The Impact of Re-Branding VasaETT by VaasaETT Ltd.

The impact of separated branding of incumbent energy utilities on the activity of energy markets A Consideration of Global Empirical Evidence and implications for Ireland A white paper by Dr Philip E. Lewis VaasaETT Global Energy Think-‐Tank, Finland

Contents Executive Summary…………………………………….………………..…….3 Relating Separated Branding to Switching…………………..………7 About the Utility Customer Switching Research Project……..22 References………………………………………………………………………….23 About the VaasaETT Global Energy Think-‐Tank…………………..25

Executive Summary The Irish Energy regulatory authority CER is contemplating mandating the extensive re-‐ branding of the two leading incumbent utilities in Ireland, namely Bordgais (for gas) and ESB for Electricity. Both companies are former integrated utilities that have since been legally unbundled, but both remain ownership bundled companies. Both companies have furthermore re-‐ branded to the extent that the retail (supply) element of the business is identifiable (from the name) and thus differentiated from the non-‐competitive (liberalised) part of the business. During the past 18 months, the liberalised Irish residential electricity market has become the second most active electricity market in the world when measured in terms of levels of customer switching. Bordgais Energy Supply, has won most of the switchers from the Incumbent branded ESB, in fact never before has such a large proportion of an electricity market customer base been won by a single competitor in such a short period of time.

Separated Branding and Separative Re-‐Branding

Two brands such those of an electricity or gas distribution company (DNO) are considered Separated if there is no visually identifiable link between the two brands, from the perspective of the customer. It is possible that the two identities may otherwise be linked, through ownership or behind-‐the-‐scenes partnership, but this is generally not perceivable to customers. Separative Re-‐Branding is the process by which Separated Branding occurs.

Purpose of Separative Re-‐Branding

Despite the switching successes in the market, CER believes that in the interest of continued competition in the electricity market, in the interest of similarly active competition during the forthcoming liberalisation of the gas market, and in the interest of fair competition opportunities for new entrants in both markets, Separated Branding should exist so that customer switching inertia and incumbent competitive advantage is avoided in the market. More specifically, it is thought necessary that customers should neither confuse retailers with distributors, nor favour incumbent retailers over new entrants simply because of the similarity of the brand. The argument in favour of separative re-‐branding has long-‐been documented (e.g. ERGEG 2005, Lewis et. al. 2004), but he main purpose of differentiated re-‐branding in deregulated electricity markets is to enable the onset of switching momentum in the market in the early stages of competition.

At this point in market liberalisation process, customer awareness tends to be low, and customers may be prevented from switching retailer at least partly because they do not know what they are switching. They often feel that switching will also involve changing to a new provider of distribution (including safety) related services since they do not know which services are the responsibility of which business. They typically do not even know, prior to being approached to switch, that there are two businesses, and when told the industry appears complicated and confusing. They are inany case mostly quite dis-‐ interested to find out more. The industry is not of much interest to them. It can therefore be difficult to explain to customers what changing retailer actually means to them, what they will be giving up and what will remain the same after the switch. Retailers often counteract this by for instance telling the customer that nothing changes except the price and the customer service.

Separative Re-‐Branding in Global Liberalised Energy Markets

As detailed in the following table, at least 8 energy markets in the world have experienced separative re-‐branding, but only in one of them, Belgium’s Wallonia, has it been mandatory, and only in three has it occurred post-‐liberalization.

The relance of Separative Re-‐Branding for the Irish Energy Market

CER has been extremely successful at inducing competition into the Irish electricity market. Through it control on pricing, the timing of its actions and its foresight into the dynamics of the competitive situation in Ireland. It is natural and important next step for CER to consider and if possible remove all remaining barriers to competition in time for competition in the gas market. In the case of the separative re-‐branding however, there is simply not empirical evidence to support such a move. Research conducted for this report, as explained in the following chapters, would in fact indicate that there is no significant correlation between the existence of separated branding and the level of activity (measured in terms of competition) in liberalised electricity markets around the world. The dynamics and reasons are compex, as explained in the report, but put simply, there are markets that have separated branding that are very active, just as those (including also the Irish electricity market) which are not. In any case when exploring the explanations for switching in any of these markets, the role of re-‐branding has apparently typically at best been very small. Anecdotal evidence does indicate that brand separation and brand quality may impact to a small extent on customer loyalty and switching, but only within the context of a large number of other, often much more significant determinants. For instance, the most active market in the world, Victoria in Australia, has not had significant re-‐branding since before deregulation. Other far less active markets have had substantially more post-‐deregulation re-‐branding.

