INGAS 2009 -3 RD INTERNATIONAL SYMPOSIUM ON NATURAL GAS NATURAL GAS USAGE IN EUROPE AND TURKEY AND PROGRESS IN THESE MARKETS 9-10 JUNE 2009 NATURAL GAS

INGAS 2009 -3RD INTERNATIONAL SYMPOSIUM ON NATURAL GAS

NATURAL GAS USAGE IN EUROPE AND TURKEY AND PROGRESS IN THESE

MARKETS

9-10 JUNE 2009NATURAL GAS DISTRIBUTION COMPANIES ASSOCIATION OF

TURKEY9-10 June 2009 INGAS 3RD INTERNATIONAL SYMPOSIUM ON NATURAL GAS-İSTANBUL

CONTENTS

NATURAL GAS MARKET AND GAS DISTRIBUTION IN TURKEY

EUROPEAN GAS DIRECTIVES AND ONGOING STUDIES TO REACH A FULL COMPETITIVE MARKET

CASE STUDY-CUSTOMER SWITCHING IN RETAIL MARKET

9-10 June 2009 INGAS 3RD INTERNATIONAL SYMPOSIUM ON NATURAL GAS-İSTANBUL

Start of natural gas distribution in Turkey

o 1986 Natural Gas Sales and Purchase Agreement has been signed with the Soviet Republic

o 1988 City natural gas distribution has started with Ankara

o 1992-1996 Natural gas usage has spread about four more cities (İstanbul, Bursa, Kocaeli, Eskişehir)

o 1996-2001 2 more region has started to use natural gas (Adapazarı and Bahçeşehir)




As of the end of 2001, the amount of household natural gas consumption rate achieved by 7 natural gas distribution companies reached to 2.8 billion m3.As of the end of 2001, the amount of household natural gas consumption rate achieved by 7 natural gas distribution companies reached to 2.8 billion m3.

ANKARAANKARA

İSTANBULİSTANBULADAPAZARIADAPAZARI

KOCAELİKOCAELİ

ESKİŞEHİRESKİŞEHİR

BURSABURSA

BAHÇEŞEHİRBAHÇEŞEHİR


The milestone for Turkish natural gas industry is the year of 2001

o The Law on Natural Gas Market no. 4646 entered into force,

o Energy Market Regulatory Authority was established and free market activities started.

All city distribution companies have been privatized within the process of privatization launched there under except for İstanbul.



Progress achieved in the process of liberalization of natural gas market (during 2003 – 2008);

o 55 natural gas distribution license regions tendered and licensed

o 53 distribution license regions started using natural gas.



Figures achieved during that period;

o 2.000 kilometers of steel pipelineo 15.000 kilometers of PE grido Around 2 billion US Dollars of investmento Employment for 80.000 peopleo 1.250.000 household customerso 4 billion m3 of gas saleso 5 billion m3 of gas transporting to the industry



Overall size of the industry:

60 Distribution Companies 5.500 kilometers of steel pipe 40.000 kilometers of PE grid 8.000.000 customers 90.000 people employed 8 billion m3 household consumption



During 2003 – 2008, more than 65% of the distribution investments have been completed, and natural gas distribution promoted Turkey wide.Existin

gExisting

NewNew Not tenderedNot tendered



NATURAL GAS MARKET AND GAS DISTRIBUTION IN TURKEY-Penetration Rate

Penetration Rates in the Existing and New Distribution Regions

(Existing Subscribers / Potential Subscribers, %)

0

20

40

60

80

100

120

2005 2006 2007 2008

EXISTINGEXISTING

NEWNEW


NATURAL GAS MARKET AND GAS DISTRIBUTION IN TURKEY-Household Consumption

Household Natural Gas Consumption by YearsMillion

M3

Yıl0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008


As an overview of Turkish natural gas industry:

oA successful liberalization process experienced in distribution industry.

o In parallel, certain progress achieved in supply industry as well.

All stakeholders continue working to sustain this successful outcome achieved as a result of cooperation between private sector, public sector and regulatory body in Turkey.



EUROPEAN GAS DIRECTIVES AND ONGOING STUDIES TO REACH A FULL COMPETITIVE MARKET

The liberalisation of the EU’s electricity and gas markets which began several years ago has contributed the rejuvenation of the energy sector.

While developments are encouraging and underline the benefits of the liberalisation process, the full potential of liberalisation has not yet been realised.

