CER National Smart Metering Programme Policy Implementation Roadmap

Transcription

1 CER National Smart Metering Programme Policy Implementation Roadmap DOCUMENT TYPE: REFERENCE: Information Paper CER/15/055 DATE: 31 March 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 upgrading how electricity and gas retail markets operate. The upgrade will provide consumers with more accurate bills, better and more accessible information about energy use, and access to new tariffs and services. Consistent with maintaining a consumer-centric approach to the NSMP, the CER is reviewing and updating consumer policy in order to be ready for these new developments. This paper sets out information on the CER s proposed approach for developing a roadmap for regulatory change to support the efficient delivery of the NSMP and is published in the context of the overall programme as described in the Phase 3 Overview 1 note. Target Audience: This paper is for the attention of members of the public, the energy industry, customers and all interested parties. Related Documents: NSMP documentation is available on the CER website ( 1 Phase 3 Overview CER/15/052

3 Executive Summary 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. It is similar in nature to the move from analogue to digital in the markets for communications services. The CER s decision to rollout electricity and gas smart meters for all residential and small and medium sized businesses was announced in July This decision was made following comprehensive customer behaviour and technology trials and cost-benefit analyses, and 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 consumers by 2020 if there is a positive cost benefit analysis. Consistent with maintaining a consumer-centric approach to the NSMP, the CER is reviewing and updating consumer policy in order to be ready for these new developments. This affects a wide range of areas, including what tariffs are on offer, how billing and other information is provided to consumers, and the framework for customer protection. The updated consumer policy framework needs to provide appropriate levels of support and protection across all types of consumers. Context The NSMP reforms are facilitated by ESB Networks (ESBN) and Gas Networks Ireland (GNI) 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 will change fundamentally the services that customers receive, in three key ways: First, there will be much more information available on how individual consumers 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 consumers. For example, through a display device in the home, or an application on a mobile phone. 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 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. This creates 3

4 both opportunities and risks for consumers and these are likely to vary between customers, or (potentially) classes of customer. Third, it will remove the need for a site visit, and the installation of additional metering equipment, for customers moving to a Pay As You Go tariff. The new platform will also improve the quality of existing services. For example, an actual meter reading for a bill (including for a closing bill when a customer changes supplier) will be available almost immediately. Hence, the risk of a customer being surprised by a high bill (or building up a positive balance) as a result of previous bills being based on estimates should be virtually removed. Policy Roadmap The role of gas and electricity suppliers and network companies will need to change over time as the new arrangements depend upon new information flows, new infrastructure and new services to consumers. A number of new enduring and transitional activities are identified: New TOU tariffs New PAYG services New Information to customers Upgrading meter equipment Providing new metering and data services Providing a MIHD Developing new market processes Rollout and implementation activities Business Readiness Transition to new commercial model Building consumer awareness The purpose of this paper is to set out a plan ( roadmap ) of how the regulatory frameworks for electricity and gas markets will change over time to allow for the establishment and operation of a new retail market design underpinned by smart metering. The development of the roadmap will be progressed in a number of stages, or gates. This will help ensure that the map is comprehensive, that only material issues are considered, and the regulatory design solutions are well-targeted and proportionate. 4

5 This approach will result in a suite of potential changes which will be considered holistically and likely to involve a combination of changes covering roles and responsibilities, rules and mechanisms for giving them practical effect. Next Steps We expect to complete our initial analysis of the roadmap for inclusion in a consultation paper to be published in July 2015 consultation. 5

6 Table of Contents Executive Summary Introduction Purpose of this paper Method Structure of this paper Context Summary The NSMP and the retail market The current regulatory framework - suppliers The current regulatory framework - networks Future roles and responsibilities Summary Suppliers Networks Analysis of policy roadmap areas Introduction Supplier roles Networks roles Transition and rollout Introduction Rollout of enabling infrastructure Business and Market Readiness Transition to the new commercial model Conclusion and Next Steps The policy roadmap Introduction Roadmap components starting point Roadmap development approach Next Steps Appendix A Glossary of Terms Appendix B NSMP Strategic Objectives

