EURELECTRIC WG Retail Markets

Presentation for ERGEG Customer Focus Group

Helsinki, 11 October 2005

The Work of theEURELECTRIC WG Retail Markets

• Develop strategic views on retail issues, in order to facilitate the functioning of retail markets, in particular for households and small businesses

• Identify the barriers which still exist in retail markets• Discuss the means to supply retail customers across

borders in order to develop enlarged retail markets• Establish relevant links with the wholesale markets• Develop a report on the current functioning of European

retail markets and on the way forward towards larger retail markets (roadmap)

• Promote awareness within EURELECTRIC of the implications of retail issues

• Co-operate with regulators and other associations on retail issues

The Retail Market, what is it?

• The Retail Electricity Market is the market which brings wholesale energy to consumers

• The Retail Market connects end customers with wholesale energy market pricing

• Structures need to favour bringing flexible and economic contracts to consumers

• Companies, authorities and ultimately the customers need to understand both the wholesale and retail structures– What are the options that favour competition?– What are the fundamentals that make the market interesting for

investors, resellers and consumers?

Well functioning electricity market

Small customers

Competitive businesses

DistributionRegulated monopolies

Transmission and system services

Large customers

Retail business

Wholesale market

Retail market

Retail marketGeneration

Access

PriceSupply Demand

Access

Margins

End customer demand

Supplier offers

Issues facing the industry

• Market model education of all parties• Easy switching and clear billing• Customer and metering point identification• Impartial energy balancing mechanisms and

exchange of metered usage data• Successfully connecting the retail market with a

working wholesale pricing mechanism – Requires wholesale product compatible time resolution in

metering and balance settlement, working standards– If you cannot buy it on the wholesale market, you cannot sell it

on the retail market

• Alignment with other industries on customer protection

Industry standards needed

1. For wholesale level, standards necessary on European level

– As wholesale markets become more and more European, markets will not work without joint rules

2. For retail markets, European-level standards are also preferred

– Industry can achieve cost savings by adopting common models and standards, which will allow companies to work in various markets

Companies working directly with customers are in the best position to design procedures and best practices, however support from and strong collaboration with the authorities is needed.

Procedures:– Harmonized procedures for

• Customer identification by unique customer ID• Delivery point identification• Ownership of master data• Supplier switching and moving• Metered data reporting (frequency of readings, reporting time frames,

reconciliation procedures etc)• Balance settlement

– Common standard and technical solution for retail data exchange

Customer interface– Clear terminology used in customer communication– Clear principles/criteria for price comparison

Working in a retail market

• Wholesale markets are the driver for market integration, without them true competitive pricing is hard to establish

• Regional wholesale markets a necessary intermediary step towards a pan-European market

• Flexibility of regional markets important, provided that they do not develop in different directions

“Integrating Electricity Markets through Wholesale Markets: EURELECTRIC Road Map to a Pan-European Market”

A well functioning wholesale market enhances market efficiency

• Efficient balance between supply and demand

• Lower entry barriers to generation and retail; large customers have direct access to the market

• Increased competition by market integration

Pan-E

uropean market

Road Map to a European Electricity Market: parallel approach (timeframe for wholesale market)

Integration on European level 2007-12

Coordination between regions 2005-10

Development within regions 2005-09

Continued liberalisation of national markets

2005-07

Key benefits of extending end-user markets

• Increased freedom of choice

• More power to influence

• Fair and transparent pricing

• Better offerings

• Better service

• Higher quality and security

• Developing into a modern innovative industry

• Enabling harmonization of taxes and environmental issues

• Higher efficiency

• Higher quality

Benefits for customers

Benefits for the industry

Increased customer satisfaction and credibility of the power industry

Benefits for the society

• Increased competition

• Transparent electricity market

• Environment improvements and energy efficiency

• Savings in the power system

Finding scope for Retail Markets:Prerequisites & Enablers

• Law makers and competent authorities have to commit and support a chosen

scope for a retail market to successfully open• Wholesale market defines the relevant cross national physical electricity market• Need for common balance and settlement mechanism • Without a common wholesale market there is no base for a retail market as

different structures and pricing mechanisms lessen the business initiative• Market design:

