A Asher - Global Energy Consumer Charter


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Presentation by Allan Asher of Energy Watch to Fringe Event of Consumers International World Congress October 2007

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A Asher - Global Energy Consumer Charter

  1. 1. Energy - sustainable access for all Do consumers need a global energy charter? 18th Consumers International World Consumer Congress October 2007 MAKING ENERGY MARKETS WORK FOR CONSUMERS Part of the rationale for liberalising energy markets is that consumers will benefit from competitive pricing and enhanced service delivery. Experience in the UK and other markets where liberalization has occurred has shown that without adequate consumer protection measures, this reasoning is faulty. Consumers benefit only when markets are liberalised in a way that gives primacy to consumer interest and welfare, and where consumers have sufficient knowledge or support to make decisions and enough power or support to resolve problems. The extension of liberalisation to energy sectors around the world raises the question: Has anything be learned from the experience of those countries who ignored consumer protection measures? energywatch has many years of experience and expertise gained from working as a consumer advocate in the UK energy market. The market post liberalisation was rife with mis- selling, scams, unfair practices, supplier incompetence and company behaviour that pushed people into debt or worse. In addition to giving direct help to the million consumers a year who asked for it, we set out to educate the companies and build the confidence of consumers so that they could help themselves. Competitive energy market will only work for the benefit of consumers if: consumers can actively engage with it and have influence on it; • regulators accept the primacy of the consumer interest and act accordingly; • suppliers behave fairly and take responsibility for consumer welfare. • There is a great need for consumer advocacy in the energy sector where the consumer interest has to compete with the interests of large and wealthy commercial players. Energy cannot be regarded as just another commodity to be traded in competitive markets: in many circumstances it can rightly be considered to be essential to life. 1 www.consumersinternational.org
  2. 2. Consumers in developed and developing markets need much greater assurance that their interests are being looked after. In Europe, energywatch with the support of national consumer groups has convinced the European Commission of the need for an Energy Consumers Charter. The time has come for consumers from around the world set out our demands for a better deal in erergy markets, it is time for a Global Energy Consumers Charter. The charter will set out the principles of a liberalised energy market in which government, regulators, end consumers and suppliers work in partnership to: extract the benefits of competitive prices, high quality services and a) maximized customer care; protect those who are unable to protect themselves in the energy market; b) offer guidance to those who need help with decision making or complaint resolution; c) equip consumers with the means and knowledge to make decisions and resolve d) problems for themselves; and build sustainable energy markets. e) The charter’s principles should cover the rights of consumers, many of which are already codified in consumer and competition policy and legislation, and fundamental human rights such as the right of equal access to energy services and the provision of essential services to meet basic needs. In addition, the charter should set out the responsibilities of suppliers, government, regulators and the rights and responsibilities of consumers in a market where essential services are traded, and the consumption and manufacture of commodity involved has an environmental impact. EXISTING CI POSITIONS The plenary session of the 2003 Consumer Congress in Lisbon called upon governments, producers and consumers to step up their efforts to promote access, affordability and sustainability at micro- and macro- level and to promote good governance of energy services. The Congress statement, the relevant sections of which are reproduced in the Annex to this document, called for universal access and special programmes for poor consumers. Regarding sustainability Congress called for reduction of wasteful production and consumption patterns including lower use of traditional non-renewable sources, promotion of investment in renewable resources (using micro-credit schemes where appropriate), and the establishment of: mandatory targets for major, sustainable reductions in greenhouse gas emissions, allocated in line with principles of global equity. Congress called for higher standards of customer care, and improved governance including independent regulation of prices and performance, with consumer participation and representation, backed up by systems of consumer redress. A survey of CI members earlier this year identified as top priorities the issues of access and sustainability. There was also support from all those who responded, for a consumer charter. At the same time, energywatch UK drafted a charter which has been endorsed by the Bureau Europeen des Unions de 2 www.consumersinternational.org
