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Rollout of Smart Meters sparks calls for consumer protections
9 November 2009
New, ‘smart' electricity meters are being rolled out across the nation, changing the way energy consumption is measured and charged. What will be the impact on low income households?
Smart meters are hi-tech devices that will replace old-fashioned electricity meters. They are ‘smart' because they record consumption data in half hourly intervals and because they have two-way communications with a base. Old style dumb meters record only total accumulated consumption and their only communication is with the reader who visits four times a year.
ACOSS is involved in the National Smart Metering Program (NSMP) through our energy advocacy project. ACOSS is involved for three main reasons: smart meters will come at a direct cost; smart meters will directly affect electricity bills; and smart meters will change the relationship between electricity suppliers and customers. We are concerned that the costs of meters may not outweigh the benefits. We are concerned that many low income households will experience higher bills and lower levels of consumer protections as a result of smart meters.
Various governments, agencies and businesses have cited various reasons for a roll-out of smart meters: they will empower consumers; they will reduce bills; they will reduce greenhouse gas emissions; they will reduce consumption during peaks; they will improve efficiency in the electricity sector. The Council of Australian Governments (COAG) said simply that they would "allow the introduction of time of day pricing and ... allow users to respond to these prices and reduce demand for peak power".
Smart meters are coming to you. In Victoria they are coming already; the rollout has begun as a State Government initiative. In early 2006 COAG committed to a national rollout and subsequently the Ministerial Council on Energy (MCE) mandated a national rollout "where benefits outweigh costs". A major cost benefit study delivered ambiguous results but New South Wales has notionally committed to a roll-out from 2012. Other jurisdictions are holding off on firm timetables.
The national cost benefit study reported in 2007 that the cost of a national rollout would be between $2.7 billion and $4.4 billion (in net present value terms). It reported that the benefits would be in the range $4.1 billion to 6.0 billion. The first stage of the rollout in Victoria, through until 2011, will see 25% of meters installed at a cost of $1.17 billion. The hard numbers coming out of Victoria, reviewed by the Australian Energy Regulator (AER), suggest that costs will be much higher than anticipated.
The benefits for consumers remain somewhat ambiguous. At the least there should be savings from doing away with on-site meter reading and through other ‘business efficiencies'.
Cost of meters
From 1 January next year, all Victorian households connected to the electricity grid will begin to pay for smart meters, even if theirs has not yet been installed. The average increase in costs for metering will be $53 per household in 2010 and a further $25 in 2011. The average cost per household will be $80 per annum for each of ten years.
While an $80 price hike may not seem overly burdensome, it joins other factors driving energy prices higher in dollar terms, higher as a proportion of low and fixed incomes and more quickly than other costs of living. These factors include fuel prices, network augmentation, drought, and the prospect of a carbon price through emissions trading.
Bill changes
One of the fundamental changes enabled by smart meters is time of use (TOU) pricing. The new meters collect consumption data in half hourly intervals. Electricity retailers will charge different rates at different times of day. While this is similar to what happens now with ‘off peak' tariffs the differences between TOU rates will be greater and will likely change more often.
Electricity businesses call this pricing ‘cost reflective'. They say that they TOU tariffs more accurately reflect the cost of supplying electricity and that TOU pricing removes invisible cross subsidies. By way of illustration: wholesale electricity is sold through a market, is most expensive for retailers at peak times and the most expensive peaks are hot summer afternoons. The cost of high wholesale charges is currently spread across all consumers, regardless of whether they use during peaks. TOU pricing will charge higher tariffs during peaks, increasing charges for use in peak periods and reducing charges at other times.
TOU pricing is supposed to ‘allow' consumers to make ‘informed' choices about when they use electricity. We are concerned that many low income households will be unable to shift or reduce consumption; their bills will increase. Many low income households under-consume energy and are cautious consumers, many live in homes that are not thermally efficient. TOU pricing will introduce further complexity and volatility to a simple product. Electricity bills may begin to look more like mobile phone bills.
Consumer protection
The two way communications enabled through smart meters will allow businesses to remotely monitor, connect and disconnect supply and may facilitate better management of the network and speedier restoration of supply after an outage. Smart meters may enable a range of load management, appliance control and automation services. Suppliers may be able to switch appliances such as hot water systems, air conditioners and pool pumps at times when load is peaking, the network is strained or wholesale prices are high.
Individually and in combination these applications will affect the way that suppliers relate to their customers. ACOSS and other consumer advocates are concerned that businesses, deliberately or accidentally, might disrupt supply of electricity just because it becomes easier to do so. Over the long term smart meters might be of benefit to some individual consumers or to the community more broadly. But at a time of increasing charges for an essential service, in a market destined for price deregulation (as in Victoria), we are concerned that bringing the meter ‘into the home', adding complexity to tariffs and allowing remote control will have adverse effects for many consumers.
Tony Westmore, Senior Policy Officer, ACOSS