There are still a number of areas and Member States where the existing legislation (second internal market package) has not yet been properly implemented or where the need for new legislation has become apparent.

The European Commission is taking action to ensure the correct implementation of EU legislation at national level through the application of infringement procedures and complementing the internal market legislation with the third internal energy market package.


EUROPEAN GAS DIRECTIVES AND ONGOING STUDIES TO REACH A FULL COMPETITIVE MARKET-CUSTOMER SWITCHING IN RETAIL MARKET

The following documents and reports are analysed in terms of supplier switching conditions and movements in European gas industry Obstacles to switching in the gas retail market-

Guidelines of Good Practice and Status Review (ERGEG, 18.04.2007)Customer Protection- Best Practice Proposition

(ERGEG, 21.07.2006)Supplier Switching Process- Best Practice Proposition

(ERGEG, 21.07.2006)Transparency of Prices-Best Practice Proposition

(ERGEG, 21.07.2006) Status Review Supplier Switching Process Electricity

and Gas Markets-Five Case Studies (ERGEG, 19.09.2008)



Conclusions of the 1st meeting of the Citizen’s Energy Forum (London, 27-28.10.2008)

ERGEG 2008 Annual Report Report on Progress in Creating the Internal Gas and

Electricity Market (Commission of the European Communities, 11.03.2009

European Parliament legislative resolution of 22 April 2009 on the Council common position for adopting a directive of the European Parliament and of the Council concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC- Provisional Edition (22.04.2009)


Obstacles to Switching in the Gas Retail Market-Guidelines of Good Practice and Status Review Status review confirms that the switching rate in the

gas retail market is still low in most of EC countries This is in spite of the fact that a lot of substantial

measures have already been taken to enhance it New additional recommendations are identified for

enhancing supplier switching Summary of findings;

o Market opening; Regulators should address the aspects of the relationship between DSO’s, suppliers and customers including rules, responsibilities, contractual arrangements, data exchange agreements, commitments to customers, etc.

EUROPEAN GAS DIRECTIVES AND ONGOING STUDIES TO REACH A FULLY COMPETITIVE MARKET-CUSTOMER SWITCHING IN RETAIL MARKET


o Customer Information; The customers understanding of the reasons for gas price changes should be improved

o Supplier information; Non discriminatory access to a list of existing and new connections for all suppliers

o Switching process; the entity responsible for meter values must improve and , if possible automatise access to past and present consumption data of their customers & unique and stable Delivery Point Identification Number both on the invoices and on the meter should be available.



Main obstacles and proposals Insufficient implementation of community legislation

o Regulators should address the issues among the parties in detail

o Regulators could take the initiative for implementing work groups /consultation bodies among the relevant parties to set up the practical conditions of an effective market opening

Lack of information and confidence of customerso customers need simple, transparent and objective

information



Information held by incumbents hinders alternative supplierso Non discriminatory access to a list of existing and

new connections for all suppliers Customers do not feel confident with the act of

switchingo The process of switching supplier has to be easy from

the customer’s point of view and the customer should not pay any direct fees for changing supplier

o It has to be cost efficient and standardized for the suppliers and the distribution system operators.

o Metering should not be an obstacle to switchingo The switching period should be as short as possibleo The customer should only need to be in direct contact

with one party



Status review report Some 25 out of the 30 countries that have received

the questionaire have submitted complete or partial answers

Market opening threshold



No developed gas retail market or no gas infrastructure

Market not yet opened for small customers

Market opened for small customers but not yet for households

Market fully opened

CyprusFinlandNorwayPortugal

RomaniaTurkeyGreece

FranceHungaryLithuaniaLuxemburgPolandSlovak RepublicSloveniaSwedenIreland

AustriaBelgium (Flanders)Great BritainDenmarkGermanyItalyNetherlandsSpainCzech Republic

Customer Informationo More information is given in countries where

competition has been effective for several years • list of suppliers include prices and sometimes

terms and conditions• Customer and environmental organisations play

their part• Private initiatives can be found in five out of

the eight countries whose markets are fully opened to competition and savings that a customer can expect from switching from the incumbent supplier are generally higher in these countries



Switching process from the customer point of view o The average term of notice appears to be around

one montho Generally steps of switching process have been

defined nationally and are regarded as an industry standard

o Generally just needs to contact with the new supplier.

