CER National Smart Metering Programme Rolling out New Services: Time-of-Use Tariffs

Transcription

1 CER National Smart Metering Programme Rolling out New Services: Time-of-Use Tariffs DOCUMENT TYPE: REFERENCE: DATE PUBLISHED: Decision CER/15/270 8 December 2015 The Commission for Energy Regulation, The Exchange, Belgard Square North, Tallaght, Dublin 24.

2 CER Information Page Abstract: The National Smart Metering Programme (NSMP) is a plan for transforming how electricity and gas retail markets operate. Facilitated by the replacement of existing mechanical meters with new digital meters, the new systems and processes will provide customers with more accurate bills, better and more accessible information about energy consumption, and access to new tariffs and services. Consistent with maintaining a focus on delivering benefits for customers, the CER is reviewing and updating customer policy in order to be ready for these new developments. This document focusses on the roll out of Time-of-Use Tariffs. It sets out the CER s Decision on the best approach to making the transition to Time-of-Use Tariffs as the norm, and the need for CER Guidelines in specific areas affecting how this transition occurs. Whilst the smart metering roll-out will not commence until 2018, this decision paper is a step in an ongoing process of consumer policy development in anticipation of this roll-out. Target Audience: This paper is for the attention of members of the public, the energy industry, customers, customer representatives and all interested parties. Related Documents: NSMP documentation is available on the CER website (

3 Executive Summary Extending tariffs choices for consumers Time-of-use Tariffs All customers have the right to choose their electricity or natural gas supplier, and to switch supplier in order to get a better deal. This choice across competing suppliers has delivered significant benefits for customers, including access to new suppliers, a variety of prices and products and by enabling new types of services to enter the market. Time-of-use Tariffs are a further way in which choice and competition can be strengthened. Currently, access to tariffs which allow customers to save money by using energy at times when prices are lower (off-peak) requires the installation of a special meter, and is limited to a relatively small number of customers with existing Day/Night Metering. The National Smart Metering Programme (NSMP) will extend access to Time-of-Use Tariffs to all customers, and eventually these tariffs will become the norm. While the timetable for the NSMP means that these new Time-of-Use Tariffs will not become available for another few years, it is important that decisions on the correct structures and principles underlying Time of Use tariffs are delivered now. The policy decisions being made by the CER now will determine how these changes are introduced and will establish clear policy settings at an early stage. This demonstrates the CER s commitment to protecting the interests of consumers and provides regulatory certainty for current and prospective market participants. The CER s Decision This document sets out the CER s Decision on the approach to be adopted in making the transition to Time-of-Use Tariffs as the norm for electricity customers. The Decision concludes an extensive process of consultation, engagement and analysis over the past two years. It adopts an approach based on customer choice, with active support and engagement and a target date for completion. The CER has chosen not to adopt a one size fits all approach. Rather, it should be for individual customers to decide when and how to move to a Time-of-Use Tariff and for electricity Suppliers to take primary responsibility for ensuring that each of their customers is well informed about this process, and is provided with an appropriate range of tariffs to choose from. Making better use of cheaper, offpeak power has the potential to reduce total costs, with a knock-on benefit for consumers and to make energy supply more resilient and secure. These benefits will, however, only be realised in full if the transition to Time-of-Use Tariffs is seen as engaging, inclusive and customer-focused, as well as ensuring that customers have sufficient time and information to become knowledgeable about the concept 3

4 of Time-of-Use Tariffs and what it will mean for their individual consumption patterns. In this context, the CER s Decision has the following core components, which will be given effect through binding obligations on licensed electricity Suppliers: 1. Supplier-led transition: Suppliers must take reasonable and effective steps to migrate all residential and smaller business customers 1 to an appropriate Time-of-Use Tariff in a timely manner. 2. May offer from : Suppliers may offer a customer a Time-of-Use Tariff from a date when a specified set of readiness criteria relevant to that customer have been met. This is the concept of TOU Go-Active. 3. Must offer from : A Supplier must have available a Time-of-Use Tariff for any customer for whom more than 12 months has elapsed since their ToU Go Active date. For residential customers, one of the tariffs choices must be its Standard Smart Tariff. This is simple form of Time-of-Use Tariffs with a common structure, set by the CER, across all Suppliers. 4. Annual Prompt : A Supplier must provide, at least once every twelve months, a prompt to each customer not on a Time-of-Use Tariff for the purpose of promoting understanding, acceptance and adoption of Time-of- Use Tariffs. The prompt shall make appropriate and relevant use of information of the customer s consumption patterns held by the Supplier as applied to the range of Time-of-Use Tariffs offered by the Supplier. 5. Phasing out of flat-rate tariffs : The CER will, subject to market monitoring during the course of the rollout, issue a direction to commence a window and set an end date by which Suppliers must have concluded the process of removing tariffs other than Time-of-Use Tariffs from the market. The direction may also make provisions for exemptions or derogations. The CER has also decided to create a supporting Guideline to provide further definition on the detail of the process and criteria for setting ToU Go Active, the offering of different Time-of-Use Tariff choices, and the potential range of content for the Annual Prompt. The CER s current view on the core content for this Guideline is included for information in Appendices to this document. The Guideline will be consulted on and finalised to a timetable consistent with the wider NSMP implementation plan, having regard to the need to allow market participants sufficient time to prepare but also recognising that the first tariffs 1 The rollout of smart meters to electricity customers will cover all non-quarter-hourly metered customer. This includes business customers connected to the low-voltage distribution network. Larger business customers already have remote-collection interval metering. 4