Incidence of separative re-‐branding in liberalised electricity and gas markets Source: VaasaETT 2010 The second and third most active markets in the world, Ireland and Great Britain, have achieved high levels of switching without any significant re-‐branding (in the case of Ireland) or without the re-‐branding necessarily separating distributors from retailers in the eyes of the customer (in the case of Great Britain). Ireland’s deregulated electricity market has furthermore achieved one of the highest and fastest increasing levels of switching of all time, without separative re-‐branding having taken place at all. It has also been seen that incumbent brands should not necessarily be regarded as an advantage for those who own them. The negative image of the energy industry as a whole often means that other competitors in the market are actually at an advantage by having a fresh new brand and any change of brand of the incumbent may confuse customers who otherwise would be prepared to switch to the competitors (e.g. new entrant retailers). It is also argued that the need for separative re-‐branding in the Irish electricity market will have passed by the time price controls are lifted in the electricity market. At least 40% of all customers will have switched supplier at least once, and some will have switched two or more times. Since global full market deregulation commenced around the world nearly 20 years ago, there is so far no record of any market, anywhere in the world, where more than 60% of customers have switched supplier.

This would appear to indicate that up to 40% (though probably somewhat less) of customers are unlikely to ever switch, even in the most mature, active, unbundled and re-‐branded of energy markets. This would mean that in Ireland, by the time of re-‐branding, up to 66% of switchable customers, would have already switched. For such customers differentiated re-‐branding no-‐longer has any purpose, since they have already demonstrated their confidence to switch away from the incumbent, brand-‐bundled utility. Since gas customers are also electricity customers, similar proportions of gas customers would already be pre-‐disposed to switching retailer even before the market deregulated. Based on anecdotal statements of similar excercises in other markets, the cost of re-‐ branding is likely to cost at at least €8-‐12 per electricity/gas customer. Given that the customer, who will ultimately pay the costs, will perceive no benefit from such an expense, there is a liklihood that customer loyalty will diminish along with their respect for the industry, which in turn could make it more difficult for energy companies to offer added value services infuture (such as home energy management, demand response or other environmental protection related services). Reduced loyalty (as oposed to opportunistic switching for better offers) would furthermore result in unnecessarily increased churn (churn that does not derrive additional benefits for customers) and thus excessive churn related costs (which would also be ultimately passed onto customers). Goodwill built up through the brand value would also need to be removed from the balance sheet of those companies that changed their brand. Customer satisfaction would also be expected to temporarily decrease as the sector would become inward looking for a while, busy with internal new procedures, new brands, new communication themes etc. The clarity of the single point of contact would be diminished. Given the limited proven benefits of separative re-‐branding vs the high costs involved in re-‐branding; given the potential risks of re-‐branding; and given the success of the Irish market formula to date, it would seem to be unnecessary, inefficient and potentially risky to mandate something that has never before been mandated in this manner, anywhere in the world. This report illustrates, with national case studies, and through (mostly anonymous) expert interviews the reasoning behind this argumentation.

Relating Separated Branding to Switching Switching levels and trends around the world have been well documented. The three most active markets in the world in 2009 were Victoria (Australia), Ireland and Great Britain. The top 11 markets additionally included three other Australian markets, New Zealand, Texas, The Netherlands, Sweden and Belgium’s Wallonia. In addition to these there are only seven markets (all in Europe) that could be thought of as active. All other markets are considered only slightly active or even inactive (dormant). By looking at the re-‐branding that has taken place in these market, in light of the switching trends and activity that has taken place in each case since those markets opened to competition, it is possible to draw some empirical conclusions regarding the relationship between separation re-‐branding and customer switching, and therefore levels of market competition.

2009 Worldwide Energy Customer Switching Level Rankings Source: World Energy Retail Market Rankings Report 2010, VaasaETT Global Energy Think-‐Tank. See: www.utilty-‐customer-‐switching.com

No Switching Determinants Dominate Regardless of the country concened, it should be noted that there dozens of determinants of customer switching and loyalty. Any one determinant, however significant, thus plays a relatively small role in the larger picture. Furthermore, when looking at the the largest ever recorded cases of customer switching, the role played by branding has not been at the forefront. One of the largest single switching incidents for instance, followed a price rise by British Gas (an incumbent for gas but not for electricity) in Great Britain. One of the leading competitors and an incumbent for electricity (but not gas) used very powerful timely marketing, subsequently obtaining an estimated 600.000 or more customers within approximately one month. Other switching incidents have related to a wide range of other triggers including director’s salaries, utility profit announcements, billing and CRM system failures, to name but some. The news media has furthermore often been an important catalyst for change.

Incumbent Brands are Not Always Incumbent Advantages While incumbent utility brands are often thought of as a source of customer loyalty and switching inertia, they can often represent the oposite. Many incumbent utilities are perceived by their customers and indeed the general public, as greedy, inefficient fat-‐cat monopolies, out of date and out of touch with customer needs. They are often seen as presiding over a one-‐way dictatorial relationhip. They are rarely seen as exciting, fun, fresh or cool brands, though they may be seen as familiar, safe, expert and trustworthy brands. It is because of such images that new fresh brands of new entrants often win substantial numbers of customers from established incumbent utility brands. This has for instance been the case in countries such as Australia, The Netherlands, The Nordic Coutries and Slovenia. It is therefore too simplistic to assume that separated incumbent retailer re-‐ branding is necessarily a pre-‐requitise for increased customer switching and competitive activity. Even in markets where incumbent brands have won large numbers of customers, such as in Ireland, the winning marketing formular appears to have been less about the incumbent familiarity of the brand and more about the imagery, slogans, messages and channels used within the marketing mix. This is not to say that the brand was not important, on the contrary, but the brand was built not only through the history of incumbance, but essentially through outstanding marketing campaigning backed by quality service processes and initiatives.