o For countries with a fully opened market, customer’s self meter reading is common,

o Access to the customer’s consumption data is rarely given by the network operator



Switching process from the operators’ point of view o The more the market is opened, the more IT

standardisation is achieved-IT standardisation seems to be the key factor for an effective competitive market

o For most countries, the only way for a supplier to obtain the delivery point identification number of a customer is through the customer’s invoice-implies that suppliers have made a preliminary research to identify customers connected to the gas network



Liveliness of competitiono Competition in the global gas market (including

wholesale and retail) seems effective, as several importers (or traders) and suppliers are active in each country

o The market structure reveals that the market share of the biggest trader (or importer) is often very high – It could mean that suppliers are not in a good position to get the best conditions in order to design interesting offers for small final customers

o The potential savings that a customer can expect from switching from his incumbent supplier to an alternative supplier is limited to a maximum of 5 % in nearly all the respondent countries (except GB, 10%, Denmark between 5to10 %)



o Switching rates



Access to Distribution and Transmission Networks

o In most countries suppliers need to be licensed to supply customers

o Access to the hubs helps formation of competitive market

o General terms and tariffs for access to distribution networks are published by DSO’s

o Rules guaranteeing the availability of network capacity for the supply of suppliers’ new customers are not set up in all countries



Existence of regulated prices

o When regulated prices exist, they concern both household and commercial customers or household customers only

o Regulated prices are common in countries where the gas market is not yet opened for households



Case Study-France Brief description of the energy market

o Since July 2007 the French energy market is fully opened to competition after the opening up for non-household customers had been achieved in 2004

o In 2008 there were 10 electricity suppliers, 4 gas suppliers and 3 dual fuel suppliers for the household market. For the small non-household market there are 6 suppliers.

Possibility to return to the regulated marketo The law allows their continuation at sites which already

benefit from the regulated gas tariffo New consumption sites connected to the network

before 1st July 2010 may benefit from a regulated tariffo Residential customers are allowed to benefit from a

regulated tariff when moving



The supplier switching process o Standard procedures were drawn up to organise

the methods for switching suppliers• By law• By consultation process between various

stakeholders

o Defined by the French regulator through deliberations based on the deliverables of ad hoc consultation bodies (created 2003) consisting of representatives of the respective market players (suppliers, network operators and customers)



o Any change in updating or improving the supplier switching process shall be submitted by the DSO’s to the other market players and the regulator for consultation. Any request for changing this process can be initiated by the regulator, DSOs, customers or suppliers.

o Various stages of switching process- easiness• The customer only needs to contact his new

supplier (name, address and network identification number is given)-certificate for switching supplier is signed

• Single contract serves both for energy supply and its transportation by DSO

• New supplier and DSO communicate on the required issues



o The DSO may object to an application to switch supplier if• A previous application to supplier is already

underway• Fraud has been observed on the metering

equipment• It has been given erroneous data

o Methods for termination and timeframe-quickness• The technical duration of the switching process

is 21 days minimum• Within the certain timeframes, new supplier

may ask for the switching to take place at another day



o Metering arrangements and settlement procedure

• DSO provides both the former and the new supplier with an estimation of the switching index-ideally the customer reads his meter on the subscription day (and gives it to the new supplier) and this self reading is used by the DSO to calculate the switching index

• The DSO provides the new supplier with the historical consumption data



o Data format exchange

• Definition of standardised process of data exchange was put on the agenda of the working groups set by the French regulator

• Through its decisions and by monitoring the working groups, the French regulator ensures that suppliers have enough information to build their information system



o Confidentiality agreements

• DSOs shall not communicate to any supplier the identity of the new or former supplier.

• DSOs shall not disclose the new supplier any information regarding the customer’s previous supply contracts

• DSOs shall keep record of customers’ past meter values





o Costs related to supplier switching

. Supplier switching is by law free of charge for household customers

. The supplier may only bill the customer for the costs effectively borne for termination, either directly of intermediary of the grid operator, providing that these expenses were explicitly stated in the contract



o Customer confidence and market monitoring

. The customer`s rights are secured by law.

. Pre-contractual requirements are listed in the Annex of the relevant directive

. The French regulator has designed a dedicated web site where household customers can find general information on the energy markets, thematic leaflets, Q&A`s and suppliers` list.

. Based on data provided by the DSOs, the regulator ensures some level of market monitoring.

