Attachment 1: Detailed Answers to Questions from AER Issues Paper
Topic
Question
Ausgrid’s response
1. Are the NSW distributors' tariff classes based on
Cost reflectivity of
tariffs
cost reflective criteria and consistent with the
requirements of the rules?
Ausgrid believes that our proposed tariff classes are
consistent with the economic principles in the Rules.
2. What are the advantages and disadvantages of the
NSW distributors' proposed declining block tariff
Ausgrid believes that the declining block tariff for
Cost reflectivity of
structure for residential customers? What are the
residential and small business customers represents an
tariffs
advantages and disadvantages of Ausgrid's and
appropriate transition path toward the efficient tariff
Essential Energy's proposed declining block tariff
notion for a network tariff based on a Type 6 meter.
structure for small business customers?
Cost reflectivity of
tariffs
Cost reflectivity of
tariffs
3. What are the advantages and disadvantages of
Endeavour Energy's proposed inclining block tariff
No comment
structure for small business customers?
4. Are the differences between the NSW distributors'
All of Ausgrid’s tariffs set out in the draft TSS are being
indicative prices for their block/controlled load tariffs
transitioned to an efficient outcome and are therefore
and time-of-use tariffs cost reflective? Are the
not yet fully cost reflective. The indicative prices reflect
differences in fixed charges and off-peak/controlled
differences which continue to apply but have been
load charges between the two sets of tariffs cost
designed to achieve an improvement in economic
reflective?
outcomes without imposing unacceptable bill shocks on
our customers.
The limited voluntary take-up of TOU tariffs in NSW is
Cost reflectivity of
tariffs
5. Why has there been little take-up of the NSW
likely to reflect a combination of factors, such as
distributors' time-of-use tariffs to date?
financial incentives, knowledge gaps and risk
preferences.1
The National Electricity Rules require Ausgrid to
improve the economic efficiency of its network tariff,
subject to the customer impact principle. Achieving this
Cost reflectivity of
tariffs
6. Do the relative structures of the NSW distributors’
outcome will ensure that customers receive a usage
proposed block/controlled tariffs and time-of-use tariffs
price signal based on economic cost and that residual
provide effective incentives for customers to opt-in to
costs are recovered in a least distortionary manner.
the more cost reflective time-of-use tariffs?
There is no reason to believe that it will also provide
customers with a greater financial incentive to take-up
more cost reflective tariffs. In fact, it may have the
opposite effect for some customers.
Cost reflectivity of
tariffs
1
7.
To what extent are the differences between the
Ausgrid believes that this reform is justified in the case
NSW distributors' proposed charging parameters cost
of our network, as evident from the seasonal network
reflective with respect to:
usage analysis set out in our draft TSS. Ausgrid cannot
For more information refer to: CSIRO 2015, Australian Consumers’ Likely Response to Cost-Reflective Electricity Pricing, June
• Time of the day
comment on what is appropriate for the other NSW
distributors given that it is possible that differences in
• Day of the week
approach may be justified on economic grounds.
• Season of the year, and
•
With respect to differences in these matters
between residential and small business customer tariffs.
Ausgrid’s seasonal peak period reform should be
considered as part of long-term re-balancing strategy
away from blunt energy charges towards more efficient
and targeted peak price signals.
8. To what extent are the differences between the NSW
Cost reflectivity of
tariffs
distributor's proposed charging parameters likely to
reduce the extent of retailer promotion of, and
No comment, except note our response to Question 6.
We also note that Retailers are better placed to answer
this question.
competition in, more cost reflective time-of-use tariffs?
Ausgrid has proposed a comprehensive set of
transitional tariffs to ensure that existing customers do
Impact of tariffs on
customers
9. Have we accurately described the issues relevant to
the management of customer impact in changing
tariffs?
not receive an unacceptable network bill increase as a
direct consequence of our proposed reforms.
Our proposal also provides residential and small
business customers with the option to opt-in/out of more
cost reflective network tariffs in various scenarios.
10. Are there other key issues concerning tariff impacts
not identified in this paper? In particular:
•
Are there matters that stakeholders raised with
Impact of tariffs on
distributors that were inadequately addressed in
customers
the proposed tariff statements?
•
Ausgrid considers that all material issues were
addressed in the TSS and through our active
participation in the public forum held by the AER on this
matter. We have also provided further clarification on
our proposal, refer to Attachment 2.
Are there any other approaches to managing
Ausgrid is not aware of any other practical approach to
customer impact that should have been
managing customer impacts, noting that our proposal is
considered?
based on a range of approaches.
11. Will retailers be able to offer customers a number of
Impact of tariffs on
customers
tariff offers, some of which with retail tariff structures
that differ from the underlying network tariff structure?
