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Vade mecum for beginners – what all of us should know about the consequences of full market opening

Mariola Juszczuk

 

 

With reference to freedom of choosing the energy supplier all Polish citizens may be regarded as beginners. Many European countries are in the matter well ahead of us, though in fields like banking, mobile telephones, car marketing or everyday shopping Polish experience has been positive. Soon also in the power sector all of us will have a chance to benefit from the emerging competition.

 

Changing habits

 

Due to the energy policy of the European Commission since July 1st 2007 all the Polish energy consumers will have the right to choose freely a supplier of electricity and gas. Though it is quite difficult to imagine, this new situation will be a revolutionary step. Until recently, customers got used to being supplied with energy by a distribution company with no trace of awareness that the supply might be organised in a totally differently way. Some years ago competition in other fields was also a new phenomenon but positive consequences became obvious very quickly. Similar changes and satisfactory results may also be expected in the power sector. However, to be able to enjoy positive aspects of competition consumers should first of all understand its nature, their rights and duties. As the process of elaborating regulations referring to the subject matter has just started and the public opinion got the chance of participation, it is worth to put some effort and influence the scope of cutomers’ rights and obligations. Of course, experience gained by other European countries is also worth studying. So, let’s learn from them by being open-minded and keep ready for changes!

 

Market in the power sector

 

Electric energy is a very unique product. It cannot be stored. It must be consumed almost at the very moment of generation.Electric energyand gas must be supplied to customers by transmission and distribution companies. A general rule for the energy sector – the third parties access (TPA) to transmission and distribution grids for all customers and suppliers will bring to the customers the right to buy energy from different competitive sources. But it does not mean the right to choose a transmission or distribution company. These entities will remain, due to the nature of their activity, regulated by appropriate bodies of the state administration.

 

Do you know your rights?

 

The presence of competition for almost 8 years in Britain and Scandinavian countries, and for 1- 2 years in the Netherlands, Austria, Denmark and Spain, has brought a lot of benefits to their citizens. Poland, implementing the law of the European Community into the Polish legal system, also joined the EC legal energy framework. According to these solutions all European customers have a guaranteed right to:

 

  1. Receive transparent information on actual prices.
  2. Choose payment methods .
  3. Obtain notification on price rises immediately after its introduction but not later than one billing period after the increase comes into effect.
  4. Have determined in a contract :
    - the term of starting the service,
    - quality of service and compensation scheme if failing,
    - conditions of renewal, expiration and the duration of a contract,
    - dispute settlement scheme
  5. Withdraw from a contract if new conditions are not accepted by a customer.
  6. Be protected against dishonest or misleading methods of sales.
  7. Change a supplier free of charge.

 

Over the last few months Polish media have witnessed an information campaign on general customers’ rights. The same should be done for the power sector. If we - Polish customers understand our capabilities, monopolies won’t cheat us. What is the present state of play? Let’s make a simple test. Dear customer, look at your electricity or gas contract. Presumably you will have a lot of trouble to find much relevance to the statements enumerated above. Even if there is some, the terms and conditions included in the contract seem to protect interests of suppliers but not customers’. What could help us then? Media campaigns – well, rather not, monopolies are quite immune to it. Maybe super-detailed legislation? Doubtfully. In fact it can be done via competition. A growing number of poorly served customers may become a threat of bankruptcy to suppliers – the fact unbelievable until recently in the power sector but probable to become reality quite soon. So, how to deal with the freedom to choose an energy supplier so as not to be tricked out by the energy enterprise? Let’s learn the basics.

 

Switching a supplier – how it works?

 

In many countries, if you are not satisfied with the price or quality of supplies you can easily give up your old supplier. What you have to do is:

 

  1. To sign a contract with a new supplier (in some countries you are obliged to inform your old supplier, for instance in writing).
  2. To check if all the bills from the old supplier have been paid (in some countries a non-payment can block switching process).
  3. To send actual meter reading,
  4. To check, for your own good, if the new and the old supplier, issuing the first and the last bill, used the same actual reading.

 

Other complicated issues, like data exchange and confirmations are performed by the old and new supplier. The only thing you have to do is simply to sign a contract. In many countries there are highly specialised entities which transfer the data necessary for a switching operation.

