Energy liberalisation - the consumers’ perspective Dominique Forest Senior Economic Adviser Customer Focus Group Workshop ERGEG Helsinki 11 October 2005.

Energy liberalisation -the consumers’ perspective

Dominique Forest

Senior Economic Adviser

Customer Focus Group Workshop

ERGEG

Helsinki

11 October 2005

Energy liberalisation - the consumers’ perspective

BEUC:

• founded in 1962

• 40 member organisations

• in 29 countries

Sectoral Legislation Directives 2003/54 (electricity) and 2003/55 (gas)

• Art 3: Public service obligations and consumer protectionUniversal Service Obligations

§3 ‘Member States shall ensure that all household customers, (…), enjoy universal service, that is the right to be supplied with electricity of a specified quality within their territory at reasonable, easily and clearly comparable and transparent prices’. Not the same for gas.

• Annex A Measures on consumer protection

These provisions SHOULD BE in force already, although the deadline for opening up the market for domestic consumers is 2007.

‘  Energy liberalisation - the consumers’ perspective

BEUC position on the Energy package• Need for an accelerated liberalisation

• positive experience countries with eligible private consumers

• captive consumers/cross-subsidisation

• Consumers rights and USOs• consumer rights essential• Universal Services Obligations• addressing poor consumers needs

• Need consumers involvement, independent NRAs

‘  Energy liberalisation - the consumers’ perspective

Consumer rights translated into USOs

Universal AccessAffordabilityChoiceQuality (safety, continuity, security of supply)Transparency and full informationIndependent regulationRepresentation and participationRedress

(European Consumer Consultative Group 2000)

‘  Energy liberalisation - the consumers’ perspective

Universal access

• Directive 54/2003 (electricity)

Art 3(3) All household consumers `have the right to be supplied with electricity`

Art 3/(5) `Member States may take measures to protect final consumers in remote areas`

Compulsory connection in many Member States.

Not a major problem yet?

‘  Energy liberalisation - the consumers’ perspective

Universal access

• However, when costs are to be borne by the consumers, consumers living in remote areas may face difficulties

• There is a lack of meaningful legal protection: derogations from the obligation to connect are in place

• Germany: ‘if economically feasible’

POTENTIAL THREAT BECAUSE OF THE LEGAL LOOPHOLE

‘  Energy liberalisation - the consumers’ perspective

Universal access

• Directive 55/2003 (gas)

Art 3(3) ‘Member States shall take appropriate measures to protect final customers and to ensure high levels of consumer protection, and shall, in particular, ensure that there are adequate safeguards to protect vulnerable customers, including appropriate measures to help them avoid disconnection. In this context, they may take appropriate measures to protect customers in remote areas who are connected to the gas system. Member States may appoint a supplier of last resort for customers connected to the gas network ’

No obligation to connect for gas

‘  Energy liberalisation - the consumers’ perspective

Universal access

• Natural gas cheapest and most efficient fuel for domestic heating. But lack of access to mains gas of vulnerable consumers/living in remote areas

• UK: a gas transporter is only obliged to make a connection if premises within 23 metres from a main. 20% of households have no access

• 28% of these were in fuel poverty

‘  Energy liberalisation - the consumers’ perspective

Universal access

‘  Energy liberalisation - the consumers’ perspective

Costs of connecting a new house to the Belgian electricity and gas network

minimum maximum Average

Electricity 274 € 880 € 707 €

Gas(*) 0 € 698 € 410 €

(*) = Standard gas connection is free of chargeSource: Test Achats November 2004

Connection takes several weeks from the initial request

Universal Access• Disconnection

(electricity) Art 3/5 MSs `shall in particular ensure that there are adequate safeguards to protect vulnerable customers, including measures to avoid disconnection`.

(gas) Art 3/3 Member States shall (…), in particular, ensure that there are adequate safeguards to protect vulnerable customers, including appropriate measures to help them avoid disconnection. In this context, they may take appropriate measures to protect customers in remote areas who are connected to the gas system.

Two dimensions:

• How easy it is for companies to disconnect?

• How difficult is it for consumers to be reconnected?

‘  Energy liberalisation - the consumers’ perspective

Universal Access• How easy it is for companies to disconnect?

• Poland, Hungary: relatively easy. – Hungary: consumers can be disconnected after 60 days of

non payment. Poland: one month (two weeks advance notice)

» No safeguards for vulnerable consumers.

