The Australian Energy Market Commission (AEMC) has just begun consultation on a rule change request that would change National Electricity Market settlement in Australia.[1] In short, the request, if it proceeds into a rule change, would spread the cost of ‘Unaccounted For Energy’ (UFE) across all retailers, replacing the current system which leaves it to ‘Local Retailers’ to foot the bill. We explain the rule change request below.

Unaccounted For Energy

Photo by Francisco Gomes on Unsplash

By Dr Drew Donnelly, Regulatory Specialist, Compliance Quarter

Unaccounted For Energy (UFE)

In any electricity transmission and distribution system, there will be a certain amount of electricity that is ‘lost’ in the system. Some of this is accounted for in the National Electricity Market via Marginal and Regional Loss Factors and Distribution Loss Factors (DLF). This ‘technical loss’ captures the energy inevitably lost as electricity is distributed over a distance. Other UFE includes:

• Commercial losses. This includes unmetered connections, theft and metering malfunctions;
• Estimation errors relating to accumulation metering. Raw accumulation meter data cannot be used for settlement as readings are only taking intermittently and covering long periods of electricity use.

This UFE must be ‘settled’ and paid for, somehow, by market participants. Currently, this is done via a mechanism called ‘Settlement by Differencing’. A certain retailer is allocated in a jurisdiction as the ‘local retailer’ and this business is financially responsible for UFE. Through this mechanism, all electricity is billed to the local retailer, including total UFE, with the subtraction of energy consumed by customers of ‘independent retailers’.

The Problem with Settlement by Differencing

The problem with this mechanism is that it makes local retailers fully responsible for UFE and they pass that cost on to their customers. However, as the losses often relate to the customers of independent retailers, the local retailer has little control over those losses and costs. This makes final retail electricity prices less efficient as they do not reflect the cost of customer use of the network. It also means that local and independent retailers are not competing on the same terms in the National Electricity Market, and the independent retailers thereby have little incentive to reduce commercial losses.

Global Settlement

To replace Settlement by Differencing, the rule change request proposes a new ‘Global Settlement’ procedure. This mechanism would calculate as follows:

• The total amount of electricity supplied from the transmission system to the ‘Transmission Node Identity’ (TNI, the point where the distribution network meets the transmission network) plus embedded generation;
• Total electricity consumed at that TNI, adjusted by the relevant DLF would be calculated;
• Total electricity consumed, subtracted from the total electricity supplied;

This final calculated amount would be distributed to all retailers operating at the TNI based on pre-set criteria. At settlement, each retailer would be billed on the sum of its energy consumption and share of UFE.

AEMC asks a range of questions relating to the proposal including:

• the effects of Settlement by Differencing on local retailers;
• the effects that Global Settlement would have on independent retailers;
• the proposed method for calculating Unaccounted for Energy (UFE);
• implementation.

Submissions on the rule change request are to be lodged online at www.aemc.gov.au or by mail by Thursday, 5 July 2018.

As ever, should you wish to discuss unaccounted for energy, or indeed any of our analysis, please contact our team by clicking here.

[1] For the Consultation Paper on the rule change request see https://www.aemc.gov.au/sites/default/files/2018-06/Consultation%20paper.pdf.

[1] See s11, National Energy Retail Law.

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