7 1 Introduction 1.1 Purpose of this paper The purpose of this paper is to set out a plan of how the regulatory frameworks for electricity and gas markets will change over time to allow for the establishment and operation of a new retail market design underpinned by smart metering. Some of these changes will be developed as a core part of the National Smart Metering Programme (NSMP). Other changes will be addressed by related parts of the CER s wider work programme. For example CER has statutory responsibilities in the areas of electrical, gas and petroleum safety. As such relevant aspects of the regulatory framework for safety will be reviewed as part of the smart meter roll out. The document is produced in the context of the overall programme as described in the Phase 3 Overview 1 note and is published for information only to provide a basis for further discussion and development with stakeholders. In due course, proposals relating to specific regulatory instruments (either new or existing) will be published for consultation. The CER is publishing an information paper at this stage because of the range of inter-related potential changes involved and the need to consider the overall approach in the round. It is expected that the first consultation on these matters will begin in July 2015, followed by a draft decision in November 2015 and a final decision in April Method We are developing the roadmap in two key stages: First, examining the roles and responsibilities of different market participants in implementing the NSMP, and in operating within the new retail market design that it establishes. Second, assessing the existing regulatory framework s ability to support these roles and responsibilities effectively and efficiently. Whilst there is a necessary focus on the enduring regulatory arrangements associated with NSMP there are also decisions to be made in planning and implementing the new arrangements that impact in areas relating directly to the CER s statutory duties to protect the interest of consumers and promote competition. Hence, this paper also considers transitional issues so as to identify what, if any, role regulatory policy might have to support successful transition. 7

8 The roadmap sets out specific areas where we anticipate the need to amend the regulatory framework, and discusses the potential types of regulatory instruments that might be involved to ensure that changes are well-designed and proportionate. The adequacy of the existing regulatory framework is assessed with reference to the strategic objectives of the NSMP (set out for reference in Appendix B), and the CER s wider statutory duties, and in particular the need to protect the interests of electricity and gas customers and promote effective competition. 1.3 Structure of this paper This paper is structured in the following manner: Section 2 outlines the context for this information paper. It explains the nature of the changes being made to the operation of the retail markets, and what this means for consumers and market participants. It also summarises the structure of the existing regulatory framework; Section 3 unpacks the different roles and responsibilities that ESBN and GNI will be taking on to help deliver the NSMP and operate within the retail market design it establishes. It then sets out some initial thoughts on whether the existing regulatory framework is adequate, and if not what nature of changes might be required; Section 4 unpacks the different roles and responsibilities that electricity and gas suppliers will be taking on to help deliver the NSMP and operate within the retail market design it establishes. It then sets out some initial thoughts on whether the existing regulatory framework is adequate, and if not what nature of changes might be required; Section 5 considers the specific theme of transition. The different transitional roles and activities of market participants are described as is the potential role regulatory policy might have to support successful transition; Section 6 sets out our initial view of the regulatory policy roadmap, and the process we intend to adopt in developing and refining it over time (including through further engagement with industry stakeholders). 8

9 2.0 Context 2.1 Summary The purpose of this Section is to provide context for the issues that are discussed in Section 3-5. It sets out background information on the NSMP, and what it means for the operation of electricity and gas retail markets. It also summarises the structure and key components of the prevailing regulatory framework as it relates to activities with relevance to the NSMP. 2.2 The NSMP and the retail market 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. 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 B. The CER s decision to rollout electricity and gas smart meters for all residential and small and medium sized businesses was announced in July This decision was made following a comprehensive customer behaviour and technology trials and cost-benefit analyses, and 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 consumers by 2020 if there is a positive cost benefit analysis. The CER is taking a consumer centric approach to the NSMP and the rollout of Smart Meters with a focus on the development of consumer policy and services in the areas of Time-of-Use Tariffs, PAYG services, Customer Protection, Customer Information and Participation. The programme will also take account of the particular requirements of different customer groups including vulnerable customers and those in financial hardship. The changes in services experienced by customers are facilitated by technical changes to how retail markets operate. The systems and process that underpin the services that suppliers provide to customers will be based on much more detailed, up-to-date consumption data, collected remotely every day. These 2 NSMP Phase 1 Decision CER/12/008 9

