1. 1 Professor Paul Simshauser Chief Economist On the Inequity Flat Rate Tariffs December 2014

2. 2 Residential tariffs 1955 – 2015 (Qld example) Tariffs have increased substantially since 2007 > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Source: Simshauser, Nelson and Doan (2011), Electricity Journal.

3. 3 Two-part tariffs are structured with a low fixed charge, high variable rate and a deemed periodic demand > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Source: Simshauser, (2014), Aust Economic Review

4. 4 > Presentation title > Author > Date (Verdana 10pt) Household load shapes - VIC Compare 5 household variations based on demographic characteristics with the overall average

5. 5 1. Working couple; no kids Very little daytime electricity use; delayed evening ramp up > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

6. 6 2. Working parents with kids Larger morning and evening peaks; earlier afternoon ramp up > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

7. 7 3. Family with one parent at home Very different load shape; large consumption during the day > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

8. 8 4. Hardship households Higher than average consumption, highest off-peak usage > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

9. 9 5. Concessions / pensioners: Low energy users with low peak time usage > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

10. 10 > Presentation title > Author > Date (Verdana 10pt) Tariff equalisation model: Analysis of wealth transfers between and within customer groups using Smart Meter Data from 160,000 Households in Victoria (2.8 billion meter reads)

11. 11 Distribution of annual electricity consumption by cohort > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

12. 12 Distribution of annual electricity bill (flat rate tariff) by cohort > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

13. 13 Existing tariff inequities – structural winners and losers from TOU > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

14. 14 Structural Winners & Losers before demand response, before tariff rebalancing > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

15. 15 Winners & Losers after Demand Response before Network Tariff Rebalancing > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

16. 16 Winners & Losers after Demand Response, after Network Tariff Rebalancing > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

17. 17 Household wealth transfers after Demand Response, after Network Tariff Rebalancing > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

18. 18 > Presentation title > Author > Date (Verdana 10pt) Tariff equalisation model & Solar PV: Analysis of wealth transfers between and within customer groups in Southeast Queensland arising from Solar PV – Customer switchboard circuit level data and Demand Tariffs

19. 19 Southeast Queensland solar PV installations (Take-up rates continuing after FiT abandoned) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 Solar PV Capacity (kW) Solar PV (non 44c) Solar PV (44c FiT) 44c FiT Scheme closes to newinstallations 44c FiT Installations Completed

20. 20 Network element (Sunshine Coast) - 37% > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 0 20 40 60 80 100 120 140 160 180 2 AM4 AM6 AM8 AM10 AM12 PM2 PM4 PM6 PM 8 PM10 PM12 AM Off-PeakShoulderPeakShoulder Off Peak Feeder Load (Amps) 2009 - Load Factor: 64% 2010 - Load Factor: 64% 2011 - Load Factor: 57% 2012 - Load Factor: 53% 2013 - Load Factor: 51% 2014 - Load Factor: 51% Peak +2.8% Energy -22.9%

21. 21 Network tariffs & the ‘instability component’ > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 - 2.00 4.00 6.00 8.00 10.00 12.00 14.00 2009/102010–112011–122012–132013–142014–15Tariff Structure Average Unit Cost (c/kWh) Policy Subsidy & Instability Component Capex Component CPI Component Base 2009/10 Network Tariff 8.7% 15.4% Two-Part Tariff- Variable Charge: 80% Two-Part Tariff- Fixed Charge: 20% Instability component 26.7% 56.3% Capex Component 42.7% Inflation Component 13.8%

22. 22 Household annual average weekday load (at the customer switchboard circuit level) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 - 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 Household Load (kW) Time of Day Oven: 3% Lights: 10% Hot Water: 18% Aircon: 17% Power: 52% Max Demand: 2.14 kW EnergyDemand: 7560.6 kWh

23. 23 Average household load – summer weekdays > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 - 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 Household Load (kW) Time of Day Oven 3% Lights 10% Hot Water 6 % Aircon 54% Power 27% Solar

24. 24 ‘Critical Event’ summer weekday > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 - 0.50 1.00 1.50 2.00 2.50 Household Load (kW) Time of Day Oven: 3% Lights: 6% Hot Water: 10% Aircon: 48% Power: 33% Network Peak Period Max Demand: 2.15 kW EnergyDemand: 7560.6 kWh Summer Peak

