We have conducted an enquiry into metering focusing on entry barriers into the retail market.
|Stage: 1 (Enquiry)||Status: Completed|
The Electricity Authority has completed its enquiry into the metering market. The Authority’s statutory objective is in section 15 of the Electricity Industry Act 2010:
The objective of the Authority is to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.
This enquiry concerns the competition arm of the statutory objective–specifically competition in the market for metering services. Metering is important for a retailer as it provides the mechanism that measures consumption of electricity by consumers. Access to metering data is therefore a necessary condition for a retailer to enter and operate in the retail market.
Participants have informed the Authority that small retailers pay more than large retailers for metering services, and that some of the terms and conditions in contracts between small retailers and metering service providers disproportionately favour the metering service providers. We use the term metering service provider to refer to entities that provide metering equipment, the infrastructure to read meters, collate the data, and package this data for retailers.
Our research question was: are metering service providers charging rates to retailers that differ enough to constitute a barrier to entry that could reduce competition in the retail market?
The enquiry asked for and received price, quantity and contract details from metering service providers (MSPs) Metrix Limited, Advanced Metering Services Limited (AMS), Arc Innovations Limited, and SmartCo Limited. This data is highly confidential and for this reason the Authority is not publishing results, even in summarised form, as it would be possible to reverse engineer commercially sensitive information from the analysis.
The Authority used econometric analysis to analyse the influence that size and contractual conditions have on the price that retailers pay for metering services. In some cases, this analysis was not possible because of the small size of the dataset. In these cases the Authority relied on qualitative analysis and feedback from retailers.
The enquiry finds that the way in which MSPs charge for services does not constitute a barrier to entry into the retail market and that this implies that the metering market is workably competitive. The analysis found that contractual conditions were the main determinate of metering price rather than retailer ICP numbers. This conclusion can be made because when the effect of retailer ICP numbers and contractual conditions were included in the model, retailer ICP size was insignificant. This provides evidence to support our conclusion that contractual conditions are what determines price.
One participant suggested to the Authority that a particular provision in a contract between a retailer and an MSP disproportionately favoured the MSP. The Authority’s view is that the provision is fair in the context of the overall contract.