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Competition: The gas market needs tighter rules, although deregulation has been beneficial

26 January 2024

The deregulation of the natural gas supply market for domestic customers, which began in the summer of 2020, led to the appearance of attractive offers for Romanian customers, both from the perspective of reduced prices and from the perspective of the packages offered (combined offers for natural gas, electricity , related services), says the Competition Council. The energy crisis, however, brought major changes, requiring the intervention of the Government (both in the newly liberalized area of household consumers and in the competitive area of industrial consumers) and showing the fragility of suppliers. As a result, there is a need for stricter rules on the market, reveals the sectoral investigation carried out by the Competition Council on the natural gas market.

“The war in Ukraine has strongly affected the European energy market, and the state has intervened to help the population and industry in the face of historic price increases and their particular volatility. In this context, the liberalization process has been interrupted, but the return to normal operation must be a priority when market conditions allow. Prices have decreased, and the aid that the state offers will no longer be justified,” says Bogdan Chirițoiu, the president of the Competition Council.

Competition worked, vulnerable suppliers in crisis conditions

The competition authority’s analysis shows that offers with attractive prices for customers were maintained until mid-2021, when gas prices started to rise.

The particularly difficult conditions in the natural gas sector have affected the activity of natural gas suppliers, with some of them exiting the market. Thus, in the period July 2020 – October 2021, in the online comparator with natural gas supply-type offers, made available by ANRE, the offers of about 60 suppliers were constantly presented. However, since November 2021, their number has gradually decreased, reaching that in January 2023 only 27 suppliers are present with offers, and at the level of January 2024, based on the query of the ANRE comparator, about 15 suppliers are present with offers.

Regarding the change of natural gas supplier, at the end of the liberalization, on July 1, 2021, about 57% of all household customers tacitly accepted the commercial offer of the supplier in whose portfolio they were already, without expressing an option in this regard. In the period July 2020 – August 2022, only 8.7% of customers who changed the natural gas supply regime chose to do so by concluding contracts with other suppliers, the main reason for the low percentage of customers who changed supplier being the low level information for household customers.

Regarding the connection to natural gas distribution systems, the analysis of the Competition Council shows that the number of places of consumption belonging to domestic consumers has registered an increasing evolution in recent years. Thus, at the end of the first semester of 2019 there were 3,671,041 places of consumption, and at the end of the first semester of 2023 their number increased to 4,324,928, the estimates of the competition authority being that at the end of 2023, in Romania, there were approx. 4.38 million residential natural gas customers.

However, the competition authority found that there are a number of barriers that are slowing down the activity of connecting domestic customers. As connecting to natural gas distribution systems is a complex process, involving many procedures, discussions, meetings and requests both with/to distribution system operators and other authorized economic operators, often household end-users find it difficult to fully understand only by going through the legal provisions. Moreover, the frequent changes to the regulatory framework that regulates this activity are likely to generate even more uncertainty not only among applicants, but also among operators who carry out design and execution activities of the connections necessary to connect to the system. Last but not least, the connection process involves expenses that some users cannot afford, following the legislative changes, the costs were borne by the operators of the distribution systems, who allocated significant amounts for the expansion of these systems, and will recover these amounts through the distribution tariff. However, the applicant future household user is obliged to bear the cost of the branch design and execution works (which may prove to be substantial), being compensated by the distribution system operator within the limit of the average value of a branch, the value being established by ANRE.

The Competition Council noted the increase in the number of connection requests with the regulation of the obligation to finance the connection works by the distribution operators, but also the increase in the duration of the connection of domestic customers. Thus, in the context of frequent changes in primary and secondary legislation, distribution operators had to reorganize their activity and adapt their internal procedures related to the connection process, sometimes simultaneously running connection procedures that fell under different regulatory regimes.

Recommendations: stricter rules

In the context in which, after overcoming the energy crisis, there will be a return to an unregulated market, the competition authority considers that it is necessary to continuously inform domestic consumers about essential elements of the natural gas sector (for example, about the role of distributors and suppliers , to the types of supply contracts, to the risks and benefits that changing the supplier can bring).

Thus, the information and popularization efforts made at the beginning of liberalization and after the expiry of the measures applicable to final customers in the natural gas market regulated by GEO no. 27/2022 and periodic public information campaigns must be organized.

In addition to carrying out such information campaigns, it is necessary for suppliers to have a clearer obligation to inform household consumers about their rights and obligations following the signing or, as the case may be, the extension of contracts. Thus, consumers will receive a summary of the main contractual terms, in concise and plain language, which could include information on the total price of the contract, promotions applied by the supplier, additional services, as well as the rights and obligations of household customers.

Given that, in recent years, more companies have abandoned their customers’ transfer procedure to Providers of Last Resort (FUI), the competition authority believes that stricter regulations are needed for providers to demonstrate that they have the ability to obligations to their customers, regardless of market developments.

The Competition Council also believes that there must be a standard contract for the supply of natural gas, which provides for unique clauses and conditions, the only parameter that can differ from one supplier to another being the final price of natural gas. The suggestion aims at the obligation to offer a standardized contract by all suppliers, without limiting their freedom to use other contracts in a competitive regime in relations with domestic final customers.

Another recommendation of the competition authority refers to the development of personalized offers through the price of natural gas supply for domestic consumers, depending on the final purpose for which the gas is purchased, such as cooking, heating and providing hot water for the home or just providing heat in a holiday home. However, the elaboration and transmission of these personalized offers must not in any way limit the right of the suppliers to continue to propose supply-type offers to household customers, the two options having to be applied in parallel.

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