Monday, 14March2002
Charles Coulthard
Ofgem
Regents Court
70 West Regent Street
Glasgow
G2 2QZ
Dear Charles,
Supply competition for electricity customer with shared unmetered suppliers and dynamic teleswitched heating loads in the north of Scotland: Proposal document
Thank you for the opportunity to respond to the above consultation paper. Our key policy considerations are set out below.
Shared unmetered supplies
Ofgem’s conclusion: Ofgem proposed for consumers in the north of Scotland with a shared unmetered supply consumption of less than 350kWh per annum that the costs would be put into distribution losses and the costs spread across all customers in the north of Scotland. The average cost to customers in the north of Scotland was estimated to be around 26p per annum. These consumers would then be able to switch supplier.
energywatch welcomes and supports this proposal, which should facilitate the development of competition for around 30,000 consumers. It also has the benefit of avoiding any consumers seeing a significant change in their annual electricity bill.
Ofgem’s conclusion: For consumers in the north of Scotland whose shared unmetered supply consumption is greater than350kWhOfgem proposes that separate bills should be issued for the shared unmetered supply and the non shared unmetered supply. Ofgem also proposes that there should be a review of whether consumers with higher levels of shared unmetered suppliers could or should be metered.
energywatch welcomes and supports these proposals, which should facilitate the development of supply competition for these customers. energywatch supports the principle of providing choice for the consumer. Under these proposals consumers would be able to switch the shared unmetered supply and/or the non shared unmetered supply. Alternatively, consumers may be able to have their suppliers metered.
Given that Ofgem has stated that the supply price controls will be removed from 31 March 2002, energywatch considers it is imperative that both proposals are implementedby 1 April 2002.
energywatch believes that Ofgem must monitor how competition develops for consumers with shared unmetered suppliers. energywatchseeks detailed comment from Ofgem on how it will continue to measure competition in this market and how it intends to report this information.
Dynamic teleswitching
Ofgem’s conclusion: To facilitate competition for customers with dynamic teleswitches in the north of Scotland, Ofgem considers that it would be helpful if suppliers introduced their own dynamic teleswitch codes. Ofgemproposes that Scottish Hydro Electric Power Distribution Limited (SHEPDL) should set out, in a transparent and non-discriminatory basis, how it proposes to manage the operation of the teleswitching codes when there is more than one supplier giving instructions to Radio Teleswitching Access Providers (RTAPs). Ofgem also proposes that SHEPDL should consult with suppliers on how this should be implemented.
Ofgem has stated that the development of competition for consumers with dynamic teleswitches in the north of Scotland will remain under review by Ofgem.
Access to competition
Given Ofgem’s acknowledgement that this is likely to be a first step only and not a solution in itself capable of delivering effective competition for consumers with teleswitched, and Ofgem’s acceptance that there is currently no effective competition for these consumers, energywatch believes there is no justification for lifting price controls for these consumers. Indeed we are surprised that consideration was not given to this issue before making the decision to remove the price controls. We believe, that it would have been entirely justified to continue to protect consumers with teleswitches through administered pricing arrangements until competition wasdemonstrated to have been effectively delivered by these or other solutions.
Moreover, although the document states that SHEPDL has agreed to implement the way forward (as outlined above) by April 2002,energywatch is concerned that no firm timescales have been set for resolving the problems currently faced by consumers with dynamic teleswitches.
Scope of the consultation document
energywatch questions why the consultation document only refers to consumers in the north of Scotland with dynamic teleswitches and does not refer to the south of Scotland as well. We recognise that there is an additional deterrent to supplier entry to this market in the north of Scotland as it is a load managed area. However, we recognise that there are other deterrents (e.g. information disadvantages or costs of adopting new teleswitching codes) to supplier entry that may affect competition for consumers with dynamic teleswitches elsewhere in Great Britain (GB).
energywatch is aware that, in addition to the 78,000 consumers with dynamic teleswitches in the north of Scotland, there are over 100,000 customers in the south of Scotland that also face difficulties switching from the host supplier. Taken together, consumers with teleswitches in the north and south of Scotland account for almost 10 per cent of the customer base. These10 per centare effectively denied access to competition. We also believe there are around 200,000 consumers on dynamic teleswitches in EnglandWales. It is not clear whether these consumers face similar problems. energywatch believes that Ofgem needs to review competition for consumers with dynamic teleswitches from a GB perspective to identify how widespread this issue is. In the meantime, we would again stress the need for protection for these consumers.