Australia Australia is the most active market in the world in terms of customer switching with both electricity and gas markets. According to the VaasaETT Utility Customer Switching Research Project’s findings, through direct cooperation with the Australian energy retailers, Victoria for instance had a customer switching rate of 26.3% for gas and electricity (combined average) in 2009 driven by the twelve or so retailers active in that market. This was the highest level of calendar year residential and aggregated* customer switching ever recorded for an electricity or gas market, anywhere in the world**. Victoria is in fact the most consistent highly active market in the world. It stands alone as the only market to have maintained a level of annualised switching at or above 20% for the past five years. With the exception of Great Britain, all other active markets in the world have historically fluctuated substantially in terms of activity. Some have risen promisingly only to die out. Others come and go. Victoria has maintained permanent competitive opportunities and pressures. Ireland has so far had a level of switching above 20% for less than two years and it is yet to be seen if the momentum will continue.

*Important Note: These trends illustrate aggregated (residential plus commercial) switch rates. All quarterly values have been annualized. **In 2007 slightly higher rates were recorded in Victoria, but that was based on NEMMCO data, which is believed to overstate switching levels by approximately 2-‐3% compared to SwitchstatsAustralia data (due to methodological and definitional differences). When this is taken into account the 2009 Victoria switching levels are higher than the 2007 levels.

For any market with aspirations of long-‐term competitiveness, Australia is therefore undoubtedly the world best benchmark, as well as the ideal place to observe the dynamics of active customer swithing. Since Australia is also a market that has experienced extensive re-‐branding, it is also an excellent place to observe the impacts that re-‐branding has on levels of switching and and activity in electricity and gas markets.

Australian Switching Trends Compared 2002-‐2009 Source: World Energy Retail Market Rankings Report 2010, VaasaETT Global Energy Think-‐Tank. See: www.utilty-‐customer-‐switching.com Note: Vic = Victoria; NSW = New South Wales; SA = South Australia; QLD = Queensland. All other states are not yet liberalised.

Rebranding in Australia According to David Lipshut, one of the leading achitects of the Australian restructuring, “there is usually great value in a brand. Therefore, a known brand for a combined distributor/retailer is usually passed to the retailer, often as part of the sale. There have however been exceptions in Australia and re-‐branding has generally not been sen as an issue”. David Lipshut, Energy Reform Consulting Pty Ltd

Queensland In Queensland the two state owned integrated retailers/distributors, Energex and Ergon, were re-‐structured. In 2007 Energex was split into a DNO (distributor) and two retailers named Sun Retail and Power Direct. Power Direct’s customer base was formed through the transfer of Ergon Energy plus incumbent customers. These two retailing businesses were then sold. In the sell off two of the leading Australian utilities, AGL and Origin acquired Power Direct and Sun Retail respectively. Neither of the acquired retailers were considered to have any major value as brands (although Power Direct was considered the more known) since they were so new, so AGL and Origin voluntarily replaced those brands with their own brands. The existing names were kept by the distributors Energex and Ergon who remained state owned. This re-‐branding, which was conducted well before the onset of full retail competition (FRC), is not thought to have hindered future switching levels in any significant way since both AGL and Origin were known brands and had time to establish themselves with their acquired customer bases. However, when FRC commenced, switching levels rose extremely rapidly, switching that was rooted in extensive new market entry, good customer awareness, price savings / incentives, media encouragement, lifestyle offerings, aggressive (and quality and experienced) marketing and various structural issues, rather than due to differences or prior changes in branding.

South Australia

The incumbent distributor and retailer, ETSA utilities was privatised in 1999. In 2000 the company who had bought ETSA, retained the networks (under the brand ETSA) but sold off the retail division (ETSA Power) to AGL who subsequently re-‐branded the retail business as AGL South Australia. Following FRC in 2003 a price shock led to large scale switching, fuelled by customer dissatisfaction and a belief that the price shock was a result of privatisation / FRC. As in the other Australian markets this switching was additionally promoted by extensive new market entry leading to a market with 11 competitors such as Simply Energy and Red Energy who proceeded to win substantial numbers of incumbent customers, thus reducing market concentration to the point where only around half of all customers remained with AGL. Additional reasons for the switching were good customer awareness, price savings / incentives, media encouragement, lifestyle offerings, aggressive marketing and various structural issues. Without the price shock, this market is likely, however to have experienced lower switching levels. In the context of the South Australian switching dynamics, the impact of brand changes appears to have been at best small, and although it could be argued that incumbent brand image shortfalls (public dissatisfaction with incumbent utilities) may have reduced switching inertia, there is no aparent substantiated evidence to support this claim.