European Citizens’ Energy Forumo Formed by the ECo Attended by the national and European consumer

associations, representatives of Member States, national energy regulators, representatives of Energy Community, the electricity and gas industry, and Norway

o Focused on protection on consumer rights and development of competitive retail markets



Issues reviewed in the Citizens Energy Forumo Follow up of the Energy Consumer Checklisto Lack of proper implementation of European

Legislationo Vulnerable consumerso Smart meteringo Billingo Facilitation entry of the new suppliers into the marketo Switching



ERGEG 2008 Annual Report & Report on Progress in Creating the Internal Gas and Electricity Market (Commission of the European Communities, 11.03.2009

Main findings with respect to the works to improve the implementation of full market opening are;

o Incomplete implementation of European gas legislation- 2nd and 3rd internal market packages

o Competition in retail gas and electricity markets is almost non existent

o Insufficient unbundling is a big obstacle for competition and security of supply

o Political interference endangers competition



o Concentration on gas wholesale and retail gas markets are high in most of the member countries

o The negative effects of regulated energy prices continue to be a major concern in terms of the proper functioning of the internal energy market-Coexistence of open energy markets and regulated energy prices is still quite common among EU Member States



European Parliament legislative resolution of 22 April 2009 on the Council common position for adopting a directive of the European Parliament and of the Council concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC- Provisional Edition Main points covered in the Directive to improve the

implementation of full market opening are as follows;o protection of final customers, particularly

vulnerable customers,o guaranteed gas supply to the customers that are

connected to the gas networks regardless of the Member State in which the supplier is registered

o details of supplier switching process ( switching time, data transfer, cost, responsibilities)



o Information to customers as regards to dispute settlement process

o formation of Energy Consumer Checklist in consultation with relevant stakeholders ( to improve switching process)

o monitoring the vertically integrated DSO’s activities by the regulator with regard to the distortion of competition ( if member states have so provided)

o assessment of implementation of intelligent metering systems & preparation of timetable for the implementation of these meters

o clarification of issues as regards to billing to facilitate switching ( content, final closure account receiving time)



A general view to countries gas distribution Greenfield Gas Distribution: Cross Country

Experience (ESMAP-World Bank-2007)o Purpose of the study is to analyse the world wide

countries with regard to greenfield gas distribution projects

o Countries are analysed under two groups; • Group I represents the pioneers in developing

extensive gas distribution projects • Group I countries (including the Czech

Republic, France, Germany, Italy, Netherlands and Great Britain) started significant greenfield gas distribution projects at least three decades ago.

EUROPEAN GAS DIRECTIVES AND ONGOING STUDIES TO REACH A FULL COMPETITIVE MARKET-OTHER RELEVANT STUDIES


• Group I countries mostly have high indigeneous gas production, economically well developed, the capability of investment to the gas network is high

• Group II countries have achived progress in greenfield gas distribution to a lower extent.

• Group II countries (including the Bulgaria, Greece, Porugal, Spain and Turkey ) started the greenfield gas distribution projects more recently, some as late as toward the end of 90’s.



o Reaching high levels in household gasification is usually a very time consuming process.• Group I include countries which have reached a

significant level of gas penetration (Czech republic 59 %, France 44 % , Germany 49 % , Italy 67 %, Netherlands 93 % , Great Britain 86 % )

• Group II countries penetration rates are; Bulgaria 0.06 %, Greece 0.8 %, Porugal 18 %, Spain 41 %, Turkey 19 %

o Start of liberalisation process of Group I countries• At 2000 Czech republic , Italy, Netherland• At 2003 France• At 1998 Germany• At 1998 Great Britain (full market opening)



CONCLUSIONS

o Reaching a competitive retail market in practice requires:• Application of a planned and systematic

process,• Advanced IT ınfrastructure,• Participation of all stakeholders to the works in

the related fields,o Existence of regulated tariffs is an obstacle to

effective competition and,o Artificially low regulated prices are deterrent on

supplier switching process,o Existence of high concentration on wholesale and

retail markets is a strong obstacle on competition.


Documents

INGAS 2009 -3 RD INTERNATIONAL SYMPOSIUM ON NATURAL GAS NATURAL GAS USAGE IN EUROPE AND TURKEY AND PROGRESS IN THESE MARKETS 9-10 JUNE 2009 NATURAL GAS