» Reminders can be expensive

• Need to differentiate between can’t pay consumers and the ones who could afford to do so. In Belgium and the Netherlands, social services have to be involved before disconnection

‘  Energy liberalisation - the consumers’ perspective

Universal Access• How difficult is it for consumers to be reconnected?• Normally tied to the settlement of the full debt +

payment of disconnection/reconnection fee and interest (Nl, Pl, Hu, UK). UK: can be in the region of £200-£300 whilst average debt is £150

• Sometimes long reconnection times/cumbersome procedures. UK (2003): average reconnection time of a week or less in 66% of cases for electricity and 53% for gas – for gas in 23% of cases more than a month

‘  Energy liberalisation - the consumers’ perspective

Affordability

• Electricity: Art 3 (3) `Member States shall ensure that all household customers […] enjoy universal service, that is the right to be supplied with electricity of a specified quality within their territory at reasonable, easily and clearly comparable and transparent prices.`

• Gas: Art 3 (3) ‘Member States shall take appropriate measures to protect final customers and to ensure high levels of consumer protection, and shall, in particular, ensure that there are adequate safeguards to protect vulnerable customers‘

• Affordability should be specified more : Any definition should include ALL costs and be linked to living standards.

• No clear legislative guidelines – sometimes prices have to be reported to the NRAs and prices cannot be ‘unfair’ (Poland). Nl: no legal definition of affordability but ‘unreasonable tariffs’ prohibited. Italy: periodical review of tariffs. UK: no definition

‘  Energy liberalisation - the consumers’ perspective

Affordability

• Vulnerable consumers: no social tariffs in Nl/D. Exists in B. Too cumbersome in Italy. UK: EdF and Scottish and Southern would introduce this + Staywarn (Powergen)

• Price caps: do not seem to be in place in most Member States (except B). Accompanied energy liberalisation in the UK

• Block-price system (H) not adequate (consumption≠needs)

‘  Energy liberalisation - the consumers’ perspective

Affordability - Billing and payment methods• Problems with estimated billing and infrequent billings (UK: no

obligation on supplier to bill regularly or of actual meters reading. Most consumers pay a fixed sum + annual reconciliation (Nl: every three years). Infrequency of billing, inaccuracy and failure to record consumers own read of the meter), and complicated billing may render switching difficult.

• Spain: case of excess measurement due to metering equipment (14% had more than 4% error in favour of the energy supplier) Hungary same problem. Italy: wide electricty meter replacement programme

Planning and controlling one’s consumption is therefore difficult

‘  Energy liberalisation - the consumers’ perspective ‘  Energy liberalisation - the consumers’ perspective

Affordability - Billing and payment methods

• Some payment methods cost more than others (Prepayment meters) + lack of access to cheaper payment methods (direct debit – in the UK 30% less expensive). Problematic for vulnerable consumers. Nl: only two payment methods are offered ≠ ‘wide range’ as in Annexes of the Electricity and Gas Directives. No prepayment meters in Spain

• Payment defaults seem to be largely unregulated (cost of reminders, payment rescheduling) (D, B: costs for reminders)

‘  Energy liberalisation - the consumers’ perspective ‘  Energy liberalisation - the consumers’ perspective

Transparency, Information

• Information on prices in liberalised markets

• Information on sources of energy (Art. 3 (6) of Dir 54/2003)

• Information contained in terms and conditions of contracts (Annex A of Dir 54/2003)

‘  Energy liberalisation - the consumers’ perspective

Transparency, Information• Spain: problems with terms and conditions (no

adequate information about service/refund/compensation and abusive clauses).

• Italy: abusive clauses.

• Poland: only information about payment conditions,

• B: information on prices is complex + no compensation in case of default

‘  Energy liberalisation - the consumers’ perspective

Choice

Effective competition? • Unbundling, TPA• Independent regulators (Art 23 of Dir 54/2003)

• Possible obstacles to and problems with switching

‘  Energy liberalisation - the consumers’ perspective

Choice• Benefits for consumers: in the UK, 50% of

consumers have switched (stable rates at a high level). First time switcher on average can save between £79 and £126 by switching to dual fuel, £92 by switching gas supplier and between £20 and £47 by switching electricity supplier

• Belgian case

‘  Energy liberalisation - the consumers’ perspective

‘  Energy liberalisation - the consumers’ perspective

149

144148

142140131129127119109100

0 50 100 150

Germany

Netherlands

Wallonia/Brussels

Portugal

Italy

Average

Flanders

Spain

France

Lux

UK

Electricity bill for an annual consumption of 3,500 kWh (purchasing power index) (Test Achats)

Choice

• Key obstacles to switching: lack of awareness, lack of comparable and objective information, inefficient procedures (debt blocking, delays – D, UK, B)

• Pb consumer confidence: limited savings (Nl), lack of unbundling (D, Nl), door to door selling (Nl, UK), sales over the phone (Nl, B), less protection on the liberalised market (Spain)

‘  Energy liberalisation - the consumers’ perspective

Regulation, Representation and Redress

• Need for independent regulation

• Active participation of consumers (H, B only opinions), sectoral watchdogs (only in the UK a consumer watchdog)

• Redress mechanisms: Complaints, ADR (Nl positive experience)

‘  Energy liberalisation - the consumers’ perspective

The European Consumers Organisation Bureau Européen des Unions de Consommateurs

Avenue de Tervueren, 36 -1040 Bruxelles Tel: 0032 2 743 15 90 - Fax: 0032 2 740 28 02

Email: [email protected] www.beuc.org