New South Wales: (No-‐Re-‐branding) In New South Wales three incumbent structurally unbundled state owned retailers dominate, namely Integral Energy, Energy Australia and Country Energy, although nine other retailers are also active in the market. This market has so far not experienced retail re-‐branding, but privatisation is now planned for all three incumbent retailers. The corresponding network busineses are not for sale and may be required to re-‐brand. It is expected though that whichever companies acquire the three retailers, they are unlikely to re-‐brand them, since they all have strong existing brand value. New South Wales has experienced slightly lower switching levels than South Australia, Queensland and especially Victoria, but this can largely be explained by New South Wales’ price caps which have been lower than the other states, leading to smaller savings potentials. The strong brands of the incumbents have clearly also prevented higher levels of switching away from the incumbents, but only because those brands have represented relatively satisfied customers who feel that they have less reason or desire to switch retailer. It is believed that to change the incumbent brands at this point might lead to switching through confusion and would punish the years of service improvement and loyalty-‐developement that backs up those respected brands. According to David Lipshut “the incumbents are well regarded”.

Victoria

In Victoria, privatisation originally happended in the 1990’s. The distribution sector was sold with retail attached. There were five distributors at that time which all remain today. Most then separately sold off their retail divisions to AGL, Origin and TXU prior to FRC in 2002. TXU was later aquired by China Light and Power in 2005, consequently changing its name to the rather similar TRU Energy because of problems with Texus Utilities/TXU in the US. Consequently, none of combined DNO/Retailers established under the privatisation program have retained their names as retailers, and some of the DNOs have also changed names after a sale (e.g. TXU Networks were renamed SP-‐AusNet when bought by Singapore Power). All of the incumbent retailer names were new, changing to an established name when they were on-‐sold to an existing retailer.

Re-‐branding did therefore occur in Victoria, but primarily long before FRC. When customers were able to switch, they were therefore expected to switch away from established, recognised, effectively incumbent (mostly transferred incumbent) brands. A ‘transferred brand’ is one which has replaced an incumbent brand and in so doing has effectively absorbed the incumbent familiarity of the former brand. It would be expected that such brands would cause customer switching inertia. It is interesting to note therefore, that in this market of powerful incumbent brands has emerged world record levels of customer switching. Nowhere else in the world have such high levels of switching occurred, and this extreme switching has continued and even increased since 2002. Furthermore, 14 players (none of which control more than one quarter of the market) have managed to co-‐exist in this market with now liberalised competitive pricing, and when TXU re-‐branded it did not apparently suffer any greater losses as a result, indicating that brand catchup and incumbent branding are not key determinants in the Victorian switching phenomenon. It appears that in Victoria, as in Queensland and South Australia, the brand differentiation between DNO and Retailer may have prevented any customer feelings of confusion as to what would be incurred as a result of switching between retailers, but in reality the relatively minor historical differences between switching levels in New South Wales and South Australia, can be predominantly credibly explained through price cap and liquidity issues, price shock, as well as by the customer-‐relationship strength. It would appear that re-‐branding was not a major issue. In other words, brand separation and brand quality do impact on customer loyalty and switching, but only within the context of a large number of other, often much more significant determinants. Market structure and price margins key to Australian switching differentials There have been many variable that have contributed to the Australian switching phenomenon and the differentials within. Despite noticable differences in re-‐ branding however, noticable influences are primarily focused around structural issues such as price caps. For instance, since FRC, Victoria historically had the most liberal price caps, followed by South Australia and finally New South Wales. Switching level differentials have at times clearly reflected these price cap differentials, with increased price margins generally correlating with greater switching levels. In the following graph, Queensland is omitted due to its ater FRC timing.

The impact of Price Caps on Australian Switching Trends Source: World Energy Retail Market Rankings Report 2010, VaasaETT Global Energy Think-‐Tank. See: www.utilty-‐customer-‐switching.com

Cameron O’reilly, Chief Executive of the Energy Retailers of Australia Association (ERAA), the body that represents nearly all of the energy retailers in the 6 Australian jurisdictions, argues that: “Brand in some cases has value for recognition and given some customers will never switch. My members however believe that retail headroom and wholesale liquidity are the greatest keys to competition. While compelling marketing has also been a key pre-‐requisites of success, it would appear unlikely that the changes of utilities names played a significant role.” Cameron O’Reilly, Chief Executive, ERAA

Europe In general the more liberalised markets in Europe have experienced, or are due to undergo at least minimal re-‐branding, in order to comply with EU wide requirements. Typically this means that customers, through the re-‐branding should be able to be aware that the retail and distribution parts of the incumbent utilities are unbundled businesses. In practice however, unbundling has only been required of medium and larger size utilities (typically over approximately 100.000 customers in size) and re-‐branding has typically meant that the incumbents make an an addition to their brand (such as the word ‘Supply’ or in the case of France by changing the DSO name to ERDF or GRDF instead of EDF and GDF respectively). Some interesting national peculiarities exist however, cases that illustrate how conditional and even paradoxical the impact of re-‐branding (or the lack of it) can in fact be. A few such cases and clarifications are given below.