  3. 3. Consommateurs (BEUC) and welcomed by the European Commission in the context of the recent completion of liberalisation of the EU energy market. We take the Congress 2003 statement and the support of our members, and those of BEUC to signify widespread support, providing the rationale for a charter. This paper explores the possibility of the European charter(s) being adapted or its elements incorporated into a global charter for energy consumers. The main points of difference between a European charter and a possible global charter arise from the different circumstances of the energy market in developing countries and transitional economies and those within the EU and other OECD regions. The principal differences relate not only to the incomes of the populations (and thus to affordability issues) but also to the comprehensive nature of the electricity networks in the richer countries often highly supplemented by gas or district heating systems, generally providing service on a 24/7 basis, although not without occasional system failures. The other key features of the OECD countries are their ever closer approximation to cost-recovery tariffs and to service liberalisation, extending as far as choice of supplier in the EU. Thus the energywatch charter places emphasis on consumer choice which is far less likely to be feasible in countries with incomplete networks operating at tariff levels which are still below cost, even though many domestic consumers have difficulty paying even those levels. But while there are undoubtedly regional differences, there are universally applicable elements too particularly regarding electricity. It is a peculiar product in as much as it cannot be stored. Matching of supply and demand has to be instantaneous to avoid black outs and this creates opportunities for price manipulation. So regulatory mechanisms are needed to protect consumers, and particular attention needs to be paid to guaranteeing the supply chain from generator to supplier to consumer. Synthesising these elements in the CI World Consumer rights Day briefing pack 2006, the challenge for all was identified as: to develop a viable service which is financially and environmentally sustainable and which remains within the limits of consumer affordability – sustainable access. CI argued that attention needed to be paid to the lowest sustainable energy prices and to universal access to energy supplies. There needed to be an equitable distribution of costs between domestic and industrial consumers and special measures to protect the energy-poor.i Below we consider four principal components of such a possible global charter. 1. Social issues: – the poor pay more Discussion of affordability often focuses on tariffs. This is entirely normal in countries with full coverage and continuous service, but risks ignoring the needs of the non-connected in countries with incomplete networks. They, the poorest, often pay more for their energy through candles or batteries, or through the use of their time. CI members in Argentina, for example, point to the triple price differential between cylinders of liquefied petroleum gas and networked natural gas.ii Where the poor are connected, they may still receive an inferior service. There are widespread instances of elites receiving regular supply from state operated systems while the poor have to make do with 3 www.consumersinternational.org
  4. 4. interruptions and supply at inconvenient times. Even where networks are in theory available and functioning, connection costs are a major barrier to access. ‘Although the electricity network (in India) is technically within reach of 90 per cent of the population, only 43 per cent are actually connected because many poor people cannot afford the cost of connection.’ iii In rural Kenya and Uganda average connection costs were US$1,000 in 2001.iv Subsidies may be used to mitigate problems of affordability. But badly designed subsidies become part of the problem. Firstly, tariff subsidies, by definition, cannot benefit the non-connected, who are usually the poorest. Secondly, as CI’s Macedonian member points out, ‘social’, or ‘lifeline’ tariffs delivering a basic ration of supply at reduced or even zero cost, are bound to be poorly targeted because they go to all users.v CI’s members in Mali have delivered a critique of ‘social tariffs’ which provide smaller consumers with lower tariffs. ‘At first sight this policy appears as a measure favourable to disadvantaged consumers…In practice it is nothing of the sort. The consumption level is a function of the needs of the household which relates to household size. This is not necessarily proportional to household income.’vi And of course by reducing revenues, tariff subsidies intensify the lack of investment revenue. A better match of subsidy to need may come from subsidising initial connection, and so system development, rather than current use. But moving away from subsidies and towards cost recovery tariffs produces new strains for those poorer consumers that are connected. Cost recovery is therefore difficult but failure to cover costs discourages network extension as each new customer incurs losses. In Zambia, the poorest consumers would pay 41 per cent of their income to meet basic energy requirements on the basis of full cost recovery in electricity.vii If every course of action is beset with difficulties, we should at least identify the problems to be tackled. Hence, at the very least one should expect that the true cost of subsidies is reflected in the public accounts rather