5 offered to customers pursuant to this Decision will not be until the second half of 2019 under current NSMP programme plans. Context and next steps This Decision is one element of a wider programme of policy development being progressed by CER as part of the NSMP. This encompasses improvements to information about their energy usage and cost that customers must receive, and updates to the framework for customer protection. It also set outs the minimum customer requirement for a new model of prepayment accessible to any customer with a smart meter 2. On the specific issues of Time-of-Use Tariffs, there will be further work with stakeholders to refine the detailed guidelines to give practical effect to the chosen transition approach. CER will also undertake further analysis into customers understanding of Time-of-Use Tariffs, their ability to compare tariffs and the applicability of Time-of-Use for certain customer groups. This will be progressed as part of the overall, integrated plan for the NSMP as a whole. 2 CER/15/271, 272 and 273 5

6 Table of Contents Executive Summary... 3 Table of Contents Introduction The National Smart Metering Programme The role of Time-of-Use Tariffs This document Time-of-Use Tariffs: Decision Summary Decision Rationale for Time-of-Use Tariffs Decision Summary Assessment criteria General obligation on Suppliers Go Active for Time-of-Use Tariffs Obligation on Suppliers to offer Time-of-Use Tariffs Obligation on Suppliers to actively promote Time-of-Use Completion criteria CER Guidelines Next steps Appendix A Responses to Proposed Decision A.1 Summary A.2 Responses Received A.3 Consideration of Responses A.4 Summary of key themes relating to question A.5 Summary of key themes and points relating to question Appendix B Basis for Developing Guidelines B.1 ToU Go Active B.2 Tariff Choices B.2.1 Examples of tariff structures B.3 Each Supplier s Standard Smart Tariff B.3.1 Examples of tariff structures B.4 Annual Prompt Appendix C Glossary of Terms Appendix D NSMP strategic objectives

7 1 Introduction 1.1 The National Smart Metering Programme Overview The National Smart Metering Programme (NSMP) is a plan for upgrading how electricity and gas retail markets operate, in order to improve levels of service for all customers. Existing mechanical meters will be replaced by new digital meters, which offer a range of new functions and services. It is similar in nature to the move from analogue to digital in the markets for communications services. It is underpinned by a set of strategic objectives that relate to a wide range of features of the energy market, and how it serves customers. The strategic objectives are set out for reference in Appendix D. The CER s decision to rollout electricity and gas smart meters for all residential and smaller business customers was announced in July This decision was made following comprehensive customer behaviour and technology trials and costbenefit analyses. The decision was also made in the context of the European Third Package Directive provisions for the rollout of smart meters in Member States to at least 80% of electricity customers by 2020 if there is a positive cost benefit analysis. The CER will re-run the cost benefit analysis in Q with revised cost and benefit inputs, reflecting updated policy settings, in advance of confirming the design to be implemented. The CER concluded the High Level Design for the NSMP in October It is now finalising the suite of policy issues required to give practical effect to that High Level Design. This policy work forms one element of an integrated plan for the NSMP, alongside other work-streams led by ESB Networks, Gas Networks Ireland (GNI), and by electricity and gas Suppliers. There are also CER-led work-streams on Data Protection, Information Security and Customer Engagement. How it works and what it means for customers The NSMP reforms to the services that customers receive are facilitated by ESB Networks and Gas Networks Ireland rolling out new meters, and a supporting communications infrastructure, to all domestic and smaller business customers. This creates a technical platform for collecting detailed, accurate data, and for automating activities that currently require manual intervention and site visits. The new technical platform and the associated changes to how retail markets operate will fundamentally change the services that customers receive, in three key ways: 3 CER/14/046 7