The Netherlands

Separated re-‐branding in the Netherlands has not taken place. It is interesting to note, therefore, that The Netherlands has experienced some of the largest new market entrant success anywhere in the world, and in 2009 was the 8th most active market in terms of customer switching. In fact, in The Netherland, there is extensive evidence to suggest that negative image aspects associated with the incumbent brands has actually enhanced customer switching in the market, towards new entrands and fresh separated brands.

Italy

Some degree of re-‐branding is forthcoming in 2011, but the overwhelming integrated ENEL brand remains apparent for nearly all Italian consumers, despite legal unbundling having taken place in the market.

Czech Republic

Voluntarily, large regional utilties, such as DIASOL, have re-‐branded, but it has only been limited. No separated rebranding has taken place. Furthermore, there has been no significant aparent impact on competition so far from the re-‐branding.

Germany

Since before the time of liberalization, Germany has predominantly been a market of municipal owned Stadtwerke and large national players such as Vattenfall, EON, RWE and ENBW. While extensive legal unbundling and some re-‐branding has taken place, from the customer perspective little has changed. Incumbent customers generally purchase their electricity and gas from related distribution/retail brands. Germany has never been a particularly active market in terms of customer switching, at least not regarding residential and SME customers. Its level of activity has ranged from Dormant to marginally Active. In 2009 it ranked 18th in the global switching rankings. However in 2008 it briefly reached residential switching levels of nearly 10 percent, largely due to rice hikes, negative publicity and increased competitor marketing. This indicated that the maket, whilst not particularly active, had the ability to be so, regardless of its current and historical structure.

The Nordic Markets The Nordic markets have experienced limited, but voluntary re-‐branding (since regulators generally have no authority to order companiesto have separate branding), with no aparent evidence that re-‐branding has impacted on competition levels. In Norway, there have been a few examples where the integrated supplier has changed name and logo and become a more or less independent company, at least from a branding perspective. In such examples the names have changed completely, and so also the logo. Weather or not customers are aware of corporate links behind the branding separation is however, uncertain. Observers in Norway generally believe that such re-‐branding may make it easier for customers to acknowledge the difference between the companies, but doubt that incumbent retailer neutrality or advantage has been compromised. Despite this, Norway has one of the highest switch rates in Europe and has long been recognised as one of Europe’s most competitve markets. In Finland, while unbundling and some degree of separated re-‐branding has been followed by some of the larger incumbents in the markets, the largest incumbents such as Fortum, Vattenfall and Helsinki Energy have retail brands which remain clearly and strongly related. Small incumbents have generally neither unbundled nor applied separated re-‐ branding. There have been calls for separated unbundling in Finland as a means for enabling and encouraging greater levels of switching in what has been only a moderately active market for customer switching. It is interesting to note however, that on average, the unbundled incumbents that have applied separated re-‐branding, have been some of the most succesful at winning new customers (although the most successful appear to have been the new players in the market), ironically largely from the incumbent utilities that have not applied separated re-‐branding. Sweden has largely followed a course similar to Finland, while experiencing somewhat higher levels of switching activity. Denmark, which has experienced no significant separated re-‐branding, has now reached a level of switching which is on a par with the other nordic markets. In Iceland, as illustrated in the following table, there has been some seprated re-‐branding, but switching levels have been very low and far lower than the other Nordic markets. When looking at switching in the Nordic markets, the levels and differentials between markets can largely be explained by a number of key factors. Research by Ariu et. al (2010) analysed the reasons for switching differentials in Finland, Sweden, Norway and Denmark. Each market was then given a score according to the degree to which it conformed to each key identified switching determinants.

Source: Icelandic Energy Market Authority (2010) By adding up the combined scores for each market a switching pre-‐disposition score was derrived for each. The 4 scores that were derived (one for each market) almost exactly matched the relative switching levels in each of those markets, indicating that the identified list of determinants of switching were indeed the key drivers of switching. Differentials in separated branding were not identified as a determinant.

Key Determinants of Nordic Customer Switching Differentials Source: Ariu et. al (2010)

France EDF, the national electricity incumbent, used to be an integrated utility brand, but was re-‐branded into ERDF (for distribution) and EDF (for retail). Most consumers are however unaware of the re-‐branding or at least still see the two entities as part of the same business. The company has not been clearly communicating it to the customers and ERDF is 100% owned by EDF. It is a different entity, but they have not differentiated themselves from EDF. For example, once a bill is sent, it’s billed by EDF but then it goes to ERDF. Right now a campaign is ongoing to try and differentiate themselves, but as far as the impact goes, it does not appear to have had much of an impact at all, at least so far. For the gas market the situation is the same, with GDF, the incumbent rebranded into GRDF (for distribution) and GDF for Retail. Additional re-‐ branding has taken place with the addition of the Suez name to branding, following the merger of GDF and Suez, but this has not affected the separation of the incumbent brands.

