Model 1 - Feedback from the stakeholder interviews
51Customer friendliness
Most interviewees see Model 1 as being simple to understand from the customer point of view. The customer contacts would in all normal cases be with the supplier. Given that the supplier in this model is responsible for billing during the whole process, including a possible debt collection phase, the model would be easy to communicate to customers and easy for the customers to understand.
The main positive aspect from the customer point of view is that in all phases it will be clear who the customer should contact, including in those instances where the customer has questions concerning the DSO tariffs or DSO billing. This model is considered a normal way of doing business in other markets such as the telecom market.
One especially important aspect to be considered in this model is that it does not make it possible for a situation to arise where a third party would suddenly be introduced into the relationship, which is sometimes unavoidable in Model 2, if the customer has not paid the bill in time despite reminders.
Introducing the DSO in this type of situation (negative situation) is not seen as something desirable by anyone - neither from the DSO, supplier point of view nor from the customer point of view.
Receiving one bill is a customer friendly solution. Most customers find it hard to understand why they receive separate bills for network and energy services. However some pointed out that in the future, when paper bills may not be sent in the same extent as before which may mean that (e-billing and direct debit) the number of bills in a normal situation may not be so critical. More bills may however be acceptable to a customer if the process is convenient and costs are low for handling the bills. Other interviewees pointed out that paper bills are still required by some customers and therefore in making choices, the costs for paper bills are still relevant.
Regarding monthly billing, some smaller customers could consider receiving a monthly bill bad ser-vice as they are used to receiving bills once a quarter or three times a year. Therefore other options should be possible.
However, some negative issues were also raised on implementation of this model regarding custom-er friendliness. One such negative aspect can be that changing from the current regime with one bill for integrated companies and two for separate DSO and supplier to a mandatory combined bill mod-el may be confusing to customers. However, some argued that many customers, and especially those who have not switched supplier, may not today be aware of this division.
Others raised the issue that customers of small local suppliers may not see advantages in switching supplier even given that solution 1 would make this easy and that they would receive a combined bill.
Efficiency and costs
51 Most views are based on interviews where the Ernst & Young alternatives were presented and different alternative solutions especially for handling risks discussed. Some validating feedback was also received on model 1, after the model was partially developed.
Some interviewees mentioned that if the market model would entail making investments into sys-tems and major changes to business processes, then the starting point of the planning needed to be designing simple, efficient and sensible processes and avoiding unnecessary duplicate processes. The end result should be improved efficiency and improved customer service. Some considered that the whole initiative with combined billing and the supplier centric model would have no point if these two criteria could not be fulfilled.
One interviewee considered Model 1 quite near a model, which could be sensible to implement if given a clean slate and without the baggage of the current practices and legacy systems.
DSO tariff structures would benefit from being harmonized
Some interviewees proposed that DSO tariff structures should be simplified in this model. They con-sidered it unnecessary to continue with the current diversity of tariff structures. Some concon-sidered that if this model would involve a HUB type of solution, and if the HUB would be doing the rating service, this would lead to a situation where harmonization of tariff structures would be necessary.
A harmonized tariff structure would additionally make it easier for the supplier to provide customer service concerning DSO tariffs, which is an important consideration. However at the same time it was mentioned that more dynamic tariffs may be needed in the future because of the need for de-mand flexibility services.
Model would involve high transformation costs
One of the main concerns raised regarding this model is that it will entail many changes to current practices and will change the division of tasks between the supplier and DSO. This will lead to a need to make major changes to business processes and will require making investments in systems and changes in legacy systems. It will also involve major changes in how work is organized within DSOs and suppliers. However, some were of the opinion that, viewed on a long term, changes to the cur-rent practices should not be seen as a detercur-rent if efficiencies, increased competition and customer friendliness are achieved. If a combined bill is in the future mandatory the processes should be de-signed in a way which will lead to efficient and cost effectiveness and customer friendliness should be a key consideration.
Despite some objections, which are related to the risks for the supplier and the DSO, most agree that Model 1 would be more cost efficient on a long term and that it will serve customers better than Model 2 if a truly supplier centric model is the goal and if a combined bill regime becomes mandato-ry.
Achieving efficient processes and technical solutions is seen as being more likely to be realized in Model 1. A prerequisite for this, however, is that there are clear rules and standardized agreement terms in place for the most critical interactions and that some centralized functionality is assigned to national HUB/HUBs52. Standardized data exchange is seen as key in this model, as in any other future model.