– Design should support underlying wholesale market: Contract limitations; Metered data format and data exchange time frames; Pricing limitations

– Equal distribution grid access: grid fee allows end customers to access the entire relevant cross national physical electricity market; grid fee is not dependent on the choice of supplier

– Harmonized roles and responsibilities of the market participants in all countries: customer, distribution company, supply company; power exchange, TSO, balance responsible, regulating authority

– Harmonized regulation of distribution business– Supportive and harmonized national legal framework and supervision

Enabling Retail Markets• ERGEG CFG focal points:

Supplier switching practices Ensuring price/contract/information transparency Providing adequate customer protection

• EURELECTRIC WG RM main areas of work: – Roadmap for well-functioning retail markets: work started– Supplier switching: Good Practices Guidelines (2004); further work is

forthcoming• A basic business model provides a good base for implementation

– Price transparency: reflection started in early 2005; work is on-going, • Separate transparency for comparison and transparency between contract and

bill, don’t limit the variety in offerings– Customer protection: some aspects dealt with in the 2004 PSO report; work

is on-going• What is the scope for specific electricity market customer protection

mechanisms?• The customer should enjoy similar protection that is available in other markets

further results in all main areas to be expected retail market questionnaire, forthcoming report results & preliminary findings are shared here in next slides

EURELECTRIC Guidelines for Customer Switching

• In response to European Commission “Strategy Paper”:

– “EURELECTRIC and CEER should develop good practice principles for customer switching”

• Aim of guidelines:– To suggest general high-level principles for customer

switching– To provide guidance for companies when designing

customer switching systems– To provide necessary consensus over practices, as a basis

for standardisation work and continued cooperative work with the regulators

Switching process

• Start of process: contact new supplier only• Meter readings by customers should be accepted• What to do if customer wants to switch, but is on fixed-term

contract?– Must understand what fixed term means– Either block switch or let old supplier collect losses of unfulfilled

wholesale contract– If neither, customer will pay higher price as risk insurance, whole

concept loses business sense for both customer and supplier

• Time for switch to take effect must not be too long: 30 days should be the maximum– Effective systems and adherence to standards will shorten this time

• Supplier of last resort– Need for information on potential load

• Electricity and gas: convergence in processes, ease in implementing joint solutions

Supplier Switching

• EURELECTRIC will closely cooperate with CFG in the development of best practice propositions following the mandate of the EC Strategy Paper

• Overall picture of the retail market necessary as the basis: switching rates are not only indicator for a functioning retail market

• Parallel approaches of ERGEG and EURELECTRIC on the supplier switching process EURELECTRIC Guidelines for Customer Switching already exist as a base

• EURELECTRIC WG Retail Markets issued similar questions to WG members Results will be integrated into a broader EURELECTRIC report

• Co-operation of all relevant stakeholders (also including the Member States) needed in order to achieve further progress in the development of retail markets

• Electricity industry is committed to further improve market functioning

Data exchange

• Each metering point must be uniquely identified

• Relevant customer data must be made available to supplier of choice:– Metering point ID– Meter reading– Consumption history– Load profile if applicable

• Data exchange must be described and documented in each market, including error handling processes

Price transparency• Price transparency important for the customers in the free market

– When making choices and comparing offers– When comparing contract and bill– Brings support for rational decision making and trust in the market

• Implementing price transparency - some basic principles– must not limit variety of offerings - share of competitive offers and special offers are

increasing– important to communicate offering features and risk profile– Contact components and bill structure needs to be coherent – limitation in metering

frequency an issue• The industry makes efforts to enable customers to choose and

compare– Efforts by the companies to provide relevant information in various customer contacts– Provision of support for customers to calculate costs and cost risk

• How to make it happen? Some issues to consider: • agreed common criteria for price transparency?• national regulations, often different from country to country:

• on consumer price information• on national taxes • on social policy and PSO• on environmental protection, labelling• quality and grid service, etc.

utilise best practices look for references from other sectors

Price Transparency & Price ComparabilityWhat are these?