8 First, there will be much more information available on how individual customers are using energy, and this will in turn make bills more accurate. Further, there will be flexibility in how these data are processed and presented back to customers. For example, through a display device in the home, by calling a number, by receiving a text message, voic or , or by using a website or application on a mobile phone. This in turn will provide customers with a greater understanding of and control over how they use energy. Second, it will make accurate billing of Time-of-Use Tariffs available to all. Currently, access to tariffs which allow customers to save money by using energy at cheaper times (off-peak) requires the installation of a special meter, and is limited to a relatively small number of customers with Day/Night Metering. It also increases the potential range and flexibility of such tariffs. Third, it will remove the technical requirement for a site visit in order to read a meter, or to disconnect or reconnect supply through a meter. The data can be collected remotely, and the instructions can be issued to the meter remotely. Further, it will remove the need for the installation of different metering equipment for customers moving to a Pay As You Go tariff i.e. the smart meter will support Pay As You Go services. The new platform will also improve the quality of existing services. For example, an actual meter reading will be available almost immediately to calculate a bill (including for a closing bill when a customer changes Supplier). Hence, the risk of a customer being surprised by a high bill as a result of previous bills being based on estimates (or overpaying due to an inaccurate estimate that is not corrected until a later billing cycle) should be virtually removed. The new platform will also create opportunities to improve the quality of network services, and to monitor performance in respect of those services more accurately. 1.2 The role of Time-of-Use Tariffs The development by electricity Suppliers of Time-of-Use Tariffs, and the take-up of those tariffs by customers has a key role to play in realising the benefits of the NSMP. Small changes in behaviour (e.g. shifting consumption to a lower cost time) across large numbers of customers, in response to signals provided by Timeof-Use Tariffs regarding when it is cheaper to produce, transport and distribute electricity, can deliver long-term, sustainable cost reductions across the electricity system, which can be passed onto customers and make our electricity supplies more resilient. The approach to making the transition to Time-of-Use Tariffs as the norm for electricity customers will influence when, and to what extent, the benefits are realised. There are a number of interests, opportunities and challenges that need 8

9 to be considered and balanced. The right balance will demonstrate all of the following features: Easy to understand for customers; Engaging for customers; Providing choice and protection for customers; Flexible in supporting competition and innovation; Operational at low cost for all parties, and over time; and Providing tariffs that accurately reflect supply chain costs. In addition, the right balance will support a timely transition, such that the gap between when costs are incurred and when benefits accrue is kept as small as possible. For some customers, this might mean seeking out and taking up a Time-of-Use Tariff as soon as it is technically available. For other customers, this might mean a process of education, support and familiarisation and the option to take up a Time-of-Use Tariff at a later date. CER is of the view that the appropriate approach to transitioning to Time-of-Use Tariffs involves a strategy of education, support and engagement for consumers allowing consumers to move at a pace at which they are comfortable, rather than a one size fits all transition. 1.3 This document This document sets out the CER s Decision on the approach to be adopted in making the transition to Time-of-Use Tariffs as the norm for electricity customers. The Decision concludes an extensive process of consultation, engagement and analysis over the past two years. The CER s Decision on the approach to Time-of-Use Tariffs forms part of the CER s wider NSMP policy work Programme that will run until mid By mid the CER s objective is to have specified all the key policy settings required for successful delivery of the NSMP and effective, proportionate regulation for customers of the market arrangements that result. The schedule involves four document releases through the course of which issues will be identified, options for resolution assessed, and decisions proposed and finalised. This Decision forms part of the third document release. The other three core documents included in the third release are: CER/15/271 Rolling out New Services: Smart Pay-as-you-Go, Decision CER/15/272 - Empowering & Protecting Customers, Proposed Decisions and Further Consultation CER/15/273 Regulating the Transition Activities of Market Participants, Proposed Decision 9

10 2 Time-of-Use Tariffs: Decision 2.1 Summary This section sets out the CER s Decision on the best approach to making the transition to Time-of-Use as the norm for electricity customers. It also concludes on the areas where detailed Guidelines are required to give effect to the approach. The rationale for this decision is set out in section 3. In developing this Decision, the CER has given careful consideration to the consultation responses received in response to the July 2015 consultation and bilateral discussions and workshops help with stakeholders over the consultation period. An overview of the consultation responses is set out in Appendix A. The Decision is implemented through obligations on electricity Suppliers. This is appropriate given the role of Suppliers currently in developing and offering tariffs, and engaging directly with customers. However, it is important to note that there is a collective responsibility shared by all NSMP stakeholders in seeking to make the transition to Time-of-Use Tariffs an engaging and positive experience for consumers. There are key enabling roles (with associated obligations) for ESBN, and for the CER as programme sponsor and lead party in the development of effective customer engagement. The approach being adopted is integrated with, and represents a component part of, CER s retail market policy. It is based on promoting effective competition between Suppliers, and promoting customer choice based on good quality information and an appropriate framework of customer protection. The Decision is predicated on an assumption that competition between Suppliers is sufficiently strong and effective to deliver the requisite range of tariff choices to customers in a timely manner. As with any aspect of retail policy if market monitoring indicates otherwise, the CER will review and potentially refine the approach. 2.2 Decision The Decision on the approach to making the transition to Time-of-Use Tariffs as the norm is as follows: 1. Suppliers must take reasonable and effective steps to migrate all relevant residential and smaller business customers 4 to an appropriate Time-of-Use Tariff in a timely manner. 4 A relevant customer is a residential or business electricity customer with an installed and operational smart meter who is (or would otherwise be) a non-quarter-hourly metered customer (Distribution Group 1, 2, 5 or 6) and where data necessary for the Supplier to bill a Time-of-Use Tariff are available to the Supplier, and where migration to a Time-of-Use Tariff is consistent with any other relevant regulatory or legal requirements. 10