than be concealed through loss making tariffs. In Russia, the state budget is meant to compensate local services for the subsidies mentioned above. In practice CI members found this did not happen.viii Existing consumers may be willing to pay a supplement to their bills to finance the extension of networks to their as yet unconnected fellow citizens. ‘Solidarity taxes’ have been levied along these lines in Latin America, and can be explicitly costed to prevent ‘diversion’ to other purposes. Or ‘solidarity funds’ or universal service funds such as exist in Ecuador and Peru, can be used by government to promote the extension of networks. In Ecuador the solidarity fund is a majority state owned investment fund with private sector and worker shareholders.ix In poor communities, there is a difficulty regarding tariff levels and enforcing payment. Poor collection rates are common in many countries. Also many governments do not pay energy providers for their own expenditure. Insisting that they should do so could be a way towards raising payment rates, and extra revenue from payments will mitigate the need for tariff increases. IMPLICATIONS FOR A CHARTER: The above suggests that emphasis needs to be on targeting resources on the poor and reducing generalised exemptions from payment, providing subsidies that build up access networks rather than encouraging consumption levels among existing consumers. 4 www.consumersinternational.org
  5. 5. 2. Sustainability issues: Consumers hope, of course, that coverage and continuity rates will rise. But this brings with it new problems as developing countries move towards greater prosperity. Are there alternatives to electricity to reduce the impact of consumption on climate change and other environmental impacts? There are no easy alternatives. Gas is a clean fuel which is networked in much of the urban world or distributed in liquified form in cylinders. But it does not provide light or appliance or communication connections. Biomass (such as wood, straw and dung) is, by default, the prime fuel for 2.4 billion people and this will increase to 2.6 billion by 2030.x Africa has the highest share of biomass in total energy consumption (59 per cent of total energy consumed). Electricity accounts for only 8 per cent of African energy consumption (only three per cent in Sub-Saharan Africa (SSA) outside of South Africa) with only 23 per cent of the SSA population having access to electricity.xi Eighty nine per cent of the population of SSA relied on biomass for cooking and heating in 2000.xii There is therefore an inevitable future role for biomass. But the continued dependence on biomass brings its own problems and it would be a mistake to see transition from biomass to electricity as a straight-line transition. Our African colleagues show the complexity of these processes. In Senegal, the government had in the past kept down the price of gas to reduce pressure on charcoal, (and thus the environment). When these subsidies were removed in 2000, the urban population moved massively back to charcoal, thus intensifying deforestation.xiii The same syndrome has been identified by our colleagues in Macedonia. In Costa Rica, the high electrification of the country is linked to lower use of firewood, (with beneficial consequences for the countries renowned forests). The rural zones of the Dominican Republic show precisely the reverse pattern.xiv Biomass comes with great cost to human health and pollution. Indoor smoke leads to respiratory disease, obstetric problems, blindness and heart disease, and women are the main victims. In rural India, the UNDP found that women spent 2 to 7 hours daily gathering firewood, in SSA many women carry 20 kgs of wood an average of 5 kms every day.xv There may also be better uses for biomass such as the use of dung as fertiliser. And biomass is not necessarily renewable, that depends on the balance between population and natural regeneration. On the edges of cities people go ever-longer distances to gather wood and other combustibles such as straw as supplies are depleted. While we should not ignore biomass, neither should we view it as the magic bullet. Nor should we see electricity as peculiar in causing environmental problems. OFF GRID TECHNOLOGY Might the evolution of off grid systems prove to be a way of developing sustainable access? Solar and wind power and mini-hydro plants do not so much replace electricity as evolve sustainable ways of fuelling its production. A common problem is the high initial capital costs, (although the cost of solar panels is falling). A possible solution is for governments to provide long-term loans. Municipal bonds are also making a come back in some regions such as Ahmedabad, India.xvi Another possibility is the development of micro- 5 www.consumersinternational.org