10 technical changes will be complemented by an updated framework of customer policy and protection, including appropriate protections in respect of data privacy. Currently, the services that a bill customer receives are based on a manual meter reading taken once every two months (at most), plus ad hoc reads taken when a customer switches supplier or changes address. Changes to the service, e.g. to reconnect or to become a prepayment customer, require a site visit by an engineer. The new platform for services will be based on half-hourly meter reading, collected remotely every day with data from the meter also being broadcast securely for access by the customer within the home. Changes to the service will generally be capable of being made remotely, without the need for a visit from an engineer 3. This new platform will be made available by ESB Networks (ESBN) and Gas Networks Ireland (GNI) rolling out new meters, and a supporting communications infrastructure. This new technical platform will change fundamentally the services that customers receives, in three key ways: First, there will be much more information available to individual consumers on how they 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 consumers. For example, through a display device in the home, or an application on a mobile phone. Second, it will make time-of-use tariffs available to all. Currently, access to tariffs which allow customers to save money by using energy off-peak requires the installation of a special meter, and is limited to a relatively small number of domestic customers with Day/Night metering. It also increases the potential range and flexibility of such tariffs. Third, it will remove the need for a site visit, and the installation of additional metering equipment, for customers moving to a pay-as-you-go tariff. The new platform will also improve the quality of existing services. For example, an actual meter reading for a bill (including for a closing bill when a customer changes supplier) will be available much more quickly. Hence, the risk of a customer being surprised by a high bill (or building up a positive balance) as a result of previous bills being based on estimates should be virtually removed. 3 It should be noted that this does not preclude requiring a presence on site in certain circumstances in the context of consumer protection an issue that will be considered by CER in due course through related NSMP policy development work. 10

11 The process of procuring and installing the new technical platform is due to commence this year, with ESBN s initiation of its procurement process for meters and communications. 2.3 The current regulatory framework - suppliers In this section, we summarise the structure and key components of the prevailing regulatory framework as it relates to the activities of suppliers operating in competitive gas and electricity retail markets with relevance to the NSMP. This framework is based on a hierarchy of instruments (including licences and codes) and supporting documents (including procedures), underpinned by legislation. Licences Any party intending to supply electricity or gas to a final customer must have a licence. Licences are granted by the CER, and can be revoked by the CER either at the request of the licensee or in exceptional circumstances if the licensee is failing to perform. The licences are a key route through which the CER discharges its statutory duties in respect of protecting the interests of consumers and promoting effective competition. The licences contain conditions which the licensee must comply with. The conditions tend to be standard across all licencees, and relate to different aspects of how they must undertake their business. For example, Condition 18 of the electricity supply licence obliges the licensee to (among other things) prepare and submit to the Commission for its approval the Licencee s standard terms and conditions applicable in relation to Household Customers. Industry codes Licences also oblige parties to comply with specified industry codes. These are documents that set out more detailed, technical rules relating to particular aspects of how the market operates. Industry codes have their own governance arrangements, including a role for the CER to direct or approve changes. For example, Condition 6 of the electricity supply licence requires that licensees comply with the provisions of the Distribution Code, the Grid Code and the Metering Code insofar as applicable to it. Customer Charter and Codes of Practice The Customer Charter and Codes of Practice represent another link between licences and more detailed regulatory rules. The basic mechanism is for the 11

12 licence to oblige a supplier to develop such documents (in specified areas) for approval by the CER. The supplier must then comply with the approved documents. The documents may be updated from time-to-time, again subject to CER approval. For example, Condition 18 of the electricity supply licence creates an obligation for each supplier to establish a Customer Charter and Codes of Practice in respect of: Billing and Disconnection; Marketing; Complaints; Prepayment Metering, and Vulnerable Customers. Further, the CER has the ability to introduce requirements for new Codes of Practice as it sees fit. Supplier Handbook The licence obligations in respect of Codes of Practice also provide for the CER to issue guidelines. Any Codes of Practice must be in line with those guidelines. The CER-published Supplier Handbook is, in effect, a consolidated set of such guidelines. Retail Market Governance The IT infrastructure to support the operation of the retail market and how its design evolves over time is also part of the regulatory framework. The CER approved the original design to support retail market opening, and has an ongoing oversight and approval role in respect of change proposals and assurance. For electricity, the CER also established the role of Market Design Administrator, to manage and oversee the development of the Retail Market Design. This role is undertaken by a ring-fenced unit of ESBN, the Retail Market Design Service (RMDS). For gas, Gaslink, a ring-fenced unit of Ervia, provide Secretariat Services to the Code Modification Forum and Gas Market Arrangements Group (GMARG). 2.4 The current regulatory framework - networks In this section, we summarise the structure and key components of the prevailing regulatory framework as it relates to the activities of electricity and gas distribution networks with relevance to the NSMP. As for suppliers, this framework is based on a hierarchy of instruments (including licences and codes) and supporting documents (including procedures), underpinned by legislation. Licences Network licences contain different licence conditions to suppliers, reflecting the different roles and responsibilities. 12

