Is AMR a Switch Pill?

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CUSTOMER SWITCHING

IS AMR A ‘SWITCH PILL’?

By Philip Lewis

AMR may enhance competitive markets – but does it increase market activity?

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t has often been claimed that the comprehensive implementation of AMR facilitates a level playing field within liberalised markets, thereby enhancing customer switching and competitive pressures. In fact recent evidence would support these claims to some extent. Equal access to customer data has undoubtedly been shown to be a prerequisite for market entry. However, the extent of the impact of AMR on customer activity within liberalised markets appears at best limited. THE CUSTOMER SWITCHING PROCESS It is sometimes argued that AMR can speed up the services provided by the network operator in connection with supplier switching, as the metering data is immediately available. AMR can also enable customers to switch supplier at any time, without the need for any reliance on (relatively unreliable) self-readings or consumption estimations.

“The most active energy markets are in Great Britain and Victoria, Australia.”

recent two-year long project conducted by VaasaEMG and the US-based Peace Software in co-operation with more than 50 other experts and organisations around the world (see www.peace.com/customer-switching for more information). According to the VaasaEmg/Peace research, by far the most active energy markets (termed ‘Hot’ markets) in the world are those in Great Britain and the state of Victoria, Australia. Other active markets include the Norwegian, Swedish and Netherlands electricity markets. By observing individual market switching trends and similarities between the trends in different markets, and by then investigating the explanations for those trends, much can be learnt about the way markets behave in practice and the role of AMR in customer switching. In particular it is of value to look at the experiences of some of the more active markets as identified by the 2005 VaasaEMG/Peace rankings. SWITCHING IN GREAT BRITAIN Since May 1999, when both Great Britain’s gas and electricity markets were fully open to competition, the market has consistently been at the forefront of utility customer switching rates. In 2005, the trend was towards a steady increase in switching from the end of 2003, which can be attributed to energy retail price rises and resulting media response, and to energywatch-led media campaigns. (energywatch is the independent gas and energy watchdog). In general the high levels of switching in Great Britain are attributed to factors such as aggressive and effective direct marketing strategies and methods, sustained marketing commitment from retail competitors, effective unbundling, price rises, dual-fuel offerings, customer awareness and customer experience of energy (electricity and gas) switching. Although metering data and billing is generally thought of as being of relatively poor quality in the British market, there is no widespread AMR in the UK, especially not in the residential market. This leads experts to be sceptical about

However, within the context of a protracted switching-related process (including search and decision-making processes) any time savings achieved through more rapid meter reading or meter reading approval derived from AMR, whilst advantageous, can arguably be seen as relatively insignificant from the customer’s perspective. In fact, the importance of speed is denied, for instance by the fact that the typical switching process in the Netherlands is currently up to three or four times faster than Europe’s most active electricity market in terms of levels of customer switching. Even where delays in the switching process do occur, metering-related delays are just one of many possible causes. Other causes include large numbers of switch requests that are not accepted first time, often because of valid existing contracts or because of other procedural delays. Business processes imperfection within energy companies may furthermore also be at fault, according to business process experts. AMR AS A DETERMINANT WITHIN GLOBAL CUSTOMER SWITCHING TRENDS A recent European Regulators’ Group for Electricity and Gas (ERGEG) best practice report (ERGEG, 2006) proposes a single definition for use in the collection of switching data. This definition and method has been used, wherever possible, in a

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Peace Software, VaasaEMG utility retail market rankings 2005 © 2006 Peace Software, VaasaEMG

METERING INTERNATIONAL ISSUE 2 2006


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