate energy users
have very low demand elasticities – especially low income and vulnerable households who
have little discretionary usage 7. This limits the ability of many consumers to achieve a
sufficient demand response to make a significant cost saving. As ToU tariffs will create
winners and losers even with no demand response 8 it is essential that retail regulation
ensures consumers can access both flat and ToU offers and that consumers are not
mandatorily reassigned to ToU tariffs.
Summary
1. The distribution price determination framework needs strengthening.
2. The AMI cost recovery order should be integrated into or aligned with the price
determination process.
3. Retail regulation must ensure residential customers can access both static and dynamic
tariffs.
Technology
Some of the benefits identified in the Oakley Greenwood study rely either directly or
indirectly on consumers’ access to their current and historical consumption data: to identify
opportunities for energy conservation (benefits 31, 35, and 35a 9); or to shift usage away
from peak periods (benefit 29). The inability of smart meters to display current load is a
functionality regression from the old accumulation meters (that can), and an obstacle to
fully achieving these benefits. This functionality should be added to the AMI meter
specification.
Historical consumption data can be delivered in numerous ways (including In Home
Displays (IHDs), other Home Area Network (HAN) devices, smartphone apps and online
AEMC, 2010
ibid. p. ii
7 Langmore & Dufty, 2004
8 NERA Consulting, 2008
9 Benefit numbers in this section from Oakley Greenwood 2010a and for convenience listed in the Appendix to this
submission
5
6
Review of the advanced metering infrastructure program – 4
services), but access to these information channels is not trivial for some consumers. This is
discussed further in the “Sharing benefits” section below.
Summary
1. The ability to dynamically display current load should be added to the smart meter
functionality specification
Sharing benefits
Dynamic tariffs
VCOSS believes that one of the avowed rationales for the AMI program – that consumers
will enthusiastically welcome the ability to get detailed, granular information about their
electricity consumption patterns and use it to optimise the price and environmental impact
of their energy usage – is overstated. Certainly there are some for whom this is true; but the
majority simply want their lights and appliances to work without trouble or undue expense.
Consequently, we don't expect IHDs to be the must-have gadget of 2012.
However, as more complex static, differential and dynamic tariffs become commonplace,
consumers will need granular current and historical consumption data if they are to choose
the best tariff for their usage patterns – much the same as they currently need historical call
data to choose an appropriate mobile phone plan. Reliable access to this data for all
consumers will be critical not just to maximise direct consumer benefit, but also to minimise
disadvantage to consumers whose life circumstances expose them unduly to high dynamic
tariffs. (These consumers will be better able to be identified following the conclusion of the
Customer Impact Study, currently underway). Significantly, access to this data some time
before dynamic tariffs are widespread is equally beneficial as it will increase the likelihood
that households will have sufficient historical data to make those decisions when first
offered a dynamic tariff. (Certainly those undertaking the Customer Impact Study have
found that the paucity of extant granular interval data has significantly affected their
sample sizes.)
Because most of the benefits of the AMI program will be delivered via network savings
(assuming adequate pass through), their realisation will be considerably delayed 10; and
because they will be delivered not as end-price reductions but as mitigations on rising
prices11, they won’t actually be experienced as benefits by consumers. Thus it is critical that
policy and regulatory settings are oriented to improve the delivery of direct consumer
benefits (i.e. lower bills and higher service standards) as soon as possible.
Because smartphone apps and online services have zero or low marginal cost for
households with access to smartphones and internet access, VCOSS is confident that most
households will be able to access their consumption data without purchasing HAN devices
or even in the absence of an activated HAN. Nevertheless, the additional choice and
flexibility enabled by HAN devices suggests that early activation of the HAN will bring
additional consumer benefit.
Low income and non-metropolitan households present a greater challenge. ABS data
indicates that 51 per cent of households in the lowest equivalised income quintile, and 30
per cent in the second quintile, do not have a home computer; 60 and 39 per cent,
respectively, have no internet access. Those that do are more likely to be on dial-up
connections than other households. A similar, though less acute, inequity exists for non-
10
11
Oakley Greenwood, 2010
ibid.
Review of the advanced metering infrastructure program – 5
metropolitan households (26 per cent have no computer and 35 per cent no internet
access, compared to 19 and 24 per cent in metropolitan areas).12 Internet connection
speeds are also typically slower in regional areas, especially outside large towns, due to less
broadband availability and lower broadband speeds.