What are the advantages and disadvantages of them
doing so?
This question should be directed to retailers. Note our
response to Question 6.
12. Why do retailers in NSW not reflect the structure of
Impact of tariffs on
customers
the prevailing declining block network tariff in their
Retailers are better placed to answer this question.
current retail structures for residential and small
business customers?
13. Is the information presented by the NSW
distributors sufficient to allow stakeholders to examine
Impact of tariffs on
customers
the customer impacts of the distributors' proposed tariff
changes?
In answering this question, consider whether the
Ausgrid believes it has provided all necessary
information to enable Ausgrid network customers to
understand proposed changes to Ausgrid’s network
prices.
sufficiency of the information differs between the three
NSW distributors' proposals.
Ausgrid believes that our proposal to recover residual
Impact of tariffs on
customers
14. What are the advantages and disadvantages of the
costs from both the fixed charge and the first block
NSW distributors' proposed re-balancing of tariffs
complies with the economic principles in Chapter 6 of
towards recovery of residual costs through the fixed
the National Electricity Rules and represents a superior
charge (and first consumption block charge for block
outcome from a customer impact perspective compared
tariffs?
to solely relying on fixed charges to recover these
costs.
15. Is the NSW distributors' proposed limiting approach
of re-balancing tariffs by not more than the average
Impact of tariffs on
movement in prices plus inflation (or inflation, whichever
customers
is greater) an effective transition mechanism and way to
Ausgrid has developed its TSS on the basis that this
approach to re-balancing is appropriate.
take into account customer impact?
16.
What are the advantages and disadvantages to
having tariffs apply specifically to narrowly defined
customer types such as those:
•
with/without solar PV panels,
Impact of tariffs on
•
with/without interval meters, and
customers
•
with/without a 3 phase connection?
In answering this question, consider both the cost
reflectivity and customer impact aspects on this issue.
17. Is applying more cost reflective tariffs to new
Impact of tariffs on
customers
customers, and different tariffs to existing customers
who are otherwise equivalent, an appropriate means to
manage customer impact in moving towards more cost
reflective pricing?
Ausgrid believes that assigning customers to a network
tariff according to their meter type, nature of usage and
connection characteristic will provide a sound basis for
transitioning to more cost reflective network tariffs over
the medium to longer term.
Ausgrid believes that our proposed transitional network
tariff arrangements will ensure that existing customers
are not unacceptably impacted by the implementation
of this proposal in FY 2018/19.
Ausgrid believes that our proposed transitional network
tariff arrangements is the most effective and equitable
approach to safeguarding the interests of existing
customers in respect to the implementation of our
proposed change to network tariff criteria from 1 July
2018.
The end of the SBS will result in these customers
Impact of tariffs on
customers
18. Is the end of the NSW Government's Solar Bonus
having the financial incentive to change their metering
Scheme an impact on customers with solar PV systems
arrangements from gross to net metering. The impact
that should be taken into account under the customer
on their network bill will depend upon the level and
impact principle? If so, how should this impact be taken
pattern of electricity generation and energy
into account in the design of network tariffs?
consumption, as well as the structure of their network
tariff.
Ausgrid accepts that our proposed procedure of
Defining and
linking costs to
customers
19. Do the NSW tariff statement proposals sufficiently
explain how individual customers will be assigned to
tariffs and how this might change if demand, metering
or appliances change?
assigning or re-assigning customers to network tariffs is
complex, particularly given that it was not possible at
the time of submission to take account of the recent
AEMC metering rule change. Ausgrid has updated its
explanation of its proposed tariff assignment and reassignment procedure, refer to Attachment 2.
Ausgrid believes that it is in the long-term interests of
electricity users for Ausgrid and the other DNSPs to
Defining and
20. To what extent should long run marginal cost
continue to use the concept of LRMC to guide thinking
linking costs to
(LRMC) play a direct role in guiding the design of
on how to reform the level and structure of network
tariffs? How should this occur?
tariffs.
customers
The influence of LRMC is evident from Ausgrid’s TSS,
particularly the notion of the efficient tariff, proposed
approach to the allocation of residual cost, the
proposed reform of the peak period definition and the
transitional path proposed for the level of our energy
charges.
Ausgrid accepts that there are sound theoretical
reasons to base the LRMC calculation on all forwardlooking costs of an incremental nature. However, the
Defining and
21. What are the advantages and disadvantages of
linking costs to
including both augmentation and replacement costs
customers
(capex and opex) in LRMC calculations?
inclusion of replacements costs in this calculation adds
complexity that needs to be weighed against the
expected benefits. Ausgrid does not believe that it is
appropriate to have this level of accuracy in relation to
the LRMC calculation unless the network is congested
and the metering exists to enable more sophisticated
network price signals to be implemented.