Transcript Customer Service in Deregulating Electricity Service

Customer Service in
Deregulating Electricity
Service Industries
Seun Faluyi
Group Head, Power
Honeywell Group Limited
Lagos
Introduction
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Deregulation in the Electricity Supply
Industry
Deregulation and competition in
developing countries
Merits of Competition in the Electricity
Supply Industry
Customer Service Opportunities for
utilities
Recommendations for African
economies
Competitive Electricity Industry
Deregulation
Generation
fragmentation of the traditional industry structure
Transmission
Distribution
Supply
Industry Reform
Competition in
Generation
•Power pooling
•Generation
wholesaling
•Trading
Regulated Trans.
Monopoly
•Power Dispatch
•System Operation
•Network
Maintenance
•Tariff setting
•Fair Access
Reg. Distribn
Monopolies
•Power wheeling
•Grid operation
•Line maintenance
•Faults clearing
Competition in
Supply
•Meter Reading
•Billing
•Collection
•Complaints
•Pricing
Path to Full Competition
Market
Liberalization
Market Liberalisation
None
State
Owned
Enterprise
Planned
Partial
Eastern Africa
France Ghana
Ireland
Italy
South Africa
Nigeria
Liberalised,
then
privatised
East
Ownership
Ownership
Full
Limited
Private
Austria
Southern Africa
Spain
Portugal
Mixed
Switzerland
Privatised,
then
liberalised
Belgium
US.
Private
Finland
Sweden
West Africa
Cote d’Ivoire
UK
Norway
The Economic Debate
Free market
economy
Centrally Planned/
Controlled economy
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Government
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Government control
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Protectionist
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Communist
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Subsidised
Ownership
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Private
Control
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Liberalised
Market
Philosophy
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Deregulated
Pricing
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Capitalist
Industry
Participation
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Economic cost
Why Privatization?
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Desire for governments
to stimulate economic
growth
Decreasing ability of
governments to fund
incumbents
Demands for increased
efficiency of operations
Demand for increased
investments to improve
supplies and services
Demands for lower
prices
Overall drivers are both
economic and political
Deregulation &
Privatization
Value adding Functions of Retailers
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Convenience of times and locations
Complementary products
Extensive inventories
Multiple points of sale
After sales service
Discounts available from bulk buying
Accurate and detailed information on
product quality and service
Basis for Product Development
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Terms of payment
Price
Quality of Service
Time of Use
Source of Supply
Point of Sale
Security of Supply
Product bundling
Value added services
Retail Competition Challenges
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Inadequate metering
Cost of metering
Inadequate load profiles
Load profiling rules
Product Commoditisation
Tariffs
Social Value of Competition
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Efficient price formation
Transparency in pricing determination
e.g
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Time of Use
Duration of contract, etc
Informed decision making
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Better customers choice
Better supplier offers
Choice of plants
Learning Curve for Utilities
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Uniform fixed price
Time of day, Time of year
Interruptible prices
Pool prices
Hedging contracts
Load contracts – Base load, peaking load
Contract durations – monthly, yearly, multiyear
Portfolio mix
Contract Risks
Competitive positioning strategies
Business policies
Market share
Learning Curve for Customers
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Total demand
Aggregated demand
Load factors
Seasonal variations
Load management scope
Supplier offers
Learning Curve for Wholesalers
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Risks
Pool price hedge
Nature of contract
Duration of contract
Improved Customer Service
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Affinity Deals
Loyalty Deals
Efficiency tariffs
New freezer/fridge trade-in offers
Online services
Combined billing
Insurance offers
Customer Benefits
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Lower prices for interruptible contracts
Billing flexibility
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Fixed price per month
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monthly, quarterly, etc
Itemized site-by-site or aggregated bill
Usage analysis for energy audits
Dependent on size of family, type of house,
etc
Tariffs for disadvantaged people
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E.g. elderly people, less affluent people,
Rural customers, students
Social Benefits
Improved price responsiveness
 Greater durations of forward contracting
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Reduces supplier risk, improves stability of
supply, reduces price
Increased supplier competition
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More innovations in supplier offers, greater
willingness to take exposed positions, design
of new contract forms, willingness to
incorporate non-price elements, willingness
to seek out new trading partners e.g.
embedded generators, distributed
generators, entry encouragement for new
and efficient suppliers
Other Benefits
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Growth of financial intermediaries
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Transmission and Distribution
efficiencies
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Brokers who take financial risks, arbitrage
positions, deal packaging
Stimulation of distributed generation, onsite generation, construction of more local
connections bypassing local network, newer
investments in distribution
Improved cost allocations
Retailing Costs
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Non-fossil Supply
7%
fuel levy
9%
Transmission
4%
Generation 
51%
Distribution
29%
Note:Customer on a standard tariff with an
annual consumption of 3,300 kWh
Size of an average bill £285 exc VAT
Retailing costs are
small and increases
do not add much to
the final bill
Benefits of retailing
translate to a much
greater reduction in
customer bills due to
improved pricing for
generation and
reduced costs for
distribution
Breakdown of costs for a typical domestic customer
Retailing Costs
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Advertising
Promotion
Marketing
Half hourly meters
Load profiling systems
Energy Settlement systems
Recommendations
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Continuously review price control
mechanisms
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Deregulation does not mean nonRegulation
Promote Competition
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Competition leads to improved price
discovery
References
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Beesley, Michael E. 1997. Privatization, Regulation and
Deregulation, London and New York: Routledge, second
edition (first edition 1992).
Beesley, Michael E, and Littlechild, Stephen C. 1989.
“The regulation of privatized monopolies in the United
Kingdom”, RAND Journal of Economics, Vol. 20, No 3,
Autumn, pp. 454 – 72.
Goulding, A J, Ruffin, Carlos and Swinand, Gregory.
1999. “The Role of Vibrant Retail Electricity Markets in
Assuring that Wholesale Power Markets Operate
Effectively”, The Electricity Journal, Vol. 12, No. 10
(December): 61-73.
Hayek, F A. 1948. “The Meaning of Competition”,
chapter V in Individualism and Economic Order,
Chicago: The University of Chicago Press.