The time necessary for switching a supplier varies in Europe, from 5 days in the Netherlands to two months in Denmark and Norway. In some countries, like Great Britain or France,
a customer may withdraw from a new contract without any consequences within seven days (that’s so-called ‘cooling-off period’). The solutions concerning the date of switching also differ significantly. In Great Britain or France you can change a supplier any moment, but in Austria, Denmark or Sweden you have to wait for the first day of a month.

 

Why to change a supplier?

 

The most obvious reason for switching a supplier is, of course, the price. The quality of services, market awareness of customers and aggressive marketing also play an important role. The most active are Britons. 26 million customers (out of 47 million) have changed the supplier of gas or electricity (that stands for almost 150 thousand per week!) since the introduction of liberalisation. In Norway - 1,6 million out of 2 million, in Austria 122 thousand out of 4,8 million and in Denmark 120 thousand out of 2 million. In terms of percentage it means that almost 50% of customers in Britain have switched, with respectively only 4% in Denmark and 3% in Austria. Even the figures above clearly indicate difficulties in making multifaceted assessment of the switching process. To compare the resulting benefits one has to consider taxes, local level of prices, purchasing power, consumption structure, etc. In the end of the day it may turn out that the trial of comparison is done on the basis of incomparable. However, the European-wise review shows that in Finland an average household using electricity for heating, consuming 18 000 KWh yearly could save in the 2002 – 2004 period about 410 Euro when switching from the most expensive supplier to the cheapest one. In Britain an average consumer using 3 300 KWh could save from 18 to 45 pounds per year on electricity and from 10 to 78 pounds on gas. A consumer who wanted to receive gas and electricity from one supplier could save up to 126 pounds. The lowest gains were in Denmark, from 20 to 60 Euros, mainly due to very high proportion of taxes in final prices. No matter the level of saving the customer may do, one is for sure. It always pays to switch a supplier. From British example we may learn that many energy undertakings fighting for new customers offer them better conditions than to old ones (the customers who switched over 1998 –2002 in Britain saved 22 – 26% of payments while those who kept passive – only 14 %).

 

A wide choice

 

Customers in the EC member countries are offered numerous options to save. Those whoprefersignificant discounts can obtain even 25% reduction on the energy price. Those who would like the prices to be guaranteed for a longer period (for instance pensioners in the UK), can also find offers that suit theirs needs. Energy companies in Europe have developed loyalty programs offering discounts on cheaper Internet connections, telephone conversations or even services not related the profile of the activities conducted, for example cheap flights, foreign travels, alarm systems installation, etc. Of course, aggressive promotion campaigns are the core actions aimed at capturing new clients. They include press ads, television and radio commercials, promotions in supermarkets, telephone offers etc.

 

Who can help?

 

In some countries the number of suppliers is so high (for instance over 130 in Norway) that the comparison of their offers requires special Internet applications offered on web pages by consumer organisations (Sweden), regulatory bodies (the Netherlands and Austria) or private companies (Great Britain and Denmark).

In the countries, where market solutions have been introduced, customer protection system is a priority. In some - the price rise notification period has been established. In others - the bill item formula has been defined via governmental regulations or sector arrangements. The other form of consumer protection is the establishment of the institution of supplier of last resort, not to mention numerous consumer organisations and watch bodies that not only protect consumer rights but also deal with dispute settlement.

 

 

 

 

Will we face the same?

 

As a result of competition one day we might follow the scene pictured below. John Smith after reading an ad in his favourite newspaper or watching a TV commercialdecides to change a supplier. He checks the offers that suit him in the Internet or at a call centre. Thanks to information brochures and mass media he is also aware of how long the operation will take and in case anything goes wrong – whom to blame and who refer to .

 

The Polish way

 

In Poland not much has been done in this matter and in the nearest future many challenges still await all the actors of the liberalization. Nothing has been decided yet, neither the switching model, nor standards in the switching procedure, nor the consumer protection tools. But beforehand the State must elaborate institutional and legal framework. Two prerequisites are absolute necessity:

  1. the ordinance defining uniformed switching procedures for the territory of the whole country;
  2. introduction of separate transmission and supply contracts that would make the switching procedure easy and smooth.

 

The importance of the state authority in the process can not be underestimated. But still much space is and will be left to customers. If we want to achieve positive results in competition, we must be active. That is the best way to put pressure on energy enterprises and to have our rights and expectations met by policy- and procedure-makers. Let’s be active and do not fear the switching of supplier. Then, for sure, all of us will benefit from liberalization and possibility of the energy supplier changing.

05.08.2008

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