Who pays for Unaccounted For Energy? AEMC introduces a quiet and costly change

Image to of city street for Unaccounted For Energy article

Unaccounted For Energy (UFE)

Not all energy consumed is currently accounted for by electricity meters. The difference between the amount of energy being drawn into a distribution zone and how much is picked up on the meters as being used by end customers after technical loss factors are applied is known as unaccounted for energy (UFE) and its causes are numerous. Inaccurate metering, unmetered loads, electricity theft and errors in estimations for loads (such as street lights) mean cost distribution gets tricky, and the end user doesn’t always pay. The Australian Energy Market Commission (AEMC) has recently approved changes to how energy retailers are billed for their customers usage by the Australian Energy Market Operator (AEMO), in an attempt to ensure all retailers who have customers in a distribution area bear equal risk for UFE.


Who pays for UFE?

The current market settlement framework—known as settlement by difference—is effectively a method of billing for UFE that has been in place since the National Energy Market (NEM) came into effect in 1998. Designed at a time when local retailers supplied electricity to local customers within a distribution area, the settlement by difference framework charges the local retailer for the cost of unaccounted for energy less the recorded metered energy consumption of other retailers’ customers. This means that the local retailer foots the bill for UFE; an outcome that seemed reasonable thirty years ago, but potentially anti-competitive in 2019. With a developed competitive retail market, independent (“non-local”) energy retailers are now competing for local business, without the additional cost burden of UFE because their modern, accurate meter technology means their customers’ electricity consumption can be more accurately recorded.

Last year, the Australian Energy Market Operator proposed a change to the settlement by difference framework which would effectively distribute the cost of UFE across all retailers in a given area, including “non-local” retailers. After consultation, the AEMC decided to implement the change, known as the global settlement framework.

Under the new rule, every energy retailer is billed for the loss-adjusted metered electricity that is consumed by their customers within a given region. AEMO then allocates the UFE to market customers in that local area, pro-rated based on their “accounted-for” energy. These charges can then be passed on to customers by their retailer via their energy rates or as separate market charges.


New rules, old meters

While the change may seem a more reasonable distribution of UFE, it fails to address a major inadequacy that lies at its heart. Customers with modern, accurate meters are able to record precisely how much energy they use, but the new global settlement rules ignore this and burden all consumers with the costs of UFE.

Here at ERM Power, we don’t believe that those who have invested in accurate metering should pay for the ongoing discrepancies caused by those who haven’t. Accurate meters mean less UFE, and we’ve argued strongly that the rule change should impose costs on a causer-pays basis, so that those who contribute more to UFE pay more and have an incentive to upgrade their meters to reduce UFE altogether.

Unfortunately, the AEMC didn’t see it our way and UFE appears to be an unavoidable cost to all once the global settlement framework takes effect. A soft start is scheduled from 1 July 2021, coinciding with the implementation of the five-minute settlement rule. Global settlement will commence in full on 6 February 2022.


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