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And We Have Got the Gas: Exploring the Intricacies of Changing the Natural Gas Supplier

31 October 2020
And We Have Got the Gas: Exploring the Intricacies of Changing the Natural Gas Supplier

Ukrayinska Energetyka explores the possibilities of a full-fledged market and the extent to which the switching to a new supplier is really accessible to Ukrainians

On August 1, all Ukrainians can celebrate a new holiday: the day of independence from the gas supplier. This date marked almost the final completion of reforming the gas market in Ukraine, as after it the obligation of NJSC Naftogaz of Ukraine to sell gas to the public at a regulated price (the so-called public service obligations in the natural gas market or PSO) is no longer effective.

The Government has not dared to take this step in the last five years, as that is how long the Law on the Natural Gas Market is valid. And the reason for the delay in opening a full-fledged retail market is high prices for natural gas. Realizing that the full price of the resource can come as a shock to the consumer, the Government, through its regulations, limited prices for the population and communal heat producers.

Finally, in the spring of 2019, global gas prices started to decline, and by mid-2020, gas prices in Ukraine were the lowest in 12 years. This fact, as well as the commitment to the International Monetary Fund, prompted the Cabinet of Ministers finally not to continue the PSO and open the door to the world of competition for the population to gas suppliers.

 

Why Do We Need a New Supplier?

 

“We have moved to a more advanced stage of the gas market, where consumers may choose their own gas supplier, may influence their utility bills by finding a current price for themselves or convenient payment terms,” a member of the National Energy and Public Utilities Regulation Commission Oksana Kryvenko believes.

In practice, it is the option to “influence the utility bill” that is decisive for most consumers. However, the possibilities of choice are much wider: it is additional services for users, and a variety of offers on payment terms.

Competition should help reduce the price of natural gas. The supplier can also offer consumers different packages of services, like, for example, a mobile operator does,” Kryvenko said.

According to Roman Nitsovych, Research Director of DiXi Group Think Tank, in those EU markets where market deregulation and liberalization have occurred earlier, consumers do have the opportunity to reduce their utility bills when changing gas suppliers. But still a significant part of the markets of European countries has one or another type of regulation.

“Actually, as of 2018, in eight EU countries, such regulation concerned final prices or final prices for certain categories of consumers,” the expert said.

At the same time, gas prices in Europe are significantly higher: for households, they are on average twice as high as for industry, and they do not react very strongly to changes in the market. Therefore, greater access to resources and a more flexible market for the population will be one of the challenges that the next EU Clean Energy for Every European energy package will bring to European countries, which will strengthen the active role of consumers in the market. And Ukraine, as part of Europe, will not stay away from this process.

European suppliers offer a large number of services that may be included in the gas contract to their customers now. We expect that similar products will appear in Ukraine in the coming months:

1. Gas price formation. The price can change both monthly and be fixed for a year. A relatively new and so far uncommon practice is a dynamic price that changes daily depending on market fluctuations. It is expected that in the future, they will more often choose a dynamic pricing formula, because it best meets the goals of the already mentioned next energy package.

2. The origin of energy. For those who want to contribute to slowing down climate change, this factor is very relevant. The consumer may choose, for example, a guaranteed supply of synthesis gas or gas of green origin. In Ukraine, the popularity of alternative types of gas is likely to be determined by their price. According to the study presented by Andrii Herus, head of the parliamentary committee on energy and housing and communal services, only a few percent of Ukrainians are willing to pay a higher price for alternative electricity.

3. Additional services that improve service: physical reception centers, call center, digital services (mobile applications or personal accounts on the website).

4. Combined products: simultaneous sale of gas and electricity. For Ukraine, the idea that an energy supplier can sell gas is not new. For example, YASNO electricity supplier, one of DTEK’s companies, announced the launch of the new service.

 

Change of Suppliers for Dummies

 

Thus, we are convinced that changing the supplier is an effective tool that gives various benefits, and in the future their number will only increase. What to do next?

First: choose to what supplier we will switch

Roman Nitsovych notes that in Europe there are special services that work as “tariff calculators”. You can choose the best offer in a few minutes, comparing similar products from different suppliers. Such services are also already being developed for Ukrainians: for example, DiXi Group has launched Gasoteka resource in a test mode.

The service, posted on https://gasoteka.ua-energy.org/ website, allows obtaining up-to-date information on the price offers of natural gas suppliers available in a particular region in a convenient way. It also allows comparing prices from more than 30 companies and assessing the potential savings from a change of supplier during the year.

Now a few more steps - and the supplier is changed.

Second: prepare a package of documents for a new supplier

For switching to a new supplier, you will need: an application for connection, confirmation of ownership or use of the premises, passport and identification code. However, a supplier has the right to request other documents, a list of which must be placed on the website.

In order to change the supplier, a consumer must also have an agreement with the DSO, which specifies the EIC-code - the identifier of the consumer in the gas market. You do not need to submit this document, but make sure you have it.

