No place for end-user price regulation in Europe


Brussels, Belgium — (METERING.COM) — July 25, 2007 – End-user price regulation in electricity and gas markets distorts the functioning of the market and jeopardises both security of supply and efforts to fight climate change, therefore end-user price regulation in Europe should be abolished, or where appropriate, brought into line with competitive market conditions.

This is the view expressed by the European Regulators’ Group for Electricity and Gas (ERGEG) in a new Position Paper on end-user energy price regulation. From July 1 electricity and gas markets in member states in Europe were fully opened for all customers, including households, but even after this deadline, some states were seeking to regulate end-user energy prices (so called “regulated tariffs”), arguing that it is a tool to protect vulnerable customers. However, protecting “vulnerable customers” should not be confused with regulated tariffs for all, or certain categories, of customers ERGEG says. Fully open markets with well functioning competition cannot in the long term coexist with regulated end-user energy prices.

ERGEG found that, as of June 2007, 17 of the 27 EU member states concerning electricity and 9 member states concerning gas with partially or totally open markets, had end-user energy price regulation in at least one open market segment (i.e. not only to households and small business but also to those large and industrial users who since July 1, 2004 were eligible to procure energy on the competitive market). In most of these member states the share of eligible customers on regulated prices was more than 80 percent in each open market segment.

Nevertheless, protecting “vulnerable customers” remains necessary in competitive markets, and the tools used for this must work in line with and support the prerequisites of open, competitive markets, says ERGEG in the Paper.

Transition periods towards well functioning competition, i.e. with co-existence of regulated and market prices, may be necessary to protect customers from potential abuses of dominant positions. ERGEG calls on all countries which are in a transition period to publish, by July 1, 2008, an individual road map with specified steps towards competitive markets to remove regulated prices. These steps taken during the transition period should be monitored both at national and EU levels.

It is recognised that in some countries, although in theory the market is open, in practice there may still be only one supplier and a consequent lack of choice for consumers. Even then, regulated end-user energy prices should only continue for as short a duration as possible, so as to enable effective competition to develop, ERGEG argues. In member states where there is only one supplier those member state governments and regulators are urged to act rapidly so as to create an environment to attract the new entry of suppliers.

ERGEG considers that consumers also have a key role in stimulating competition between suppliers by “shopping around” for the best value and exercising their right to choose. But first, consumers must know what their rights are, and to this end ERGEG is supporting the European Commission in a major awareness campaign to explain to energy customers their rights and to better understand how to change supplier.