Paikallisvoima highly appreciates the opportunity to comment on the cost-benefit analysis of alternative billing regimes for the common Nordic electricity end-user market.
General comments
Paikallisvoima finds it very troublesome that the executor of the analysis has chosen already before making the analysis to favour combined billing. This makes the analysis biased from the beginning to the end. Paikallisvoima wonders why NordREG has chosen to use the same writer for the cost-benefit analysis as was used for the previous report about alternative billing regimes. It is obvious that making the first report about billing alternatives has affected the decisions and methodology taken in the cost-benefit analysis at hand. For example, a model, where DSO’s would do the billing, has not been considered as an option. For these reasons the analysis should not be used as a basis for decision making. We urge NordREG to order a new, independent, cost-benefit analysis.
A new cost-benefit analysis should be wider in scope in its consideration of the benefits and costs of different end-user market models. Now the focus is too narrow, since billing makes up only 0,3 % of the end-user ‘s electricity bill’s total sum.
The customer’s point of view is not taken into account in the report sufficiently. The fact that countries with combined billing have higher end-customer electricity prices and higher margins has not been taken into consideration in the report. It is not shown in a sufficient way that customers would benefit from billing regime change.
We find it misleading to conclude that the mandatory combined billing enhances unbundling, increases competition and customer satisfaction without showing any strong evidence to support these claims. The examples that are referred as best practices have a highly different context than the Nordic countries experience.
Transparency of the report is poor despite the short explanations. Paikallisvoima found it hard to evaluate the reliability of the figures.
Paikallisvoima wants to point out that combined billing will raise barriers for newcomers to enter the market. There is also a high risk that smaller companies will have to terminate their operations due to high initial investment costs and hierarchy.
Also the way to consult stakeholders has been flawed: stakeholders were asked questions only to get information. Their views about the pros and cons of different billing regimes’ economic effects were not asked and taken into consideration. Also the composition of questionnaire respondents and opinion interviewees has an unusually excessive proportion of system suppliers and international representatives. Paikallisvoima regards this as a poor way of co-operation in trying to develop a better end-user market.
The benefits of separated billing have been excluded
The report consistently excludes the benefits of separated billing. To offer a non-biased basis for decision-making, the report should consider the following aspects in full.
Separated billing offers a high level of transparency. The customer always knows what he or she is paying for. The customer also understands the difference between DSOs and suppliers better. In the report greater transparency of separated billing is recognized but not given the value it deserves.
Separated billing makes the billing system simple and decreases the possibility of errors. Obligatory separated billing would take place without any major investments to billing processes which would benefit all the actors in the sectors. This is true also for Independent New Entrant Suppliers. In the cost-benefit spreadsheet this fact is not acknowledged as the opposite is claimed in A1-F1. Separated billing would avoid and at least make it simpler to solve the potential problems in tax collection, collateral arrangements, credit losses and different responsibilities. This would especially be beneficial to all suppliers, also helping to avoid any responsibilities connected to the DSO billing.
Customer experience is enhanced by the transparency of separate billing. If a customer has problems, he or she can contact the DSO directly without a need for the supplier to interfere. This will save costs both for the suppliers and DSOs. This will also improve the customer experience compared to a situation, where customers first need to contact the supplier who then contacts the DSO to solve the customer’s problem.
The need for complicated ICT systems is decreased dramatically in a separated billing regime. The systems would also be highly flexible.
Transition to electronic billing will decrease the number of paper bills and costs of billing regardless of the future billing regime. Thus Paikallisvoima regards the notion about paper waste outdated and irrelevant.
The disadvantages of combined billing have been downplayed
The benefits of demand flexibility are presented in the report as a product of combined billing. However, the cause and effect relation cannot be justified as there can be demand flexibility in a separated billing regime as well. Nor can the growth in smart energy solutions be linked with the decision about the billing regime (A9-F9 in the spreadsheet).
The higher electricity end-user prices and margins experienced in countries that have adopted combined billing cannot be an advantage for customers. As stated before, 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 centralise and prices go up. Is this good for the customer?
The regulatory development has been towards further unbundling of electricity suppliers and DSOs. Combined billing would eliminate some of the benefits of unbundling and work to the opposite effect.
The bill itself might seem simpler at first glance in combined billing. However, the information requirements set for the bill by energy authorities do not allow simplifications, so the combined bill would be as clear or confusing as a separated bill.
Combined billing also brings up questions about marketing, customer promises and innovating new products. If a supplier markets new products with the price of electricity but doesn’t mention the differing network tariffs, the customer will feel deceived when he or she receives the bill with both the electricity and network tariffs in it. Innovating new products in the electricity sector is not dependent on combined billing; the real push comes from AMR.
The role and cost of ICT is understated
It has been noticed in Finland that cost estimates of major ICT projects have systematically been unrealistic and implementation has been poor (e.g. Finnish railways, Finnish Transport Safety Agency). Thus, it is very likely that the estimates of the report have not taken all the costs into account.
Systems that should manage four different languages, four network codes and four electricity supply terms will be highly complicated and very expensive for companies in the sector.
The focus of development is on the wrong issues
The focus of development efforts has, for now, shifted to the wrong issues. In Finland competition between electricity vendors can only have an impact on about seven percent of the overall electricity price at the moment. The remainder of the bill consists of the price of electrical energy, transmission costs and taxes, which together form 93% of the end price.
NordREG has nevertheless decided to focus its development efforts solely on this seven-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 an 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 into the future until the bottlenecks in transmission connections inside and between the Nordic countries are improved by investing into new connections.
Conclusions
The report exaggerates the benefits of combined billing and downplays its costs. Subsequently the benefits of separated billing are understated and its costs magnified. The report is not transparent and doesn’t meet the common requirements set for non-biased research.
Paikallisvoima regards the report so intentionally favourable towards combined billing that it should not be used as a basis for decision making in NordREG.