Monitoring
energywatch believes that Ofgemmust monitor how competition develops for consumers with dynamic teleswitches. We believe this monitoringmustinclude the numbers switching suppliers while on teleswitching tariffs on a quarterly basis, detailed information on price movements and the numbers of suppliers choosing to compete for control rate consumers.This is essential given Ofgem’s decision to remove price controls without a definitive route for facilitating competition for consumers with dynamic teleswitches. energywatch seeks detailed comment from Ofgem on how and when it will measure competition in this market and how it intends to report this information.
Barriers to switching
Whilst energywatch recognises that consumerswith heating systems controlled by dynamic teleswitches in Scotlandcould potentially change from a three rate to a two rate meter, energywatchdoes not consider this to be a cost effective solution for consumers. Consumers would potentially face costs associated with a meter change, a central heating change or internal circuiting. These costs are likely to outweigh any of the benefits aconsumer would receive by switching.
A widening issue
energywatch is also concerned that the number of customers affected by this problem may increase. EAGA, under the Scottish Executive’s central heating initiative, will be installing heating systems in Scotland that can only be supported by tariffs offered by the incumbent suppliers. Consumers would need to sign-up to tariffs such as Scottish & Southern Energy’s Total Heating Total Control tariff or Scottish Power’s Comfort Plus tariffs.
Managing the operation of the codes
SHEPDL is expected to consult on how it proposes to manage the operation of the teleswitching codes when there is more than one supplier giving instructions to RTAPs. energywatch questions whether there will be any additional transaction costs associated with the operation of the codes when there is more than one supplier giving instructions to Radio Teleswitching Access Providers. energywatch supports the principles that SHEPDL manages the operation of the codes in a transparent and non-discriminatory manner.
Demand side working group
Ofgem has initiated a group called the Demand Side Working Group (DSWG). The DSWG is tasked with reviewing the options available to the demand side to participate in NETA. It has been discussed at the DSWG that the flexibility offered by dynamic teleswitching is a potential source of demand side participation in the Balancing Mechanism. However, the DSWG has also discussed the potential barrier to dynamic teleswitching including the linking of Balancing Mechanism units that share a common teleswitch code. It was also recognised at the DSWG that the Metering Innovation Unit would be looking at radio teleswitching.
energywatch recommends that Ofgem has regard to the wider issues associated with teleswitching when setting out proposals for facilitating competition for consumers with dynamic teleswitches.
Conclusion
energywatch welcomes and supports the proposals to facilitate competition for consumers with shared unmetered suppliers in the north of Scotland. energywatch considers it is imperative that these proposals are implemented by 1 April 2002.
Given the supply price controls will no longer be in place from 1 April 2002, energywatch is concerned that the proposals for consumers with dynamic teleswitches may only be the first of several steps needed to deliver effective competition for these consumers. energywatch is also concerned that no firm timescales have been set for resolving the problems, particularly since this situation has prevailed since the market was liberalised. Furthermore, energywatch is concerned there are no proposals for consumers in areas outside of the north of Scotland. We recommend that Ofgem take a holistic approach to addressing the difficulties faced by consumers with teleswitches.
energywatch believes it is essential for Ofgem to monitor how competition develops for both consumers with shared unmetered suppliers (in the north of Scotland) and consumers with dynamic teleswitches. We see no evidence to convince us that the proposed solutions will deliver effective competition for consumers with teleswitches. We would, therefore, stress the need for the protection for these consumers until effective competition exists for such. Otherwise we will have the situation whereby we have almost 10 per cent of the Scottish market, effectively captive with no protection from discriminatory pricing.
If you would like to discuss any aspect of this response please do not hesitate to call me on 020 7799 8362or Katharine Morrison on 02077998367.
Yours sincerely
Lesley Davies
Director of Policy and Research
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