13 Additionally, the licences for the monopoly network businesses contain conditions to restrict the amount of revenue that can be collected, and to specify how those revenues are to be recovered through a structure of charges to network users. These conditions are updated periodically following each Price Review 4 process. There are a number of conditions that relate to general desired behaviours of gas and electricity distribution businesses. For example, Condition 4 of ESBN s licence requires it to procure or direct the procurement of assets and services from the most economical sources available to it. Whilst Condition 4 requires that GNI shall procure assets and services from the most economical sources available. There are also licence conditions that relate to the provision of specific services. Condition 9 creates a set of obligations for ESBN in respect of the provision of metering services to include the provision and operation of metering equipment, and data collection, transfer, processing and aggregation. Condition 8 obliges ESBN to establish, operate and maintain a service to be known as the Meter Point Registration Service. Industry codes Distribution businesses have similar obligations to suppliers in respect of complying with various industry codes. For example GNI has an obligation to at all times comply with Distribution System Standards. In some cases, they are also obliged to create them. For example, ESBN has an obligation to adopt and at all times have in force and shall implement and comply with a Distribution Code. It also has an obligation to establish a Metering Code (to be approved by the CER). Codes of Practice There are obligations in network business licences relating to the establishment and compliance with Codes of Practice. For example, Condition 15 of GNI and ESBN s licences requires it to develop the following for approval by the CER including, Distribution System Customer Service Code; Complaints Handling Procedure and Disconnection Code of Practice. There are also requirements for access to land and premises, and for revenue protection. Retail Market Governance As noted in the previous section, the CER also established the role of Market Design Administrator, to manage and oversee the development of the Retail

14 Market Design. This role is undertaken by a ring-fenced unit of ESBN, the Retail Market Design Service (RMDS). 14

15 3 Future roles and responsibilities 3.1 Summary In this Section we identify how the roles and responsibilities for electricity and gas distributors (ESBN and GNI), and electricity and gas suppliers will need to change over time. We also provide a short summary of preparations for these new roles undertaken to date. It is against these changing roles that we analyse the existing regulatory framework thereby identifying where new elements of the regulatory framework might need to be developed, or existing components modified (or removed). These gaps might be addressed as a core part of the NSMP, or through other CER related programmes of work. It is recognised that other 3 rd party service providers may emerge as the new arrangements develop and that these roles and services would need to be similarly considered. 3.2 Suppliers Using new market processes The new retail market will involve different flows of information and data. The standard set of market messages used by all retail market participants will need to be updated. Suppliers have an active role in the development process, and in demonstrating to an appropriate level of assurance that their systems and processes are fit-for-purpose before the new arrangements go live. The work to progress this activity has already commenced through a series of industry workshops led by ESBN in respect of electricity and GNI in respect of gas, which will complete in Q Offering new tariffs and related services The new platform increases the range of tariffs that are capable of being offered from a technical perspective; for example by enabling Time-of-Use Tariffs 5. Suppliers will have a role in developing these new types of tariff, and offering them to consumers. 5 TOU Consultation CER/15/053 15

16 There is also scope for suppliers to offer related services, e.g. to help consumers use energy more efficiently (and save money under their Time-of-Use tariff) through home automation. These services would be provided in competition with other (non-licensed) parties, given that they are separable from contracts for electricity or gas supply. Providing smart Pay As You Go services The new platform also implies a partial shift in responsibilities in respect of providing smart Pay As You Go (PAYG) services. Under current arrangements, ESBN and GNI have a direct role in providing prepayment services on behalf of suppliers. To date this is typically (though not exclusively) to customers who have demonstrated financial hardship and difficulties in paying their bill. The service is delivered by the existing credit meter being replaced by ESBN or GNI with a PAYG meter. The customer then prepays for their electricity or gas by buying credit (e.g. online or in a shop), which can then be applied directly to the meter (either by inserting a card into the meter or by entering a code). For electricity customers who are not in financial hardship there are also a growing number of lifestyle PAYG services and tariffs. This involves the installation of some additional equipment on the customer-side of the ESBN meter which, in effect, mimics the functionality of a prepayment meter. The new NSMP platform facilitates a shift in responsibilities because it enables suppliers to offer a smart PAYG service to customers without the need to install a prepayment meter or in-line device. This reduces (and potentially removes) the need for ESBN and GNI to provide prepayment services. Provide information to consumers on energy usage and cost Suppliers currently have a role to provide consumers with information about their energy usage and costs, e.g. in a bill or energy statement. The new platform will provide greater benefits to consumers with more accurate bills and better and more accessible information about energy use. The NSMP also creates a need for new types of information to be provided to consumers, e.g. the active unit rate at any point in time under a Time-of-Use Tariff, or the consumer s detailed consumption history. Promote consumer awareness and engagement Electricity and gas suppliers are key partners in the delivery of the NSMP, and will be engaging directly with customers by offering new services and tariffs, and new flows of information. It is therefore likely that they will have some role in promoting awareness of, and engagement with, the NSMP and the new services it establishes. 16