11 2. Suppliers may offer a customer a Time-of-Use Tariff from a date designated by the Supplier as ToU Go Active for that customer. The date designated as ToU Go Active by the Supplier in respect of a customer shall be consistent with any CER Guideline made for that purpose. 3. A Supplier must have available a Time-of-Use Tariff for any customer for whom more than 12 months has elapsed since their ToU Go Active date. For residential customers, this shall include (and may be limited to) a Supplier s Standard Smart Tariff. The Standard Smart Tariff offered to residential customers shall be consistent with any CER Guidelines made for that purpose. 4. A Supplier must provide, at least once every twelve months, a prompt to each customer not on a Time-of-Use Tariff for the purpose of promoting understanding, acceptance and adoption of Time-of-Use Tariffs. The prompt shall make appropriate and relevant use of information of the customer s consumption patterns held by the Supplier as applied to the range of Time-of-Use Tariffs offered by the Supplier. The form, content and duration for such prompts shall be consistent with any CER Guidelines made for that purpose. 5. The CER will, subject to market monitoring during the course of the rollout, issue a direction to commence a window and set an end date by which Suppliers must have concluded the process of removing tariffs other than Time-of-Use Tariffs from the market. The direction may also make provisions for exemptions or derogations. The CER has also decided to put in place a Guideline, which would be binding on all Suppliers of relevant customers, covering the following detailed aspects of implementing in practice the chosen approach: The process and criteria for the designation of ToU Go Active by the relevant Supplier in respect of a customer; The range of Time-of-Use Tariffs offered, including the requirements for each Supplier s Standard Smart Tariff; and The potential content for prompts to customers not on a Time-of-Use Tariff for the purpose of promoting understanding, acceptance and adoption of Time-of-Use Tariffs. The Guideline will be developed and consulted on further, to a timetable integrated with the NSMP programme plan and the implementation plans of market participants. The core content that the CER is currently minded to include in the Guideline is presented in Appendix B of this document for information. 11

12 3 Rationale for Time-of-Use Tariffs Decision 3.1 Summary In this section we summarise the reasoning used by the CER in forming its Decision, informed by a range of considerations including points raised by respondents to the March 2015 Consultation and Proposed Decision. We relate the reasoning to the assessment criteria developed in the previous phase of work 5. The material is structured using the component parts of the Proposed Decision in turn. The Decision builds on previous decisions by the CER, the reasoning for which are set out in the relevant documentation and available on the CER website. The Decision has also been developed in recognition that the proposed approach to the transition to Time-of-Use Tariffs will need to align with, and might well influence a number of activities that form part of, the wider strategy and plan for customer engagement around the NSMP more generally. 3.2 Assessment criteria As part of earlier phases of work in respect of Time-of-Use Tariffs, the CER considered the relevant objectives for making the transition to Time-of-Use Tariffs as the norm for electricity customers, with input from industry representatives. From this engagement, the CER developed a set of criteria that it considers useful for analysing the relative merits of different approaches to transition approach and the tariff environment that it would support. These criteria are reproduced below: A. Easy to understand for customers tariffs that are simple enough to allow the customer to make informed choices about how and when they use energy, and the impact that this will have on their bill; B. Engaging for customers the tariff environment should engage and empower customers to select the best tariff for them and lead to the changes in consumption behaviour that can reduce costs for the customer; C. Providing choice and protection for customers tariffs that provide choice to customers, that are easy to compare, that ensure that customers (including vulnerable customers) are not discriminated against, and that protect customers data (unless it is required for regulated duties); D. Flexible in supporting competition and innovation a tariff environment that is flexible enough to allow Suppliers to innovate and compete 5 Which concluded with CER/14/046B 12

13 effectively, allowing market mechanisms to drive the development of new tariffs; E. Operational at low cost for all parties, and over time the tariff environment should facilitate tariffs that are cost effective for Suppliers and distributors to operate; and F. Providing tariffs that accurately reflect supply chain costs tariffs should reflect the cost of generating and transporting the energy used and limit cross-subsidies between tariffs or groups of customers. These criteria, in concert with the CER s statutory duties and the strategic objectives of the NSMP, have informed the Decision and the reasoning presented below makes direct reference to them, where relevant. 3.3 General obligation on Suppliers The first component on the Decision is as follows, and is unchanged from the Proposed Decision: 1. Suppliers must take reasonable and effective steps to migrate all relevant residential and smaller business customers to an appropriate Time-of-Use Tariff in a timely manner. The rationale for this element of the Decision is summarised below: A general obligation on all electricity Suppliers of the form specified above establishes regulatory certainty and a common understanding as to what is expected of electricity Suppliers. It reflects the importance of Time-of-Use Tariffs to delivering the business case for the NSMP, and the accountability of Suppliers in this regard to all relevant customers. The relevant customers in this regard are all residential customers, and all smaller business customers. An explicit requirement for the tariff to be an appropriate tariff for the customer in question recognises that some customers might view some Time-of-Use Tariffs to be inappropriate, and that Suppliers have a role in managing such concerns effectively and sensitively over time. While the primary role of customer choice was generally supported, the risks of inappropriate tariffs being pushed on some customers was a concern raised in response to the Proposed Decision. The Decision, relative to other options that could have been adopted, affords significant discretion to electricity Suppliers as to what Time-of-Use 13

