Ami Regulation In A Contestable Metering Market

Competitive electricity trading is a complex industry, with high market turnover but low profit margins. Consequently, the risk profile, including regulatory risk, can be considered high.
Published: Sun 20 Oct 2013

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Most of the volume of sales in any electricity market is measured for invoicing by electricity meters that were once considered non-strategic assets, but have now become strategic information sources for consumers’ decision making processes. The electricity industry has evolved from 100+ years of monthly, quarterly or even annual meter readings and averaged tariffs used to calculate consumers’ invoices, to time-of-use metering capable of delivering accurate price signals directly to consumers. We are seeing the metering industry evolve from producing ‘dumb’ data to an in industry providing information that can benefit both the industry and consumers, provided that regulatory requirements allow this to occur.

The extent that a market deregulates the provision of metering services determines who carries the investment risk, and how much of the cost of these risks is passed on to consumers.

A Deregulated Electricity Market, Including Market For Metering Services

The New Zealand electricity market is a workably competitive and deregulated market governed by the Electricity Authority. Full retail competition in the New Zealand electricity market commenced on 1 April 1999. Market activities that are deregulated include generation and retail; line service remains a natural monopoly. Consumers are free to choose which retailer they want to purchase electricity from, and retailers are free to choose the offer that they make to the consumer, and how that offer is delivered. This includes the type and attributes of any metering, as well as the metering service supplier.

The following characteristics of the New Zealand electricity market set it apart from other electricity markets:

  • Contestable metering and metering service provision (traders may displace a meter owner at a consumer’s point of connection). The usual reason for such displacement may be cost, available functionality, level of service, or compliance with the metering rules
  • Full global reconciliation – all buyers and sellers buy from and sell to the electricity market on the same terms
  • The average time period for consumers to switch between retailers is less than three business days
  • Tradability of distributed generation to ensure that any consumer that elects to generate electricity can have the generation settled in the electricity market, and can freely switch between retailers
  • Retailers typically read meters monthly or, at most, two monthly.

A Retailer-Led, Non-Regulated Rollout Of Ami

Until recently, New Zealand had an aging legacy metering population, but is currently undergoing a retailer-led, non-regulated rollout of advanced metering infrastructure (AMI). Approximately half of New Zealand’s metering stock has already been replaced with AMI.

There are several drivers for this:

  • The current metering requirements regulated by the Authority require all metering installations to be certified in accordance with the metering rules by 1 April 2015
  • Full retail competition has caused retailers to actively offer beneficial services that will attract and retain customers
  • The structure of the electricity market means that the savings from AMI in relation to reduced manual and estimated meter readings, invoicing , connections, disconnections, and vacant premises consumption, accrue to retailers.

There are few jurisdictions that permit contestable metering to the degree that New Zealand has. While there are pluses and minuses to a deregulated metering industry, the Authority considers that:

  • There are definite advantages in leaving the decision making for investment in AMI and the development of metering services to those that have the ability to innovate and develop offerings for the benefit of consumers
  • In a competitive metering market, the decision on who supplies the metering at a consumer’s premises does not necessarily need to be regulated to protect consumers
  • Competition can deliver significant benefits while driving down the costs of providing and maintaining both conventional and AMI meters, especially in the current period of rapid technological innovation.

Contestable Metering Has Long Term Benefits To Consumers

The contestable principle puts suppliers in charge of key investment decisions in metering. It provides the best means of providing benefits to consumers over the long term by:

  • Ensuring that the cost of metering is appropriate for the functionality required, and aligned to the benefits
  • Making investment risks more transparent to meter owners so that an efficient level of investment is likely to occur
  • Providing an incentive for meter owners and the users of AMI information to be continuously innovating to improve the services they provide.

Metering arrangements are complex and the provision of accurate metering information is absolutely critical to the accurate operation of all downstream market settlement

Metering Regulation – Keeping Pace With Rapid Market And Technology Evolution

New Zealand’s current metering rules originated in 1994 as part of the Metering and Reconciliation Information Agreement (MARIA) that enabled retailers to compete for large consumers. The metering rules were updated in 1999 to allow for full retail competition. Since that time, the shape, composition and technology of metering has substantially changed as the electricity market has evolved. Some examples of this evolution are the entry to the market of third party meter suppliers and the development and implementation of AMI, smart grids and lower cost distributed generation.