However, no applications for disconnection from the previous service provider are required: the gas supply contract with the old supplier is automatically terminated from the moment of concluding the contract with the new contractor.

Third: wait for a response from the new supplier

If agreed, the company will notify the new customer in writing of the date from which delivery will begin. The new supplier has the right to refuse the consumer to sign the contract in the presence of debts to the old supplier.

The procedure for considering an application can last a maximum of 21 days. Provided that the process is optimized, it will take about three days to change the supplier. According to the experience of GC Naftogaz of Ukraine, in practice the switching lasts on average 5 days.

The company has the right to tacitly refuse, so remember: if there is no response within three weeks, it is considered that the change of the supplier has not taken place, and the submitted application for connection is canceled.

Fourth: say goodbye to the old supplier on a good note

Six weeks after the switching, the old supplier realizes that the customer is no longer with it, and then issues a final invoice, which the consumer must pay within 10 days.

In fact, there is nothing new in the supplier change option. Theoretically, this possibility has always been available. In practice, this was such a complex process that the NEPURC had to settle this issue almost in an emergency this spring. As a result, the switching has become easier since July 1, 2020.

Oksana Kryvenko talks about the main innovations of the commission.

  • One addressee: the consumer who intends to change the gas supplier only contacts the new supplier (submits an application for connection). There is no need to notify the old supplier of the intention to leave.
  • The household consumer does not need to obtain a certificate of indebtedness. By signing the application for connection, the consumer guarantees the absence of debt to the previous supplier. In practice, a new supplier may ask to add a photocopy of the gas bill to the standard set of documents.
  • The consumer has the right to submit the application and all documents for change of the supplier in electronic form. In a pandemic, this is the best innovation that minimizes social contact. As a bonus - significant time savings. However, there is another side to the coin: some suppliers do not have physical service points, so it will be difficult for some potential customers to make the transition without outside help. 

 

The Last Resort of the Gas Market: Naftogaz Will Protect All Those Who Have Lost Their Supplier 

 

What should I do if my supplier suddenly loses my license? Don’t panic. In the natural gas market, there is “insurance” for a customer who suddenly loses a service provider: the supplier of last resort (SLR).

SLR supplies gas for a maximum of 60 days a year and does not compete with other suppliers because it is not interested in attracting customers. And if SLR has no customers at all, it means that there are no emergencies in the market.

The Government has determined that in the next three years it will give the “last resort” to consumers of Naftogaz of Ukraine. At the relevant competition, the gas company offered the best conditions for future customers. Although SLR is entitled to add a 20% markup to the standard gas price, Naftogaz has abandoned this additional source of income.

SLR customers are served at the Reliable tariff, in which the price changes every month. That is, the customer will receive a maximum of two bills from the SLR. For the period of being serviced by SLR, the consumer must choose a new reliable supplier and switch to it.

To get to the supplier of last resort, the customer must currently submit a relevant application. According to Maksym Rabinovych, Director of GC Naftogaz of Ukraine, this procedure should be simplified: “We are currently discussing an approach according to which the application principle of connecting will be changed to an automatic one, and a customer who has lost a supplier will be automatically connected to SLR.”

Oksana Kryvenko also talks about the plans to ease the fate of the customers who are not being supplied: “We are considering a draft regulatory act concerning the supplier of last resort, which should simplify the procedure for switching from the supplier of last resort and vice versa - from SLR to a new supplier. This should be an automatic application for connection to minimize paperwork.”

 

Why Are There So Many Suppliers and Not So Many of Those Who Want to Change Them  

 

Oksana Kryvenko says that in 2019, 249 companies, of which 37 – under public service obligations, operated in the field of gas supply. In 2020, when public service obligations were abolished, the population had access to a large number of suppliers.

“The process of issuing and revoking licenses is dynamic, the number of suppliers can vary from week to week. But the consumer has a choice of more than 230 suppliers,” a member of the NEPURC says.

Ukrainian rules do not prohibit consumers from changing consumers even monthly (minimum billing period). However, Ukrainians are not in a hurry to take advantage of new opportunities.

European experience shows that in advanced versions of the market, 10-15% of consumers change the supplier a year. In other markets, this figure is up to 10%.

And in Ukraine, according to Artem Kompan, Board Chairman of Energy Suppliers Association, the number of people willing to switch to a new supplier is still very small: 6% of consumers want to change their current supplier, but after learning about the change procedure, only 4% confirm their intention.

The reason for such statistics is low public awareness. The number of household gas consumers in Ukraine reaches 12.46 million households. At the same time, only 30% of consumers have heard about the reform of the gas market and the possibility of changing suppliers.

“Why don’t they want to change the supplier? Most individuals are inert, so the new opportunity is not enthusiastic. Many people think that nothing will change for them, many are just satisfied with the old supplier. Many do not know how to change supplier, and someone is afraid of any changes at all,” Kompan says.

According to him, the change of supplier is also shrouded in several common myths: that the new supplier will improve gas quality (in Ukraine the gas quality is already high), that you will not have to pay for equipment maintenance or that you will not have to pay for gas distribution.