52 A more efficient solution to make these investments in a few centralized HUBs than that bilateral exchange between suppliers and DSOs continues as today.
Some were of the opinion that model may eliminate the necessity for companies to invest in tailored systems for data exchange (for bilateral exchange). It may also make it possible to eliminate some billing functionality related to handling DSO receivables, which could be provided in a centralized manner. Some assumed that Model 1 will eliminate the need for DSOs to have mass billing systems and complex other systems since monthly billing will be of suppliers only. This could cut costs for the DSOs.
All interviewees assumed that costs would rise for the suppliers for organizing customer service functions and for producing a combined bill.53 Especially challenging would be transforming current processes and transforming the legacy systems to adapt to the new processes. All interviewees con-sidered it to be very important that the model and its practical implementation would be designed so that processes were simple and clear. Exceptions to the normal processes would not be left, which could drive up costs without producing any substantial benefits for stakeholders and especial-ly customers.
Impact on competition
Whether or not there would be improved competition, was not clear to the interviewees. Some con-sidered that the model could, if implemented uniformly in the Nordic area, make it easier for new entrants to enter the market than Model 2. New entrants could possibly to see the market as more attractive if most processes are harmonized, making it possible to operate in the Nordic market with the same systems and similar processes.
Some considered that combined billing would improve competition. The practical possibility for only the integrated supplier to provide one bill was seen as providing a competitive advantage for the integrated suppliers.
Most were of the opinion that a period of consolidation of DSOs and suppliers would follow. Some suppliers would most likely choose to exit the market or would find it necessary to cooperate with other suppliers in organizing joint customer service or billing, to survive. Some considered that the larger suppliers would benefit most from the model.
Model could support impartiality of DSOs
This model was seen as having the potential to guarantee DSO impartiality. It seemed that a prereq-uisite for guaranteeing DSO impartiality is some type of HUB/exchange functionality for data ex-change. A HUB would act as an intermediary between the supplier and the DSO. It was assumed that a HUB could enforce rules efficiently, which would force the DSOs and suppliers to follow common standards and rules better, than bilateral arrangements ever could. Many were of the opinion that the HUB could, in fact, become a regulatory tool.
Model 2 – Feedback from stakeholder interviews
Customer friendliness
53 Few independent external suppliers produce combined bills today.
This model is considered confusing from the customer point of view. There are many serious doubts expressed as to whether this model would be in the customers’ interest. Most felt it had the poten-tial for being confusing and misleading to the customer especially in certain circumstances.
The interviewees pointed out some customer cases, which can be considered problematic in Model 2:
A situation where the DSO would be introduced in the debt collection process seemed to all inter-viewees as very undesirable from the customers, DSOs and suppliers perspective.
Another extremely problematic situation is a situation where the customer has paid the supplier but the supplier doesn’t pay the DSO as agreed. This can result in a situation where the DSO bills the customer a second time or in a worst case scenario disconnects the consumer. This is a situation which should not be possible in any market model.
Another situation which causes problems today in combined billing is when a customer moves and in Model 2 receives the normal bill and an end bill from both the DSO and the supplier. This situation often results in confusion. As a result a customer leaves some of the bills without payment from which a debt collection situation follows.
Normal billing situations will need to be handled. Some examples are late payments, partial, pay-ments, wrong reference numbers etc. All the above situations need to be resolved in a clear and effective way. These special but common billing situations were seen as the ones which will make the Model 2 difficult to implement in practice.
The interviewees provided few suggestions of actions which could make this model less confusing from a customer point of view. One suggestion which was presented was if it would be possible for the supplier to take care of the debt collection process on behalf of the DSO to avoid the introduc-tion of a third party into the debt collecintroduc-tion process. This is in principle possible through outsourcing of the debt collection process to the supplier. Debt collection is normally done per invoice and the counterparty in debt collection needs to be legally the DSO unless it is contractually transferred to the supplier.
The model is considered less efficient than Model 1
It was assumed that this model is less efficient than Model 1 and would possibly not lead to savings in system costs. It was assumed that this model would require the DSO to have a mass billing system and to be able to manage receivables and keep a ledger of end customer receivables. The interview-ees also foresaw serious challenges in the practical handling of tracking of the receivables and han-dling special cases where the billing and payment process is no longer straightforward.