Metering arrangements are complex and the provision of accurate metering information is absolutely critical to the accurate operation of all downstream market settlement and consumer invoicing activities. In order to ensure that the metering arrangements have kept pace with the evolution of the market, the Authority and its predecessor, the Electricity Commission has:

  • Reviewed the potential consequences of the installation of new metering technology and published an AMI policy and associated guidelines in early 2008
  • Reported on its review to the Minister of Energy in December 2009 and recommended against a mandated rollout of AMI
  • Reviewed and completely revised the current metering rules.

This review process commenced in August 2008 and was taken over by the Authority in November 2010. The new metering rules will become effective on 29 August 2013.

New Zealand’s Metering Rules Required Significant Revision

The development of new metering rules that set a regulatory structure that allows innovation, while ensuring that the Authority’s statutory objective is met, has been a long and difficult process.

What became rapidly obvious, even to those relatively unfamiliar with existing rules, was that there were numerous problems with the existing requirements:

1.  The existing metering rules were out-of-date:

a. They did not reflect the impact of changes in the ownership arrangements for metering installations since 1999. Participants had obligations placed on them by the metering rules, when they were not in the best position to manage those obligations. Information flows had also changed significantly, making it very difficult if not impossible for participants to comply

b. They were internally inconsistent, referred to obsolete international standards, were ambiguous in some parts, and were obscure in other parts

c. There was a lack of transparency with respect to the specific (and timely) information necessary to allow efficient customer switching

d. In some instances they raised barriers to the innovation opportunities presented by AMI and other new technologies.

2. Responsibility for providing a metering installation, and ensuring it is compliant with the metering rules required clarification (this was further complicated by New Zealand’s specific circumstances where any one metering installation may have between one and four owners of the components within it, one of which could be the customer themselves):

a. At times more than one participant was responsible for a requirement, making the requirement unenforceable, particularly when neither participant was fulfilling the requirement

b. Recovery of accurate records could be an exceedingly difficult task

c. There was an unclear demarcation between the responsibility of a metering installation owner and a trader’s meter reading responsibility.

The New Rules Needed To Enable The Implementation Of Ami

Changes in technology, such as the development of AMI, have specific regulatory challenges regardless of the electricity market structure. The challenge posed to all regulators is how to set regulation for evolving technology, where full capabilities are not known, at a level where requirements are not so prescriptive that future innovation and benefits are stifled, and not so loose that the industry and consumers are exposed to unnecessary risk.

New Zealand’s review of its rules identified a number of issues specific to AMI that have since been proven to require consideration, such as:

  • The combination of back office systems, communications  and on-site meter form a single integrated system, i.e. with AMI, meter provision and meter reading go hand-in-hand.
  • The party that supplies the metering installation in most cases will be the party that manages the data from the metering installation, as all communications are encrypted. Significant back office processes are required to read and manage AMI systems
  • Recognition that the AMI meter firmware has metrology components as well as non-metrology components.
  • Regulated metrology processing and unregulated processing can occur within an AMI device, and this has a significant impact on how the devices are certified and the firmware is updated
  • Security of information and systems is an important consideration, including:

a. Preventing inappropriate access to systems (hacking)

b. Communication between components in the system

c. Security of hardware on a consumers site.

  • A number of parties might benefit from access to the information, so the new technology has the capability at a highly granular level for use in:

a. Smart grids

b. Retailer billing, meter reading, back office queries, etc.

c. More granular settlement

d. Power quality management

e. Load control for market and capital deferral purposes, using direct or indirect (financial signals) methods to reduce dependency on reserve generation.

  • A consumer’s privacy needs to be protected. The more granular information available from AMI may identify a consumer’s living habits. This could have commercial or criminal value, and suitable protection needed to be put in place
  • Indirect load control could become possible. The availability of AMI meters recording electricity at the market clearing period (30 minutes in New Zealand) could change the way market settlement and retailers’ back office systems operate. The granularity of information would allow financial signals to be passed to consumers so that they could make a value decision on how they consume electricity, and purchase appliances to receive the benefit of those decisions
  • The switching of consumers that have AMI meters on their installation between retailers could become more problematic if consumers were captured under contract by the incumbent AMI provider and switching became prohibitively expensive.

Establishing And Implementing New Metering Rules A Challenging Process

The Authority’s new set of metering rules addresses all of the major issues noted above, along with many other issues of a lesser nature. The changes are not just related to metering itself.