Portugal

The need to differentiate the image of network operators and last resort supplier from one another and in relation to all the other entities operating in the electricity and natural gas sectors is increasingly seen in Portugal as an important feature of the legal obligation to separate the activities of vertically integrated companies. The regulation approved by ERSE (the Portuguese national energy regulator) in this area reiterates the obligation to provide codes of conduct, set up autonomous websites and present a proposal with a view to distinguishing their images. Extensive re-‐branding has though not yet taken place, and the obligations do not appear to require rebranding that would prevent customers from realising that the separated legal entities (following legal unbundling) are part of the same ownership bundled entity, that entity that they are incumbent customers of (directly or indirectly).

Slovenia

There has been no obligation to rebrand in Slovenia. The incumbent utilities companies still use the same names, though some have changed their logos to a minor extent. Gas utilities are too small (under 100 000) to be forced to unbundle the incumbent DSO from the incumbent supplier and thus they have not rebranded. New separate national DSO company was formed in 2007 (to control all DSO business in Slovenia), with a new separate brand/name/logo, but this company has no assets and thus contracts with the former distribution companies -‐ the de facto operators and network owners, and suppliers in one. From the incumbent customer’s point of view therefore, they still obtain their electricity and gas from the same integrated utilities. Despite this absence of separative re-‐branding however, Slovenia is a market with an active level of customer switching.

Great Britain Great Britain is quite a unique case. While it has an extensivly liberalised and unbundled market for Electricity and Gas, at the time of full market liberalization, between 1996-‐1999, customers were not aware of any separation between distribution and retail. In the gas market, first to liberalise, the name division between British Gas Transco (gas distribution) and British Gas (the commonly recognised name of the retailer), was irrelevant to customers who simply thought of the entire business as British Gas. A similar picture was the case in each of the REC (regional electricity company – the regional electricity incumbents) jurisdictions during electricity market liberalization. The situation in Great Britain was made even more extreme by the fact that customers only have a relationship with their electricity or gas retailer. The retailer in turn deals with all other entities in the delivery chain, including distribution. Customers are consequently typically only only aware of the name of their energy retailer. There has been extensive re-‐branding in the Great Britain energy market, not least because most utilities have been purchased (and subsequently re-‐branded) at least once since the late 1990’s. This re-‐branding had not however, had any significant impact on the level of switching in the market. Indeed levels of switching in Great Britain, historically Europe’s most active energy market for both gas and electricity (until taken over by Ireland in 2009), have changed little since 1999, despite extensive branding and structural changes in the market. It should be noted though, that most switching in the UK, where over 50% of customers have switched retailer, has taken place between one current/former incumbent in the market and another, or between British Gas (former gas market incumbent) and one of the former RECs. Consequently the vast majority of customers in the market remain with one or another former incumbent, although other well known retailers, such as Tesco, have made strong headway into the market as retail affinity brands. The case of Great Britain would arguably suggest that separated re-‐branding is far less significant than brand familiarity and strength. Any player and brand that is trusted can win large numbers of customers in the market.

New Zealand When full deregulation occurred in New Zealand on 1 April 1999, monopoly distribution and competitive retail businesses were required to separate, and name changes as a result of this unbundling did occur at that time. In most cases the distribution company retained the name, and the retailer businesses that were sold were purchased and as a result of that purchase were renamed. Since then, changes to any participants’ business name has not been mandated, although as a result of sales of distribution company assets or a retailers consumers, this has occurred. In the event of a distribution company selling assets, provided that all of the asset are sold, a change to the participants name is not required, but where it is a partial asset sale it is, to assist market systems to trace transactions accurately. New Zealand is one of the world’s most active markets, ranking 5th in the World Energy Retail Market Rankings. Observers in the New Zealand market feel that the re-‐branding that has taken place has not had a significant impact, in either direction, on the level of customer switching.

USA -‐ Texas

In the USA only New York and Texas can be considered liberalised energy markets, and of these only Texas can be considered a market comparable in context to any of the european markets, since the style of liberalisation and the consequences of choice in the NY energy market is fundementally different to that of Europe. Texas, the 6th most active market in 2009, more active than all European markets other than Ireland and Great Britain, has undergone extensive structural business separation (unbundling), to the point where most customers are only aware of the retailer from whom they purchase their energy. Incumbent re-‐branding has essentially not taken place, however, although Texas has more competing new-‐ entrant retailers than any other energy market in the world. The two largest competitors in the market, TXU Energy (the leading former incumbent, Texas Utilities, essentially dating back to 1882) and Direct Energy (a new start up dating back to 1985) have very different backgrounds. Since FRC (liberalisation) commenced TXU has however, essentially maintained its brand. Direct Energy, a company owed by the UK’s Centrica (the owner of British Gas) has managed to win 6 million customers around the USA through organic customer wins and customer base acquisitions. Texas is a good example of the importance of branding, but the aparent insignificance (or at least low-‐significance) of incumbent re-‐branding.