  6. 6. credit facilities. Many energy-related micro-credit schemes have been developed, where low-income people have been able to improve their lives as producers and consumers. Indeed the link between small- scale local production and consumption seems to have been the key, for it has provided a rapid pay back for the initial cost. The UNDP study Generating Opportunities (2001) made clear the role of women and girls in particular as collectors of wood, as producers involved in food processing and as consumers involved in food preparation and child care. The development of stoves, lamps, fuel brickettes and micro level electricity generation have brought benefits to consumers riding on the back of localised production.xvii It is quite difficult to see classical utilities developing such a degree of community involvement. Indeed there could be a conflict, for one potential advantage of local micro-generation is that although initial costs may be high, there are great long term savings in transmission costs and gains in terms of local autonomy, thus reducing reliance on the grid. Furthermore, newly established systems do not have the problem of ‘stranded costs’ in the form of obsolete plant, or inherited debt that still needs to be paid for, a common problem for the old public distribution companies. IMPLICATIONS FOR A CHARTER : Carrying on developing traditional grids with high system losses is not sustainable. Neither is abandoning the poor to foraging for fuel. Conflicts between increasing access and mitigating consumption levels need to be faced and reconciled as far as possible. 3. Market and competition issues Such is the diversity of the global energy market that a charter cannot get into the detail of market structures. There are however, common resentments of the apparent helplessness of consumers in the hands of monopoly suppliers whose defects have to be tolerated with nowhere else for consumers to go. There is also in the electricity sector the universal and inescapable fact that electricity is a peculiar product which cannot be stored and requires instantaneous reconciliation of supply and demand. The first of these factors is used as an argument for liberalisation. The second is used an argument against liberalisation. It is clear from the European experience that retail switching is a highly complicated operation which has brought with it benefits for those consumers whose prices have gone down, but also considerable operational costs and difficulties. It has also increased pressure for higher standards of customer care which the energywatch clearly articulates and which CI certainly support as indicated in elements of the Congress statement (Annex - second para). However, it is unlikely to be easy to replicate in developing countries for whom in any case the priority is more likely to be extending access for those who do not have service rather than pushing down prices for those who do. It is also uncertain whether unbundling of systems into generation, high voltage transmission, local distribution and supply as has happened in Europe will be feasible in developing countries. Neither should it be assumed that it is necessary, at least in the short run. For example, in South Africa unbundling has 6 www.consumersinternational.org
  7. 7. not happened and yet that country has a very high level of coverage by African standards. Where there is conflict between national and local levels of administration, unbundling may lead to system breakdown. However, that does not rule out a degree of liberalisation for, as noted above, legally enforced monopoly may be incompatible with the development of off-grid systems which may bring with them considerable environmental and social benefits, in particular bringing service to the two billion unserved. IMPLICATIONS FOR A CHARTER: o a possible position for us to take at the global level could be that we should not insist that all systems be unbundled as is now the case in the particular case of the European Union, but equally we should argue that existing monopolies should not be used to suppress the emergence of new generators and suppliers. For that reason therefore there needs to be open access to transmission networks, where they exist. We should not just assume that Northern style grids are the only way forward. Micro-generation, by which small-scale local generators supply consumers directly, challenges that assumption and merits further development. For example it allows for the possibility of local vertically integrated consumer cooperatives to develop. The fact is that present systems have failed to make sustainable access (or indeed any access for almost two billion consumers) a reality, and innovation is needed. 4. Consumer representation The third paragraph of the Congress statement (see Annex) indicates the importance of the role of consumers in strategic governance and management reforms. The need for representation is particularly intense at critical moments of decision making (such as roll out of a new system or agreement of a new concession contract); subsequently it may move onto a more routine basis. There are two dimensions to this second kind of representation. They are the individual: complaints, mediation of disputes etc. and the collective: pricing policy and scrutiny of standards. IMPLICATIONS FOR A CHARTER: Regarding ongoing consumer representation, Consumer International members have rich and varied experiences. It would be unwise to be too prescriptive, but that experience points to the desirability of independence of such representation, links between general policy and individual complaints work, access to information presented in a meaningful fashion, and judicial standing allowing cases to be brought in the interests of consumers. 7 www.consumersinternational.org