The only specifically mentioned positive aspect in this model is the fact that it does not introduce additional risk to the supplier and that it will involve less restructuring of operations. However, some considered restructuring operations to be something which could be seen as positive if it would lead to more efficient operations and efficiency when evaluating market function as a whole and on a longer term.
The future billing process in Model 2 was not easy to visualize for DSOs and suppliers.
Because of the issues described above, external client accounts were not considered a feasible solu-tion. External client accounts would most likely not simplify the model. It introduces a third party to the relationship, which may complicate issues further.
Those favouring Model 2 were focused on the supplier risk question
Those stakeholders who felt that Model 2 would be a better option were mainly focused on the risk distribution between the DSO and the supplier and especially on the increased risk to the suppliers.
The responsibility for billing the network charges and for taking risk related to network service was seen as a major drawback and possible burden, especially for independent suppliers with less finan-cial strength.
Some also felt that changing the current practices, which have been challenging to explain to cus-tomers, could be confusing. However, even these stakeholders felt that Model 1 would be more efficient and would most likely lead to lower system costs. This would be true, provided that it is implemented in a manner, which focused on efficient processes. A prerequisite is also that good technical solutions and necessary rules and standard practices are established in the market (includ-ing some type of HUB or data exchange solution).
Some wanted to point out that the current model, which does not require combined billing, has lower entry barriers for new suppliers. Establishing operations is currently relatively simple without combined billing. However some mentioned that the lack of a realistic possibility for independent suppliers to produce combined bill was a major obstacle for competition and gave some incumbent suppliers a clear advantage.
The role of a HUB type solution for data exchange which would support combined billing
The role of a neutral data exchange (for instance a HUB type solution) is seen as critical in the mod-els. It could promote efficiency and uniform standards and could enforce the rules for information exchange. To implement combined billing most interviewees assumed that a HUB solution would be needed, which would function as a data exchange.
The following services should in the opinion of several interviewees be provided by the HUB to sup-port especially Model 1:
1. collect metering data from the DSOs 2. administer connection/ customer ID 3. collect tariff data from DSOs
4. administer the following basic transactions: moving, supplier change, termination of con-tract/disconnection
5. possibly as an option do the DSO rating (producing billing information for DSO services) The HUB could also have some functionality related to producing billing information (rating) for the DSO, which would simplify billing for the suppliers and could eliminate the need for a mass billing system (CIS) for the DSOs. A HUB could alternatively also be the means to provide up-to-date tariff data, which would be used for producing the billing information of DSO services.
DSO neutrality could be promoted by a HUB solution, which would enforce certain rules such as data quality and time limits, which would be common for everyone. The interviews did not, however, provide clear guidance concerning whether the HUB should do rating of DSO services or whether the
DSOs should do the rating and the rating information would then transmitted by a HUB to each sup-plier. Both solutions were seen as possible to implement.
There was broad agreement amongst the interviewees on some things which a hub type solution should not in their opinion do:
- The HUB should not produce the combined invoice or send the invoice to customers.
- The HUB should not do the rating (produce the billing information) for the supplier. If a HUB were to produce the supplier billing information most interviewees considered that this could limit supplier product development and differentiation.
- The end customer should not be in direct contact with the HUB. The HUB should not be a customer interface.
Appendix 2: Interviewees
Henrik Hornum, Dansk Energi Jan Jansrud, Guldbrandsdal Energi
Anders Wickström, Timo Liiri, Riitta Vaissalo, Timo Toivonen, Fortum Pia Borg, Din El
Jonas Persson, Mälarenergi Elnät Rolf Åkesson, Töreboda Energi
Jarmo Roiha, Elina Kortessalo, Vattenfall Arnstein Flaskerud, Fjordkraft
Akke Kuusela, Paikallisvoima Oy Petter Sandoy, BKK Net AS
Jussi Pitkänen, Oy Elkraft Finland Ab
Bo Hesselgren, Konsumenternas elmarknadsförbund
IT and other service providers Pyry Huhtanen, Nordea Finance Arttu Hollmerus, Lindorff Oy
Johan Öhnell, EG Utilities/ Oberoende Elhandlarna Marcus Törnqvist, Daniel Linden, Tieto
Mikko Paalumäki, CGI