How Customer Choice Works

'Hidden' in plain view

The Wholesale Electricity Market in Western Australia is a multi-billion dollar highly effective institution ‘hidden in plain view’.

It was set up to pursue the Wholesale Market Objectives which aim to provide optimal security of electricity supply at minimum price and to encourage innovation and demand management. It has been tremendously successful in encouraging private development of power stations to a value of over $2billion over the last 5 years. It has also facilitated the payment of customers to switch off consumption at times of system stress (Demand Side Management).

Despite being extensively regulated and transparently administered through information dissemination and public consultation, most people haven’t heard of the wholesale market or the benefits it offers.

The IMO maintains a website which publishes a cornucopia of relevant information and reports, all available to the general public for free.

Community perceives that the market has remained largely unused by customers because of its complexity and the presumption that all customers want to consume electricity unconsciously – taking an “anytime electricity supply at every-time prices”. That is, although electricity prices vary between day and night, and summer, winter, spring and autumn, customers are assumed to want simple, stable prices regardless of conditions on the power system.

While that has been the traditional approach, the problem is that those simple, stable prices are much more expensive than they need to be and they encourage waste and pollution at the expense of conservation and sustainability. In particular, customers are not informed of the cost of supply and, more importantly, are not given price signals to guide their discretionary choices.

The market institutions

The electricity market consists of:

The IMO operates a financial market which has nothing to do with physical delivery of electricity and determines a fair wholesale price for the electricity injected into the network and subsequently removed by the retailer (via its customers). Retailers compete with each other to agree with customers prices that the customer will pay to the retailer in exchange for the retailer becoming its Financially Responsible Market Participant. Retailers have the choice of paying to the IMO the market price for electricity, or separately agreeing a price with a Generator, which then notifies the IMO accordingly.

The South West Interconnected Network (SWIN)

The electricity network consists of tens of thousands of “poles” and thousands of kilometers of “wires” that connect hundreds of thousands of customers to around 100 Generators together with ancillary equipment for managing and monitoring voltage and reliability.

The integrity of the network and ancillary equipment is managed by Western Power, who operate it, fix faults, keep it safe, maintain it and extend it. Western Power is operated as a Regulated Monopoly for the non-discriminatory benefit of all electricity users and Market Participants; Western Power has no interest in which retailers supply which customers.

Customer connections to the network are known as “Exit Points” because electricity exits the network at that point.

Similarly, Generator connections are known as “Entry Points” because they inject electricity.

Every Connection Point, be it exit or entry, is interconnected with every other Connection Point. In effect, all Generators supply all loads to some degree.

While no single Generator can legitimately be taken to physically supply any one consumer, such a transaction can be simulated contractually via the electricity market. For example, a given customer can contract to be supplied by, say, a PV power station, even though that station is offline overnight.

The South West Interconnected System (SWIS)

The electricity system consists of the network in combination with the customers, Generators and ancillary control and monitoring equipment.

The electricity system is managed by the System Manager, which is a ‘ring-fenced’ part of Western Power - which means that although it is part of Western Power, it behaves as though it were independent.

Generators inject electricity into the network and consumers take it out by means of operating electrical appliances.

Notwithstanding the tremendous potential of  storage systems, the electricity system is currently characterized by having no means of storing a material quantity of electricity.

The System Manager coordinates participants so that at all times, electricity production and consumption is in balance and stable; all the energy being produced is simultaneously being consumed, and vice versa.

The balance of the system is measured in terms of its frequency, which is maintained at 50.0 +/- 0.2 Hz.

Generating plant called Ancillary Services is operated primarily for management  of the system frequency (and also for managing local voltages). If the frequency is too high, the output from these generators is decreased. If the frequency is too low, the output is increased.

The System Manager forecasts the load required in real time and throughout the day, having regard to weather forecasts, public behaviour, and contingency events as they unfold (such as generators or transmission lines 'tripping' - switching off unexpectedly. This occurs, for example due to storms and bushfires).

The IMO provides the System Manager with a prioritized list of Generators that are to be switched on or off in response to system conditions. This list is called the Merit Order, and a Merit Order is produced for every half hour of each day (that is, 48 per day). Other things being equal, the Merit Order is based on the auction price of the energy bid by each generator produced. However, Generators are often operated “Out of Merit” for various operational and regulatory reasons, such as when a generator trips or when part of the network fails.

The Electricity Transfer Access Contract

All Exit and Entry Points are operated in accordance with an Electricity Transfer Access Contract (ETAC) with Western Power. A template document (pdf, 690KB) is maintained on the ERA’s website.

This contract allocates responsibility for a Connection Point (entry and exit) to a particular retailer or Generator.

Generators normally have an individual ETAC with Western Power, dealing with only the Generator, or group of Generators under a parent company.