The Utility Customer Switching Research Project The Utility Customer Switching research project, founded jointly in 2004 by Dr Philip E. Lewis and Paul Grey, monitors switch rates and trends in all fully liberalised energy retail markets worldwide. It was the first and remains to this day the only global view of utility customer switching activity, as well as being the most comprehensive and uniform source of comparable switching statistics in the electricity and gas markets worldwide. It also provides ever-‐increasing analysis of observed trends and explanations for utility customer switching behavior. Some of this information is provided free or through subscription services to our network members, additional insight is provided through client offerings. More Information at: www.utility-‐ customer-‐switching.com

SwitchStats Australia The Switchstats Australia Scheme is a collaboration between the VaasaETT Global Energy Think-‐Tank and 10 Australian energy retailers representing over 80% of electricity customers and 90% of gas customers in Victoria, New South Wales, Queensland and South Australia. The collaboration is conducted in partnership with the Energy Retailers Association of Australia (ERAA) VaasaETT collects switch data directly from the retailers, according to a strict and consistent methodology and definition, in compliance with the same definition used with the Utility Customer Switching Research Project (see: www.utility-‐ customer-‐switching.com). This is based on the same definition (by Dr Philip E. Lewis) used by the European Union regulators, and therefore allows direct comparison against switching data from all European markets as well as fully liberalized markets in the USA and Canada. For more information on members,, methodologies and definitions, please contact Dr Philip E. Lewis at Philip.lewis@vaasaett.ccom

Members of SwitchStats Australia

• • • • • • • • • •

Australia Power & Gas Momentum Energy Energy Australia Simply Energy Victoria Electricity Country Energy Integral Energy Origin AGL TRU

Note: Victoria Electricity Includes Victoria Electricity, South Australia Electricity, Queensland Electricity, New South Wales Electricity.

References Reviewed Reports and Journal Articles:

Forthcoming: Lewis, Philip E. (2010), ‘World Energy Retail Market Rankings 5th Edition’, Utility Customer Switching Research Project, Published by VaasaETT, September 2010 Ariu, Toshio, Philip Lewis, Hisanori Goto, Christophe Dromacque and Jessica Strömbäck (2009), Electricity Market Reforms in the Nordic Countries – Historical Evolution and Differences in Customer Choice Behavior. Central Research Institute of the Electric Power Industry of Japan (CRIEPI), Report Number YO8036, March 2009. Capgemini ( various a uthors) a nd L ewis, P .E. ( 2009), E uropean R etail M arkets ( especially focusing o n c ustomer s witching b ehaviour) i n t he E uropean E nergy m arkets O bservatory, 11th E dition, C ap G emini, N ovember 2 009.

Lewis, P hilip E . ( 2008), ‘ World E nergy R etail M arket R ankings 4 th E dition’, U tility C ustomer Switching R esearch P roject, P ublished b y F irst D ata & V aasaETT, J uly 2 008. Lewis, P .E. ( 2006), A U niversal I ndicator o f C ustomer S witching A ctivity, P ublic R eport W ritten for F innish E nergy M arket A uthority, R ef: V EMG-‐EMV-‐UICS-‐01-‐06, V aasaEMG, U niversity o f Vaasa, J anuary, 2 006. Lewis, P .E., M . P akkanen, T . N ärvä, L . H ernesniemi, J . P artanen, S . V iljainen, S . H onkapuro, K . Tahvanainen a nd R . J ylhä ( 2006), ” Selvitys s ähkö-‐ j a m aakaasumarkkinoiden k ehityksestä s ekä sähkö-‐ j a m aakaasumarkkinalakien s oveltamisesta s aaduista k okemuksista” ( Evaluation o f t he impact o f e nergy l aw d evelopments o n t he F innish G as a nd E lectricity m arkets), F innish Ministry o f T rade a nd I ndustry ( Kauppa-‐ja t eollisuusministeriö), I SBN: 9 78-‐952-‐489-‐103-‐5 Olsen, O le J ess; J ohnsen, T or A rnt & L ewis, P hilip E . ( 2006). A M ixed N ordic E xperience: Implementing C ompetitive R etail E lectricity M arkets f or H ousehold C ustomers. T he E lectricity Journal, N ovember 2 006, V ol. 1 9, I ssue 9 , p p. 3 7-‐44. Grey P ., L ewis P .E., a nd G riffin J . ( 2005), ‘ utility c ustomer s witching i n t he N etherlands & Belgium – U tility C ustomer S witching R esearch P roject, P ublished b y F irst D ata & V aasaEMG, November 2 005. ERGEG a nd L ewis, P .E. ( 2005), E RGEG R eport o n T he C ustomer S witching P rocess, R ef: E 05-‐ CFG-‐02-‐06, 3 0 S eptember 2 005, E uropean R egulators G roup F or E lectricity a nd G as ( ERGEG). Lewis, P .E. ( 2005), R etail S witching, A G lobal P henomenon i n E dwardes-‐Evans, H . a nd M . Burdett ( eds.), ‘ European E lectricity R eview 2 005’, P latts, M cGraw-‐Hill, U K, J une 2 005. Lewis, P .E., P . G rey a nd J . G riffin ( 2005), E nergy R etail m arket S uccess, A G lobal E xperience, Spark, P ublic U tilities F ortnightly, U SA, J une 2 005, p p.3-‐6. Lewis, P .E., M . P akkanen a nd M . M uroma ( 2004) “ The E lectricity C ustomer’s L ot – T he s tatus of t he d eregulated F innish e lectricity m arket, c onsequences f or t he c ustomer” F innish Ministry o f T rade a nd I ndustry ( Kauppa-‐ja t eollisuusministeriö), I SBN: 9 51-‐739-‐805-‐0.