14 Tariffs they offer, and when they offer them. The CER considers this to be more consistent with effective competition between Suppliers, and effective choice for customers. The stipulation of a principle clarifies that Suppliers must exercise this discretion in a manner consistent with the overall policy goals for Time-of-Use Tariff adoption (as a means of changing customer behaviour). The CER notes that a number of respondents supported this feature of the Proposed Decision. The requirement on all Suppliers, including new entrant Suppliers, limits the possibility that an individual Supplier might pursue a strategy of delaying the introduction of Time-of-Use Tariffs or that other competing Suppliers will need to factor in this possibility when formulating their own commercial strategies. Electricity retail markets involve relatively small numbers of Suppliers, and relatively low levels of interest, understanding and engagement among certain customer segments. The possibility of the market settling in a state of relatively low Time-of-Use Tariff adoption for a period of time even if there are benefits available or customers and Suppliers of doing otherwise is real. If this risk materialised, then the programme benefits would be adversely impacted. Hence, measures to address this risk are proportionate. The obligation for Suppliers to deliver a timely transition to Time-of-Use Tariffs, recognising the role of Time-of-Use Tariffs in promoting the more efficient use of energy by encouraging customers to change behaviour and the benefits of realising this effect sooner rather than later. However, the concept of timely also has sufficient flexibility to accommodate individual circumstances, for example a customer s current contract being fixed term in nature and a timely transition being consistent with that contract running its full duration if that is the customer s preference. 3.4 Go Active for Time-of-Use Tariffs The second component on the Decision is as follows, and is unchanged from the Proposed Decision: 2. Suppliers may offer a customer a Time-of-Use Tariff from a date designated by the Supplier as ToU Go Active for that customer. The date designated as ToU Go Active by the Supplier in respect of a customer shall be consistent with any CER Guideline made for that purpose. The rationale for this element of the Decision is summarised below: 14

15 The possibility of early adoption of Time-of-Use Tariffs is important for customers who are interested, and able to benefit. Early adoption will help to realise benefits earlier, create learnings for Suppliers and future Time-of- Use Tariff customers, and stimulate interest. The ability to get to market early with attractive new products is also positive for competition, and a potential opportunity for new entrants to the Irish retail market. In this context, it is important to note that one of the preconditions suggested (in Appendix B) for TOU Go Active is that the data being received by that time by the Supplier in respect of that meter point is also being used in wholesale settlement. This is turn strengthens the competitive, commercial incentives on suppliers to offer Time-of-Use Tariffs. But there are also risks to the overall success of the NSMP, and for individual customers, if the take-up of a Time-of-Use Tariff occurs before a certain state of readiness has been reached. This is the concept of TOU Go Active. There are some minimum pieces of information that all customers should be aware of before they take up a Time-of-Use Tariff (e.g. their pre-existing within-day pattern of consumption). The potential adverse impacts of a poor, early experience of a Time-of-Use Tariff will not necessarily be isolated to the individual customer or Supplier. Individual incidents may influence broader perceptions of, and hence community acceptance of, what the NSMP is seeking to deliver and achieve. The criteria for TOU GO Active will be set out in a CER Guideline. This will ensure that that all relevant factors are considered in a consistent and rigorous manner. This approach de-risks the initial transition to Time-of- Use Tariffs for customers, suppliers and the NSMP programme as a whole, without unduly delaying the process. The CER s current views on the core content for the Guideline for setting TOU Go Active are set out Appendix B. 3.5 Obligation on Suppliers to offer Time-of-Use Tariffs The third component on the Decision is as follows, and is unchanged from the Proposed Decision: 3. A Supplier must have available a Time-of-Use Tariff for any customer for whom more than 12 months has elapsed since their ToU Go Active date. For residential customers, this shall include (and may be limited to) a Supplier s Standard Smart Tariff. The Standard Smart Tariff offered to residential customers shall be consistent with any CER Guidelines made for that purpose. 15

