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Values of Customer Reliability Consultation Update Paper: Submission

We appreciate the opportunity to comment on the Values of Customer Reliability Consultation Update Paper, released by the Australian Energy Regulator on 18 April 2019.

The Values of Customer Reliability (VCR) is a critical regulatory setting for consumers because it is one of the key determinants of what the electricity grid looks like and how much it costs consumers.

The VCR informs a wide range of electricity industry reliability investment criteria, including the wholesale market’s 0.002% unserved energy reliability standard, and thereby the AEMO’s activation of the emergency reserve trader (RERT). It also sets the value of reliability for networks via the Regulatory Investment Test for Transmission (RIT-T) and Distribution (RIT-D), and the Service Target Performance Incentive Scheme (STPIS).

It is critical therefore that the VCR reflects consumer preferences, ensuring they pay no more than necessary for electricity services. We are engaging in this review because consumers are telling us through the Energy Consumer Sentiment Survey that they are more satisfied with the current levels of reliability of their electricity supply, than they are with the value for money – indicating that the current settings are not getting the balance right.1)Energy Consumer Sentiment Survey Results

To get the right outcome for consumers in a system that is transforming, the approach to setting the VCR must apply contemporary methodologies that are robust and fit for purpose into the future. Specifically, methodologies must recognise that consumers are managing their energy use in a more flexible way – a trend that continues to accelerate as technology unlocks greater opportunities. Other things being equal, this would suggest that over time the value of customer reliability in Australia could be lower than it has been historically, when consumers had fewer cost-effective or behavioural options to manage electricity outages.

The submission to the consultation update paper can be read here.

We have commissioned Energeia to review the VCR settings 2)Getting the Value of Customer Reliability Right: Energeia Reportand provide advice on how they might be updated to ensure they are aligned with the long-term interests of consumers. We provided this work to the Australian Energy Regulator (AER) in April 2019. In this submission we reflect on the AER’s latest thinking and identify key issues for consumers in the next phase of the process.

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