17 3.3 Networks Upgrading metering equipment In order to establish the technical platform for the new retail market, existing meters will need to be replaced with new meters. A communications infrastructure will need to be established which provides interconnection between ESBN and the new electricity meters and to GNI and the gas meter, and also within the home (where a pairing service will be established to broadcast the data securely). ESBN is currently preparing for its procurement process which is expected to commence formally in Q3 this year and complete by end of Q Developing new market processes The new retail market will involve different flows of information and data. The standard set of market messages used by all retail market participants will need to be updated. ESBN and GNI have a key role under the established retail market governance to lead this design and development process for changes to market processes and messages. The work to progress this activity has already commenced through a series of industry workshops, and is ongoing. Providing metering and data services There is currently a defined set of metering and data services that ESBN and GNI provide to electricity suppliers and gas shippers, respectively. How these services are provided is influenced, in part, by some of the codes of practice, e.g. disconnection. This set of metering and data services will change as the services underpinning the new retail market are rolled out. In addition, ESBN will begin to provide some services directly to consumers. Examples include providing electronic access to historic consumption data and supporting the pairing of devices that make use of the data being broadcast securely in the home. The provision of some existing metering services will also ramp down, and may possibly cease. The provision by ESBN and GNI of card or token-based prepayment meters for customers in financial hardship is one example given the alternative model of providing smart PAYG services supported by the new platform. 17

18 Provide a Mandated In-Home Display (MIHD) As set out in the High Level Design 6, ESBN will have a new role to offer all domestic customers a display device. This device will present personalised energy usage information using the data being broadcast securely in the home. This role is explicitly linked to the transition with the role only extending to the initial provision of a device, supported for two years. A feasibility study is being undertaken to identify viable options from both a technical and economical perspective. Promote consumer awareness and engagement ESBN and GNI are key partners in the delivery of the NSMP, and will be the parties engaging directly with customers through the process of upgrading the metering equipment. It is therefore likely that they will have some role in promoting awareness of, and engagement with, the NSMP and the new services it establishes. 6 Smart Metering High level Design CER/14/046 18

19 4 Analysis of policy roadmap areas 4.1 Introduction In this Section, we analyse the existing regulatory framework in the light of the changing roles and responsibilities consequent to delivering the NSMP. Through this analysis we identify candidate areas for inclusion in the roadmap. In this Section, we focus on the enduring policy framework, i.e. the rules that will apply once the new retail market is fully operational. In the next Section, we consider the related question of how we transition from the current retail market to the new design, products and services. 4.2 Supplier roles Using new market processes Reviewing the regulatory framework governing the development and implementation of retail market process changes forms part of the NSMP policy roadmap. This is because the current framework is based on the separate consideration of change proposals in gas and electricity but the use of a common infrastructure platform creates the possibility of changes to electricity market arrangement impacting on how the gas market operates, and vice versa. The arrangements through which electricity and gas suppliers demonstrate that they are ready, individually and collectively, for the new market processes (and the roles that they support) are an issue for transition. See Section 5. There is, however, also a potential gap in the enduring regulatory framework relating to the handling of future changes to market processes. Under the new platform a single infrastructure is being used to collect and process data and messages to both electricity and gas meters. Hence, it is possible to envisage circumstances where a proposed change to the operation of electricity retail market design, developed and progressed through the electricity retail market governance, has consequential impacts on the operation of the gas retail market design. It is not clear whether such interactions are capable of being handled efficiently under existing arrangements which are essentially stand-alone. 19