Data is not available for smartphone penetration, but VCOSS believes it is safe to assume a
similar inequity for low income households; and the much more limited mobile internet
penetration outside of metropolitan areas also limits the usefulness of smartphone apps for
accessing consumption data in regional areas. These inequities mean that many of these
households will need IHDs or other HAN devices to have reliable access to their
consumption data. For this reason, VCOSS believes that free provision of IHDs to concession
households is needed to ensure they are not unduly disadvantaged by the AMI program.
Critical peak pricing and direct load control
Other identified benefits rely on clear real-time or near real-time communication between
retailers or distributors and end-users (those concerning critical peak pricing (CPP): benefits
30, 32, and 33) or investment by consumers in new expensive appliances (those requiring
direct load control (DLC) of appliances: benefits 34 and 36). Reliance of the information
channels referred to above (IHDs, the HAN, smartphone apps or online services) to deliver
real-time information to deliver CPP-related benefits is contingent on consumer access to
those channels, which may not be guaranteed without appropriate policy or regulatory
settings. (While SMS notifications may be used to notify CPP events, the potentially
devastating impact of CPP pricing on an un-notified household demands backup
communication channels.)
Regarding DLC benefits: studies indicate that DLC is the most effective way for consumers
to reduce their electricity bills under ToU tariffs 13; however these can only be accessed by
households with the financial resources to purchase new appliances specifically designed
for Zigbee HAN-based DLC. While the various cost benefit studies have thus factored low
uptake into the value of this benefit, VCOSS believes that the exclusion of low -income
households from such a significant benefit of a technology that they are disproportionately
paying for is a grave inequity and a social policy challenge.
The smart meter charge
The smart meter charge levied by the distribution businesses (though not always itemised on
household bills) has a disproportionate cost impact on low income households because, as a flat
charge on a variable bill, it is a higher proportion of lower bills, as well as a higher proportion of
lower incomes.
When considered along with the lesser direct benefit to low income households of the AMI
program (due to their lower demand elasticity)14, lower non-discretionary use15 and lack of
access to DLC (see above in "Critical peak pricing and direct load control"), the value for cost of
the overall program for these households is seriously compromised. This is exacerbated by the fact
that the additional cost impost — generally between $20 and $30 per bill — can mean the
difference between an affordable and an unaffordable bill to many of these households. For
these reasons, to maximise the benefit of the AMI program to vulnerable and disadvantaged
households the concessions framework should be expanded to rebate the full cost of the smart
meter charge for concession households.
All information technology data from ABS 2009
NERA Consulting 2008
14 Langmore & Dufty 2004
15 Ibid
12
13
Review of the advanced metering infrastructure program – 6
Summary
1. Access to historical consumption data must be guaranteed for all consumers.
2. Early activation of the HAN will bring additional consumer benefit.
3. IHDs should be supplied free of charge to concession households.
4. Robust real-time communication channels are essential for CPP tariffs.
5. Consumer access to the considerable direct benefits enabled by DLC with ToU tariffs is
limited by social inequity.
6. The smart meter charge should be fully rebated on the bill as an additional concession for
concession households.
Consumer protections
VCOSS believes that both the AMI program and the roll-out introduce new consumer
protection issues not currently covered in the existing consumer framework. In this regard,
we direct your attention to the draft Smart Meter Consumer Policy Principles (developed by
members of the VicUtilities network that VCOSS convenes) referred to in the Consumer
Action Law Centre’s submission and the Consumer HAN Policy Principles (endorsed by
several consumer advocacy organisations including VCOSS) tabled to the NSSC and MCE
by the Alternative Technology Association.
We also wish to draw your attention to two particular issues:
1.
Retailer use of Supply Capacity Control (SCC)
The AMI functionality set includes the ability to limit meters to a specific supply capacity for
a specific time period. This can be used by distributors as an alternative to rolling blackouts
during periods of supply constraint, allowing all households affected to draw a modest load
only. This is a concrete consumer benefit, which we support.