The ETAC makes retailers responsible for paying for all electricity consumed at an Exit Point, and the retailers are bound to ensure that the user of the Connection Point complies with Western Power’s Technical Rules.

The vast majority of consumers are unaware of the existence of the network ETAC, or their obligations under it, which is entered into on their behalf by a retailer. Some very large customers may have their own ETAC, though this is rare.

Western Power makes a monthly charge to the retailer in respect of all Connection Points under its control. It also assesses the maximum amount of money due over a 60-day period and requires a Prudential Guarantee for that amount.

Energy Balancing

Electricity transfers into and out of the network are measured every 30 minutes by special electronic meters that record and store the average value. (In contrast, the System Manager is concerned with second-by-second performance.)

Electricity retailers commonly manage their financial liability in respect of an Exit Point by contracting with a Generator to inject into the network an agreed amount of electricity for each 30-minute period of the day. Of course, most retailers supply a large number (portfolio) of customers and therefore make bulk purchases from the Generator.

Sometimes the retailer owns or is closely associated with the Generator, as is the case for Alinta, Griffin Energy, Perth Energy and LGP. The current Synergy is also such a Gen-tailer, although for the first decade after the disaggregation of the original Western Power, Synergy (Electricity Retail Corporation) was prohibited from owning Generation. (Similarly, Verve Energy (Electricity Generation Corporation) was prohibited from operating a retail business.

The retailer may also choose to transact electricity with the Wholesale Electricity Market; either selling a surplus or buying a shortfall.

In general, the retailer’s estimated consumption across all Exit Points under its control will not equal the amount of purchases and injections, which is called an Energy Imbalance.

The Energy Imbalances are automatically transacted on the Wholesale Electricity Market.

The IMO invoices retailers for the total amount of electricity transacted with the Wholesale Market, in accordance with a published schedule (pdf, 80KB).

The IMO pays to Generators all the money it collects from retailers (except for the costs of administering the market, which are collected as separate levies.)

The IMO makes an estimate of the maximum liability incurred by each retailer over a 70-day period and requires it to lodge a Prudential Guarantee that the money will be paid to the Generators via the IMO. Having thus guaranteed payment to the Generators, they do not require a margin to protect them against default-risk, and thereby prices are minimised.

Changing Electricity Suppliers

At any one time, all customers (Exit Points) are allocated to a retailer (Financially responsible Market Participant). If a Customer decides to leave retailer A and switch to retailer B, the customer authorizes retailer B to instruct Western Power to remove the customer’s Exit Point National Meter Identifier (NMI) from retailer A’s list and instead relocate it on retailer B’s list. Western Power also informs the IMO that this change has been made.

In most cases, this process takes 3 business days (longer outside the metropolitan area) and the transfer commences at 08:00 on the Transfer Day, in accordance with the Market Rules.

In this particular example, there is nothing retailer A can do to obstruct the transfer; the transfer will proceed on the basis of retailer B’s instruction and if retailer A has a grievance, it must pursue it through another venue.

In most cases, nothing physical happens to effect a Customer Transfer. However, all customers supplied by private (non-Synergy) retailers are required to have a special electronic meter and communications, and some (but not all) meter upgrades require a 30 minute interruption while the meter is installed.

Because nothing physically material happens during a Customer Transfer, it can easily be reversed; if for some reason a mistake had been made then the incoming retailer (only) can instruct Western Power to reverse it. (Customer transfers and corrections may only be made with the customer’s consent, pursuant to its Retail License.)

In principle, there is no reason why a transfer cannot be made retrospectively, provided all the parties agree. Indeed Western Power used to routinely do this under the previous operating rules. However, this is prohibited under the current rules.

Customer Disconnections

While the retailer is contractually responsible for everything that happens at an Exit Point, only Western Power can make changes to it.

In particular, only Western Power can disconnect (de-energise) an Exit Point and only an incoming retailer can instruct that a customer be transferred to its account. This is why retailers have 'out-of-contract' charges - they cannot reasonably discontinue supply to a customer just because the contract has expired; they remain responsible for that customer until another retailer issues an instruction for it to be transferred to it.

If a customer dishonours its contract with a retailer, the retailer can instruct Western Power to disconnected from the network the defaulting connection point and must certify that it has performed full ‘due diligence’ before doing so. It must also supply an emergency telephone number to the Western Power operative so that the order can be cancelled at the last minute if the operative has any doubts. The IMO also has powers to instruct Western Power to disconnect connection points where the responsible retailer has been suspended from the market.

On receipt of an order to disconnect a customer, before complying with the order, Western Power will perform its own due diligence to ensure that the customer is aware of what is happening and that a mistake hasn’t been made. In addition to visiting the customer a day or so before the disconnection, the Western Power operative has authority to delay implementing the order for any reasonable reason.