20 Offering new tariffs and related services Change to the regulatory framework governing the non-price elements of tariffs is part of the NSMP policy roadmap. This is because the current framework does not contemplate large-scale use of Time-of- Use Tariffs and such a development raises a wide range of new issues in terms of customer protection and competition. The change from a market predominately based on flat-rate tariffs to a market predominately based on Time-of-Use tariffs (at least in electricity) is probably the most significant consumer facing impact of the NSMP. This change in itself requires significant modification to the existing regulatory framework. The gaps relate to the need to define: obligations on suppliers to offer TOU products in order to accelerate consumer take-up so they realise the system-wide benefits earlier than would otherwise be the case; the forms of Time-of-Use Tariffs that may be offered by suppliers in different circumstances; the manner in which Time-of-Use Tariffs must be presented to consumers, such that their suitability can be easily assessed; and the types of information (and information channels) that need to be provided to customers to help them understand and engage with the Timeof-Use Tariff they are on. These are recognised gaps in the current framework, and significant work has already been undertaken by the CER to address them. This includes the practical process of transition. In October 2014, the CER published decisions on the high level design of policy around Time-of-Use Tariffs, and it has recently published a consultation on the approach to implementing Time-of-Use Tariffs. 20

21 Providing Pay As You Go services Change to the regulatory framework governing arrangements to support smart PAYG is part of the NSMP policy roadmap. This is because the current framework does not contemplate universal access to PAYG, or a model of PAYG which is delivered primarily by suppliers using data collected once per day. The change to a market in which smart PAYG is an option for all customers, and where it is quick and easy to change between being a credit customer and being a smart PAYG customer, represents another substantial change to how the market operates. Further, this change is being implemented by expanding the activities undertaken by suppliers and ramping down the activities undertaken by the network businesses. This in turn implies greater scope for differentiation between suppliers in the service they offer to consumers. These changes in the nature of the service, and how it is delivered, are likely to require consequential adjustments to the regulatory framework. For example, to ensure that a customer s balance is updated quickly and accurately by suppliers, and that messages to reconnect and disconnect based on the customer s balance are actioned quickly and in line with the approved customer protection framework. As with Time-of-Use Tariffs, this gap in the regulatory framework is well understood and has been subject to a set of CER decisions, and a recent consultation on aspects of the detailed design 7. Provide information to consumers on energy usage and cost Change to the regulatory framework governing provision of information to consumers in respect of energy usage and cost is part of the NSMP policy roadmap. This is because the current framework does not contemplate the scale and granularity of information that the new platform supports being available, the range of channels that could potentially be used for converting this data into useful information for consumers, or the importance of the information to decisions by consumers on energy usage, tariffs and energy services. Suppliers currently have a role to provide consumers with information about their energy usage and costs, e.g. in a bill or energy statement. The new platform will 7 Smart PAYG Consultation CER/15/054 21

22 provide greater benefits to consumers with more accurate bills, better and more accessible information about energy use. The NSMP also facilitates the provision of new types of information e.g. the active unit rate at any point in time under a Time-of-Use Tariff, or the customer s detailed consumption history. Promote consumer awareness and engagement Change to the regulatory framework governing the activities undertaken by suppliers to build consumer awareness of, and engagement with, the NSMP is part of the NSMP policy roadmap. This is because it is a new type of activity to be undertaken by suppliers as part of a wider, integrated programme of activities. It is not contemplated by the current regulatory framework. It is also transitional in nature, and might need to evolve over time in light of experience. Electricity and gas suppliers are key partners in the delivery of the NSMP, and will be parties engaging directly with customers by offering new services and tariffs, and new flows of information. It is therefore likely that they will have some role in directly promoting awareness of, and engagement with, the NSMP and the new services it establishes. 4.3 Networks roles Upgrading metering equipment Change to the regulatory framework governing the activity of an accelerated replacement of metering equipment, and the installation of supporting communications networks, is part of the NSMP policy roadmap. This is because cost recovery of the significant capital investment by ESBN and GNI needs to be addressed including how costs which confer a benefit to both electricity and gas customers should be shared. The capital programme to create the new technical platform involves the accelerated replacements of the current stock of meters, and their replacement with smart electricity and gas meters. It also involves investment in a supporting communications infrastructure. This raises issues for both the enduring regulatory framework, and for potential frameworks that might be adopted to support transition. 22

