Consumers problems

1. Regulatory intervention versus market driven forces in retail marketsMihaela Indre, Lusine Caracasian - ANRE Strengthening the Role of Energy HOUSEHOLD CUSTOMERS in Liberalized Markets and during THE market building process Joint CEER – ECRB – ERRA Workshop 9 October 2013

2. Consumers problems Usually consumers are facing the following problems: • unfair commercial practices, • complexity of bills and calculation basis for bills, • information, • comparability of offers, • switching, • pricing.

3. Electricity prices – EU versus ERRA countries

4. ERRA countries • Concentrated retail markets • Relatively low residential prices in most countries • Market based industrial prices higher than regulated residential in many of ERRA countries • Gradual rather than sudden rebalancing due to political unacceptability of large price shocks • Existing options for transition to a competitive market model: • Tariff based solutions – regulated tariffs for certain well defined consumer groups • Non-tariff based solutions – typically introducing a social security system • Less tradition in market economy, less believe in competition, high end-user energy prices on purchase parity calculation, less effective social safety net

5. Introduction of competitive markets – lessons learned (1) • The introduction of a competitive energy market may result in price increases for certain customer groups (especially when the former regulated prices did not reflect real costs of networks and market based commodity prices). • Special attention should be paid to safeguarding the socially and physically vulnerable, who are a group of customers that have less bargaining power and need assistance in the new market conditions

6. Introduction of competitive markets – lessons learned (2) • The alternatives other than regulated end-user prices should be used in protecting certain vulnerable customers: • - different energy taxes or VAT based on, for example, income, geographical conditions, • industry situation, competitive situation; • subsidies either proportional or lump sum; • - social benefits.

7. Role of the regulator in competitive markets • Accessibility of the service – new operators, market players could find unattractive to offer the service to all consumers (small users, disadvantaged geographical (remote) areas) • Affordable price – cross subsidies are removed; • Information on choices – information is needed to choose between different offers + efficient use of energy

8. Case study - Romania Structure of the electricity retail market (1) Number of customers – 9.559.875 73% of the consumption covered by competitive market Consumption – 45.985 GWh Average consumption for households – 119 KWh/month

9. Structure of the electricity retail market (2) * Percentages from total consumption But: Households have not changed the supplier 26% of the industrial/commercial consumption is still regulated

10. Social tariff in the electricity sector • Around 13% from the households (1,118,809) have social tariff • Households are not attractive for suppliers due to their small consumptions (for households with social tariff less than 53 kWh/month - 41% of households‘ average consumption)

11. Evolution of the electricity retail prices (1) • In March 2012 the road-map for phasing out the regulated prices on the retail market was approved by the Government • The gradual phasing out of regulated tariffs begins on September 1, 2012 for non-household customers and on July 1, 2013 for households. The process will end on 31 December 2013 for non-households respectively 31 December 2017 for households. The first four stages of the road-map have already been applied by increasing the percentage of the electricity purchased by the Suppliers of Last Instance - SoLIfrom the competitive market for the final customers which are not using the eligibility rights

12. Evolution of the electricity retail prices (2) • According to the road-map it was introduced the obligation for suppliers providing regulated tariffs to purchase a certain percentage of electricity supplied to consumers from the competitive market. The percentage will gradually increase according to the proposed schedule until the energy acquisition price will be equal with the market price • The tariff component that reflects the cost of purchasing electricity from the competitive market was introduced on the bill of all consumers which are still under regulated tariffs (in the first phase for industrial ones) • Advantages of the gradual phasing out process: • Reflects the performance of the supplier on the competitive market; • Inform consumers about the existence and development of the competitive market, including performance of its own supplier; • Reduce the financial risk of suppliers given the opportunity to updated quarterly the tariffs component that reflects the cost of electricity procurement from the competitive market; • Allows gradual implementation of competitive prices for every type of consumer, avoiding significant spikes of electricity prices to final consumers; • Reduce or eliminate the risk of rising prices on the wholesale electricity market. • ANRE Order 30/2012 describes all the details for the process of phasing-out regulated tariffs establishing responsibilities and tasks for: SoLI, DSO and regulator • Law 123/2012 introduced the obligation to conclude electricity transactions only on centralised markets in order to increase the transparency on the wholesale market • An aggregation of the households seems to be necessary to make them more “attractive” for suppliers. This right is stipulated in the Law 123/2012. • Introduction of smart metering as a step to encourage demand response

13. Evolution of the electricity retail prices (3)

14. Additional measures for customer’s empowerment • The removal of regulated prices will be accompanied by some additional measures such as: • better consumer choice by having web comparison tools in place (allowing reliable, comprehensive, and easy ways to compare suppliers), • adopting standardised factsheets for each retail offer, • promoting systems/platforms fostering collective switching, • protection of vulnerable customers through direct subsidies, • alternative contractual dispute resolution mechanisms, • smart metering.

15. Universal service • According to the provisions of 2009/72/EC Directive • ” Supply with electricity of a specified quality within the Member State at reasonable , easily, clearly comparable and transparent prices” • Subjects: • „household customers”, and (where member states deem it appropriate) • „Enterprises with fewer than 50 occupied persons and an annual turn over or balance sheet not exceeding 10 million.” • The Romanian households clients and the business with a total annual turn over up to 10 million Euros represent about 35% of the total electricity consumption • There is a conflict between the number of employees and the annual turn over there are many businesses with much smaller than 10 millions but more than 50 employees representing institutions with important social impact (hospitals, schools, universities, social assistance and others) . • ANRE intends to implement universal service using a market approach for the determination of tariffs

16. Final remarks • Even after the full liberalization of the electricity market and after the total elimination of the regulated tariffs the regulatory authorities will play an essential and very important role • The regulations must be restricted to a minimum level but taking into account the complexity and the size of the electricity market processes, the monitoring an the competent intervention of the regulator will be always challenging for optimal market operation • Weak economical signal sent by competitive suppliers to the customers reflects a lack of culture in price mechanisms • Retail markets regulations must carefully take into consideration the liberalization social costs and the impact of market liberalization on social stability

17. Thank you for your kind attention! www.erranet.org mindre@anre.ro; lcaracasian@anre.ro