AER seeking views for electricity consumer methodology

The Australian Energy Regulator (AER) is seeking stakeholder views on developing a Value of Customer Reliability methodology for how electricity consumers value a reliable electricity supply.

The Value of Customer Reliability (VCR) estimates play an important role in balancing the need to deliver secure and reliable electricity supplies and maintain reasonable costs for electricity consumers.

AER Chair Paula Conboy said the VCR will provide a critical input across a range of electricity reliability and network planning processes.

“How consumers value electricity supply depends on what they use their energy for, from running air conditioners in residential homes to helping to manage a small business to powering large-scale manufacturing processes,” Ms Conboy said.

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“The value consumers place on electricity reliability therefore depends on the value they place on these services and because these services differ, so too does the value of reliability.

“VCR will also be influenced by many factors, including the type of customer, their access to alternative energy sources, their demographics and the extent to which they have experienced interruptions in the past. VCR will also be influenced by the duration, frequency, timing and location of an interruption.”

Customers may place little value on avoiding a 10-minute outage that affects only their neighbourhood. But they may be prepared to pay much more on a per unit of energy basis to avoid an outage that prevents them cooling their house for several hours in the summer.

“Many outages experienced by customers can occur on hot summer days when the network is under strain and at capacity. Determining the value customers place on reliable supply in different parts of the network will help electricity network owners and planners deliver the right level of investment to meet customer needs on peak summer days,” Ms Conboy said.

“We need to avoid expensive overbuilds where they are not required but also ensure there is a reliable supply where and when customers want it the most.”

In December 2017 the COAG Energy Council proposed a rule change to give formal responsibility for determining VCR to the AER and this was approved on July 5, 2018. The AER must develop and publish a national methodology for estimating VCRs on a consistent basis across the NEM and make the first VCR determination by the end of the 2019.

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This will build on reliability work done by the AEMO in 2014. Additionally, the AER is required to update VCRs at least every five years, and adjust the VCRs each year between updates. A consultative committee comprising experts including jurisdictional regulators, industry and consumer stakeholder groups and AEMO and AEMC will advise on establishing the methodology used to determine VCR.

“We know that energy affordability and reliability are key issues for Australian households and businesses. VCR will help us balance these two vital requirements,” Ms Conboy said.

Stakeholders are invited to submit written responses on the issues and questions identified in the Consultation Paper by November 16, 2018.

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