Lewis, P .E. a nd J . L eppanen ( 2004), “ Understanding t he l ink b etween s ervice, l oyalty a nd profitability i n c ompetitive e nergy m arkets” i n E dvardsson, B ., G ustafsson, A ., B rown, S .W. a nd R. J ohnston ( eds.), Q uis 9 : S ervice E xcellence i n M anagement: I nterdisciplinary C ontributions, Karlstad U niversity P ress, I SBN: 9 1-‐85019-‐81-‐X. Lewis, P .E. ( 2004), “ Sticking W ith Y ou”” P ower E conomics, V olume 8 , I ssue 3 , I SSN 1 367-‐ 1707,pp24-‐25. Lewis, P .E. ( 2003), “ Finland – t he e nd o f c ompetition a s w e k now i t?” i n t he E uropean Electricity R eview 2 003, P latts, M cGraw-‐Hill. Perrels, A a nd P .E. L ewis ( 2003) “ The r esurgence o f D SM a nd t he r ole o f b randing in p ower markets” i n t he p roceedings o f E CEEE ( European C ouncil f or a n E nergy E fficient E conomy) 2 003 Summer S tudy c onference, S t-‐Raphael, F rance. Lewis, P .E., ( 2002), “ The M ind B ehind L oyal & V aluable R elationships” i n t he E nergyforum Global R eport o n D eregulated E lectricity M arketing, E nergyforum I nternational A B, p p:6-‐19. Lewis, P .E., T .Burnett a nd M .Boys ( 2002), “ Achieving E fficient R elationship M arketing V alue – The R ole o f S atisfaction & L oyalty M easurement” i n t he E nergyforum G lobal R eport o n Deregulated E lectricity M arketing, E nergyforum I nternational A B, p p:154-‐167 Bönsch, C . a nd P .E. L ewis ( 2002), “ Kundenverständnis a ls S chlüssel f ür e rfolgreiches C RM (Customer u nderstanding a s a k ey f or s uccessful C RM)”, i n E lektrizitätswirtschaft E W d as magazin f ür d ie e nergie w irtschaft, I ssue 9 , 2 002, V WEW E nergieverlag, I SSN 0 013-‐5496 – D 9785 D . Lewis, P .E. ( 1998), “ Successful a nd U nsuccessful M arketing S trategies i n t he U K a nd N ordic (except F inland) G as a nd E lectricity M arkets”, V aasaEmg R eport, 5 /1998.

Additional Sources Interview and Data Sources:

1. Innovación y Estudios Eficiencia Energetica, Gas Natural Soluciones (Spain) 2. Norwegian Water Resources and Energy Directorate 3. ERSE (Portugal) 4. Orkustofnun National Energy Authority (Iceland) 5. De Energiezaak (The Netherlands) 6. CWAPE (Belgium Wallonia) 7. Vlaamse Reguleringsinstantie voor de Elektriciteits-‐ en Gasmark (Belgium – Flanders) 8. Energy Agency of the Republic of Slovenia 9. RAE (Greece) 10. The Regulatory Authority for Electricity and Gas (Italy) 11. Institut Luxembourgeois De Regulation Service Energie (Luxembourg) 12. E-‐Control (Austria) 13. Energetický regulační úřad (Czech Republic) 14. Cameron O’Reilly, Energy Retailers Association of Australia (ERAA) 15. David Lipshut, Energy Reform Consulting Pty Ltd. (Australia) 16. Ron Beatty, Electricity Commission (New Zealand)

About The VaasaETT Global Energy Think-‐Tank The VaasaETT Global Energy Think-‐Tank shares, develops and envisions best practice for the global utilities industry through a network of thousands of senior executives, officials, researchers and other experts who are for the most part known and trusted personally. We follow a unique 3×5 concept based five principles and five services in five inter-‐dependent focus areas: Five Principles 1. Knowledge through collaboration (No-‐one has all the knowledge. Through discussion and knowledge sharing we all become stronger and can find solutions together) 2. Value-‐for-‐all 3. Independence of opinion 4. Environmental consideration 5. Fresh thinking Five Services 1. Networking 2. Collaborative projects 3. Business facilitation 4. Research 5. Consulting Five Focus Areas 1. Marketing and Competition 2. Customer Psychology, behaviour, loyalty, value and profitability 3. Market Structures and Drivers, 4. Smart Grid, Smart Home and Demand Response 5. Innovation More Information at www.vaasaett.com