Authority for Consumers & Markets

Speech Anita Vegter UNCTAD, Intergovernmental Group of Experts on Competition Law and Policy, Geneva, Switzerland July 2014

Roundtable on “The Benefits of Competition Policy for Consumers”

Ladies and gentlemen, dear colleagues,

Good morning, and thank you very much for inviting us, the Netherlands Authority for Consumers and Markets (ACM), to speak in this panel. In my contribution I will focus on one of our experiences as regulator in the privatized Energy sector, which illustrates how competition, regulation and consumer protection can work closely together for the benefit of consumers: to achieve better outcomes and to promote consumer welfare through efficiently functioning markets.

My name is Anita Vegter and I am a board member of ACM. I hold the Consumer portfolio and the Legal Affairs portfolio. I am also in charge of Corporate Services management (including HR and Finance). As you may know, ACM was created in April 2013 through the merger of three authorities in the Netherlands, the Consumer Authority, the Independent Post and Telecom Authority and the Competition Authority. As a result, consumer protection and market oversight are now housed in a single independent authority. This has laid the foundation for effective and efficient oversight, leading to wellfunctioning markets for the purpose of maximizing consumer welfare. Our mission is to create opportunities and options for business and consumers.

ACM is unique in Europe in that it can combine sector-specific regulation, consumer protection and competition oversight in a single authority. We use our combined knowledge, experience and competencies in certain cases. In our first year of existence, we have experienced the synergies and also the dilemmas of bringing together the three forces of competition, consumer protection and regulation. Synergies, because we take advantage of the fact that we have multi-disciplinary teams, composed of experts in regulation, in competition and in consumer protection. We use these competences to explore new techniques that are needed to understand consumer behavior, so we can effectively encourage consumers to become active. Dilemma’s, because enforcement of consumer protection might serve consumers on the short term by ending forms of unfair commercial practices. But if enforcement measures are too strict, new market players might withdraw from the markets, which would not serve the long term goal of more competitive markets with better outcome for consumers. It is a matter of searching for the balance.

Before I move on with today’s topic, I would like to share with you a short film about ACM.

Today, I want to share some examples with you, which show how ACM is working on policy coherence between competition, consumer, consumer protection and regulation in promoting and protecting consumers' interests. These examples are taken from ACM’s work in the energy sector, and I hope they will give you some ideas on ways to enhance policy coordination, either between competition and consumer protection authorities, or in a single agency, as we have.

Regulators activities are ultimately to protect consumers from the potentially adverse effects of (former) natural monopolies. Empowered and engaged consumers are the key to effective competition. An engaged consumer is in a position to better himself, but an engaged consumer is also of assistance to the regulators, because he makes the market more competitive. ACM recognizes that, because of their independence and expertise, regulators have a special responsibility when it comes to the empowerment and protection of consumers. Therefore, we have developed a strategy aimed at putting consumers at the heart of our work.

The energy market: a complex world

Liberalized since 2004, in Europe, today’s energy world is changing rapidly. Tomorrow’s energy world offers new opportunities, as well as challenges for consumers and industry alike: Rising prices will give consumers a strong financial incentive to find the best offer and to become more energy-efficient; Greater penetration of renewable energy generation will create a need for more flexibility in the market for load management from varied sources, including those offered by consumers; Smart meters and smart grids enable more control over loads, which was not possible in the past.

Growth in micro-generation means that consumers are increasingly becoming producers as well, which is adding another dimension of consumer participation in the market. Consumers can generate their own electricity, for example, using sun panels on the roof of their houses. And they can even contribute extra energy to the grid.

Dynamic pricing may become a part of demand response, providing consumers with the choice to react to price signals, for instance during peak-hours. All these developments may lead to more complex offers, contracts and billing, while smaller consumers already find today’s energy market very complex. The challenge is to find a way to empower consumers by informing and educating and engaging them in such a manner that it is beneficial to all.

Markets for consumer needs

The EU retail market is fully liberalized (for the most part) – consumers can switch electricity or gas supplier, and choose addedvalue services and products. Empowered and engaged consumers will demand goods and services that are tailored to their needs. Innovation is to be encouraged in all areas of Europe’s energy markets. We expect innovation which will result in the development of new services to consumers to help them manage the new complexity. We also expect new service providers to enter the market, such as Nest, to offer new and inspiring products and services. Indeed, the recent incorporation of Nest by Google, could be proof that new players are entering the energy market. These services are potentially good news for consumers, because they offer something that goes beyond the standard commodity. These new services will also encourage energy saving and thus contribute to a more sustainable energy market. Regulators face the challenge to ensure that entry-barriers for these new service providers are identified and removed while ensuring that consumer interests are properly protected.

Implications for regulators

The European council for energy regulators has developed a number of principles for regulation: Reliability, Affordability, Simplicity, and Protection & Empowerment. These principles will be applied to all new regulatory policy and decisions. This will put consumers at the heart of regulation. In this sense it is important that for example: Consumers have an equal voice in the process of developing market rules, where traditionally the voice of industry has been listened by those designing the rules.

Facilitating the development of the market in which consumers can actively engage is a major task for regulators, and legislators. Regulators have to ensure that an appropriate framework exists to enable the development of a competitive demand response market. Consumer data must be properly protected and must also be available to be used for the benefit of consumers. Finally, regulators should remove barriers to the development of new services for energy consumers.

Yet, even if the basics have been put in place and consumers are properly empowered, this does not necessarily mean that consumers will become engaged. In the Netherlands, for instance, we have observed that 56% of all consumers has never switched supplier despite an adequate amount of choice. As a regulator, we often report about the benefits of switching supplier. Still, this does not have the effect we expected. We should therefore recognize that consumers do not necessarily behave rationally. Another aspect in this context is that new liberalized markets need new players to compete with the existing companies. The new players need opportunities to enter the markets in order to make consumers willing to switch. But sometimes this leads to aggressive marketing practices of new players in order to expand and of existing market players to defend their market shares. In these circumstances you might have to combine a short term and a long term goal for the benefit of consumers. As an independent authority, ACM is well-placed to find the balance between the shortterm and the long-term perspective.

You snooze, you lose

ACM is exploring techniques for understanding consumer behavior. A good example is the media campaign You snooze, you lose, which we launched last year. From our annual consumer survey on energy and the focus groups we organized, we have learned that consumers feel insecure about the choices they can make in the energy market. We also know, from literature on consumer behavior, that a consumer may foresee all kinds of problems along the way and thus prefers to stick to what he knows: the status-quo bias. It could also mean that he is afraid of being worse off in the end: the loss-aversion bias. Also, his environment is important: the social preference. In short: all these cognitive biases combine to hinder active consumer engagement. ACM took all these notions into consideration when designing the campaign. We targeted the cognitive biases of consumers by integrating them into the short movie I will show you in a moment. By doing so, we triggered the consumer to become active and start comparing offers. At the same time we also offer him the tools to make it easier and to get him going. With the ambition to create an empowered and engaged consumer. This does not only benefit the consumer, but also us, regulators, because an engaged consumer will improve and foster a competitive energy market.

You snooze, you lose

Thank you for your attention.