  8. 8. PROPOSED CONTENTS OF A CHARTER We seek a charter that will incorporate the elements of customer care of the European charter, adapted to the conditions of developing countries. Drawing also on our work in other network industries we propose the following elements for a global charter. We adopt as titles of the sections of the draft charter the same headings that are used by the energywatch charter. 1. ACCESS The overriding aim of a global energy charter is the provision of universal access to energy services following the principles of affordability and sustainability. If people are not served they have the right to know when they will be served. Many systems are not physically connected and fully integrated to grids. As a result the poor pay more for their energy sources whether in cash or through their time. They need to know what are the prospects of improvement, and authorities need to face up to their responsibilities to tell their citizens and customers. 2. CHOICE Communities require a greater diversity of supply options. Alternative sources of energy provision must be encouraged. Access to the electricity and gas grids must be allowed on a non-discriminatory basis. Off-grid production must not be prevented by statutory or contractual monopolies. 3. FAIRNESS The principle of equitable distribution of service must apply. If the existing networks are subject, as many are, to cuts in supply then such cuts must be managed in an equitable manner, avoiding discrimination against poor districts. Prices need to be set in function of a range of factors including the capacity to pay of the population, costs of production, historic prices and rate of return on capital (regardless of public or private). Levels of payment must be non-discriminatory between different payment methods. The allowed cost of capital should be restricted to a ‘fair’ return. Regarding which of the above factors should predominate in price setting, that is a matter for local political decision. Collection rates must be improved or maintained at high level so that all contribute, including and especially, public bodies. Such subsidies as are made available should benefit the non-served consumers first and foremost. 8 www.consumersinternational.org
  9. 9. 4. CUSTOMER CARE Billing must be accurate and independently verifiable. Methods of payment must be convenient. For example it is well established that consumers on low incomes much prefer to make frequent small payments. There must be simple and rapid systems for reporting and rectifying faults such as interruptions or leaks. Scheduled interruptions must be preceded by clear warning. 5.CUSTOMER SUPPORT Consumer rights need to be written down in order for people to exercise their rights but the individual should be able to assert rights even when not in possession of a written contract. This is of particular importance to the one sixth of the world’s adults that are illiterate. Any systems of payment that are developed to help those on low incomes must be administered in a non-stigmatised way. Help must be readily available to help consumers understand their bills and make arrangements for payment, especially when in difficulty. Low cost procedures for connection must be developed such as connection fees payable over a period following initial connection. 6. MEDIATION & REDRESS There must be comprehensive and fair procedures for complaints and claims. At a minimum, consumers must not have to pay for service which they have not received due to interruptions; preferably compensation systems should be developed. The body representing consumers (see below) should also deal with complaints so that the complaints work can inform the policy representation function. 7. PROTECTION There must be contractual rights to service. Where necessary, the contracts should be ‘implicit’, that is not necessarily in the form of individualised paper contracts for individual households. Contracts must protect consumers against arbitrary disconnection, and should inform them of all tariffs and charges. There must be formal published standards to ensure quality and safety. There should be independent regulation of prices and performance standards supported by effective legal powers regardless of ownership. When governments make commitments under international trade agreements to commit utilities for liberalisation, they must be able to retain the right to regulate. 9 www.consumersinternational.org
  10. 10. Where privatisation occurs it must always be preceded by effective consumer protection legislation, institutions and regulation. 8. SPECIAL ASSISTANCE Special programmes are needed to address the needs of poor consumers; the development of ‘targeted’ measures to help poor consumers are likely to be more effective than indiscriminate subsidies. Subsidies may come from government or through cross-subsidies from locally dominant industries or other consumers. They usually help the poorest most by concentrating on initial connections. Aiding conservation/insulation measures can reduce bills and/or improve comfort levels, while benefiting all consumers by moderating overall demand. 9. INFLUENCE Through consumer participation and representation in the regulatory process and monitoring, governments must ensure that local community’s views are properly considered to safeguard their interests, and that options are thoroughly studied at key moments of decision. Consumer organisations should have an active role in discussions pertaining to major policy debates including privatisation, which must be transparent and include public access to relevant documents. Such documents must disclose such matters as proposed cost and price policy and service contracts between for example local government and service providers, with disclosure pre- and post-award. Consumer representatives should have the right both to access to information and its disclosure to those whom they represent. There must be public participation in the ongoing regulation of the service. This requires the development of forums for such participation and the release of relevant information in comprehensible form. Consumer representation bodies should be outside the regulator’s office, and should have safeguards of their independence. There should be right of appeal against decisions of regulators. 