25. 25 Critical Event ‘net load’ – summer > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 - 0.50 1.00 1.50 2.00 2.50 Household Load (kW) Time of Day Oven: 3% Lights: 6% Hot Water: 10% Aircon: 48% Power: 33% Solar Network Peak Period Max Demand: 2.04 kW vs 2.14 kW EnergyDemand: 4707.1 kWh vs 7500 kWh

26. 26 Average household load – winter weekdays > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 - 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 Household Load (kW) Time of Day Oven 3% Lights 9% Hot Water 25% Aircon 15% Power 49% Solar

27. 27 ‘Critical Event’ winter days > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 - 0.50 1.00 1.50 2.00 2.50 Household Load (kW) Time of Day Oven: 3% Lights: 7% Hot Water: 26% Aircon: 23% Power: 40% Max Demand: 2.14 kW EnergyDemand: 7560.6 kWh Network Peak Period Winter Peak

28. 28 Critical Event ‘net load’ – winter - 0.50 1.00 1.50 2.00 2.50 Household Load (kW) Time of Day Oven: 3% Lights: 7% Hot Water: 26% Aircon: 23% Power: 40% Solar Max Demand: 2.14 kW vs 2.14 kW Network Peak Period > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

29. 29 Tariff design > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Tariff Structure Fixed Costs 20% Sunk Costs 60% Variable Costs 20% Two-Part Tariff59.1c/day-- Uniform Variable Rate 12.64c/kWh -- Time-of-Use Tariff59.1c/day -- Peak Rate 26.94c/kWh -- -- Shoulder Rate 11.38c/kWh -- -- Off-Peak Rate 6.95c/kWh -- Three-Part Demand Tariff 61.7c/dayDemand $261-315/kWCritical 11.59c/kWh Peak 6.41c/kWh Shoulder 2.71c/kWh Off-Peak 1.66c/kWh *LRMC ca.$185 will under-recover annual revenue requirements

30. 30 Household A: no air-con, no solar PV Wealth transfer (net cost): -$152.49 (-15.2%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

31. 31 Household B: + air-con, no solar PV Wealth transfer (net cost): -$44.74 (-3.8%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

32. 32 Household C: no air-con, + solar PV Wealth transfer (hidden subsidy): +$89.50 (+12.8%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Efficient level of avoided network charges from installing Solar PV

33. 33 Household D: + aircon, + solar PV Wealth transfer (hidden subsidy): +$225.27 (+27.8%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Efficient level of avoided network charges from installing Solar PV

34. 34 The anatomy of hidden wealth transfers > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Household Type Customer Numbers X Air-Con. Wealth Transfers Y Solar PV Wealth Transfers Z Air-Con. Wealth Transfers (X x Y) Solar PV Wealth Transfers (X x Z) Net Wealth Transfers (Y + Z).X A. No Aircon, No PV283,849-$78.12-$74.37-$22,173,702-$21,110,749-$43,284,451 B. + Aircon, No PV694,643$26.04-$70.78$18,088,029-$49,165,287-$31,077,259 C. No Aircon, + PV26,151-$78.12$167.62-$2,042,862$4,383,358$2,340,496 D. + Aircon, + PV235,357$26.04$199.23$6,128,535$46,889,440$53,017,975 Network Rev Loss*----$19,003,238 Total/Net1,240,000 $0 Gross Hidden Wealth Transfers $24,216,564$70,276,036$94,492,600 *Variable rate tariff avoided by households due to Solar PV output

35. 35 Aggregate wealth transfers > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Subsidy SourceGross Amount Hidden Solar$70,276,036 State Solar FiT$175,100,894 Federal Solar Subsidy$47,349,339 Total Hidden & Explicit$292,726,269 Network Revenues$1,133,247,688 % of Turnover25.8% $236.06 per household

36. 36 Household A: no air-con, no solar PV Deviation from optimum: +$295.32 (+39.5%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

37. 37 Household D: + aircon, + solar PV Deviation from optimum: -$60.10 (-8.5%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

38. 38 Tariff Stability (Household A: no air-con or solar PV) Household A’s (23% of households) are most exposed > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 10.0 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0% Average Network Charge (c/kWh) Solar PV Take-up Rate Two-Part Tariff - 40.7% Time-of-Use - 38% Demand Tariff - 19.3% Two-Part Tariff (ex subsidy costs) - 17.8% Demand Tariff (ex subsidy costs) - 1.3% Max Demand:1.41 kW Energy Demand: 6253.4 kWh pa Demand Tariff Demand Tariff (excl. subsidy costs)