16 The rationale for this element of the Decision is summarised below: While the overall approach underpinned by the Decision is predicated on choice for customers and competition between Suppliers, it is important for there to be a guarantee of choice of Time-of-Use Tariff for every customer at a relatively early stage. The Decision to specify the minimum Time-of-Use Tariff offering to be the Supplier s Standard Smart Tariff is to ensure that guaranteed minimum choice is a relatively simple structure for customers to understand and engage with, and to compare with other Suppliers across the market. It is important to note that Suppliers would have the ability to offer tariffs other than their Standard Smart Tariff at the same time. The Decision to specify that this minimum choice must be provided no later than 12 months after the customer s ToU Go Active date is to ensure that each Supplier is in a position to set their Standard Smart Tariff with a least twelve months worth of data on the consumption patterns of the customers who might take it up. Similarly, that customers have at least 12 months worth of data on their electricity usage at the point when Time-of-Use Tariffs are required to be more visible to them in the market. It is possible that some customers might be interested in moving to a Timeof-Use Tariff at an earlier point in time than guaranteed by this element of the Decision. However, Suppliers may offer customers a range of Time-of- Use Tariffs from their TOU Go Active Date (twelve months earlier), and customers can switch to a competing Supplier if their current Supplier is not yet offering the type of tariff they want. These competitive pressure are sufficient, in CER s view, to mitigate the risk of delay in tariff choices for more interested and engaged customers. The CER acknowledges that there is potential risk of confusion for customers during this process of transition. For example, some Suppliers may be offering Time-of-Use Tariffs while others may not. This risk will be mitigated through a number of measures, including improvements to how tariffs are presented, effective education to make customers aware of their choices, and market monitoring. 16

17 3.6 Obligation on Suppliers to actively promote Time-of-Use The fourth component on the Decision is as follows, and including minor revisions to the text relative to the Proposed Decision for the purposes of clarity: 4. A Supplier must provide, at least once every twelve months, a prompt to each customer not on a Time-of-Use Tariff for the purpose of promoting understanding, acceptance and adoption of Time-of-Use Tariffs. The prompt shall make appropriate and relevant use of information on the customer s consumption patterns held by the Supplier as applied to the range of Time-of-Use Tariffs offered by the Supplier. The form, content and duration for such prompts shall be consistent with any CER Guidelines made for that purpose. The rationale for this element of the Decision is summarised below: This part of the Decision is, in effect, an elaboration on the first component the general obligation on Suppliers to transition customers to an appropriate Time-of-Use Tariff in a timely manner. The rationale is hence similar in nature. Specifically, the rationale for an annual prompt to customers who are not on Time-of-Use Tariffs is to accelerate the acceptance and take-up of Time-of- Use Tariffs among the large majority of customers. Further, to ensure that this process of prompting is independent of a customer s choice of Supplier reinforcing the collective element of the transition process. It recognises the reality that existing levels of understanding and engagement among a significant proportion of customers is low, and there are limits to how much this situation can be improved between now and when these changes are introduced, even with effective customer engagement strategies and activities. 3.8 Completion criteria The fifth and final component on the Decision is as follows, and is unchanged from the Proposed Decision: 5. The CER will, subject to market monitoring during the course of the rollout, issue a direction to commence a window and set an end date by which Suppliers must have concluded the process of removing tariffs other than Time-of-Use Tariffs from the market. The direction may also make provisions for exemptions or derogations. 17

18 The rationale for this element of the Decision is summarised below: The ability for the CER to set a firm completion date for the transition to Time-of-Use Tariffs is a mechanism for further strengthening the incentives on Suppliers to deliver the policy objective, and supporting business case. The determination of an end date means that all Suppliers will need to develop strategies (and tariffs) to support the transition of all customers, including those customers who might require more help and support. No individual customer groups will be left behind. This might, in turn, stimulate competition between Suppliers in how best to manage this process which could be a new market opportunity, if the customer groups concerned are those who are less likely to be engaging with the current competitive retail market. The setting of a window and end date by the CER and the possibility of derogations and exemptions provides for flexibility in light of experience of the transition, including effective and proportionate handling of situations where transition to a Time-of-Use Tariff may be demonstrably inappropriate. It also provides time for Suppliers to develop and implement strategies to help customers through the process. 3.9 CER Guidelines The CER has also decided to put in place a Guideline, which would be binding on all Suppliers of relevant customers, covering the following detailed aspects of implementing in practice the chosen approach: The process and criteria for the designation of ToU Go Active by the relevant Supplier in respect of a customer; The range of Time-of-Use Tariffs offered, including the requirements for each Supplier s Standard Smart Tariff; and The potential content for prompts to customers not on a Time-of-Use Tariff for the purpose of promoting understanding, acceptance and adoption of Time-of-Use Tariffs. The Guideline will be developed and consulted on further, to a timetable integrated with the NSMP programme plan and the implementation plans of market participants. The core content that the CER is currently minded to include in the Guideline presented in Appendix B of this document for information. 18