And Naftogaz adds that the switching process still needs to be supplemented: “The switching procedure is still the presence of certain documents. The change has become much simpler, but still does not correspond to the European one,” Chairman of the Board of Naftogaz of Ukraine said.

 

How Has Competition for the Customer Turned into a War and How Can the Consumer Win in It

 

You can buy gas anywhere, and you can supply the resource with only one pipe, which is connected to the facility. The supply function is performed by the DSO. Historically, DSO and gas supply company (gazzbuts) are often affiliated companies.

“Consumers do not understand the difference between regional gas companies (oblgazes) and gas supply companies (gazzbuts). For them, it is one company. There is a weak information campaign, and regional gas companies and gas supply companies do not want to share these concepts in people’s minds,” Maksym Rabinovych says.

Changes in gas legislation in Ukraine have forced regional gas companies to be formally divided into DSOs and gas supply companies. And the effects of “paper unbundling” have been boomeranging for the consumers for the past few years. Not wanting to let go of the consumer, companies bring “heavy artillery” into play: they charge the so-called temperature coefficients or even physically disconnect the consumer from the gas.

GazPravda writes about several such instances.

“Gas supply companies decided to punish those who enter the market from under their yoke! The debt of UAH 502.52 arose as a result of illegal accruals of temperature coefficients from October 2018,” Andrii Ivanchenko, a consumer from Kamianets of Dnipropetrovsk oblast, writes. “But these dishonest and indecent companies have now withdrawn a new contrived debt in the amount of UAH 581.27 for temperature coefficients, which they have already accrued from December 1, 2015 to September 30, 2018. At first, this is a problem for those seeking the gas market, and then they will turn on this mechanism against all citizens of Ukraine”.

“A month ago, two weeks after switching to GC Naftogaz, gas workers came and simply dismantled the meter, disconnected the gas. As if to be calibrated, without replacement or jumper,” Oleksandr Boikul from Kyiv tells about the reaction of his distribution system operator to the change of fuel supplier.

“An employee of the regional gas company came, intimidated the parents - they promised to accrue the debts, then disconnected the gas and did not service the gas networks at all,” this is how consumers describe the behavior of a number of companies being distribution system operators.

Oksana Kryvenko reiterates that the consumer has the right to freely change the supplier: “Nothing can restrict the consumer from changing the supplier. The old supplier cannot keep the consumer from switching to a new supplier, except for the cases when there is need to settle the debts. It is prohibited to charge a fee or demand compensation for changing the supplier. Change must be free”.

The gas distribution company does not even have to know who is the gas supplier to the consumer. But if there are artificial barriers that, in the opinion of the consumer, prevent them from changing suppliers, it is a question for both the NEPURC and the Antimonopoly Committee. DSO is a monopolist, so it is strictly regulated.

As for the “temperature coefficients”, consumers lost so much patience that they reached the Supreme Court in this case. It is currently considering at least three civil cases concerning the illegality of applying such adjustments to household consumers. One of the cases has already been accepted by the Grand Chamber of the court, the session will take place tomorrow, on September 22. At least in one case, it will put an end to the war between consumers and gas supply companies.

 

And What Happened to Naftogaz Without PSO?

 

GC Naftogaz of Ukraine is now only one of the many suppliers in the market. Currently, 2% of Ukrainians buy gas from the state-owned company.

“The retail gas market is very interesting for the population. We will actively participate in this market. We see it as our task to help the Regulator and the Government promote the gas market. We want to convey to the consumer that he may change the supplier, vote for it by his wallet,” Maksym Rabinovych emphasizes.

The company currently offers two products to the consumers: the Monthly tariff package and the Annual tariff package. The Monthly package is not fundamentally different from what the consumer had in previous years: the price changes every month, the deferral of payment is two months. Consumers who choose this tariff plan will benefit from the cost of gas in the warmer months of the year, when gas is traditionally cheaper.

For those who want to pay a fixed price for gas during the year, the Annual tariff plan is offered. Payments are divided into equal parts and are received monthly. This package is currently more popular with new customers.

During the first month of operation of the market, the company received 2,000 applications from new customers. About 70% of those who applied completed the switching. Thus, Naftogaz’s base has been enlarged by about 1,500 consumers. Most new customers were found in the Kyiv oblast, as many as 15% among all new customers. There are also customers from the Dnipropetrovsk oblast (14%), Zaporizhia oblast (7%), Lviv oblast (7%) and Kharkiv oblast (6%).

The company sees the next step in the improvement of the process of communication with customers. Currently, the main points of contact of customers with GC Naftogaz of Ukraine are online, the company wants to strengthen its presence in the offline sector.

The article is prepared using the files of the Launch of the Retail Gas Market: What Consumers Should Expect? webinar 

For those who want to learn more about the intricacies of the gas market, we also recommend reading the GAS MARKET FOR UKRAINIANS: User Guide prochure.

 


Author: Руслана Чечуліна
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