Highlights from IERN workshop «Consumer Protection in Europe» Firenze 16 February 2012 Prof. Jean-Michel Glachant DirectorFlorence School of Regulation – European University Institute “IL CONSUMATORE NEL MERCATO EUROPEO DELL’ENERGIA” Lunedì 21 Maggio 2012 - Sala Auditorium Via Veneto, 89 - Roma
Agenda Workshop motivation Overview and structure Main contributions Possible areas of further work
MotivationWhy a workshop on Consumer protection was needed? • To look at consumer protection in energy markets from a non conventional point of view – behavioural approach • FSR can offer a privileged standpoint proposing Multidisciplinary approach • Legal and economic • Regulatory impact of the new technology (smart) Comparative approach – exploring relevant experience in Europe
Participation and relevance of the event 71 participants From 14 country (70% from Italy)100% 100% Sweden90% 90% Ireland80% 80% Greece Consultancy/law Austria70% firms 70% The Netherlands60% NRA 60% Serbia50% University 50% France Spain40% 40% Energy Companies Belgium30% 30% Public Bodies Egypt20% Croatia 20%10% UK 10% Slovenia 0% 0% Italy Participants Participants
Structure of the workshop• Session I Implication of behavioural economics on consumer protection – Theoretical point of view C. Waddams | G. Napolitano | A. Nicita | W.H. Micklitz• Session II Implication of behavioural economics on consumer protection – Regulatory practice P. De Suzzoni | R.Karova | S. Harrison | R. Hall• Session III Smart consumer protection in a smart grid context R. Malaman | K. Kavenagh | M. Stajnarova | R. Kaljee | M. S. Jimenez
Theoretical set up 1/2 Session I – Empirical evidence• Energy consumers can no longer be described as perfect individuals that maximise their utility under any circumstances• Individual choices of (real) consumers suffer from: • Personal bias • Bounded rationality • Risk aversion• Real consumers on average have a clear understanding of their individual level of consumption but suffer from a mean reversion bias • Those who consume less than the average tend to believe they consume more • Those who consume more than the average tend to believe they consume less
Individual gains after switching B AGraph 1 – Switching when searching for saving
Theoretical set up 2/2 Session II – Emprical evidence • The classical regulatory approach based on the notion of average consumer needs to be revised in the light of behavioural findings • Direct protection (regulation) vs empowerment of consumersRegulation (direct protection) is easier : costly to adopt but relatively easy to implementEmpowerment has more uncertain outcome and critically depends on consumer reaction butrequires many practical tools: Legal Empowerment : right to switch supplier, supplier obbligation, info disclosure obligation Operative instruments: price comparison tools, info transparency, effective promotion of demand aggregationAgencies and companies (public or private) could be better placed to promote consumerempowerment than NRA
Regulatory practices 1/2 Session II• Market opening and liberalisation in a complex environment – such as energy markets – increase the complexity of consumers’ decision (low switching rate observed)• Objective - Verify the impact of behavioural theories on regulatory practices (CEER Benchmarking Report on Roles & Responsibilities Of Nras In Customer Empowerment And Protection – January 2011)• How? – Looking at specific instruments implemented in each country Education campaign, Best deals comparison , Complaints administration, Alternative Dispute Resolution, Data management, Demand aggregation
Regulatory practices 2/2 Session II• Vulnerable customers protection is entrusted to various public institutions/bodies (only in limited cases to NRAs)• Consumers associations represent a rebalance (imperfect) of power vis a vis energy utilities. • Can influence the decision-making process (public consultations, etc.)• NRA are promoting an increasing dialogue with consumers associations aimed at collecting direct information from consumers and discuss possible regulatory revisions (bottom-up approach)
Smart consumer protection 1/2 Session III Smart technologies will considerably affect consumer protection practices in the future: ↑ level and quantity of the information available ↑ the opportunity to use the available infomation• System benefit: energy savings, environmental concerns , efficiency (price differentiation), demand side activation• Challenges/opportunities for Consumers: possible to better define vulnerable customers, accidental disconnection minimised, price increase to finance investments• Challenges for NRA: need to regulate a growing number of new and innovative services, overcoming demand-management to reach demand response system (should favour positive feedback customers/utilities)
Smart consumer protection 2/2 Session III• Challenges for the industryShould formulate simple offer easier tounderstand from the consumer point of view• Challenges for consumers associations:Educate and Empower consumers • Make additional information available at no cost • Educate consumers (especially naive consumers) to use smart technologies and house atomation instruments • Push to keep consumer protection in place (for a temporary period at least)
Workshop Conclusions• Consumer protection is a necessary tool in complex markets dominated by uncertainty and strong dynamics• Consumer protection should be intended as a fundamental constituent in building energy markets, together with other fundamental bricks such as transparency, prohibition of abuse of dominant position, etc.• The type and level of consumer protection practices to be implemented depend on the long term vision policy makers have of energy markets• In a “zero GHG emissions” world, deep understanding of the individual behaviours are as needed as good knowledge of utilities behaviours – reduce the asymmetry of information with consumers behaviours• Consumers role (active or passive) will be key in the development of modern energy systems
Next steps and research questions• Is Empowerment of the average consumer able, alone, to discipline market? • How do we define the “average consumer” in a smart market? • Is the consumption level the relevant measure or the level of engagement?• Which consumers do we need to protect? • Do we have a shared definition of vulnerable customers?• Could protecting some consumers reduce market opportunities for others? • Are consumer protection and empowerment substitutes or complementary tools?• Which institution are better placed to effectively protect consumers? NRAs or other public agencies/bodies?• Can we look at consumer protection across sectors? Is there a qualitative difference in consumers behaviour within the various regulated services?• Is the Italian consumer similar to the British/ German /EU one? • How does she behave when facing market opportunities/challenges?
I hope we could work together to answer (at least) to some of those questions. Thank you for your attention!