19 The rationale for a Guideline is as follows: A CER Guideline will ensure that obligations on Suppliers are clear, consistently applied and binding but can also be adapted in light of new information and learnings. Developing the Guideline in consultation with relevant stakeholders, to a timetable integrated to the NSMP programme plan enables two key tradeoffs to be managed efficiently: o First, the precise form of the Guideline may in certain areas have implications for implementation plans of market participants. For example, in the procurement of hardware and the design and implementation of business processes and supporting IT systems. The timetable for finalising the Guideline needs to be consistent with, and supportive of, timely programme delivery for all stakeholders and the NSMP programme plan is the correct vehicle for managing these interactions. o Second, the timetable also needs be cognisant of risks associated with elements of the Guideline being set too early, with the risk of unintended consequences or the need to revisit at a later date. For example, by narrowing down the structure of each Supplier s Standard Smart Tariff now in a manner that does not enable it to accurately reflect prevailing patterns of wholesale prices when the tariffs are ultimately made available to customers towards the end of the decade. Another example is the interaction between setting the detail of the Guideline and the development and implementation of a NSMP-wide strategy for customer engagement. The rationale for the CER setting out at this stage the core content, for information, that it is currently minded to include in the Guideline is threefold. First, to reduce uncertainty for market participants over the range of policy setting that the hardware, systems and processes might need to accommodate. Second, to help to identify and debate which specific aspects of the Guideline are on the critical path for the purposes of implementation plans. Third, to enable relevant stakeholders to contribute efficiently to the process of finalising the detail of the Guideline. 19

20 4 Next steps Time-of-Use Tariffs This document concludes the current phase of work on developing policy for the introduction of Time-of-Use Tariffs. The next steps are therefore for the CER to focus on the transposition of the Decision into the regulatory framework and finalise the plan for resolving any detailed aspects which are still open, and for market participants to focus on the steps they need to take to enable the approach to be implemented. As noted in the Decision, there is a role for a CER Guideline to provide further guidance on how certain aspects of the approach should be implemented. The CER will undertake further work with NSMP stakeholders to refine the core content for inclusion in the Guideline, and set an appropriate process and timeline for finalising the Guideline. This process will be based on the material presented in Appendix B of this document, and will include publication of version 1 of the Guideline as part of the March/April 2016 policy release. Wider policy context This document forms part of a wider plan and schedule to mid-2016 for the CER s work on policy to support the NSMP. The objective is by that date to have specified all the key policy settings required for successful delivery of the NSMP and effective, proportionate regulation for customers of the market arrangements that result. The schedule involves four document releases through the course of which issues will be identified, options for resolution assessed, and decisions proposed and finalised. December 2015 is the third release of documents, and comprises the following: Delivered in Document Release 3 December 2015 Subject Rolling out New Services: Time-of-Use Tariffs and Smart Pay-as-you-Go Document type Decision in respect of transition approach for Time-of-Use Tariffs and definition of Smart PAYG Proposed Decision in respect of supporting guidelines Empowering and Protecting Customers Proposed Decision 20

21 Regulating the Transition Activities of Market Participants Proposed Decision These issues will be progressed through analysis of consultation responses for those issues subject to consultation, and through ongoing engagement with a wide range of consumer organisations, market participants and other interested parties. The current phase of policy development will be concluded with Document Release 4, as outlined below. Planned for Document Release 4 March/April 2016 Subject Empowering and Protecting Customers Regulating the Transition Activities of Market Participants Document type Decision Decision The March/April documents will also provide clarity to stakeholders on key next steps in terms of implementing these decisions and providing further clarity or detail as necessary. 21

22 Appendix A Responses to Proposed Decision A.1 Summary This Appendix presents an overview of the responses to the July 2015 Proposed Decision on Managing the Transition to Time-of-Use Tariffs. The findings are aggregated and the key themes that have arisen from respondents are outlined at a high level. The original responses have been published on the CER website. 6 The Proposed Decision was published on the 29 th July 2015 and asked for responses before the deadline of the 23 rd September The primary purpose of the consultation was to seek stakeholder s views on the approach to making the transition to Time-of-Use Tariffs as the standard tariff for electricity customers, with reference to three example approaches. The consultation also invited views on the CER guidelines in relation to the Proposed Decision, specifically the options presented for the ToU Go Active timing, the Annual Prompt and tariff guidelines including for the Standard Smart Tariff. A.2 Responses Received The CER would like to thank all 15 respondents to the consultation. Respondents to the individual consultation questions are set out below: Category Retail Networks Customer Organisations Energy Authority Respondents Electric Ireland, Prepay Power, BGE, SSE Airtricity and Energia GNI, ESBN, EirGrid Society of Saint Vincent de Paul SEAI, Electricity Association Ireland Respondents with general comments relating to the New Services paper included: Category Customer Organisations Third Party providers Respondents National Disability Authority (NDA), National Council for the Blind of Ireland (NCBI), Money Advice & Budgeting Service (MABS) Carey Glass

