Local and regional energy companies in Finland are deeply worried about the development of the Nordic electricity market. Paikallisvoima ry (Local Power Association) is representing 41 Finnish companies who regard the development very concerning for their possibilities to further operate in the market. Also the advantages for the customers of the proposed market model and billing regime are questionable. Same kind of worries have also been expressed in Sweden by Forum för gemensam nordisk elmarknad and in Norway by KS Bedrift Energi.
The focus is on wrong issues
The focus of development efforts has, for now, shifted to the wrong issues. It concentrates mainly on the supplier’s share, which corresponds to approximately 5 percent of the total energy bill. Supplier’s share consists of expenses excluding wholesale energy.
NordREG has nevertheless decided to focus its development efforts solely on this five-percent segment. At the same time, the most substantial price-formation development targets from the customer’s perspective – such as developing the wholesale market, reducing electricity transmission restrictions and removing regional price differences – have been wholly ignored. The recent development with increased number of price areas and increased price differences between price areas is undesirable. The development makes the effort of having one Nordic End-User Market move far away to the future until the bottlenecks in transmission connections inside and between the Nordic countries are improved by investing into new connections.
The value of local presence should also be included in the analyses and calculations about the pros and cons of different market models and billing regimes. At the moment local presence and customer care is not given taken into account in the documents which we find very problematic.
The process has been hurried without a good reason
The member companies of Paikallisvoima have been very confused why NordREG has hurried especially the process of choosing the billing regime. The hurry has been most evident especially during fall 2011. When making decisions about issues that affect numerous stakeholders, there should be enough time to conduct necessary analyses thoroughly and discuss the matter with stakeholders sufficiently.
We were surprised about NordREG’s hurry with the cost-benefit analysis. First of all, it seems that the timetable set for the executor of the analysis was very tight. This could be seen on the fact that stakeholders did not see the calculation explanations of the analysis before the presentation in Arlanda airport on the 7th of November. Also apparently there was no intention first to ask stakeholders’ opinions about the cost-benefit analysis. Paikallisvoima was pleased that NordREG decided to give stakeholders the opportunity to provide written comments before the 21st of November.
Surprisingly there has not been presented any public evaluation of the responses so that the sector could have seen how the cost-benefit analysis has been seen in general. This is very alarming when thinking about the transparency of decision making in NordREG.
Paikallisvoima does not understand, why NordREG has decided to hurry the recommendation. Since there has been serious doubts and disagreements about the true consequences of billing regime choice, the decision should not be made hastily, separated from the market model decision nor based on inadequate information.
Are increasing prices and bigger margins best for the customer?
Paikallisvoima would like to point out that countries, which have adopted a combined billing regime, have also experienced higher electricity end-user prices and increasing margins. This cannot be an advantage for customers.
In Finland, margins and the electricity price are low and the electricity market works. This has been proven in VaasaETT’s research report “Consideration of alternative billing regimes for the Common Nordic End-User Market” (2011) that NordREG ordered. We do not understand why this well-functioning system should be changed into a more expensive market model for the customers.
Combined billing would very likely lead to high investment costs and subsequently to the elimination of smaller companies. As a result, competition would decrease, markets would concentrate and prices go up. Is this good for the customer?
The price levels that these local companies adapt are in general made up of a sound balance between the need of the owners, the customers and the companies. It is not a question of maximizing profit. This fact can easily be proven by checking some statistics that the regulators collect from energy companies.
Because the stakes are much higher than the simple question of one or two bills, Paikallisvoima is deeply concerned about how the general process of the common Nordic market has been handled by NordREG. It was already stipulated from the very beginning that supplier-centric model (SCM) is the only acceptable model and preferably with only one invoice. Thus, the work done by the chosen consultants has been biased from the very beginning and has not space for alternative thinking.
We do not blame the consultants who have only done what they were asked to do. But we would like to know why NordREG only wants to see a certain outcome? It is not by any mean a proven fact that the market models of the big countries are the most favourable ones for the customers in scarcely populated countries with a large number of local companies. Shouldn’t the regulators be concerned of the customer in a broader sense than the supplier centric model with one bill?
Supplier-centric model is not fit for emergency situations and decreases competition
The billing regime decision cannot be separated from NordREG’s ambitions towards the supplier-centric model. Only comparing the effects and differences between combined or separated billing leaves out many indirect effects that these decisions have.
The recent winter storms experienced in Nordic countries have pointed out energy companies’ need for preparedness for handling emergencies. Particularly customer service and communication has been a central topic in media. Energy companies have been blamed for being too slow in restoring power and bad at communicating with customers. If the supplier was the only contact point for the customer, even more precious time would be lost in communication between suppliers and network companies in power outages. The benefits of local service would be lost. How can this be an advantage?
The SCM model cannot simply cope when storms like this hit us. The network companies will have to manage the customer contact somehow. If all the normal customer care is made obsolete by the SCM model, then from which resource pool does one expect the network companies to find capable personnel when the storm comes? The answer is simple. There will be much less customer care personnel and most of the technicians will be occupied with restoring the electricity to the customers.
In addition, the SCM would require all the suppliers to invest in expensive ICT systems to be able to communicate with all network companies. Smaller suppliers will not have the resources to make the investments. This would lead to increasing market concentration and less customer choice.
What do we want?
Why do the smaller energy companies in Sweden, Norway and Finland make a fuzz about the billing regime of the market model? For us, it is not only a question about the number of bills or number of contact points. It is a question about keeping the rules of the market reasonable for even the smallest companies.
NordREG has recognized itself a need for further analyses about efficient methods for information exchange, payment systems, tax collection and risk management schemes. In our opinion, these analyses should be done before making any decisions.
We want that
1. Network companies will not be forced to stop billing and the combined billing recommendation should be withdrawn.
2. Customers will also in the future have a choice who to contact.
3. Supplier centric model will not be adopted.
4. Before any decisions, NordREG should truly consider in its analyses also alternative market models and billing regimes than SCM and combined billing regime.
5. Any chosen market or billing model should not compromise local presence