23 In terms of the enduring framework, the initial and ongoing cost of this investment needs to be reflected in the allowed revenue and structure of charges adopted by ESBN and GNI. This is the type of issue that would routinely be addressed in the context of the periodic Price Control Reviews by the CER. In addition, policy will need to be set on how the total cost recovery is ultimately shared by ESBN and GNI (and hence electricity customers and gas customers), given that the communications infrastructure being deployed will support both electricity and gas metering services. Transitional issues, e.g. the need for any rules or guidelines influencing how the deployment is implemented, are discussed further in the next Section. Developing new market processes Reviewing the regulatory framework governing the development and implementation of retail market process changes, forms part of the NSMP policy roadmap. This is because the current framework is based on the separate consideration of change proposals in gas and electricity but the use of a common infrastructure platform creates the possibility of changes to electricity market arrangement impacting on how the gas market operates, and vice versa. While the roles of networks and suppliers are different in respect of developing retail market process changes, the rationale for examining the associated regulatory framework is the same (as discussed above). First, in the context of business and market readiness. Second, to consider the implications of using a common infrastructure platform to service two separate sets of retail market arrangements, gas and electricity. Providing metering and data services Change to the regulatory framework governing ESBN and GNI s provision of metering services is part of the NSMP policy roadmap. This is because the nature of the services being provided is fundamentally changing. Existing services, such as meter reading, are being provided in a different way and new services, such as the ability to pair devices securely to use data in the home, are being offered. Further, suppliers will be reliant on metering and data services in order to provide services to end customers to a much greater extent, e.g. in providing smart PAYG services, or Time-of-Use Tariffs. 23

24 The NSMP will result in a complete refresh to the metering and data services that ESBN and GNI provide to suppliers and shippers for all domestic and smaller business customers. Presently these services are defined in licence conditions. Further, the relationship between these services and the services that suppliers ultimately provide to customers will also change. This is most evident in respect of smart PAYG services. The reliability, accuracy and timeliness of how ESBN and GNI provide its data services will be a key factor in shaping the quality of the service that a supplier is able to offer a customer. The way in which ESBN provide communication services may also affect a supplier s ability to differentiate itself through innovation. Another facet of the change in approach relates directly to consumers. How data is made available to consumers on request, either by networks or by the incumbent supplier, may be important in determining how easy or difficult it is for a consumer to use related services, such as switching services or energy efficiency advisory services. The current regulatory framework is likely to require updating to define the new services being provided, and the service levels that will need to be met. We may also need to review the process of managing change in respect of either the range of services, or the minimum service levels. To illustrate, the current version of ESBN s Metering Code provides for ESBN to specify the form and time period in which such data shall be provided or may be obtained in respect of any process carried out by a market participant necessitating metering data. It is unlikely that this type of provision, and the discretion it affords ESBN, will be adequate for the purposes of the NSMP. Provide a Mandated In-Home Display (MIHD) Change to the regulatory framework governing the provision by ESBN of a MIHD is part of the NSMP policy roadmap. This is because it is a new role and service being provided by ESBN, and hence is not contemplated by the existing regulatory framework. As set out in the High Level Design 6, ESBN has a transition role to provide an initial display device, a Mandated IHD, which it will then support for two years. The currently regulatory framework does not recognise this role, or how it might be implemented practically. A feasibility study is being undertaken to identify viable options from both a technical and economical perspective. 24

25 Promote consumer awareness and engagement Change to the regulatory framework governing the activities undertaken by networks to build consumer awareness of, and engagement with, the NSMP is part of the NSMP policy roadmap. This is because it is a new type of activity to be undertaken by networks as part of a wider, integrated programme of activities. It is not contemplated by the current regulatory framework. ESBN, GNI and suppliers are key partners in the delivery of the NSMP, and will be parties engaging directly with customers by offering new services and tariffs, and new flows of information. It is therefore likely that they will have some role in promoting awareness of, and engagement with, the NSMP and the new services it establishes. 25

26 5 Transition and rollout 5.1 Introduction In this Section, we focus on the specific theme of transition, and the different ways in which transitional activities might be governed to promote a smooth, effective and efficient change-over to the new retail market. The scale of change required by the NSMP is broad and its impact goes deep into the infrastructure, systems and processes underpinning both gas and electricity retail markets. Delivering the programme involves: The nation-wide replacement of existing meters; The establishment of metering communications infrastructure; The development of new market processes and systems between the network companies and suppliers; The development of new customer facing systems and processes to facilitate the new arrangements, and The development and introduction of a new enduring regulatory policy framework. Although there is a necessary focus on the enduring regulatory arrangements associated with NSMP there are also decisions to be made in planning and implementing the new arrangements that impact in areas relating directly to the CER s statutory duties to protect the interest of consumers and promote competition. Hence, it is necessary and appropriate for the CER to consider these issues now. The existing regulatory framework and NSMP project governance structures provide a robust basis for managing the programme going forward. However, given the wide scope of transitional activities and their potential impact on consumers and the outcome of the NSMP, there is a role for the CER in areas where an element of choice emerges and where the choice has the potential to materially influence: When key milestones can be met; Programme delivery risk; Total net costs to consumers; 26