• legal requirements set out in the directive 2003/54/EC

• essential elements of a well- functioning market

• empower customers to become active

• form part of supplier communication strategy and a competitive element

How to measure price transparency & comparability?

• price transparency: what are the criteria?• price comparability: what are the

criteria?• Is basic price structure comparable? • consumption / consumption site

characteristic must be taken into account when comparing prices

• Allow variety in offers and products

What is sufficient information?Sufficiency from the point of view of:• Legislators (Laws, Regulatory Authorities, Ministry,…)• Suppliers / Distributors

– Must obey the law and regulations– Have their own budget [can they afford to use all communication

channels, advertising in press and on TV etc. ?]– Feedback from their customers gives them the picture of

sufficiency [number of claims, calls demanding additional information, number of contacts per year/customer etc.]

• Customers– Are the bills clear? Is the customer satisfied?

Final judge must be the consumer! Customers’ feedback is essential for companies:

– number of complaints– number of demand for additional information – contacts & inquiries/year/customer

Roles of important market participants concerning prices and billing:

• Regulators• Suppliers• Distributors• Customers

Basic issues to be overviewed:• Do they give/get sufficient information on prices & billing?

– Are responsibilities and obligations fulfilled in compliance with the legislation ?

• What are the most common means of communication ?• Is the feedback from the customers sufficient to keep or

improve the current state ?– Are the prices and bills understandable ?

Communication Channels I

• Communication channels and the level of their usage [how widespread they are] differ from country to country– Number of phones/mobile phones per customer and

prices of telecom services– Penetration of internet into households– National traditions– Number of local customer offices per eg.100 000

consumption sites– Information technologies [Customer information

systems-CIS, Customer Relationship Management systems – CRM, etc.]

Communication Channels II

• From the supplier’s point of view: – Must be the cheapest [one phone call to

the call center is approximately 3 times cheaper that one personal visit to the customer local office]

• From the customers point of view:– Must be available [accessible] in the

easiest and most comfortable way– Must be at reasonable price

Customer Protection IRequirements set out in the directive 2003/54/EC & Annex A • what information a contract has to cover • change in tariffs and conditions shall be promptly notified• price & tariff information need to be transparent• standard terms & conditions to be clearly communicated• wide range of choices of payment methods• switching should be free• simple, transparent, inexpensive procedures for dealing with complaints• universal service related rights need to be clearly communicated to

consumers

EURELECTRIC work on-going: What is the scope for specific customer protection requirements for electricity on

Annex A issues? What companies do and can do more?

Annex A requirements are part of companies’ customer service and communication strategies

Skills and capabilities to provide wider range and more customers friendly services on billing, payment methods, customer services and complaint handling are essential elements of business strategies on a competitive market

Customer Protection II Aspects of public & universal service obligations

• EURELECTRIC report in 2004 – partly covered issues of consumer protection to the extent they relate to public service and universal service. Main conclusions:

a well-maintained competitive market is the best place to guarantee high-level customer protection.

minimum standards of universal service comes under the ambit of customer protection, but not PSO

companies compete in providing high quality services to develop their market position. These services include, as experienced in other competitive sectors, transparent and user friendly billing systems, wide choice of payment methods, fair contract terms and prompt information via call centres, modern marketing techniques and advanced customer services in repair, maintenance, and complaint handling, etc.

Governments have responsibility in clarifying social tasks and responsibilities. Social functions of energy companies ensured in the past are not sustainable in the liberalized market

Companies are willing to provide services of public interest, even if they are not sustainable in the market, but fair compensation should cover their additional costs and a normal return