23 A.3 Consideration of Responses We reviewed responses in the context of the areas where the CER is setting out a Proposed Decision. The responses are split up according to key themes for each of the two consultation questions. For clarification, each response is given equal weighting in the review process; while the CER notes positions where there is a consensus (or a majority position) amongst respondents, CER s focus is on the rationale for positions being taken rather than numbers in support of or against particular positions. The two Time-of-Use consultation questions in the July Proposed Decision paper were: 1. Do you have comments on the CER s Proposed Decision for making the transition to Time-of-Use Tariffs, or further evidence or reasoning that you consider to be relevant to the Proposed Decision? 2. Do you have comments on the need for, and content of, CER Guidelines to complement and give practical effect to the CER s Proposed Decision on making the transition to Time-of-Use Tariffs including, where relevant, with reference to options presented in Sections 4.2 to 4.5? A.4 Summary of key themes relating to question 1 Overall, there was broad support from stakeholders for the proposals around Time-of-Use transmission, with stakeholder recognition of the positive movements in positions by the CER. Detailed views were put forward on the back-stop date, tariff design, system impacts and opt-out options. Broad support for transition approach option C+: 2 responses specifically highlighted option C+ as the preferred option, a transition based on choice and prompts, with a mandate as a backstop. Varying opinions on the timeline of the backstop: Responses proposed extending the backstop to 15 and 24 months, with one respondent suggesting it should be reduced below the proposed 12 months to 6 months. Some responses suggested the need for further industry consultation or using a certain percentage threshold to set the timeline from which the backstop should be enacted. For example 24 months after the 80% rollout quota has been met. There were suggestions from two responses to remove the backstop altogether. These stakeholders expressed concern that having a backstop may force customers onto Time-of-Use where this is not appropriate, citing trial data, and be detrimental to customer participation levels. 23

24 Legacy agreements - Adverse impacts on customers on multi-year contracts: Clear transition arrangements were requested for customers currently signed up to long term contracts. An alternative backstop approach was proposed whereby the timing of backstop should instead be dictated by the end of the customer s existing (even multi-year) contract. Sufficient preparation time ahead of Go Active point: A clear approach to transition was requested concerning timelines and key milestone dates of the programme, specifically those relating to the Timeof-Use rollout. Sufficient time was requested to allow Suppliers to prepare for Go- Active, for example time would be required to structuring tariff offerings. It was noted that the main responsibility for informing customers about Time-of-Use lies with Suppliers. One response suggested introducing an opt-out of Time-of-Use for those who will not, or are expected to not, benefit from it. Tariff presentation: Some respondents suggested a lack of clarity around how non-energy costs will be reflected in the tariff e.g. network and policy costs. Opt-out provisions: Time-of-Use opt-out provisions were advised by two parties to reflect the view that TOU may not be suitable for all customers. A.5 Summary of key themes and points relating to question 2 There was general support for guidelines in the areas suggested in the Proposed Decision. There was support from Suppliers for the greater use of principles in the options presented. Questions and concerns were mostly in respect of the annual information prompt and general customer understanding of Time-of-Use. Time-of-Use Go-Active: There was general support for the Go-Active concept with proposed additions concerning customer engagement criteria with the end goal to enable confidence in customer understanding of the Time-of-Use offering and how to manage their consumption for bill optimisation specific examples of the engagement criteria were not provided. Guidelines for Time-of-Use tariff options increased flexibility: 24

25 Tariff flexibility was emphasised as an important tool to enable customer understanding and engagement, for example only having a limited tariff offering during the initial years of the NSMP. Two respondents suggested that the definition of a business day should remain flexible, with the option to include Saturday in future. Additional information regarding the formal assessment process for tariff offerings by Suppliers was requested by one party. Guidelines for Standard Smart Tariff: The move to minimum Standard Smart Tariff was welcomed by three respondents who also recognised that a staggered approach would be appropriate in the move to dynamic tariffs. One response suggested a dynamic tariff demonstration programme in order to aid consumers and Suppliers understanding of risk. Guidelines for annual prompts: Other: There was broad support for the annual prompt as long as supporting guidelines can be provided for Suppliers regarding the recommended procedure for prompting customers who are not thought likely to benefit from a Time-of-Use tariff, due to concerns that a mandatory, general annual prompt for all customers could result in customer dissatisfaction. There were mixed responses as to whether bespoke advice for the consumer is appropriate as there is a risk of the advice around potential savings becoming inaccurate or infeasible. There were several further comments around minimising customer billshock through obligations on Suppliers to help customers to understand tariff changes. One response suggested the storage of removed meters for a predetermined period of time in order to be able to address queries over consumption which could arise from meter reading disputes during the transition. A related point was raised around appropriate resourcing by network companies to address missing interval data and historical meter issues. One respondent highlighted a variation within the outlined description of the Standard Smart Tariff (SST) as unworkable, that the twelve separate price points may prove difficult for customers to engage with when combined with the additional wider changes in the programme. 25