Switching in European gas retail markets

Brussels, Belgium — (METERING.COM) — May 2, 2007 -The switching rate of small commercial and household customers in the gas retail market is still low in most European Community countries, despite a number of substantial measures having been taken to enhance it.

According to a new study by the European Regulators’ Group for Electricity and Gas (ERGEG) aimed at identifying obstacles to switching, rates were 20% or lower in 14 of the 19 countries in which the gas retail market has been opened, with the lowest including Poland on 0% and Ireland and Italy both on 1%. However, there were exceptions, with a switching rate in Great Britain of 47% and in Spain of 47.7% in the commercial and industrial sector but 17.1% in the residential sector.

The study identifies four categories of obstacles, concerning practical rules for market opening, customer information, the switching process, and liveliness of competition, and suggests guidelines of good practice for overcoming these.

Concerning common practical rules for market opening, regulators should address the aspects of the relationship between distributors, suppliers and customers, including rules, responsibilities, contractual arrangements, data exchange agreements, commitments to customers, quality guarantees, etc., and they should enhance customer protection through good information and clear procedures vis-à-vis possibly aggressive commercial practices or mistakes.

In terms of customer information, customer understanding of the reasons for gas price changes should be improved. Present concerns about gas price increases show that consumers have no clear understanding of price change mechanisms, especially when announcements of high suppliers’ benefits come along with price rises. This implies a surveillance duty for the regulators or other relevant public body, since a lack of transparency regarding prices can damage the confidence that customers may have in the market.

At the supplier information level, there must be non-discriminatory access to a list of existing and new connections for all suppliers.

As regards the switching process, the entity responsible for meter values must improve and, if possible automate access to past and present consumption data of their customers, and a unique Delivery Point Identification Number should be the key on which every exchange should be based. This requires the availability of this identification number both on the invoices that customers receive from their supplier and on the meter.

According to the study a prerequisite for customer confidence is a well functioning switching process. Advanced meters which are automatically read should not be a prerequisite for the customer’s eligibility to switch, and metering should not be an obstacle for switching. In a dynamic retail market with high mobility, however, it is recommended that the meters are read upon switching, either by the distributor, who in most member states is responsible for meter reading, or by the customer or other party, and then the meter values are sent to the old and the new suppliers for settlement issues.

A number of countries in Europe still have to open their gas markets to competition, which will occur on July 1, 2007.