27 Quality of service experienced by consumers, and The effectiveness of competition in the retail market. We organise the issues under three headings, to reflect the different types of activities involved. Rolling out the enabling infrastructure is an area where ESBN and GNI will have the lead delivery role; business and market readiness, which is a set of activities relevant to all market participants; and, transitioning to the new commercial model, where energy suppliers are the primary delivery organisations (e.g. in delivering Time-of-Use Tariffs and smart PAYG services). 5.2 Rollout of enabling infrastructure Enabling infrastructure includes: i. Gas and electricity meters ii. Communications infrastructure iii. Mandatory in home display (MIHD) The NSMP aims to deliver 80% of electricity meters, the majority of gas meters and associated communications infrastructure by Procurement activities will begin this year for the required metering and communications architecture to deliver the high level design. The details of the technical solution will provide a major building block on which the rollout programme and sequencing of electricity and gas meter installation can be developed. Other factors will also shape the rollout strategy, including the overall cost of deployment and the impact on delivery timelines whilst regard will also need to be given to quality of service experienced by consumers and the potential impacts on competition in the retail market. The CER will continue to review these issues as details of the technology solution emerge and a rollout strategy is developed, and consider what, if any, role regulatory policy might have to support successful rollout from the perspective of its duties. 5.3 Business and Market Readiness Commencement of the new market arrangements is dependent on a number of factors. Most obviously, there is a requirement for the enabling infrastructure to have been commissioned. Changes are also required to the central market systems in both gas and electricity, as well as within the business systems of each participant. Business and market readiness therefore includes 27

28 i. Meter and communication readiness ii. Market systems readiness iii. Networks and Suppler systems readiness The decision to cutover to the new arrangements will be made when sufficient confidence has been reached that the new infrastructure, systems and processes are appropriately robust enough to go-live. Meter and communication readiness criteria will emerge from the rollout strategy described in Section 5.2 but will be an important metric in the decision to commence the new arrangements. Market system changes are already managed and progressed through existing and well understood industry and regulatory processes. These may well be adequate to manage the development, testing and trialling of the changes required in both electricity and gas market systems. If that is the case then the testing and trialling programmes necessary to introduce the change are likely to follow known processes and methodologies which will capture readiness metrics. However, there will be new areas of interaction between network companies, between networks and suppliers and between suppliers and consumers which will similarly require development, testing and trialling. These will require bespoke arrangements and the readiness criteria for each critical business process will also need to be identified. Cutover processes and go-live decisions will also be dependent on the conclusion of the policy issues outstanding, including Time of Use and smart PAYG consultations currently on-going. The conclusions of these consultations will inform what readiness criteria need to be satisfied before a go-live decision can be taken. For example in a highly structured transition to Time-of-Use Tariffs it may be the case that each supplier must be equally ready so that transition to the new arrangements occurs at the same time for all. Whilst in a suppliercustomer led process it may be possible for each party to satisfy the readiness criteria and progress transition at their own pace. The CER will develop views on the readiness criteria and approach to be taken as the decisions on TOU and smart PAYG emerge. This will inform the approach to participant readiness which will form part of the consultation paper planned for July Transition to the new commercial model Consultation is on-going on a range of options which could be adopted to facilitate the introduction of TOU tariffs and smart PAYG services. 28

29 On conclusion of these consultations, it will be appropriate to consider the readiness criteria that should inform the go-live / cutover decision for these new tariffs and services. That work will begin as the preferred approach emerges in the coming months. As well as informing the readiness criteria the preferred approach will inform the necessary changes to the regulatory framework and in particular what changes will be required to supplier licences to enable transition to take effect smoothly. 5.5 Conclusion and Next Steps The existing NSMP project governance structures are in place to manage and mitigate many of the risks and issues that will emerge during the detailed planning phase. However, given the wide scope of transitional activities and their potential impact on the outcome of the NSMP there is a role for the CER in areas where there is an element of choice and where the choice has the potential to materially influence one or more of the following: When key milestones can be met; Programme delivery risk; Total net costs to consumers; Quality of service experienced by consumers, and The effectiveness of competition in the retail market. As such, the CER will continue to review the requirement for regulatory policy to support and enable a smooth and orderly transition to the new arrangements. It is expected that further detail on transition will be consulted upon in July