We would be very happy to share our experiences with other markets looking to ensure that their metering rules are able to deliver all of the benefits

Changes flow into other areas of regulated requirements such as the switching of consumers between retailers, establishment of a single ‘database of record’ for the industry’s metering installations, and settlement in the electricity market.

The Authority recognized that the model of an integrated AMI provider was a desirable model for providing and maintaining metering installations, communication systems and data collection. With AMI undergoing a non-regulated rollout in New Zealand, the Authority decided to regulate the party responsible for providing a metering installation, including the infrastructure.

This new participant is called the metering equipment provider(MEP). Creation of the new metering rules has been complex and has impacted on all network owners, distributed generators, retailers, meter owners and the new MEPs. Consultation on the metering rules involved five major industry consultations and many industry forums. The final metering rules were approved in December 2011.

Implementation of the new metering rules has involved a number of minor consultations, more forums, regular telephone conferences, the development of guidelines, training and complex testing of systems.

The rules are complex, comprehensive and interrelated. To the average person they may appear difficult to read in isolation.

However, the metering rules is a set of regulated obligations that set a framework that enables the electricity market to function with both legacy technology and new and evolving technology, while allowing innovation to occur and commercial pressures to apply to minimize cost.

Changes To The Rules Reflect Growing Importance Of Ami

While some features of the existing metering rules and the new metering rules are similar, for example meter testing provisions and identification of responsibilities of participants, there has been a number of significant changes, including:

  • The establishment of a central repository for metering configuration information that is accessible to any authorized participant and containing information critical for the invoicing, compliance and settlement process and providing key information on how the metering installation is configured
  • Creating the MEP as a new class of participant with responsibility for each metering installation’s compliance with the Code and, in the case of AMI, collection and security of the metering information
  • A switching process to allow a retailer to change the MEP at any metering installation for any reason
  • Greater emphasis on the security and integrity of metering installations and metering data
  • Changes to the customer switching process to allow consumers with AMI meters to be transferred as easily as those with legacy meters.

New Rules Expected To Provide Long Term Benefits To Consumers

The new rules are expected to deliver on the Authority’s statutory objective, by promoting both competition and the efficient operation of the industry. The Authority expects the new metering arrangements to deliver the following benefits:

  • Clear obligations for connection of installations and provision of metering installations
  • Transparent information about metering installations, enabling:

a. Competition in supply of electricity and metering services

b. Accurate record keeping

c. Fewer errors in market settlements

d. Improvements to the switching process

e. Assurance to consumers and the market that metering is compliant and accurate.

  • Rules that enable the full capability of the new technology to be captured. The new rules recognize that new technology meters combine both metrology and non-metrology functions. Only metrology related functions are regulated.  Non-metrology services may be added to a meter without disturbing the meter certification, provided certain conditions are met
  • Appropriate allocation of the risks associated with the new technology between industry participants and consumers
  • Reduced impediments to implementing demand side participation at the metering installation level through either direct (load switched by the retailer or the lines company) or indirect (load switched by the customer in response to a price signal) load switching
  • Responsibilities assigned to those best able to manage them; this includes the demarcation of responsibilities for metering installations between MEPs and retailers
  • Auditing requirements that will improve transparency and increase confidence in the market governance arrangements
  • Optimized meter management
  • Rules that are fit for purpose both today and into the future  (i.e. future-proofed) with provision of metering systems to integrate with smart home and smart grid systems.

New Zealand is already unusual for having achieved high (and increasing) levels of AMI rollout without direct regulatory intervention. The new rules are expected to continue to enable and facilitate this rollout, providing New Zealand with all the benefits of this new technology at the lowest cost.

In this article we have discussed the philosophy behind the development of our new metering rules. The new rules themselves are relatively detailed and complex, so it can sometimes be difficult to see how these philosophies have been captured in them.  We would be very happy to share our experiences with other markets looking to ensure that their metering rules are able to deliver all of the benefits that rapidly evolving technology is expected to provide. The Authority has also produced a number of guidelines and information documents that are available on its website, together with the new metering rules.

About The Author

Ron Beatty is the Manager Market Operations with the Electricity Authority in New Zealand. He has over 40 years’ experience in the electricity industry that includes design, construction, operational management, metering, switching and settlement systems, and regulatory issues.  He joined the Electricity Commission (now the Electricity Authority) in 2006.

About The Organization

The Electricity Authority is an independent Crown entity responsible for the efficient operation of the New Zealand electricity market. Its objective is to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long term benefit of consumers.