10. SUSTAINABILITY Governments, producers and consumers must, as appropriate reduce wasteful energy production and consumption patterns and promote a supply of sustainable alternative energy sources. Promote investment in renewable resources. Reduce the use of traditional non-renewable sources of energy such as hydro- carbons, particularly wood from unsustainable forestry. Promote the provision of loan facilities and micro-credit schemes to enable investment in sustainable energy technology. Provide incentives for energy efficiency purposes. 10 www.consumersinternational.org
  11. 11. Work towards and implement mandatory targets for major, sustainable reductions in greenhouse gas emissions, allocated in line with principles of global equity. Develop formal and published standards of durability of the service with special attention paid to the long term maintenance of the network infrastructure. CI Sydney October 2007 11 www.consumersinternational.org
  12. 12. Annex EXISTING CI POSITIONS The plenary session of the 2003 Congress in Lisbon adopted the following statement calling on governments, producers and consumers to step up their efforts to: reduce wasteful energy production and consumption patterns and promote a supply of sustainable • alternative energy sources; promote investment in renewable resources; • reduce the use of traditional non-renewable sources of energy such as hydro-carbons, particularly • wood from unsustainable forestry; promote the provision of loan facilities and micro-credit schemes to enable investment in • sustainable energy technology; provide incentives for energy efficiency purposes; • work towards and implement mandatory targets for major, sustainable reductions in greenhouse • gas emissions, allocated in line with principles of global equity. The same Congress statement went on to say in the context of public utilities: Essential requirements are: universal access, including if necessary special programmes to address the needs of poor • consumers; accurate invoicing and convenient forms of payment; • formal published standards to ensure quality, durability and safety with special attention paid to • the long term maintenance of the network infrastructure; the promotion of energy conservation; • comprehensive and fair procedures for complaints and claims; • independent regulation of prices and performance standards supported by effective legal powers • regardless of ownership. consumer participation and representation in the regulatory process and the monitoring of those • industries Regarding matters if ownership of utilities, the Lisbon congress statement said the following: Where privatisation occurs it should always be preceded by effective consumer protection legislation, institutions and regulation. If they are not in place it is unlikely to succeed. Governments should ensure that local community’s views are properly considered to safeguard their interests, and that alternatives are thoroughly studied. Consumer organisations should have an active role in privatisation debates, which must be transparent and include public access to relevant documents. Such documents must disclose such matters as cost and price policy and concession contracts pre- and post-award. When governments make commitments under GATS to offer up utilities for liberalisation, they must be able to retain the right to regulate. CI Lisbon October 2003 12 www.consumersinternational.org
  13. 13. Endnotes i Consumers International 17th World Congress, Review and Statement, Lisbon 2003. ii CA/CI ROLAC 2005 La evolucion del precio del Servicio publico de gas natural y los problemas de acceso de los consumidores de menores recursos. iii World Energy Outlook 2002 op cit p. 376 iv ibid p. 381 v Macedonia op cit. vi ASCOMA (Mali) CI/ROAF 2003 Impacts de la Privatisation des secteurs de l’electricite et de l’eau sur les consommateurs. Le cas de EDM SA du Mali. vii CI/ROAF correspondence 2006 viii Interrepublican Confederation of Consumers Societies (KonfOP); 2002 Russian public utilities sector:regional overview. ix Ecuador op cit x World Energy Outlook op cit. p.365 xi M. Ejigu Rethinking the energy paradigm in an African perspective. WTO symposium, Geneva 2005 xii World Energy Outlook op cit. p.387 xiii CI/ROAF correspondence 2006 xiv Dominican Republic op cit.; Centro para la Defesa del Consumidor (CDC) /CI ROLAC:2005 El comportamiento de las tarifas y cobertura de los servicios publicos domiciliarios en los paises de Costa Rica, El Salvador, Honduras y Panama: estudio de caso de los servicios de agua, electricidad y telefonia fija. xv World Energy Outlook 2002 op cit p. 366/367 xvi For a discussion of municipal bonds see: Public Services International Research Unit: Public services Work! Greenwich 2005 xvii UNDP Generating opportunities, Eds S Misana & G Karlsson UNDP 2001 13 www.consumersinternational.org