However SCC can also be used by retailers as a tariff offering. VCOSS is gravely concerned
at the significant threat posed by retailer use of SCC to the strong consumer rights
embodied in the Victorian customer framework. Retailers could use supply capacity control
as a “more palatable” alternative to disconnection, keeping vulnerable customers on an
insufficient, constantly fluctuating supply with a serious impact on quality of life and, over
time, major household appliances that could be damaged by regular disconnection and
reconnection of supply. While the Essential Services Commission (ESC) has for the moment
prohibited retailer use of SCC for credit management purposes, they still permit its use for
non-credit management purposes – a supply-constrained supply with a low-cost tariff as a
market offer.
VCOSS believes that such products will only appeal to vulnerable customers who see them
as a way to save money at the expense of utility of supply, and will probably only be
offered to vulnerable customers as a way for retailers to hedge against customer debt.
International examples presented by the ESC to the most recent Customer Consultative
Committee meeting all showed these characteristics. VCOSS does not believe there is any
Review of the advanced metering infrastructure program – 7
consumer benefit in SCC retail tariffs in any form, and contends that they should be
prohibited. Further discussion of this issue can be found in consumer organisations’
submissions to the ESC’s current review on the matter.
2. Issues for tenants in the AMI roll-out
The most significant issue for tenants in the AMI roll-out is the risk of disconnection and
eviction due to unsafe wiring discovered during meter changeover. VCOSS is confident
that low-income home owners are most often adequately protected by the practice of
several distributors routinely repairing unsafe wiring at their own expense, and by the
program run by the Department of Primary Industries to cover the cost of essential repairs
for concession households in instances where the distributors are not. However some of our
members have reported instances of low income tenants being left off supply or evicted
due to the unpreparedness of their landlord to undertake the repairs promptly or at all (or
even to authorise repairs if distributors are prepared to carry out the work). In the absence
of a more comprehensive revision of tenancy laws to address the numerous disadvantages
experienced by tenants (and 50 per cent of low income households are tenants 16) – many
of which stem from their lack of control over their living environment – VCOSS urges the
State Government to ensure that in this instance vulnerable tenants are extended the same
opportunities as low-income home owners to benefit from, rather than be disadvantaged
by, the opportunities emerging from the AMI roll-out to identify unsafe wiring at the meter
box.
Summary
1. Smart meter consumer policy principles should be incorporated into the Victorian
customer protection framework
2. Supply capacity control retail products are of no consumer benefit and should be
prohibited
3. Tenants must be protected from disconnection or eviction due to unsafe wiring
discovered during meter installation
Contact details
For further information regarding the VCOSS submission to the Review of the advanced
metering infrastructure program, contact:
Dean Lombard
T: 03 9654 5050
E: [email protected]
16
ACOSS, 2011
Review of the advanced metering infrastructure program – 8
Appendix: List of benefits referred to in this paper
From Oakley Greenwood 2010a
Benefit 29
Avoided network and generation augmentation from peak demand
reduction from three-rate TOU network tariff introduction and resultant
three-rate retail tariff
Benefit 30
Avoided network and generation augmentation from peak demand
reduction from CPP tariff implementation
Benefit 31
Energy conservation from three-rate TOU tariff
Benefit 32
Energy conservation from CPP tariff implementation
Benefit 33
Additional demand response from IHDs on CPP
Benefit 34
Additional demand response from direct load control of air conditioners
Benefit 35
Energy conservation from IHDs
Benefit 35a
Energy conservation from general information programs
Benefit 36
Peak demand reduction through deferral of refrigerator auto defrost
cycle out of peak period
References
ABS (2009) 8146.0 – Household Use of Information Technology, Australia, 2008-09; Australian
Bureau of Statistics
ACOSS (2011) Beyond stereotypes: Myths and facts about people of working age who
receive social security (ACOSS Paper 175); Australian Council of Social Service
AEMC (2010) Request for Advice on Cost Recovery for Mandated Smart Metering
Infrastructure (Final Report); Australian Energy Market Commission
Langmore, M & Dufty, G (2004) Domestic electricity demand elasticities, issues for the
Victorian energy market; The Society of St Vincent de Paul
NERA Consulting (2008) Cost Benefit Analysis of Smart Metering and Direct Load Control –
Work Stream 4: Consumer Impacts (Phase 2 Consultation Report); Ministerial Council on
Energy Smart Meter Working Group
Oakley Greenwood (2010) Benefits and Costs of the Victorian AMI Program; Department of
Primary Industries
Oakley Greenwood (2010a) Review of AMI Benefits; Department of Primary Industries
Review of the advanced metering infrastructure program – 9